MP3.com Caves in to Legal Blow

Just weeks after being found liable for copyright infringement, MP3.com (Nasdaq: MPPP) announced Wednesday that it is voluntarily removing “Big Five” record company content from its My.MP3.com database.

Users will be unable to access music from Arista Records, Inc., Atlantic Recordings Corp., Capitol Records, Inc., Sony Music Entertainment, Inc., and Warner Bros. Records.

“We regret the need to take this step,” MP3.com president Robin Richards said in a statement. “While we disagree with the court’s decision, we also want to demonstrate our good faith and strong desire to achieve an expeditious business resolution.”

That resolution has to do with MP3.com’s current attempt to negotiate a settlement with the recording companies that could lead to restoring the service. The company currently claims a subscriber list of about 500,000 users.

“We continue to work tirelessly with all the major labels to arrive at a settlement of their copyright infringement claims and to reach an agreement to license their musical works,” Richards said.

Users will still have access to more than 400,000 songs from independent artists and smaller labels.

MP3.com May Pay Billions

My.MP3.com offers software that allows subscribers to register one original copy of a compact disc in the company’s database. The subscriber is then able to listen to the recording over the Internet without inserting the original disc.

Until yesterday’s shutdown, the subscriber would also get unlimited access to the entire database of more than 80,000 digitally stored albums.

Even though the user who registers a disc must purchase the recording first, U.S. District Judge Jed Rakoff disagreed with MP3.com’s contention that its service was the functional equivalent of storing CDs that had already been purchased.

“In actuality, the defendant is replaying for the subscribers converted versions of the recordings it copied, without authorization, from plaintiffs’ copyrighted CDs,” the court wrote.

The plaintiffs in the case filed in January include Warner Bros., Universal Music Group, BMG and EMI Group. The companies sought a complete shutdown of the service, as well as damages.

Under copyright law, damages for infringement can range from $200 to $100,000 (US$) per infringed work depending on the intent of the parties. Industry analysts have estimated MP3.com’s possible liability could reach into the billions of dollars, although recent talks have put the settlement figure around $100 million — a figure that could allow the financially sound company to continue to operate.

Napster Bows to Metallica

As MP3.com lowers the volume on its operation, online music swap service Napster is also responding to pressure from the music industry. Napster recently agreed to block access for more than 300,000 of its users that heavy metal band Metallica accused of stealing its music.

The action came shortly after a federal court judge rejected Napster’s request to dismiss a lawsuit brought by the Recording Industry Association of America (RIAA) and threw out the company’s defense that it was entitled to “safe harbor” protection under the Digital Millennium Copyright Act.

Metallica also sued the service to halt the sharing of its songs over the Internet. The band’s drummer, Lars Ulrich, hand-delivered the list of 317,377 alleged copyright infringers to Napster’s San Mateo, California headquarters last week.

Fan Backlash

Stung by fan backlash, drummer Lars Ulrich said, “This is not about Metallica versus the Internet. We know the Internet is the future in terms of spreading your music to the fans, and we’re excited about that, but we want to control how that’s done, just like we’ve always controlled what we make.”

Guitarist James Hetfield said, “We are definitely not trying to stop any legitimate trading of fan things on Internet sites or anywhere. We got our name around through tape trading. We love the idea of core fans trading things.”

Although Napster agreed to block access for everyone on the Metallica list, users who feel they are being unfairly accused can protest their banishment. Napster says that once a user files a protest, it will be forwarded to Metallica and the band has 10 days to decide whether to press charges against the individual. If Metallica declines to take action, the user will be reinstated.

Rap artist Dr. Dre, who has also sued the company, will reportedly deliver his own list to Napster early next week.

U.S. House To Discuss Napster

Napster will be the subject of hearings by the U.S. House Committee on Small Business on May 24th. The hearing will try to sort out new business issues that have arisen as a result of the emergence of electronic commerce.

“A lot of people have been saying that the Net would level the playing field for people putting their music online,” said Dwayne Andrews, a committee spokesman. “But if you give the music away, how are people going to make their money?”

Also under consideration will be the relationship between services such as Napster and traditional U.S. copyright law.