Canadian guitarist Liona Boyd is a fan of MP3.com. She makes her CDs available for sale - and for online listening - on the popular U.S. Web site. But Universal Music Group, owned by Montreal-based Seagram Co., doesn't like MP3.com at all, and last week it got a federal judge in Manhattan to agree to the tune of $180 million or more.
At issue was an MP3.com service that let people register CDs they had already purchased, then listen to their music on any computer from digital copies stored on MP3.com's system. In the eyes of Universal, the world's biggest music company, those copies breached U.S. copyright law. Judge Jed Rakoff ordered MP3.com to pay $37,000 for each Universal CD in its library. Lawyers for MP3.com warned that so severe a penalty would be a "death sentence" for the San Diego-based company. Recording industry spokesmen crowed that it would deal a body blow to illegal music on the Web.
In fact, neither MP3.com nor the flourishing trade in unlicensed online music - often downloaded to portable players for easy access - are in danger of fading away any time soon. MP3.com promptly appealed Rakoff's verdict - postponing its effect for months, perhaps years, of legal wrangling. Meanwhile, subversive new software promises to render Universal's victory as hollow as several other recent verdicts upholding entertainment giants against smaller rivals. Still, when it comes to trading digital music and movies, Rakoff's ruling may help draw the line in the cyber-sand between what is legal commerce and what is rampant piracy.
MP3.com had already effectively conceded the merit of Universal's case. In out-of-court settlements earlier this year, the company agreed to pay four other music labels an estimated $30 million apiece to settle similar claims. According to analysts, Universal's lawyers convinced senior executives to hold out for a richer court-ordered judgment. In the event, Universal was awarded less than the $66,600 per CD it sought, but far more than the $740 MP3.com claimed, to wide disbelief, was the most it could afford. Rakoff's court reconvenes in November to determine how many CDs the penalty will cover. Universal maintains MP3.com has copied as many as 10,000 of its titles. The start-up says the number is below 5,000.
Whatever the final amount, the penalty shows the chilly climate facing e-commerce trailblazers who run too far ahead of the law. In July, Napster, the hugely popular software for sharing music files in the MP3 audio format, barely escaped its own death sentence. A San Francisco judge ordered the Redwood City, Calif., company to shutter its Web site after the Recording Industry Association of America sued it for copyright violations. Napster won a stay of execution pending an appeal. But San Francisco-based Scour.com, whose software lets users swap movies as well as music, was on the brink of folding last week due to an industry lawsuit. "We've turned a page," declared Brian Robertson, president of the Canadian Recording Industry Association. "The guillotine is coming down on the whole system for furthering the theft of sound recordings."
Even so, the corporate blade is unlikely to stem the torrent of unlicensed music and movies that individuals are swapping online. In Napster's wake have come dozens of imitators. Some programs, like Gnutella, give industry lawyers little to target. Instead of relying on dedicated server computers, as Napster does, so-called "dispersed" engines allow direct communications between individual users' machines. "There is no company to sue," boasts a Gnutella fan site. "It is virtually unstoppable."
Gary Bourgeois agrees. Director of new media at the Vancouver Film School and member of a progressive rock quartet, Bourgeois says: "I don't see any way copying can be prevented." And he's happy about it. Internet file-sharing software, he explains, has helped niche bands like his. "Our biggest problem," he says, "is how do people find us. We love this." It was one more reason for executives at Universal - and other giants - to hold off singing any songs of triumph.
Maclean's September 18, 2000