ROSEN DECISIONS ROBERTSON

In what is being viewed as a major win for the recording industry, a federal judge Friday declared that MP3.com Inc. (http://www.mp3.com), which distributes music free over the Internet, is infringing record company copyrights.

U.S. District Judge Jed S. Rakoff found the Internet-based music service liable for infringing the copyrights of the Recording Industry Association of America, the trade organization that represents the major record labels.

The brief order by the judge was a blow to the San Diego-based company which allows users to instantly hear music and add their personal music to an online play list.

MP3.com Chairman michael robertson',390,400);">michael robertson',390,400);">Michael Robertson warned that other companies might now begin distributing music in much the same way that MP3.com has been doing. "What will be left will be chaos," he predicted, while busy answering critics' comments via e-mail.

"This is not a victory for the record labels—it's a loss," Robertson said in response to the decision. "New technologies for delivering music are here to stay, and the technology trend is moving in only one direction: forward. The record companies are at a crossroads and are required to make a decision about the technology that they choose to embrace. My.MP3.com is a system which requires the purchase of CDs in order to function, as opposed to other services like Napster that do not require users to first purchase a CD before accessing music. The labels made the decision to challenge a technology that will protect their intellectual property interests and grow their business. They will be left with copyright chaos, as we're witnessing today."

Robertson also announced he was dropping his countersuit against the RIAA, filed February 7 in San Diego, claiming the the organization tried to influence its stock price and damage its business relationships.

The RIAA suit seeks billions of dollars in damages and an order stopping MP3.com from transmitting copyrighted music over the Internet. Initial reports say the trade organization is looking for $150,000 per infringement, which could possibly cost the cash-rich company, with $369 million in in its coffers, up to $300 million, though Robertson disputes that figure.

Michael Carlinsky, a lawyer for MP3.com, said the impact of the decision was unclear. He said MP3.com would appeal the ruling and would fight vigorously to oppose an injunction or damages.

"There's a lot of fight left in this case," Carlinsky said. "This is round one. You have to view this in context. Any time you're a pioneer in the industry, you expect there to be certain bumps in the way."

Even so, MP3.com shares fell nearly 41 percent after the judge's ruling. The stock declined by 4 3/4 to 6 7/8 in midday trading Friday on the NASDAQ. This morning, however, the stock had surged 17% over 8, buoyed by a combination of "technical bounce" and a New York Times story quoting a Time Warner executive saying his company was not trying to shut down the controversial My.MP3.com service. The Wall Street Journal reported that label officials were even willing to consider a settlement that would allow MP3.com to continue to operate its service under licensing agreements.

The RIAA, which comprises most of the nation's record companies, had argued that MP3.com was not authorized to use the music because it does not own it and has not obtained permission from recording companies.

Lawyer Katherine Forrest, representing Warner Bros. Records Inc., called it "a straightforward case of copyright infringement."

It is not clear exactly how the ruling would affect MP3.com or its practices on the Internet.

"We believe that the conduct...should cease," Forrest said. "Now we move on to the next phase." The next phase in court will determine damages and other relief.

In a three-sentence ruling, Rakoff said, "Plaintiffs' motion for partial summary judgment, holding defendant liable for copyright infringement, is hereby granted."

Rakoff will next hold hearings to determine whether MP3.com must pay damages and discontinue its practice of putting copyrighted music out over the Internet. Rakoff did not explain the basis for his ruling and said he expected to issue a written opinion within two weeks. Lawyers are scheduled to telephone him late Friday to set a schedule for further proceedings.

The record labels claim that MP3.com is infringing their copyrights on as many as 450,000 songs by distributing, or streaming, music over the Internet.

The suit seeks billions of dollars in damages and an order stopping the transmission of copyrighted material.

MP3.com has stored in its computers digitized versions of more than 80,000 compact discs. The company allows subscribers to download onto any computer, music that MP3.com has stored—provided they can show they already own a particular CD, in effect rendering their personal music libraries portable. Subscribers verify they own a CD by putting it into a computer and allowing MP3.com to scan it.

The lawsuit had claimed that MP3.com's Instant Listening Service and Beam-it violate copyright laws. Instant Listening Service allows customers to listen to a CD after they have purchased it while Beam-it is a program allowing users to add their own CDs to their MP3.com personal playlist online.

MP3.com likens itself to a massive "jukebox in the sky." The company said it transmits music in such a way that listeners cannot copy the songs.

But record company lawyers say MP3.com is engaged in blatant and illegal copying. "They are taking a CD, putting it as fast as they can into computers, copying every note of a CD, and putting it into an MP3 file," Peter Bleakley, a lawyer for the RIAA, argued in court two weeks ago. "From there, they're distributing."

The MP3.com suit is unrelated to a separate case by the record industry against Napster, which is pending in San Francisco. Napster essentially gives computer users broad access to digitized music files on other computers.