"We don't believe there is any basis for a suit. The Universal case was resolved by entry of judgment after the court had already determined damages in the amount of $25,000 per CD."
——MP3.com lawyer Michael Carlinsky


WMG, Sony, BMG, EMI May Sue; Insiders Claim Need For Holiday Dough Is Real Reason
The $53.4 million MP3.com agreed to pay the Universal Music Group last week has raised the ire of the other four major label groups as UMG's take is more than double what any of the others received in their respective settlements.

Word now surfaces that at least two of the four majors—Warner Music Group, Sony Music, Bertelsmann Music Group and EMI Group—are considering legal action against the netco in an attempt to increase payments to what UMG received.

On Friday (11/17), WMG and Sony sent formal letters to MP3.com requesting similar terms to those of UMG. If denied, the labels are contemplating filing suit for breach of contract, sources indicated. At issue is the large monetary discrepancy between the deals WMG and Sony signed and the UMG windfall. Legal papers could be filed as early as next week, sources said.

Months ago, four of the Big Five reached out-of-court settlements with MP3.com in regard to the same case. They reportedly received $20 million a piece, which was agreed upon before the copyright infringement case entered its damages phase (hitsdailydouble.com: 8/21, 8/15, 7/25 and 6/6). Each of the four dropped out of the lawsuit after reaching its settlements, but UMG pressed on with the litigation.

The terms of the agreements with WMG, Sony, BMG and EMI included most-favored-nations clauses stating that MP3.com would pay all five labels an equal amount if any one label successfully negotiated a better deal, insiders said.

Sources point out the ambiguous wording of the UMG-MP3.com deal, which the two called a "court judgment" and not a "settlement"—perhaps anticipating renewed action by the other former litigants. Sources said that because UMG's payment is ostensibly the result of a court-imposed judgment and not a negotiated settlement, MP3.com might argue that the most-favored-nations clauses in the other deals do not apply. But one label insider offered that "a court-ordered judgment like this is just a pseudonym for a settlement."

At issue is whether UMG's judgment is an award by the court, which wouldn't trigger a higher payment, or a settlement between the two parties, which would.

MP3.com lawyer Michael Carlinsky said that a judgment is different from an out-of-court settlement. "We don't believe there is any basis for a suit," he said. "The Universal case was resolved by entry of judgment after the court had already determined damages in the amount of $25,000 per CD."

As this high-stakes semantics issue heats up, questioners are questioning whether certain execs at the other majors may have lost face with management in light of UMG's crowning payout. Might this lead to some serious stomach acid at the rapidly approaching holiday-bonus time? Meanwhile, how big an impact will UMG's commitment to give half the dough to artists have on the other label groups?

Losses from further legal action could set MP3.com back another $134 million. MP3.com had set aside $170 million to pay all its fees related to the copyright infringement case. Taking into account the out-of-court settlement with the four labels at $20 million a piece, the $53.4 million UMG judgment and a $30 million settlement with the National Music Publishers' Association, MP3.com has already spent $163.4 million. Lawsuits from at least three independent labels and four class-action lawsuits from shareholders are still outstanding.

"We don't believe the Universal award will affect the settlements with the other labels," MP3.com CEO Michael Robertson said Tuesday (hitsdailydouble.com, 11/14) after announcing the UMG resolution and before the ruffling of label feathers became apparent.

The five labels jointly filed the suit in January, claiming that the company's My.MP3.com broke copyright law. A District Court found in favor of the labels in April, which forced MP3.com to seek settlements or risk court-imposed damages that may have killed the company. MP3.com shut down the service in May.

Since its resolution with UMG was announced last Tuesday, MP3.com shares have increased in value by more than 250%.

In related news, MP3.com confirmed Friday that another class-action complaint for copyright infringement has been filed on behalf of Unity Entertainment Corp. (hitsdailydouble.com, 11/16). Seemingly unfazed, the netco announced today in a business-as-usual release that it has reached a licensing agreement Tommy Boy Records, making its catalog available on My.MP3.com.

"On behalf of both consumers and artists, we are disappointed to receive this complaint, particularly in light of the strides we have made in securing licensing agreements from now all five of the major record labels," said Robertson. "We continue to firmly believe that the My.MP3.com and its technology infrastructure serves to empower artists and gives consumers the benefit of listening to their own music anywhere and at anytime. We will respond to this filing appropriately."