There's more trouble on the way for online music provider MP3.com after TVT Records filed a copyright infringement lawsuit in U.S. District Court in New York.
MP3.com has already lost a similar case to the Recording Industry Association of America, and faces a suit brought by the Harry Fox Agency, which represents the music publishing industry. But legal action from independent labels and publishers poses a new set of issues, and potentially a new list of plaintiffs, for MP3.com to deal with.
Wednesday's lawsuit follows the RIAA's win against MP3.com last month. In that suit, U.S. District Court Judge Jed S. Rakoff ruled that the digital music company's creation of a database of 45,000 CDs infringed on the major labels' copyrights.
Users who sign up for the my.mp3.com service are able to stream music from that database to devices that can access the Internet. On May 10, MP3.com halted access to major-label music for users of the my.mp3.com service. But it still provided access to over 400,000 songs from independent artists and smaller labels in the library.
"This will be the beginning of a lot of similar suits," said Gene Hoffman, CEO of Emusic.com. "MP3.com's intent is to continue this service which was ruled illegal. They've taken the major label music out, but (they) keep the service running with independent label music. Now it's a template lawsuit, so independent labels can basically copy this complaint right out of the court records, put in their songs, and file the suit."
Although the RIAA and the Harry Fox Agency can negotiate blanket settlements for a majority of the music and publishing companies, MP3.com might have to negotiate individual settlements with each independent label that files suit since there is no central association representing them.
TVT Records is asking for $150,000 in damages per copyright violation, but MP3.com CEO Michael Robertson doesn't believe his company is any danger.
"Typically the companies will file this in the same court, and the judge wraps this into the same proceeding, so that's just another plaintiff on the lawsuit that was already decided," Robertson said. "I don't think there is going to be much of an impact with the company."
Robertson says smaller labels will be easier to negotiate with than the RIAA big five. "The hard part isn't negotiating with the independent labels that are suing us, it's negotiating with the multi-billion-dollar companies who have their own timetables and market concerns to worry about. The independent labels are very easy to work with. The big pumpkins are the major labels."
The major labels might want to keep MP3.com around since they could use their streaming infrastructure, but that's not something the independents are concerned with.
"The problem MP3.com faces is that the RIAA is gritting their teeth a little bit, but they are willing to settle in a way that won't drive (MP3.com) out of business," said Mark Radcliffe, a partner at the Silicon Valley law firm Gray Cary Ware & Freidenrich. "The independent labels may just want to extract as much money from the company as they can," Radcliffe said. "And these types of mass claims can sometimes lead companies into Chapter 11 to avoid all of these claims, although that would be difficult in this case considering how much money the company has in the bank."
MP3.com has over $300 million in cash reserves.
Still, MP3.com probably won't have to face off against every independent label that decides to file suit. Robert Brownlie, a San Diego-based class action attorney, said MP3.com could file a relief motion that would allow the company to consolidate all of the independent label suits into one action, much like a reverse class-action suit.
And MP3.com also could find refuge in the fact that the courts don't encourage multiple lawsuits to be filed on the same topic.
"The only way to avoid all of these lawsuits is to shut down the my.mp3.com service completely," said copyright lawyer Whitney Broussard. "If you are a copyright holder, you have a pretty good case against the company since they already lost the first round of legal fighting. But the law likes finality. It doesn't serve anyone's purposes to have anyone continuing to sue the company over and over on the same issue."
That wouldn't necessarily limit the amount of damages though that could be collected for previous copyright violations.
Even if MP3.com can avoid an onslaught of litigation from music labels, there is still the issue of music publishers coming after the company.
The Harry Fox Agency, which represents about 75 percent of the music publishing business, filed a copyright suit against MP3.com in March. Pending the outcome of that suit, which could come in the next few weeks, independent publishers could file individual suits as well.
"There is an economic impact on the company as well because they might have to deal with all of these suits at one time," Hoffman said. "And this is also before the publishers pile on as well. The HFA only represents about 75 percent, and much like TVT, that leaves a lot of independent publishers that can pile on."
