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MP3.com will pay Universal $53.4 million

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MP3.com (MPPP) will pay Universal Music Group $53.4 million for infringing on copyrights held by the world's largest recording company. The decision, announced in a New York court Tuesday, was called a judgment but apparently had the agreement of both sides.

As part of the judgment, Universal has acquired the right to purchase an undisclosed number of MP3.com shares, at a price higher than current levels, sometime in the future. MP3.com CEO Michael Robertson declined to specify the number of shares or the acquisition price, but said Universal's potential stake in his company would be less than 20 percent. Immediately after the decision, shares in MP3.com were up 63 cents, or 18.6 percent, to $4.

The decision, which grants the San Diego-based startup a license to Universal's catalog, brings closure to the contentious case, which had split the Big Five recording groups and was pitting Universal's artists against their own record company.

"Today's developments show that we are committed to doing whatever it takes to move forward as the leader in digital download," Robertson told reporters outside of the court.

MP3.com has already spent an estimated $100 million to settle with the other four major recording groups and secure licenses to their copyrighted material. The development is likely being called a judgment, as opposed to a settlement, in order to prevent the other four companies from invoking "most-favored nation" clauses in their agreements. The clauses force MP3.com to offer the same terms to the other four companies if MP3.com subsequently offers better terms to another company.

Rakoff had originally penalized MP3.com $25,000 per infringed disc. Both sides disputed the number of discs involved. Universal claimed there were 10,000 infringements, while MP3.com put the number at 4,700. Nonetheless, the award is significantly lower than the $117.5 million MP3.com would have had to pay if the court had agreed to the number of infringements MP3.com had chosen.

The standoff between the two companies was growing increasingly rancorous because of the "works for hire" designation Universal assigned the CDs when they were registered with the copyright office. That designation gives Universal the rights to the works, because it designates the artists as employees of the labels for whom they made the recordings. MP3.com contested that argument, in an attempt to reduce the number of copyrights on which it would owe Universal damages. In so doing, MP3.com also added fuel to an already-divisive debate among members of the music community over who owns music.

The Recording Artists Coalition, which includes Universal star Sheryl Crow, filed a brief with the judge siding with MP3.com's interpretation of the works-for-hire issue.

MP3.com can now relaunch its MyMP3.com service, including Universal's entire catalog. The service allows customers to access over the Internet CDs that they can prove they already own.

Universal representatives were not immediately available to comment.

For more in-depth coverage of the Internet Economy, visit The Industry Standard, a sister publication to Network World. Copyright 2000 The Industry Standard. All rights reserved.

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