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EMI, Grooveshark's only major label, tears up contract

The fourth-largest record company alleges that music-sharing service has failed to meet the financial obligations of licensing contract.

EMI, one of the four top record companies and home to such acts as The Beatles and Coldplay, has terminated its music-licensing agreement with Grooveshark, a well-known music-sharing service, CNET has learned.

Greg Sandoval/CNET

Court documents filed in New York state court reveal that the recorded-music division of EMI alleges Grooveshark has failed to meet the financial obligations of the agreement. In January, EMI's publishing arm filed suit against Grooveshark for breach of contract.

Grooveshark is a music service that provides free access to songs by enabling users to post their own music to the site. The company issued a response to EMI's court filing and allegations:

"Grooveshark was recently forced to make the difficult decision to part ways with EMI due to EMI's currently unsustainable streaming rates and EMI's pending merger with Universal Music Group, which we consider monopolistic and in violation of antitrust laws," the company wrote. "To date, Grooveshark has paid over $2.6 million to EMI, but we have yet to find sustainable streaming rates. In spite of this, Grooveshark's dedication to artists and rights holders remains the same."

The loss of EMI is significant for Grooveshark as it was the only major record label to license music to the service. Grooveshark is also being sued by the other three major labels -- Universal Music Group, Sony Music Entertainment, and Warner Music Group -- for copyright infringement.

The Gainesville, Fla.,-based company maintains it is a legitimate Internet service provider that is protected by the Digital Millennium Copyright Act.

Grooveshark's copyright battles with the labels go back years, but this time, the trouble seems to be contractual. EMI said in a motion for summary judgment against Grooveshark that managers there signed "a promissory note on Nov. 29, 2011, unconditionally promising to render payment of the sum certain of $450,000 to (EMI-owned) Capitol Records in accordance with the payment schedule."

On March 15, Grooveshark failed to make a $100,000 installment, EMI asserts. The record label maintains that Grooveshark has yet to pay down any part of the outstanding principle.

As a result, EMI terminated the agreement and began legal action to recover the money it says Grooveshark owes.

Update: 3:30 p.m. PT To include Grooveshark comments.