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MP3.com, Universal choose court over settlement

The Net music site's chief executive takes the witness stand to defend his company against charges of willfully violating record label copyrights.

NEW YORK--MP3.com chief executive Michael Robertson took the witness stand today to defend his company against charges of willfully violating record label copyrights to profit from a novel Internet music service.

With millions of dollars in potential damages riding on his testimony, Robertson told the court that his company did not rush to create the disputed service, My.MP3.com, but had authorized the launch only after careful consideration and planning.

"Speed is important for any company, but also more important is the quality of service and the integrity of service," Robertson said under questioning by his own attorneys.

Robertson's testimony came on the first day of trial in a proceeding aimed at determining how much money the Net music site must pay Universal Music Group for unauthorized use of its recordings.

MP3.com is known primarily for creating a place where unknown artists can showcase their music on the Web. Robertson has outspokenly pushed the envelope in his attempts to create business models for selling music online.

But the company apparently wandered out of legal gray areas when it created My.MP3.com, a database of some 80,000 songs that could be tapped into over the Internet by customers who could prove they had purchased the same music on a CD.

All five of the major labels--Universal, Sony Music Group, Bertelsmann's BMG Entertainment, Warner Music Group and EMI Recorded Music--filed suit when the service was launched, charging massive copyright violations.

U.S. District Judge Jed Rakoff in April partially granted the record labels' motion for summary judgment in the case, finding MP3.com liable for infringement. But he left unresolved the specific damage amount, which depends on several factors, including the state of mind of the defendant.

MP3.com has since settled claims with all of the plaintiffs except Universal, a subsidiary of Seagram.

If Universal can show that Robertson and other key MP3.com executives and board members knew the My.MP3.com service violated the law, it stands to win a potentially crippling judgment. Fines for copyright infringement run between $750 to $30,000 per violation, but the ceiling jumps to $150,000 per violation in cases of willful infringement.

In addition to determining the mindset of MP3.com executives, the trial must determine for how many violations MP3.com is liable. Last week, Rakoff issued an opinion stating that the company will be liable for each CD or compilation it copied, rather than for each song.

Though that ruling drastically reduced the potential judgment, MP3.com could still face staggering damages if it is found to have willfully violated Universal's copyrights. For example, if it is found liable for only 1,000 counts and is hit with only half the highest judgment possible, the total could still reach $75 million. That's just slightly less than what MP3.com is said to have paid to settle the case with all four of the other plaintiffs combined.

see news analysis: MP3.com's practices stir debate Damages will be determined by Rakoff, subject to the limits established at trial.

On the stand, Robertson argued that the company took steps to ensure that the My.MP3.com service did not violate copyrights. He said the service was intentionally created in a way to help copyright holders sell more CDs. For example, Robertson emphasized that customers could listen to songs on the service only if they could prove they had purchased those same songs on a CD.

He likened CD purchases to a ticket that grants the buyer the rights to hear songs in any format that person decides.

Robertson also noted that the company purchased all of the CDs it had used to create the database, paying employees $20 for each CD contributed.

The trial continues this week with testimony scheduled tomorrow from MP3.com executives Carolyn Kantor, senior vice president of strategic transactions, and John DeRose, director of engineering. Seagram CEO Edgar Bronfman Jr. is scheduled to take the stand Wednesday.

Lawyers for MP3.com and Universal declined to comment on whether the two sides are continuing settlement talks, citing the ongoing litigation

News.com's Jim Hu reported from New York, and Evan Hansen reported from San Francisco.