The company was sued in January by the Recording Industry Association of America (RIAA) and the five big music labels, which said MP3.com's service was violating their copyrights. Late last month, a federal judge agreed.
MP3.com and the record industry have been engaged in settlement talks for the past several weeks, as the online company hopes to end the dispute without paying billions of dollars in damages. The industry has yet to ask the court to officially block access to its content online, but MP3.com said it would act on its own to smooth negotiations.
"We regret the need to take this step, which inconveniences more than 500,000 My.MP3.com account holders," said Robin Richards, president of MP3.com. "While we disagree with the court's decision, we also want to demonstrate our good faith and strong desire to achieve an expeditious business resolution."
The fight over MP3.com's service has helped sketch how far Web companies can stretch the boundaries of copyright law as they seek to expand their offerings online.
The My.MP3.com service allowed Web surfers to gain access to full CDs online and to listen to them on any computer with Net access. But unlike other services, in which MP3s have to be uploaded by a computer user to a digital "storage locker" for playback later, MP3.com did this work itself.
The company bought tens of thousands of CDs, created a huge database of MP3s, and then offered access to these files to anyone who could "prove" they had bought the CD themselves by placing the disk in their computer.
This eliminated customers' time- and bandwidth-consuming uploads, but it also proved to be illegal, according to a federal judge.
"The complex marvels of cyberspatial communication may create difficult legal issues, but not in this case," Judge Jed Rakoff wrote last week in a decision awarding a quick decision in the lawsuit to the recording industry.
With the courts leaning decisively against the company--although damages for the infringement have yet to be determined--MP3.com lost most of its bargaining power and is scrambling to limit the damage done to its bottom line.
The record industry welcomed the company's decision but said it was expected.
"We think MP3.com's decision to take down the unauthorized works is a natural result of the court's decision," said Amy Weiss, an RIAA spokeswoman.
The judge has set a trial date of Aug. 28 to determine damages in the case, which the record industry has estimated could reach above $6 billion. A quick settlement could satisfy both sides and potentially allow MP3.com to avoid financial catastrophe, however.
The company's stock price plummeted on news of the judge's initial ruling in favor of the RIAA but has recovered much of its value since that time.