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The argument that defendants’ use of plaintiffs’ copyrighted material, by increasing its popularity, would ultimately prove of benefit to the plaintiffs is speculative and unable to defeat a copyright infringement action, the U.S. District Court for the Southern District of New York held May 1 in granting the plaintiffs’ partial summary judgment ( UMG Recordings Inc. v. MP3.com, S.D.N.Y., No. 00 Civ. 472 (JSR), 5/1/00). Utilizing the “MP3″ technology, which permits rapid and efficient conversion of compact disc recordings to computer files easily accessed over the Internet, MP3.com, on or around Jan. 12, 2000, launched its “My.MP3.com” service, which it advertised as permitting subscribers to store, customize, and listen to the recordings contained on their CDs from any place where they had an Internet connection. MP3.com purchased tens of thousands of popular CDs and copied these recordings onto its computer servers so as to be able to replay the recordings for its subscribers. In order to first access such a recording, a subscriber to MP3.com must either “prove” that he or she already owns the CD version of the recording�by inserting his copy of the commercial CD into his computer CD-Rom drive for a few seconds�or must purchase the CD from one of the defendant’s cooperating online retailers. After this, the subscriber can access the MP3.com recordings via the Internet from a computer anywhere in the world. The plaintiffs, UMG Recordings Inc., Sony Music Entertainment Inc., Warner Bros. Records, and seven other recording companies, filed suit against MP3.Com Inc. in the U.S. District Court for the Southern District of New York, alleging copyright infringement. The plaintiffs claimed that MP3.com copied without authorization the recordings it purchased in order to be able to play them for subscribers and in doing so infringed the plaintiffs’ copyrights. MP3.com portrayed its service as the “functional equivalent” of storing its subscribers’ CDs. It also suggested that its music computer files were not in fact “reproductions” of the plaintiffs’ copyrighted works within the meaning of 17 U.S.C. � 114(b) in that they were not physically identical to the sounds on the original CD recordings�although it acknowledged that the differences were not detectable to the human ear. The defendant also argued that its copying was protected by the affirmative defense of “fair use” under 17 U.S.C. � 107. FAIR USE DEFENSE Judge Jed S. Rakoff, in writing the opinion of the court, discounted the defendant’s “inaudible differences” argument and then walked through the four factors that must be considered for a “fair use” defense. Regarding the first factor�the purpose and character of the use, the court wrote that the defendant did not dispute that its purpose was commercial, “for while subscribers to My.MP3.com are not currently charged a fee, defendant seeks to attract a sufficiently large subscription base to draw advertising and otherwise make a profit.” The consideration of the first factor also involves inquiring into whether the new use essentially repeats the old or whether, instead, it “transforms” it by infusing it with new meaning, and new understanding, the court wrote. “Here, although defendant recites that My.MP3.com provides a transformative �space shift’ by which subscribers can enjoy the sound recordings contained on their CDs without lugging around the physical discs themselves, this is simply another way of saying that the unauthorized copies are being retransmitted in another medium�an insufficient basis for any legitimate claim of transformation,” the court wrote. “Here, defendant adds no �new aesthetics, new insights, and understandings’ to the original music recordings it copies, but simply repackages those recordings to facilitate their transmission through another medium. While such services may be innovative, they are not transformative.” Regarding the second factor�the nature of the copyrighted work, the court found that the creative recordings being copied were far removed from the more factual or descriptive work more amenable to “fair use.” As to the third factor�the amount and substantiality of the portion of the copyrighted work used by the copier in relation to the copyrighted work as a whole, the court wrote that, “[I]t is undisputed that defendant copies, and replays, the entirety of the copyrighted works here in issue, thus again negating any claim of fair use.” Regarding the fourth factor�the effect of the use upon the potential market for or value of the copyrighted work, the defendant’s activities on their face invaded the plaintiffs’ statutory right to license their copyrighted sound recordings to others for reproduction, the court wrote. DEFENDANTS ARGUES PLAINTIFFS BENEFIT The defendant argued that, so far as the derivative market is concerned, the plaintiffs did not show that such licensing is traditional, reasonable, or likely to be developed. The defendant also argued that its activities could only enhance the plaintiffs’ sales, since subscribers cannot gain access to particular recordings made available by MP3.com unless they have already “purchased” or agreed to purchase, their own CD copies of those recordings. “Such arguments�though dressed in the garb of an expert’s �opinion’ (that, on inspection, consists almost entirely of speculative and conclusory statements)�are unpersuasive,” the court wrote. “Any allegedly positive impact of defendant’s activities on plaintiffs’ prior market in no way frees defendant to usurp a further market that directly derives from reproduction of the plaintiffs’ copyrighted works. This would be so even if the copyright holder had not yet entered the new market in issue, for a copyright holder’s �exclusive’ rights, derived from the Constitution and the Copyright Act, include the right, within broad limits, to curb the development of such a derivative market by refusing to license a copyrighted work or by doing so only on terms the copyright owner finds acceptable. Here, moreover, plaintiffs have adduced substantial evidence that they have in fact taken steps to enter that market by entering into various licensing agreements.” Finally, regarding the defendant’s purported reliance on other factors, the court wrote, “[T]his essentially reduces to the claim that My.MP3.com provides a useful service to consumers that, in its absence, will be served by �pirates.’ Copyright, however, is not designed to afford consumer protection or convenience but, rather, to protect the copyright holders’ property interests. Moreover, as a practical matter, plaintiffs have indicated no objection in principle to licensing their recordings to companies like MP3.com; they simply want to make sure they get the remuneration the law reserves for them as holders of copyrights on creative works. Stripped to its essence, defendant’s �consumer protection’ argument amounts to nothing more than a bald claim that defendant should be able to misappropriate plaintiffs’ property simply because there is a consumer demand for it. This hardly appeals to the conscience of equity.” DEFENSE INDEFENSIBLE As a result of its analysis, the court concluded that the defendant’s “fair use” defense was indefensible and must be denied as a matter of law. The court’s 15-page decision began with the statement, “The complex marvels of cyberspatial communication may create difficult legal issues; but not in this case. Defendant’s infringement of plaintiff’s copyrights is clear,” and ended with an award to the plaintiffs of “partial summary judgment, holding defendant to have infringed plaintiff’s copyrights.” In a footnote, the court noted that it found no reason to postpone its determination, as the defendants requested, because of the recent filing of the complaint in Lester Chambers v. Time Warner Inc. (S.D.N.Y., No. 00 Civ. 2839, filed 4/13/00), which the defendant’s claimed called into question the exclusivity of the plaintiffs’ copyrights. “The allegations of a complaint, having no evidentiary value, cannot defeat a motion for summary judgment,” the court wrote. REACTIONS After the court’s decision was announced, Michael Robertson, MP3.com’s CEO, said that the judge was criticizing a new product that accounted for only 4 percent of the company’s revenues. MP3.com President Robin Richards said that the ruling was “exactly what we expected. Everyone is getting tired of the constant litigation.” Richards added that MP3.com would continue to negotiate with the recording industry to reach an “equitable business solution.” A number of attorneys commented that the court was behind the times in the ruling and that this was true for the recording industry as well. Most predicted that the resolution would be achieved in board rooms and not in court rooms, with the parties negotiating licensing agreements. Attorney Martin Garbus observed both in the print press and on talk shows in reference to a related suit that the recording industry needs to understand that soon a new mechanism will be developed to provide companies and their artists adequate compensation. He said that they are clinging to old methods out of instinct. It could also be argued, however, that the current situation is analogous to the 19th century when Charles Dickens and Gilbert and Sullivan lost the modern day equivalent of millions of dollars because then-existing copyright laws in Great Britain did not afford them protection in the United States. The situation was remedied after their deaths. The present period is likely transitional as well. Plaintiffs argue that their immediate concern is compensation that is due to them and artists with whom they have contracts on the basis of their copyrighted material, and in this case the court agreed. However, as a sign that, indeed, the technology at issue and companies such as MP3.com will soon become part of the mainstream, MP3.com announced May 4 that it had reached a licensing agreement with Broadcast Music Inc., which administers performance royalties for songwriters. An MP3.com spokesperson quickly said in a statement that the BMI agreement has no connection with the industry lawsuit and that settlement negotiations specific to the case are continuing. Reaction to the agreement brought MP3.com’s stock back up, erasing the stock’s decline as a result of the court decision.

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