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MP3.com willfully infringed on the copyrights of the Universal Music Group when it assembled a database of compact discs and allowed its customers to download music from the Internet, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York ruled Wednesday. The ruling, which Rakoff made in the aftermath of a bench trial that ended Tuesday, means that MP3.com must pay a minimum of $118 million — and a maximum of $250 million -� in damages, depending on the evidence proven at a second trial scheduled for November. Rakoff, reading his findings of fact and conclusions of law from the bench, said the company “knew it was entering into dangerous legal territory” when it planned its “Beam It” and “Instant Listening Services” last fall and launched them in January. A key factor in his ruling, the judge said, was a lack of evidence that the company felt, in good faith, that its service would not violate Universal’s copyrights on the music. MP3.com chose not to present evidence at trial on whether it had relied on advice of outside counsel, Palo Alto, Calif.-based Cooley Godward, in going forward with the project. “But what was counsel’s advice?” Rakoff asked. “We will never know, for the defendant, as is its right, has invoked the attorney-client privilege and expressly disclaimed any defense of reliance on counsel.” The judge then said he could not draw any negative inference from MP3.com’s decision not to rely on the advice of counsel defense. However, he said that internal e-mails and memos between engineers at the company and other employees, as well as warnings issued by MP3.com chief executive Michael Robertson, made it clear that company officials knew they were in danger of massive copyright violations if customers were in fact able to copy the compact discs without proving they had purchased their own copies first. Rakoff called the company’s reliance on the fair use doctrine to justify the new format “little more than a sham.” During trial, the company had argued that all it really provided was a “storage” service, which allowed customers, once they had provided proof they had purchased a particular CD, to hear the discs anywhere, including in their cars. But Rakoff said he found the storage analogy to be “strained at best.” “While they camouflaged the critical differences with broad-brush appeals to ‘consumer rights,’ they were in fact never in any doubt that this purported justification for their otherwise obvious copyright infringement rested on a doubtful factual premise,” he said. Rakoff found that one mitigating factor has been the company’s behavior since he issued a preliminary injunction in April. The judge said company chief executive Robertson had “shunned the kind of lawless piracy seemingly characteristic of some others operating in this area.” Another case in the Southern District led to a recent verdict against hacker Eric Corley for violating the Digital Millennium Copyright Act by distributing software that enabled users to copy movies from Digital Versatile Discs. Since the preliminary injunction was issued in the MP3.com case, the four other major music companies which joined Universal in the lawsuit have settled, with the last being Sony Music Corp. on the eve of trial. Rakoff said he had the option of imposing as much as $150,000 in statutory damages per infringed CD and as little as $500 per CD. In considering both the willfullness of the defendant and the deterrent effect of the penalty, he nonetheless said that “any attempt to reduce this determination to some kind of mathematical formula or equation is spurious.” While finding the scope of the infringement and the potential for harm “very large,” he said that Universal had not made any attempt “at this time” to prove actual damages. Because Congress has provided for statutory damages, Universal is not required to do so, he said, but he considered the absence of such proof to be a second mitigating factor on MP3.com’s behalf. He arrived at a figure of $25,000 per CD, saying “there is no doubt in the court’s mind that the potential for huge profits in the rapidly expanding world of the Internet is the lure that tempted an otherwise generally responsible company like MP3.com to break the law, and that will also tempt others to do so if too low a level is set for the statutory damages in this case.” Using that $25,000 figure as a benchmark, the two sides in November will argue over the size of the violation. MP3.com has already conceded a minimum number of 4,700 CDs, which would set the low end of damages at $118 million. Lawyers for Universal claim the number of CDs is between 5,000 and 10,000, which could make the damages as high as $250 million. In closing, Rakoff, as Judge Lewis A. Kaplan before him in Corley’s trial, said the advances brought by the Internet age have not rendered basic legal principles obsolete. “Some of the evidence in this case strongly suggests that some companies operating in the area of the Internet may have a misconception that, because their technology is somewhat novel, they are somehow immune from the ordinary applications of laws of the United States, including copyright law,” he said. “They need to understand that the law’s domain knows no such limits.” Michael G. Rhodes of Cooley Godward was lead counsel for MP3.com. Hadrian R. Katz of Arnold & Porter’s Washington, D.C. office was lead counsel for Universal Music Group.

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