By Derek Caney
NEW YORK (Reuters) - MP3.com Inc. was ordered by a federal judge to pay $53.4 million in damages to Universal Music Group, the world's largest record company, to resolve a copyright infringement case that has dogged the company for nearly a year.
Seagram Co.' Universal, the last of the world's five largest record companies to resolve the copyright dispute with MP3.com, also agreed to license its entire music catalog to MP3.com's Web-based service, My.MP3.com.
The service allows users to store music digitally and later access it via any computer, MP3.com chief executive Michael Robertson said.
Universal's roster of artists includes U2, Jimi Hendrix and Eminem.
"Although we believe our proof at trial would have led to a greater damage award, we are satisfied with the award," said Universal's president Zach Horowitz in a statement.
"It was never our intent to put MP3.com out of business with a judgement so large that it would threaten their viability as a company," he added. "We support the development of legitimate music businesses on the Internet."
"Today's development takes us out of the courtroom and back into the business of moving our company forward," MP3.com's Robertson told reporters after a hearing where U.S. District Judge Jed Rakoff issued the ruling. The labels originally filed the suit in January.
Second Major Breakthrough In Two Weeks
The judgement represents the second major breakthrough in the last two weeks in the relationship between the traditional record business and new-breed technology companies. The new MP3 format has created the potential to store, send and listen to music in the form of small digital files.
But such technology has raised thorny issues of copyright infringement and new distribution alternatives to traditional retailers.
Late last month, Bertelsmann AG's (BTGGga.D) BMG music arm said it would drop a copyright infringement suit against song-swapping service Napster once it implements a fee-based service that pays royalties. BMG also said it would invest $30 million to $50 million to help develop the service.
Napster, which allows users logged onto the Internet to download music files from other users' computers, is still locked in a court battle with the other four major labels.
Universal has also bought warrants to buy MP3.com stock, Robertson said. Industry sources said Universal paid approximately $250,000 for the warrants, which if exercised would amount to less than 5 percent of the company.
Universal The Lone Holdout
In April, Rakoff ruled that MP3.com broke copyright law by creating a database of more than 80,000 albums, an integral part of the My.MP3.com service. MP3.com disabled the service in May.
Since June, the San Diego company was able to coax settlements out of four of the five largest record companies in the world: Time Warner Inc.'s Warner Music Group, Sony Music Entertainment (7930.T), EMI Group Plc (EMI.L) and BMG. Universal was the lone holdout.
Although holding out appeared to have paid off as the $53.4 million judgement awarded to Universal is more than double the estimated $20 million in damages paid to each of the other labels.
Money Set Aside To Cover Litigation
Rakoff had originally set the damages at $25,000 per violation in a separate hearing in September. The two sides were slated to meet this week in court to determine how many copyrights MP3.com was responsible for violating.
The company has set aside $170 million over the last two financial quarters to cover litigation stemming from the service.
"The $170 million should be enough to cover all of the legal issues," Robertson told reporters after the hearing.
The company inked a $30 million tentative settlement with music publishers over similar copyright issues last month, which paves the way for MP3.com to restart the service with music from all five major labels.
Robertson offered no timetable for when the service would resume. "With this lawsuit behind us, that's what we'll be focused on going forward," he said.
My.MP3.com lets computer users with an original copy of one of the recordings in the database register that CD. It then allows the user to listen to that album over the Internet from any computer, without having to insert the original disc.