SAN DIEGO -- Despite suffering two punishing legal blows in as many months, the online music sharing business won't be disappearing any time soon, analysts say.
Universal Music Group won its copyright infringement lawsuit against MP3.com on Wednesday, only weeks after the recording industry won an injunction against another online music-sharing service, Napster Inc.
U.S. District Judge Jed S. Rakoff ordered MP3.com to pay as much as $250 million, saying it was necessary to send a message to Internet companies that they aren't immune from copyright law.
But industry watchers say it's the wave of the future.
"There's no question about music getting on the Internet. There won't be any CDs in stores just a few years from now," said Nitsan Hargil, an analyst at Kaufman Bros.
"The question is, is the recording industry getting ready quick enough to be a part of that or are they going to continue to be a fringe element?"
Universal, the world's largest record company, was awarded $25,000 for each of its CDs copied by MP3.com. Since Universal claimed up to 10,000 of its CDs were copied, damages could reach $250 million.
But MP3.com has put the number of CDs at 4,700, which would put the damage award at nearly $118 million. The exact number of CDs involved and total damages will be determined at a November hearing.
MP3.com officials said they plan to appeal and the case could reach the U.S. Supreme Court. A spokesman for Universal, Bob Bernstein, said the company would not comment on pending litigation.
Leonard Rubin, a Chicago attorney who specializes in copyright, trademark and entertainment law, expects higher courts to ultimately rule against MP3.com and Napster, whose software allows people to download music for free.
"There's a definite trend among the courts to uphold the rights of copyright owners in the face of creative efforts to get around the copyright law," Rubin said.
But Heath Terry, an analyst with Credit Suisse First Boston, which was a lead underwriter for MP3's 1999 initial public offering, said the court's won't be able to prevent the online exchange of music.
"There will not be any other Internet music sites focused on major label music until this is decided," he said. "You are forcing Internet music distribution underground."
In July, a federal judge issued an order that would have virtually shut down Napster's music-sharing service. The injunction, which is on hold pending an appeal, was sought by the Recording Industry Association of America, which sued Napster for copyright infringement.
Unlike Napster, which allows individuals to swap music in the popular MP3 format, MP3.com allows people to listen to songs but not download or save them to their computers.
To gain access to the music, the user must have either purchased the song or album from MP3.com and be waiting for it to be physically delivered, or must briefly insert a compact disc version of the recording into a home computer.
MP3.com, which purchased tens of thousands of CDs and copied them onto its servers, had argued in U.S. District Court in New York it was within the law because it required proof of ownership.
The nation's four other major record companies settled with MP3.com after the judge earlier this year found that MP3.com had violated copyrights. The amount of the settlements wasn't disclosed but the company recently set aside $150 million for legal costs, including the deals.
Even without MP3.com or Napster, industry experts note that there are many other easily accessible, albeit illegal, music sharing options on the Internet.
Going by names such as Gnutella, Furi, MyGnut and many others, the programs are available for the Windows, Linux and Macintosh operating systems.
Users of these decentralized so-called "peer-to-peer" networks share files with a constantly changing web of connections that don't provide an easy target for lawsuits.
On the Net:
Recording Industry Association of America: http://www.riaa.com
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