In my DCMA paper I note in passing the sad case of MP3.com, which settled its copyright lawsuit after losing its case in district court, and before it could appeal the case. What I didn’t realize is the reason the case wasn’t appealed.
I was delighted to receive an email from Michael Robertson, the founder of MP3.com (who has since founded Linspire and MP3tunes), who read the paper and wrote to explain why they didn’t appeal the case:
We didn’t want to settle. I wanted to take it to the appellate court for examination of our issues. However we weren’t able to do this. This is because the media companies can elect for statutory damages. So although they could not prove they were harmed even $1 (and we had ample evidence that they actually profited from our technology) they were able to elect statutory damages which meant potentially tens of billions of dollars in damages. The problem arises in that to appeal you have to first bond the judgment assuming you lose at any step. Well there’s no way a small company can bond even a hundred million dollar award much less a multi-billion one. This means that the media companies can find just one judge to rule in their favor, elect statutory and the legal battle is over. No appellate court. No supreme court. One and done. And as you probably know often with new issues Judges and lower courts are hesitant to make new law, but rather leave that up to the higher courts. So instead of a full legal hearing MP3.com got in front of one Judge in media company friendly NYC and the battle and war was over. That’s not how our court system is supposed to work. It’s too easy to get one Judge to misread a situation.
And misread it the judge did. In his poorly reasoned and over-literal opinion, Judge Rakoff describes MP3.com’s service (which permitted legal owners of CDs to stream the music on those CDs to other computers via the Internet) as an unauthorized retransmission of the content through another medium. It seems not to have occurred to him that all digital media devices work by converting content from one format to another. Nor did he seem to find it relevant that the music was being “retransmitted” to people who had already purchased a legal copy of the CD containing the music.
I hadn’t realized the pernicious effect of statutory damages in the case. The appeals court may or may not have overruled the decision (I think they should have), but they deserved the chance to appeal.