Music Labels Threatening to Take MP3.com Back to Court

Days after MP3.com agreed to pay Seagram’s Universal Music Group $53 million to resolve a copyright infringement suit, at least two other record companies that had accepted smaller settlements are threatening to go back to court to get more money.

Sony Corp. and Time Warner had settled with MP3.com earlier this year for about $20 million each, according to sources. But their settlement included an “escalator clause” requiring MP3.com to sweeten its payout if it agreed to a more lucrative settlement with any other label.

The question is whether the “consent judgment” signed by Universal and MP3.com on Tuesday is an award by the court, which wouldn’t trigger a higher payment, or a settlement between the two parties, which would.

Time Warner’s music arm, the Warner Music Group, has sent a letter to MP3.com demanding the same terms as Universal received, a music-industry source said. If MP3.com doesn’t agree shortly, the letter warned that Warner may go back to court to enforce the escalator clause.

Sources indicated that Sony has also written MP3.com to ask for a higher payment. A spokesman for MP3.com declined to comment.

Two other companies--Bertelsmann and EMI Group--had also agreed to settle with MP3.com earlier in the year. Neither has demanded a new deal from MP3.com, although EMI is said to be mulling its options, sources said.

The five major labels sued MP3.com in January in protest over its My.MP3.com service, which gave users online access to copies of the CDs in their collections. The lawsuit said MP3.com violated copyright laws by creating a database of 80,000 unauthorized albums and should be forced to pay billions of dollars in damages.

In April, a federal judge ruled that MP3.com had infringed the labels’ music copyrights, which sent MP3.com scrambling to reach out-of-court settlements with the record companies. It eventually struck deals with Sony, Time Warner, Bertelsmann and EMI that would pay them a reported $2,000 per CD or $20 million per company, although MP3.com declined to disclosed the details.

For the second quarter ended June 30, MP3.com reported a $150-million charge, which the company estimated would cover all the costs to settle its various copyright lawsuits, according to filings with the Securities and Exchange Commission.

The company later reported another $20-million charge for its third quarter ended Sept. 30, to cover additional costs related to the cases.

The $150 million does not include licensing fees MP3.com plans to pay the labels, the filings state. The settlements include three- to 10-year licensing agreements with the four labels.

The escalator clause in the settlements covers not only the one-time payments, but also the licensing fees to come.