September 7, 2000 (Reuters) – In the latest legal win for traditional media companies seeking to protect intellectual property in cyberspace, a federal judge on Wednesday ruled that MP3.com Inc. willfully infringed copyrights owned by Seagram Co. Ltd.'s Universal Music, the world's biggest music company.

Since MP3.com lost a similar ruling in April against the Recording Industry Association of America, other music companies like Time Warner Inc.'s Warner Music, Sony Corp., Bertelsmann AG and EMI Group Plc settled with online music company, but Universal, home to artists like Sheryl Crow and Sting, held its ground.

In the ruling, which could cost MP3.com up to $250 million in damages, U.S. District Judge Jed Rakoff ordered MP3.com to pay Universal $25,000 for each CD unlawfully copied. Universal says 10,000 CDs were copied.

Analysts said damages totaling $250 million would severely cripple MP3.com or effectively put it out of business.

MP3.com said it would appeal the decision.

"This should send a message that there are consequences when a business recklessly disregards the copyright law,'' said Cary Sherman, a lawyer for the Recording Industry Association of America (RIAA), which represents all the big record companies.

The judge said it was important to send a message to deter online copyright infringement, saying some companies "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 laws. They need to understand that the law's domain knows no such limits."

But analysts were also quick to note that court victories alone will not be enough to stop fans from sharing music, movies and other digital information, often for free, on the Internet.

"They're winning in court, but the court is the battle and not the whole war. The marketplace is the war,'' said Scheirer.

"All of these legal battles go on as Napster and other technologies gain consumer interest and as users leave a legitimate marketplace,'' he said.

Under the settlements with Warner and Sony, MP3.com agreed to pay each label about $20 million in damages and a fee each time one of the label's albums was registered by a user and another fee each time a user accesses one of its songs.

Rakoff ruled in April that MP3.com broke copyright law by creating a database of over 80,000 albums, which when combined with its software, allows users to store music digitally and then access it via any computer. The service is called My.MP3.com.

In another landmark case last month, a federal judge in Manhattan ruled in favor of Hollywood's big movie studios by barring a journalist, Eric Corley, from republishing software code that unlocks scrambling on DVDs, enabling movies to be copied and swapped on the Internet.

And in July, a federal judge issued an order effectively shutting down popular song-swap company Napster. The order was stayed at the last minute by an appeals court, but that case is on a fast legal track and many people expect the case to have wide-ranging implications for books, movies and television.

All three cases have appealed the courts' decisions.