Another Setback for MP3.com at Trial

Updated from 12:11 p.m. EDT:

Internet music provider MP3.com (MPPP Quote) endured another setback Wednesday in its legal tussle with Seagram's (VO Quote) Universal Music Group, casting further doubt on the company's ability to settle its litigation with UMG.

Edgar Bronfman Jr., Seagram's chairman and chief executive, was excused by a judge after less than an hour of testy testimony in Seagram's lawsuit against the Internet music provider. MP3.com had called the executive as a hostile witness. MP3.com shares fell 19 cents, or 2.2%, Wednesday to close at $8.44.

The federal trial is being held to determine the scope of the damages that MP3.com will pay Seagram's Universal Music Group for violating UMG's music copyrights.

Judge Jed Rakoff's decision to excuse Bronfman from the witness stand on grounds that his testimony is "completely irrelevant" to the proceeding marks MP3.com's latest legal setback.

Bigger Fish

MP3.com called Bronfman to the stand as part of its strategy to demonstrate that UMG was pressing its lawsuit against MP3.com to put the company out of business, rather than simply to prevent copyright infringement.

MP3.com's lead attorney, Michael Carlinsky, said that as early as last November, UMG had "put MP3.com in its crosshairs" and that there was "a pattern of evidence that UMG is attempting to use this proceeding to put MP3.com out of business or vilify it publicly." Carlinsky said he would demonstrate that pattern if he were allowed to further question Bronfman.

Carlinsky cited interviews Bronfman gave last November, when UMG unveiled FarmClub.com, a Web site created by top executives at UMG. Bronfman, according to the interviews Carlinsky cited, said Farmclub was analogous to MP3.com in its business strategy. Both MP3.com and FarmClub.com offer free downloads of music by acts that are not signed to major label contracts.

Rakoff shut down that defense strategy, saying no evidence of anticompetitive behavior had been introduced into court, and that even if it did, it would have little impact. "Whatever their underlying motive in bringing this case is ... seems to be entirely irrelevant."

Long Odds?

The judge ruled in April that MP3.com had violated copyright laws, and since then the company has settled with the other four big record labels, reportedly for $20 million each. But after negotiations with Universal, the biggest music company, reportedly broke down over the weekend, the damages phase of the trial began in New York on Monday.

A settlement with Seagram is regarded by Wall Street as a key to MP3.com's future. But as the trial proceeds, a settlement appears less likely, and damages against the company could approach hundreds of millions of dollars.