Judge Modifies $48 Million Verdict Against 'Manipulative' MP3Tunes Founder

Capitol Records Building - H 2014
AP Images

Capitol Records Building - H 2014

U.S. District Judge William Pauley, who since 2007 has presided over what might be the most complex copyright lawsuit of all time, took the opportunity on Monday to slam both sides of litigation that produced a $48 million jury verdict against MP3Tunes and its founder, Michael Robertson.

Record labels and music publishers sued Robertson for running websites that allowed its users to upload music, listen to music, and transfer — or "sideload" — music from third-party websites to storage lockers. The case dealt with many complex issues, and not even legal observers closely following the case were exactly sure of what was happening in the run-up to the trial. The jury's verdict (which included $7.5 million in punitive damages) nevertheless got tremendous attention, and afterward, Robertson asked the judge to set aside the verdict as being unsupported by evidence.

In a decision on Monday that grants the motion in part, Judge Pauley blames the parties for the nightmare.

"Despite this Court's efforts to winnow the issues, the parties insisted on an 82-page verdict sheet on liability and a 331-page verdict sheet on damages that included dense Excel tables, necessitating at least one juror's use of a magnifying glass," he writes. "While the jury did its best, their assignment was beyond all reasonable scale."

The judge reserves his harshest comments for Robertson, who he writes "created a business model designed to operate at the very periphery of copyright law."

The judge singles out one sob story that Robertson told on the witness stand about being abused during childhood by his stepdad and why he officially has changed his name now to Michael Hammer, saying that Robertson's "seemingly rehearsed, five-minute fable-like narrative left the jury nonplussed and Plaintiffs' counsel shell-shocked. It was a dramatic presentation. Even if true, Robertson's decision to spin this yarn backfired on him. The jury saw it for what it was — a transparent attempt to tug at their heartstrings."

Ultimately, Judge Pauley had to figure out whether Robertson should escape the millions he's been told to pay to Capitol Records, EMI and other plaintiffs.

The judge rendered a mixed ruling, but one that ultimately favors the record companies.

He finds that for the purpose of determining Robertson's vicarious liability for stolen music, it "does not matter whether MP3Tunes or Robertson profited, because the point was to grow the business and its user base. A profit need not be realized to satisfy the standard for financial benefit."

Similarly, the judge rules that the plaintiffs have made their case on contributory liability by proving Robertson's control over the website, having knowledge that the major labels were not distributing works in MP3 format, encouraging MP3Tunes employees to sideload, having awareness of takedown notices and coming up with a company policy to ignore complaints of copyright infringement absent a formal DMCA notice.

The music industry plaintiffs also confirm victory on the issue of Robertson's "tertiary" liability — his secondary liability for MP3Tunes' secondary liability — as well as his liability for directly reproducing cover art and contributing to third-party public performance violations of songs.

Robertson does score some wins, the most noteworthy being on some of the claims related to whether MP3Tunes exhibited "willful blindness" and "red flag knowledge" of copyright claims. The judge knocks the plaintiffs for offering "sparse" evidence there, and looks to the Viacom v. YouTube case for the proposition that failing to routinely search servers for copyrighted content can't raise liability.

How MP3Tunes users sideloaded tracks by The Beatles is an example here. The jury heard evidence that it was widely known in the music industry that The Beatles were not making tracks digitally, and in 2009, Robertson sent an email acknowledging that. "However, MP3Tunes loses the protection of safe harbor only if it also knew of specific instances of infringement," writes the judge.

Some MP3Tunes execs personally sideloaded songs, and for that, they'll have to pay. Additionally, one user sent the company an email that "Strawberry Fields Forever" was available on the site — thus adding up to red flag knowledge on that one particular song as far as the judge is concerned. But as for the other Beatles songs uploaded by users, Robertson said he couldn't recall whether he had searched for those works, and thus, the judge says there's insufficient evidence of red flag evidence and willful blindness as to songs by The Beatles other than "Strawberry Fields Forever."

That noted, Judge Pauley won't remit the jury’s statutory damages award, finding that deterrence and the need to punish willfulness support the jury's $41 million verdict nonetheless.

The judge does potentially give Robertson a break on punitive damages after weighing his "trickery and deceit" against the new finding that MP3Tunes can't for the most part be determined liable for infringing works under red flag knowledge and willful blindness liability theories. Ultimately, the judge decides that a $750,000 punitive damages award would be more appropriate than $7.5 million, but gives the plaintiffs the right to hold a new trial on the issue of punitive damages.

The dispute might not be over — it could go up on appeal. At some point, Robertson (or Hammer) might get another chance to speak. If so, it could be entertaining. At one point during his testimony at trial, the judge observed, "Jurors see through performances, and the Oscars are over for this year."

Email: Eriq.Gardner@THR.com
Twitter: @eriqgardner