MP3.com Fights Back Against the RIAA
NOTE: This information was copied off the MP3.com web site and is public information. It is not a legal document and may contain errors.
 
COOLEY GODWARD LLP
MICHAEL G. RHODES (116127)
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Telephone: (858) 550-6000
Facsimile: (858) 453-3555
 
COOLEY GODWARD LLP
STEPHEN C. NEAL (170085)
JAMES DONATO (146140)
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Telephone: (415) 693-2000
Facsimile: (415) 951-3699
 
Attorneys for Plaintiff
MP3.com, Inc.
 
 
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN DIEGO
[UNLIMITED JURISDICTION]
 
MP3.COM, INC., a Delaware corporation,
 
Plaintiff,
v.
HILARY B. ROSEN, an individual,
RECORDING INDUSTRY
ASSOCIATION OF
AMERICA, INC., a New York not-for-profit corporation, and DOES 1-20, inclusive,
Defendants.
 
No. GIC 742982
 
COMPLAINT FOR:
1. DEFAMATION;
2. TRADE LIBEL;
3. INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE;
4. UNFAIR BUSINESS Practices (CAL.BUS. & PROF. CODE §§ 17200 ET SEQ.)
 
JURY TRIAL DEMANDED
Trial Date: Not Yet Set
 
Plaintiff MP3.com, Inc., ("MP3.com") through its attorneys of record, alleges as follows:
 
1. This action arises out of a concerted and intentional effort by defendants to disrupt and interfere with plaintiff MP3.com's business activities and market capitalization. MP3.com is a leading online promoter and distributor of recorded music. Using innovative, breakthrough data compression technology, MP3.com has developed a variety of services that allow consumers to assemble and arrange their personal music collections in digital form and to enjoy their personal collections any time and anywhere they choose simply by connecting to MP3.com through the Internet.
 
THE PARTIES
 
2. Plaintiff MP3.com is a Delaware corporation with its principal place of business in San Diego, California.
 
3. Defendant Recording Industry Association of America, Inc., ("RIAA") is a trade association whose member record companies control the sale and distribution of approximately 90% of the off-line music in the United States. RIAA is headquartered in Washington, D.C., and comprised of the major recorded music companies operating in the United States. RIAA's members include, among others: Sony Music Entertainment, Inc., Arista Records, Inc., Warner Bros. Records, Inc., Atlantic Recording Corporation, Capitol Records, Inc., Interscope Records, Elektra Entertainment Group, Inc., Sire Records Group, Inc., EMI Music, Inc., and UMG Recordings, Inc. RIAA promotes the interests and business goals of its member recording companies by engaging in conduct occurring in or directed to California, and maintains an office in California.
 
4. Defendant Hilary B. Rosen ("Rosen") joined RIAA in 1987 and currently serves as its President and CEO. Throughout the time period and events alleged in this complaint, Rosen acted in her individual and official capacities. RIAA and Rosen, on behalf of and in concert with the RIAA's recording industry members, have waged a campaign to impugn and disparage MP3.com as supporting music "theft," "piracy" and other disreputable practices, and to use these false allegations to disrupt and interfere with MP3.com's financial and business relationships, and market capitalization.
 
5. MP3.com does not know the true names and capacities of defendants sued herein as DOES 1 through 20, inclusive, and therefore sues these defendants by such fictitious names. MP3.com is informed and believes, and on that basis alleges, that each of the fictitiously named defendants is responsible in some manner for the incidents and occurrences alleged herein, and that MP3.com's damages were proximately caused by their conduct. MP3.com will amend this Complaint to allege the true names and capacities of such DOE defendants, together with other appropriate allegations, when such names have been ascertained.
 
6. MP3.com is informed and believes, and on that basis alleges, that at all material times each defendant was the agent, servant, and/or employee of every other defendant and the acts of each defendant were within the course and scope of their agency, service and/or employment with each other defendant. MP3.com is informed and believes, and on that basis alleges, that defendants, and each of them, in doing the acts alleged herein, were acting as co-conspirators of each other defendant.
 
7. Venue is proper in this Court under Code of Civil Procedure Sections 395 and 395.5.
 
PRELIMINARY FACTUAL ALLEGATIONS
 
8. A new technology known as MPEG Audio Layer 3 or "MP3" is revolutionizing the use and enjoyment of recorded music. Music recorded in digital form contains vast amounts of data, and the individual audio data file for a single piece of music recorded digitally is extremely large. For audio digital music files to be usefully handled, and in particular for such files to be either stored on computers or other devices or transmitted across data networks such as the Internet, the size of these digital music files must be significantly reduced to require less memory and data storage at the device level and to shorten transmission times on data networks.
 
9. MP3 technology is one such data compression technology. MP3 is an algorithm that compresses a digital music file into a manageable size. Using MP3, the data content of a digital music recording can be compressed by a factor of up to 12:1, which substantially reduces the amount of time to transmit the file and the amount of memory, storage and other system resources required to handle the file without degrading the fidelity of the music contained in the compressed file. MP3 technology for data compression has been approved as a non-proprietary, international technical standard by the Moving Picture Experts Group, an independent industry technical group working under the joint direction of the International Organization for Standardization (ISO) and the International Electro-Technical Commission (IEC) Joint Technical Committee on Information Technology. MP3 data compression allows consumers to access recorded music online through common Internet services and Internet access providers.
 
10. Plaintiff MP3.com was organized in part to utilize MP3 technology to develop services for the delivery of recorded music to consumers over the Internet. Among its services, MP3.com enters into direct arrangements with musical artists that permit these artists to record their performances and make them available directly to consumers online in the MP3 compressed format through the MP3.com website. In this manner, thousands of musical artists and groups that were previously unknown to consumers and that had never entered into recording contracts with major record companies are now able to reach, and become known to, the listening public. Other MP3.com services allow consumers to assemble, organize and add to their own personal music collections online from any Internet-connected device, and to access these collections through secure Internet connections. MP3.com's music services have substantially enhanced consumers' interest in recorded music, improved consumers' access to their individual music collections, and provided unprecedented new levels of portability and availability of personal music collections. In this way, MP3.com follows the home VCR, cassette tape machine, and personal and auto CD players in the evolution of new technology that expands consumers' ability to use and enjoy recorded entertainment.
 
11. MP3.com is widely recognized as a leading innovator in the delivery of recorded music over the Internet. MP3.com's services have made it a premier online destination for consumers and artists alike. The MP3.com website, through which consumers access the company's services, receives hundreds of thousands of unique visits each day by consumers. Because of the popularity of its online services, MP3.com has generated, and expects to continue to generate, substantial revenues from, among other things, the sale of banner advertising on its website to third parties seeking to reach MP3.com's unique consumer audience and to promote their products and services to this audience.
 
12. MP3.com has also developed commercial relationships with music artists and their agents and representatives, which provide the company with substantial business benefits. In addition, MP3.com has established relationships with the financial markets and the investment banking community to provide financing for the continued growth of its business and liquidity to its shareholders for their investments in the company. Utilizing all of these relationships, MP3.com has completed in the last nine months an initial and secondary public offerings of its stock, which is traded on the NASDAQ National Market System under the symbol "MPPP".
 
13. RIAA member companies distribute approximately 90% of the music recordings produced and sold in the United States. RIAA members control the distribution of virtually all music recordings on CDs, albums and cassettes for sale through record stores and other merchants. According to RIAA, these sales totaled approximately $13.7 billion in 1998.
 
14. Apparently perceiving MP3 compression technology as a commercial threat to the recorded music industry, Rosen and other RIAA representatives and RIAA member companies have developed and maintained a deliberate and aggressive campaign to discredit and disparage MP3.com and its use of the MP3 technology to distribute recorded music. Acting individually and in concert with RIAA member companies, Rosen and other RIAA agents have published and communicated to third parties through private communications, print and online media, the RIAA's own website and other public communications channels purported statements of fact that MP3.com engages in music recording "theft," "piracy" and other disreputable, illegal, and immoral acts.
 
15. MP3.com is informed and believes, and on that basis alleges, that RIAA, Rosen and/or their affiliates have published a multiplicity of negative and disparaging statements about MP3 technology in print and online media and other publications of wide circulation. For example, in July 1998, an RIAA executive stated that delivery of music in the MP3 format is "akin to stealing a CD from a record store." Defendants have made many other public statements expressing the same imputation of illegal and immoral activity about MP3 technology.
 
16. MP3.com is further informed and believes, and on that basis alleges, that RIAA and/or Rosen have expressly singled MP3.com out
as the subject of repeated alleged statements of fact asserting illegality and reprehensible behavior. Among other disparaging acts, RIAA and/or Rosen sent a letter in January 2000 to music industry business managers, agents and artists, located in part in California, stating that MP3.com commits "theft and exploitation" of music, and warning artists "[d]on't be ripped off." RIAA and/or Rosen have prepared and posted on RIAA's website letters impugning MP3.com's integrity and responsibility. RIAA and/or Rosen have singled out MP3.com in several other disparaging public statements made to print and online media.
 
17. RIAA and/or Rosen have also directly communicated disparaging statements about MP3.com to certain of MP3.com's financial partners. MP3.com is informed and believes and on that basis alleges that Rosen and possibly other RIAA agents communicated disparaging statements directly to one of MP3.com's investment bankers and a key securities analyst who covers MP3.com's stock. Comments and advisories issued to investors and the public by securities analysts can have a substantially adverse effect on a company's stock price, its overall market valuation and its overall business condition. Adverse information conveyed to a company's investment bankers can also affect the investment banker's willingness to deal with a company, and can adversely affect institutional and individual investors' interest in acquiring and holding a company's stock in their investment portfolios.
 
18. MP3.com is informed and believes, and on that basis alleges, that RIAA and Rosen have intentionally acted to disrupt MP3.com's relationships with its investment bankers and investors. Specifically, on or about January 18, 2000, Rosen and/or other RIAA agents telephoned the relevant stock analyst at one of MP3.com's investment bankers in California and conveyed RIAA's sense that the analyst's positive public comments were a risky position to take because record company members of the RIAA were angry about MP3.com. In addition, MP3.com is informed and believes and on that basis alleges that Rosen asked the analyst what would happen to MP3.com's stock if RIAA or its members sued the company. Several RIAA company members did in fact file a lawsuit against MP3.com in federal court in New York, New York on approximately January 21, 2000.
 
19. MP3.com is informed and believes and on that basis alleges that defendants took these actions and made these statements with the intent of disrupting MP3.com's relationships with its investment bankers and securities analysts, and with investors or potential investors in MP3.com stock, and with the further intent of damaging MP3.com's reputation, standing, and the level and stability of its stock price.
 
20. In addition to these activities, RIAA and Rosen have acted in other ways to interfere with MP3.com's business relationships. MP3.com is informed and believes and on that basis alleges that RIAA, Rosen and RIAA member companies acting in concert with them have made disparaging statements about MP3.com to music artists and their representatives, advertisers and other business partners or potential partners, and have used their influence and the implied threat of adverse commercial consequences to persuade or induce these individuals and businesses to discontinue or not to engage in business relationships with MP3.com.
 
FIRST CAUSE OF ACTION
(DEFAMATION)
 
21. MP3.com repeats and realleges the allegations of paragraphs 1 through 20 as if fully set forth herein.
 
22. In public and non-privileged communications, defendants have repeatedly vilified MP3.com and falsely accused it of sponsoring and participating in "theft," "piracy" and other disreputable and reprehensible activities. Defendants have in repeated public and non privileged communications impugned and called into question the honesty, integrity and ethics of MP3.com and its officers, directors, managers, employees and agents.
 
23. Defendants made their disparaging statements about MP3.com in their official and individual capacities.
 
24. Defendants made their statements intentionally and knowing that they were false or with reckless disregard for their truth or falsity.
 
25. Defendants' statements are allegations of fact that are false and unprivileged, and were made orally and committed to writing, or were made by defendants in writing. In each circumstance, defendants made the statements with the intent that they be republished to as broad and wide an audience as possible.
 
26. Defendants' statements constitute slander and/or libel per se.
 
27. Defendants have damaged MP3.com's reputation by imputing that it has engaged, and is continuing to engage, in illegal or immoral activities. Defendants' statements and imputations were intended to have, and have had, the effect of deterring individuals and entities from dealing with MP3.com and thereby damaging MP3.com's business, profits, stock stability and price, standing and reputation.
 
28. By reason of defendants' statements, MP3.com has been injured and suffered damages in an amount to be proven at trial. Defendants' conduct has been with malice, oppression and fraud, entitling MP3.com to punitive damages.
 
Wherefore MP3.com prays for relief as set forth below.
 
SECOND CAUSE OF ACTION
(TRADE LIBEL)
 
29. MP3.com repeats and realleges the allegations of paragraphs 1 through 28 as if fully set forth herein.
 
30. Defendants' statements are false and misleading allegations of fact that disparage and impugn MP3.com's business in general and the nature and quality of its services and operations.
 
31. Defendants made the statements intentionally to harm MP3.com and knowing that they were false or with reckless disregard for their truth or falsity, and without privilege or justification.
 
32. Defendants have damaged MP3.com's reputation by imputing that it has engaged, and is continuing to engage, in illegal or immoral activities. Defendants' statements and imputations were intended to have, and have had, the effect of deterring individuals and entities from dealing with MP3.com and thereby damaging MP3.com's business, profits, stock stability and price, standing and reputation.
 
33. By reason of defendants' statements, MP3.com has been injured and suffered damages in an amount to be proven at trial. Defendants' conduct has been with malice, oppression and fraud, entitling MP3.com to punitive damages.
 
34. Defendants threaten to continue engaging in acts of trade libel. Unless defendants restrained and enjoined by injunctive relief, MP3.com will continue to suffer irreparable harm for which no adequate remedy at law exists. Wherefore MP3.com prays for relief as set forth below.
 
THIRD CAUSE OF ACTION
(INTENTIONAL INTERFERENCE IN PROSPECTIVE ECONOMIC ADVANTAGE)
 
35. MP3.com repeats and realleges the allegations of paragraphs 1 through 34 as if fully set forth herein.
 
36. As the result of MP3.com's creation and on-going enhancement of its services, together with its broad and expanding popularity with consumers and attractiveness to music artists and their representatives, advertisers, investors, investment bankers and advisors, and other business partners, MP3.com has succeeded in establishing an increasingly valuable business. The continued and future expansion of the value of MP3.com's business and its stock depends upon continued willingness of consumers, music artists and their representatives, advertisers, investors, investment bankers and advisors, and other businesses to deal with MP3.com.
 
37. Defendants are aware of MP3.com's status as a leading online music provider in the MP3 format, and the existence and importance of MP3.com's relationships to consumers, music artists and their representatives, advertisers, investors, investment bankers and advisors, and other business partners.
 
38. Defendants intentionally and wrongfully interfered with these existing and future relationships by making false statements intended to disparage and impugn MP3.com, discourage MP3.com's consumers, music artists, investment bankers, advertisers, and other business partners from dealing with MP3.com, injure MP3.com's stock stability and price, and impede the growth and development of the MP3 market in general.
 
39. As the result of defendants' statements, the existing acceptance and viability of MP3.com's business and services have been and will continue to be impaired, the prospective economic advantage of MP3.com will be reduced, and MP3.com will suffer a loss and diversion of revenue, income, stock stability and price, profits, standing, reputation, and opportunities that it would otherwise enjoy from the continued and increased development of its business.
 
40. As the result of defendants' statements, MP3.com's economic and other relationships with existing and potential consumers, music artists and their representatives, advertisers, investors, investment bankers and advisors, and other business partners, have been disrupted, and will continue to be disrupted in the future.
 
41. Defendants' conduct has damaged MP3.com in its business and property in an amount to be proven at trial. Defendants' conduct has been with malice, oppression and fraud, entitling MP3.com to punitive damages.
 
Wherefore MP3.com prays for relief as set forth below.
 
FOURTH CAUSE OF ACTION
(UNFAIR BUSINESS PRACTICES)
(BUS. & PROF. CODE §§ 17200 ET SEQ.)
 
42. MP3.com repeats and realleges the allegations of paragraphs 1 through 41 as if fully set forth herein.
 
43. Through the wrongful conduct alleged above, defendants have engaged in unfair, unlawful and/or fraudulent business practices under Business and Professions Code Sections 17200 et seq..
 
44. As a result of defendants' continuing acts of unfair businesspractices, MP3.com has suffered and will continue to suffer irreparable injury for which no adequate remedy at law exists.
 
Prayer For Relief
WHEREFORE, Plaintiff MP3.com prays for judgment against defendants as follows:
 
1. On the First Cause of Action:
(a) Compensatory damages in an amount according to proof at trial.
(b) Punitive damages in an amount to punish defendants and deter them from future bad conduct.
 
2. On the Second Cause of Action:
(a) Compensatory damages in an amount according to proof at trial.
(b) Punitive damages in an amount to punish defendants and deter them from future bad conduct.
(c) An injunction enjoining and restraining defendants and their agents, servants, officers, employees, representatives, and all others acting in concert with or participating with them from further acts or utterances of trade libel concerning MP3.com and its services.
 
3. On the Third Cause of Action:
(a) Compensatory damages in an amount according to proof at trial.
(b) Punitive damages in an amount to punish defendants and deter them from future bad conduct.
(c) An injunction enjoining and restraining defendants and their agents, servants, officers, employees, representatives, and all others acting in concert with or participating with them from further acts of interfering with MP3.com's existing or future economic relationships and advantages.
 
4. On the Fourth Cause of Action:
(a) For an amount necessary to restore and/or disgorge to plaintiff all funds, profits, revenues and other gains acquired by means of
any act or practice declared to be unlawful or fraudulent or to constitute an unfair business practice under Business & Professions Code section 17200 et seq.
(b) An injunction enjoining and restraining defendants and their agents, servants, offices, employees, representatives, and all others acting in concert with or participating with them from further unlawful or fraudulent or unfair business practices against MP3.com.
 
5. On all Causes of Action:
(a) For reasonable attorney's fees and costs of suit.
(b) For each other and further relief as this Court may deem just and proper.
 
Dated: February 7, 2000
COOLEY GODWARD LLP
STEPHEN C. NEAL
MICHAEL G. RHODES
JAMES DONATO
 
By: [signature]
Michael G. Rhodes
Attorneys for Plaintiff
MP3.com, Inc.
 
 
DEMAND FOR JURY TRIAL
Plaintiff MP3.com demands trial by jury of all claims entitled to jury trial.
Dated: February 7, 2000
COOLEY GODWARD LLP
STEPHEN C. NEAL
MICHAEL G. RHODES
JAMES DONATO
 
By: [signature]
Michael G. Rhodes
Attorneys for Plaintiff
MP3.com, Inc.