In a case expected to have far-reaching implications for digital-music distribution, a federal judge dealt Web site MP3.com a walloping blow when he ruled on Friday (April 28) that its music-storage service violates the copyrights of the major record labels.

While a label trade group hailed the decision, MP3.com vowed that the lawsuit — potentially worth millions of dollars in fines — would not shut down the company.

"We look at this as we're in a heavyweight fight, and there's five heavyweights in the ring," MP3.com Chief Executive Officer Michael Robertson said, referring to the five major record labels. "We didn't think it was going to be easy, we don't think it's going to be easy going forward."

U.S. District Judge Jed Rakoff said in his decision that he expects to explain the grounds for the ruling within two weeks. MP3.com lawyer Michael Rhodes said the company would appeal.

My.MP3.com, the free service in question, is built around a computer database holding the music of 80,000 albums. When My.MP3.com users put a CD in their computer disc drive while connected to the Internet, the service identifies the CD and instantly puts MP3 copies of its songs in the users' online account.

Users can then listen to that music, but not download and save it, from any computer with an Internet connection.

The Recording Industry Association of America sued MP3.com, claiming the San Diego company had no right to create its database without a license from the five major music labels.

"We are pleased with the court's decision today," RIAA President and Chief Executive Officer Hilary Rosen said in a statement.

RIAA publicist Jason Maloni said the group had no further comment. Lawyers for both sides were scheduled to meet with Rakoff at 5 p.m. EDT Friday, he said.

"It's a huge line in the sand demarcating exactly what is and is not a viable use of intellectual property," said Jupiter Communications Internet analyst Aram Sinnreich.

Suit Centers On Fair Use

The question posed by the suit is whether My.MP3.com is an online device that allows consumers' fair use of music or a service that illegally capitalizes on other companies' copyrights, Sinnreich said.

With damages ranging from $750 to $30,000 per infringing song in the database, MP3.com could face millions or even billions of dollars in fines.

Robertson has portrayed My.MP3.com as responsible for requiring that users own a CD to have it "beamed" to their online account, although users can borrow others' CDs for the service.

"When new, responsible technologies for delivering music like My.MP3.com are attacked and shut down, it leaves a vacuum for other technologies that are not responsible to fill," he said. He cited Napster as a program that allows people access to music without owning a CD of that music.

Napster is a software program that allows users to easily download MP3 files from one another. The RIAA, hard-rockers Metallica and rapper Dr. Dre have filed copyright infringement suits against Napster Inc.

"I think the record companies have failed to recognize that a settlement with MP3.com would to some extent create new business plan and revenue stream for them," said Tony Dimitriades, manager of Tom Petty. "Plus it's an alternative way to deal with the Napster situation."

Napster publicist Roy Dank said the company had no comment.

MP3.com has been in contact with the major record companies, but Robertson would not comment on whether settlement talks were taking place.

Future Of My.MP3.com

The next phase of the case will determine fines MP3.com has incurred as a result of the ruling. Robertson said My.MP3.com will continue operating until the RIAA asks that its members' work be removed from the service. On Friday, major-label work such as Kid Rock's Devil Without a Cause and its single "Bawitdaba" (RealAudio excerpt) could still be accessed through My.MP3.com.

Even if the major-label work has to be removed, the service will continue with music from non-major-label artists, he said.

Because 80 percent of MP3.com's income stems from advertising, the potential loss of My.MP3.com will not hurt the company's revenues, Robertson said, although the company eventually planned to charge for the service. The company has $350 million cash on hand to fight the case.

In February, MP3.com filed a countersuit against the RIAA, claiming that the organization was interfering with MP3.com's business. That suit was dropped quietly about a month ago, Chief Operating Officer Robin D. Richards said. Asked why, he would only say, "Because we're nice guys."

MPL Communications, the publishing company owned by former Beatles member Paul McCartney and R&B groups the Coasters, the Drifters and the Chambers Brothers also have sued MP3.com for copyright infringement.