A federal judge today found the online music locker service MP3tunes and its founder Michael Robertson liable for copyright infringement. On paper, that's a victory for lead plaintiff EMI and its fellow record labels. But the judge's decision leaves them with little else to cheer about.

Robertson is a serial entrepreneur and perpetual thorn in the side of the recording industry. His first company, MP3.com, was shut down by the labels a decade ago. MP3tunes has a number of innovative features, including a search engine called sideload.com that allows users to find music on the Web and transfer it directly to their lockers. The recording industry argues that music locker sites are illegal without licenses from copyright holders, and they sued MP3tunes in 2007.

The case is important not only because it could decide the future of MP3tunes itself, but because it will help to establish the ground rules for any future legal disputes over music locker services from Google, Amazon, and others. If Judge William Pauley's reasoning is confirmed on appeal, it will put music locker services on a solid legal foundation.

Music lockers eligible for safe harbor

Under the DMCA, websites are immune from copyright liability if they promptly take down infringing material when notified by copyright holders and meet certain other criteria. MP3tunes argued it qualified for this safe harbor. EMI tried, unsuccessfully, to persuade Judge Pauley otherwise.

The labels argued that MP3tunes was disqualified because it should have known that many of the songs users sideloaded from websites such as rapidshare were infringing. But Judge William Pauley disagreed, arguing that the DMCA imposes no obligation to investigate potentially infringing activity absent a specific complaint from copyright holders. The only exception is links to sites with URLs containing "red flag" words like "pirate" or "bootleg."

EMI also argued that MP3tunes couldn't claim the DMCA safe harbor because it benefitted from its users' infringement and had the ability to control that infringement. But Judge Pauley disagreed. He held that there was no evidence MP3tunes directly profited from users' infringing sideloads. And he held that users, not MP3tunes, controlled which files users placed in their lockers.

In short, if Judge Pauley's reasoning is upheld on appeal, music locker services will have little trouble qualifying for the DMCA's broad immunity from copyright liability.

MP3tunes not off the hook

So why wasn't MP3tunes completely victorious? When EMI notified MP3tunes of specific infringing files on sideload.com, a music search engine operated by MP3tunes, the company removed the listings from search results. However, MP3tunes did not remove the corresponding files from users' lockers.

Judge Pauley ruled that this failure to act despite specific knowledge of infringing activities meant that MP3tunes lost DMCA immunity for those specific files. And he ruled that without the protection of the DMCA, MP3tunes was secondarily liable for helping users infringe the specific works EMI had notified MP3tunes about.

The judge also found MP3tunes founder Michael Robertson personally liable for sideloading some of EMI's copyrighted music to his own MP3tunes music locker from infringing websites.

Deduplication allowed

The ruling contains even more good news for music locker sites and fans of sensible copyright laws. As we reported last month, a key 2008 decision had suggested that locker sites would be more vulnerable to copyright infringement claims if they used deduplication technology to save hard drive space. That ruling was based on the theory that keeping a single "master copy" of a work and sending it to multiple users would constitute an infringing public performance.

Judge Pauley soundly rejected that line of reasoning, writing that "MP3tunes does not use a 'master copy' to store or play back songs stored in its lockers. Instead, MP3tunes uses a standard data compression algorithm that eliminates redundant digital data."

Sherwin Siy of Public Knowledge hailed the ruling, saying it "paves the way for both cloud locker services and integrated media search engines."

Conclusion

It's not clear where the ruling leaves MP3tunes. Judge Pauley's order holds that MP3tunes is liable for failing to remove a few hundred songs from users' lockers, and that Robertson is liable for sideloading infringing music to his personal locker. But the ruling did not specify what penalties MP3tunes would face. Our best guess is that MP3tunes will need to write a big check to EMI, but will be allowed to continue operating the MP3tunes and sideload.com services with minimal changes.

The news is even better for Google and Amazon. Those companies' music locker services do not even offer the broad sideloading functionality that has caused Robertson legal headaches. So if Judge Pauley's reasoning survives appeal, Google and Amazon will be on solid legal ground. Indeed, those companies may even want to start thinking about whether they've been too cautious. For example, they might save a lot of money by taking advantage of the deduplication part of the ruling.