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- 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
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- 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
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 7. Venue is proper in this Court under Code of Civil Procedure
Sections 395 and 395.5.
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- PRELIMINARY FACTUAL ALLEGATIONS
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- 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.
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- 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.
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- 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.
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- 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.
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- 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".
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 23. Defendants made their disparaging statements about MP3.com
in their official and individual capacities.
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- 24. Defendants made their statements intentionally and knowing
that they were false or with reckless disregard for their truth
or falsity.
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- 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.
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- 26. Defendants' statements constitute slander and/or libel
per se.
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- 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.
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- 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.
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- Wherefore MP3.com prays for relief as set forth below.
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- SECOND CAUSE OF ACTION
(TRADE LIBEL)
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- THIRD CAUSE OF ACTION
(INTENTIONAL INTERFERENCE IN PROSPECTIVE ECONOMIC ADVANTAGE)
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- 35. MP3.com repeats and realleges the allegations of paragraphs
1 through 34 as if fully set forth herein.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- Wherefore MP3.com prays for relief as set forth below.
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- FOURTH CAUSE OF ACTION
(UNFAIR BUSINESS PRACTICES)
(BUS. & PROF. CODE §§ 17200 ET SEQ.)
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- 42. MP3.com repeats and realleges the allegations of paragraphs
1 through 41 as if fully set forth herein.
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- 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..
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- 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.
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- Prayer For Relief
- WHEREFORE, Plaintiff MP3.com prays for judgment against defendants
as follows:
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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- 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.
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