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by Lessley Anderson

(IDG) -- In its quarterly earnings statement released last week, MP3.com beat Wall Street expectations and announced that its revenues had grown twentyfold in only one year. Despite this spot of good news, the company is in hot water.

The Recording Industry Association of America, which represents the five major labels (Sony, Universal, BMG, Warner and EMI) is suing MP3.com for a staggering $6.8 billion, alleging copyright violations.

The RIAA is enraged by two new services being offered by MP3.com. With the Beam It feature, after a customer loads a CD, MP3.com places a ready-made digital copy in a personalized MyMP3.com collection ö based on analysis of the CD's WAV files. The Instant Listening feature lets a customer order a CD from one of the site's retail partners, and deliver an MP3 copy into the customer's collection as soon as the credit card transaction clears.

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The two new services are fed by a database of more than 45,000 CDs that MP3.com has already bought and digitized. MP3.com CEO Michael Robertson calls the quick and easy process "instamagic." The RIAA is calling it copyright infringement, saying Robertson's company copies the CDs illegally and that MP3.com does not have the right to distribute the music to its customers.

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MP3.com supporters believe that, for the major labels, the lawsuit is less about protecting copyright holders than about keeping control of music distribution online. All of the major labels plan to begin selling digital music this year, which would carry a fixed cost and a layer of security that allows it to be played only on certain devices and software. Other rules may also be applied, like "time-outs," which would render a user's music unplayable after a certain period.

Meanwhile, MP3.com plans to charge a fee for its new services. Under the company's model, the labels would get nothing.

The legal issues surrounding the case are complex. Under the Audio Home Recording Act of 1992, a consumer is entitled to make a digital copy of a piece of copyrighted material for personal use. But since MP3.com ö not the consumer ö is doing the copying, the company won't be able to use this law in its defense. Instead, some lawyers predict that MP3.com will invoke the fair-rights statute of copyright law, which permits commercial parties to make copies of other peoples' copyrighted works under certain circumstances.

At least one lawyer warns against that tactic. "The fair-use doctrine ... frowns upon copying whole works," says Neil Rosini, a copyright attorney at Franklin Weinrib Rudell & Vassallo, and legal counsel for MP3.com rival MyPlay.com. "It allows for things like a broadcast of a movie clip for the purpose of reviewing it."

Andrew Bridges, the Wilson Sonsini Goodrich & Rosati attorney who successfully defended Diamond Multimedia against the RIAA in a highly publicized suit last year, says MP3.com will do best in court if it paints the online landscape as one where consumers are being denied access to alternative technologies.

"The question is, is it fair for consumers to find ways of listening to music that they have already paid for, in a different format, without having to pay for it again?" he asks.

MP3.com's strategy seems to be leaning that way. "We do clearly feel this is a consumer-rights concern," says Robertson.

The Net audio company will have to play the role of consumer-rights advocate convincingly. Its future may depend on it.