Grooveshark Faces $736 Million in Copyright Damages

As Grooveshark parent company Escape Media prepares to face off against the world's largest record labels in New York later today, the company is bracing for the worst. In a pre-hearing ruling a judge described Grooveshark's copyright violations on 4,907 tracks as "willful", potentially putting the company on the hook for $736 million in damages.

groove2Streaming music service Grooveshark has been through some turbulent times in its relatively short history, but events this week could determine the company’s future.

The dispute with the world’s largest recording labels in UMG Recording Inc et al v. Escape Media Group Inc et al is without doubt Grooveshark parent company Escape Media’s biggest challenge yet. At its heart is a copyright infringement claim that could run into hundreds of millions of dollars.

While the suit itself is complex, at its core is the complaint that Grooveshark co-founders and employees historically uploaded more than 150,000 infringing tracks to Grooveshark in order to increase its popularity.

“Please share as much music as possible from outside the office, and leave your computers on whenever you can,” wrote co-founder Josh Greenberg in an email to staff. “This initial content is what will help to get our network started—it’s very important that we all help out!”

As a result, last September U.S. District Judge Thomas P. Griesa ruled that the company’s two co-founders were directly and secondarily liable for infringing the copyrights of nine large recording labels.

Ahead of the trial which is due to begin today in the Federal Courthouse, New York, Judge Thomas P. Griesa delivered yet another blow to Grooveshark parent company Escape Media.

Noting that the case now involves ‘just’ 4,907 recordings (2,963 tracks plus 1,944 “employee uploads”) Judge Griesa said that the label plaintiffs have chosen to pursue statutory damages, meaning that if infringements are found to be “willful”, Grooveshark could be on the hook for $150,000 per track.

In the event the ruling notes that the court has already determined that Grooveshark acted both “willfully” and “in bad faith” although some defense will be allowed.

“Defendants may present proof as to the degree and extent of their willfulness or bad faith,” the Judge writes.

Among other things, Escape will argue that between 2007 and 2009 it showed good faith by approaching a number of the record company plaintiffs in an attempt to negotiate licensing deals.

“[The] court will permit defendants to present evidence at trial concerning the general factual background – but not the substantive financial terms – of the
parties’ negotiations for future licensing. Such evidence or argument must be tethered to defendants’ state of mind or conduct in infringing the Works in Suit,” Judge Griesa adds.

If the jury doesn’t buy the arguments of Escape / Grooveshark and decides it appropriate to award the top rate, Escape Media could be forced to pay in excess of $736 million in damages. The jury could also award much less, but it’s difficult to envision an affordable outcome to the case for the streaming music service.

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