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PROFILE PUBLISHING & MGMT. CORP. APS v. MUSICMAKER.COM

January 23, 2003

PROFILE PUBLISHING AND MANAGEMENT CORPORATION APS, PLAINTIFF,
V.
MUSICMAKER.COM INC., DEFENDANT.



The opinion of the court was delivered by: Owen, United States District Judge

OPINION AND ORDER

Plaintiff Profile Publishing and Management Corporation APS (Profile) moves for: (1) summary judgment pursuant to Fed.R.Civ.P. 56(a) for the balance due on a music licensing contract; (2) an Order dismissing Defendant Musicmaker.com. Inc.'s (Musicmaker) counterclaims and affirmative defenses; and (3) an Order imposing sanctions on Musicmaker pursuant to Fed.R.Civ.P. 11(c). Musicmaker cross-moves For leave to amend its answer and counterclaims pursuant to Fed R. Civ P. 15(a) to assert the defense of frustration of purpose.

Profile is a Danish corporation that owns the publishing and distribution rights to a significant portion of the musical recordings by the musical group The Who. Musicmaker is a Delaware corporation that owned and operated an internet web site which provided to consumers custom disc compilation services which allowed customers to either create and purchase digital musical recordings on compact discs or to pay to download music from Musicmaker's catalog of licensed recordings.

Profile and Musicmaker entered into a contract on December 28, 1999 whereby Profile licensed Musicmaker to use several live recordings by The Who, the agreement giving Musicmaker the exclusive right to sell copies of these recordings worldwide over the internet for a ten year term, and the non-exclusive right to broadcast and/or publicly perform them for that period. Profile retained the right to release recordings of this material through normal retail channels. The agreement called for Musicmaker to pay Profile a percentage of the sale price for each sale, and to pay an advance against royalties of $2,500,000 — $1,500,000 upon receipt of the Master recording, and Four quarterly payments thereafter in the amount of $250,000 each. Musicmaker received the master recording on February 28, 2000, began selling the recordings over its website, and made the first four required payments on time. In January 2001, Musicmaker shut down its web site and announced plans to liquidate the company. Musicmaker then failed to make the final $250,000 payment which was due on February 28, 2001 and is the subject of this action.

Some seven or eight months before the parties here entered into their contract, in May 1999, Napster.com came into existence. It was a peer-to-peer file sharing website that had the effect of making copyrighted music available for free to anyone on the internet. However, it was but one of many thousands of internet sites offering music for free. Two months before the contract was signed here, contained in an October 28, 1999 internet printout, puzzlingly put before me by Musicmaker, the trade was being told internationally:

The following press release issued today by the International Federation of the Phonographic Industry (IFPI), announces a global attack on music piracy with special attention to individuals and companies uploading illegal MP3 files and Internet service providers hosting illegal MP3 sites.
Fighting Internet piracy involves targeting two groups — people who are uploading infringing material on to the internet — commonly in the MP3 Format — to be downloaded for Free.
IFPI launched a global structure two years ago to Fight the proliferation of CD piracy, now worth $4.5 billion annually. The new global strategy to fight Internet piracy reflects the recording industry's concern over spreading online piracy in the next few years.

MUSIC ON THE INTERNET — KEY FACTS

It is estimated that 1 million illegal music Files are posted on the Internet — yet few countries outside the USA have adequate legislation to fight Internet piracy. . . .

Exhibit B to the affidavit of Stuart Jackson. March 30, 2001.

Three weeks before the contract was signed here, on December 6. 1999, the Recording Industry Association of America (RIAA), a trade group that represents the U.S. recording industry, filed a highly publicized suit against Napster for copyright infringement. The RIAA suit received widespread coverage in the press. including the front page of Billboard magazine. the trade newspaper for the music industry, in its December 18, 1999 issue.

Profile contends that Musicmaker's proposed defense of frustration of purpose lacks merit and that the amendment would, therefore, be futile. "[W]here, as here, the cross-motion is made in response to a Fed.R.Civ.P. 56 motion for summary judgment, and the parties have fully briefed the issue whether the proposed amended complaint could raise a genuine issue of fact . . . the court may deny the amendment as futile when the evidence in support of the. ...


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