Cashing in on the MPEG Layer 3 technology known to Internet-savvy music fans as MP3, Michael Robertson founded MP3.com in March 1998. The Internet music portal enables web surfers to search, sample, and digitally download music from the Net by utilizing MP3 technology - an audio compression technique that allows music files to be easily passed around and downloaded from the Net. By starting at the grassroots level with a broad base of unsigned artists, MP3.com has been able to foster the expansion of the digital music industry. Offering perks for participating artists that include 50 percent returns on CD sales, no binding contracts, and stock options for lucky pre-IPO participants, MP3.com has amassed a database of over 346,000 songs by over 56,000 artists - purportedly the largest collection of digital music available on the Internet. Robertson's massive Internet infiltration of the music industry has made quite a splash - MP3.com's initial public offering, at $28 per share, raised $361 million in net proceeds.

By claiming the widely-known MP3 domain, Robertson has managed to stake a major claim in a rapidly-growing market. With a massive database of unknown artists, MP3.com's entry into the music industry has been somewhat of a grassroots explosion. The music industry, with its long-established structure and binding contracts, is one that must be penetrated from the bottom up, according to Robertson's business approach. By starting with unsigned artists who are allowed to retain all rights to their creations, Robertson hopes to fundamentally change the structure of the industry. For the time being though, only a relative handful of the artists featured on MP3.com are gold or platinum sellers.

MP3's empire under fire

In spite of its popularity, MP3.com's road to success has not been obstacle-free. In April 1999, PlayMedia Systems, Inc., a leading developer of MP3 software technology, named MP3.com as a co-defendent in its suit against Nullsoft, Inc., a developer of the "Winamp" MP3 Internet music player. PlayMedia, claiming that commercial usage of its "AMP" MP3 decoding engine requires a license, allegedly found MP3.com to be the largest redistributor of its AMP decompressors, and is suing MP3.com for more than $15 million. PlayMedia's estimated damages, based on the number of Winamp players that MP3.com has distributed, date back to April 1998.

In April 2000, MP3 faced its biggest challenge yet. In a landmark lawsuit brought against it by five major record labels - as well as artists Metallica and Dr. Dre - a federal judge found MP3.com guilty of copyright infringement. The judge found that since MP3 made unauthorized copies of 45,000 compact discs, loaded them onto computer servers, and permitted its customers to download the music without consent from the record labels or the artist, the company was liable. It is not immediately clear how the ruling will affect MP3 or its practices on the Internet, though the company has stated its intent keep the site operating for its estimated 400,000 customers unless a court order forces it to stop.

In what amounts to good news for MP3 as well as two of the five recording giants suing the company, Warner Music Group and BMG reached settlements with the company in June 2000 to the tune of about $20 million each. Under the terms of the settlement, the companies issued the music-download site a license to use their copyrights for its My.MP3.com service, which requires MP3.com to pay the labels each time a copyrighted song is uploaded to the system and each time a song is streamed. MP3's legal troubles are still pending with Universal Music Group, EMI and Sony Music Entertainment, however, with little to no progress in the negotiations. The deal with Warner and BMG does set an important precedent in the fledgling Internet/copyright battle, one which may have far-reaching consequences in future settlements.