Naturally, UMG appealed, and in doing so made some compelling arguments about the wording of the law. The appellate court agreed, and has now issued pretty much the opposite decision: pre-1972 sound recordings are not covered by the DMCA (pdf and embedded below) and thus Grooveshark has no DMCA safe harbors for such songs.

There are a few different parts to the ruling, but the core argument is straightforward: section 301(c) of the Copyright Act explicitly states that no "rights or remedies" under common law copyright on pre-1972 recordings shall be "annulled or limited" until 2067, and it's pretty hard to argue that the DMCA doesn't do that:

Initially, it is clear to us that the DMCA, if interpreted in the manner favored by defendant, would directly violate section 301(c) of the Copyright Act. Had the DMCA never been enacted, there would be no question that UMG could sue defendant in New York state courts to enforce its copyright in the pre-1972 recordings, as soon as it learned that one of the recordings had been posted on Grooveshark. However, were the DMCA to apply as defendant believes, that right to immediately commence an action would be eliminated. Indeed, the only remedy available to UMG would be service of a takedown notice on defendant. This is, at best, a limitation on UMG’s rights, and an implicit modification of the plain language of section 301(c). The word “limit” in 301(c) is unqualified, so defendant’s argument that the DMCA does not contradict that section because UMG still retains the right to exploit its copyrights, to license them and to create derivative works, is without merit. Any material limitation, especially the elimination of the right to assert a common-law infringement claim, is violative of section 301(c) of the Copyright Act.

For defendant to prevail, we would have to conclude that Congress intended to modify section 301(c) when it enacted the DMCA. However, applying the rules of construction set forth above, there is no reason to conclude that Congress recognized a limitation on common-law copyrights posed by the DMCA but intended to implicitly dilute section 301(c) nonetheless.

...

Under such circumstances, it would be far more appropriate for Congress, if necessary, to amend the DMCA to clarify its intent, than for this Court to do so by fiat.

Take note of that last bit, because this ruling has made it more true than ever. And that's where the problems come in. It seems pretty clear that there is some sloppy drafting in how the DMCA is written (which isn't a surprise), in that what you have is wording that can be read this way, even though it clearly goes against the intent and purpose of the DMCA. If the DMCA's safe harbors don't apply to pre-1972 recordings, then the DMCA's safe harbors no longer apply at all to any service that includes music. That can't be what Congress intended, even if the wording of the law can be read that way.

Thus, if you go strictly by the wording, while ignoring the intent, the logic of the decision is sound, but the implications are disturbing: as Grooveshark pointed out in their defense, this interpretation would gut the DMCA. One of the key purposes of safe harbors was to prevent online services from needing to proactively scan for infringing works, since that would drastically and unfairly limit their growth, and we wouldn't have things like YouTube today if that were the case. But if pre-1972 recordings (which is plenty of material) are not included, then user-generated content sites do have to scan everything. And while it might be somewhat easier to identify pre-1972 recordings than it is to identify infringing uploads, it would still be insanely prohibitive — not to mention the massive loss to our culture from having a huge chunk of music history mostly vanish from the internet.

It's a little unclear just how far-reaching this ruling will be (it's at the state level, and it is in itself explicitly contradicting the earlier MP3Tunes ruling, which it declares to be "wrongly decided") but the potential implications are huge. Exempting all pre-1972 recordings from the DMCA would impact all corners of the internet in a bad, bad way. The only optimistic thought is that perhaps it would force congress to revisit the law, and we could finally push for a Digital Millennium Copyright Act that actually works in the digital millennium.

Free Promotional MP3 of one song to the public for free download from Peter Moréns album (as do most indie labels). They would offer "Social Competence" for free download on touchandgorecords.com, Peter and Touch and Go's Myspace pages, plus encourage as many third party online zines, podcasts, blogs, major web portals to host the MP3 for free download on their site. We are being told that historically the track which is offered for free like this is usually still the top selling track in digital retail. They would like to offer this promotional MP3 download for nine months. After that initially period the promotional partners will replace the MP3 download with a stream for the duration of the license of the album including offering a stream of the song on their website and on their Myspace page and Peter's Myspace page, or until they decide to ask these partners to remove the stream.

The label has given us a further explanation of why they pursue this strategy. One promotional MP3 per album is the best way they can virally promote the album which will increase sales and thus revenue on the compositional side as well as the master recording side. This promotional technique has proven to be so effective, that virtually every free track they have issued from an album has maintained itself as the top selling track from the album. It also enables them to offer something from the album to the myriad of sites, blogs, podcasts out there that would be tempted to give away unauthorized materials, perhaps the entire album, if they do not have the option to feature a track that they offer to them. This control mechanism is vital to their methods of slowing piracy of albums.

Since November 2007, EMI Music and EMI Music Publishing have been engaged in a lawsuit with MP3tunes and its principal, Michael Robertson, in connection with Mr. Robertson's facilitation of widespread copyright infringement on MP3tunes.com and Sideload.com. These sites have built their businesses on the unauthorized distribution of music, at the expense of EMI's songwriters and artists.

Now on the eve of trial, and after an ongoing press campaign claiming that MP3tunes would fight to vindicate its 'right' to infringe, Mr. Robertson has filed for bankruptcy protection for MP3tunes in the Southern District of California. After four and a half years of Robertson's bluster and rhetoric, it is apparent to EMI that Robertson has finally realized that his case has no merit.

While Robertson may believe that MP3tunes will be able to escape liability in the upcoming trial through this bankruptcy, Robertson himself is still a named defendant in the case and the Court has already determined that both he and MP3tunes have infringed EMI's copyrights. As such, he is facing personal liability both for infringements that the Court has already determined have occurred and for the further alleged infringements that will be addressed at trial. Accordingly, EMI will continue to pursue its case against Robertson, to ensure that its songwriters and artists are properly compensated for their creative work.

At every opportunity EMI dragged out the legal process making it costly and burdensome. One example is the interrogation of company employees in all-day inquisitions called depositions where attorneys try to trick people into making admissions. In our case, they deposed not just management but nearly everyone in the company all the way down to clerical help and customer support personnel. They even paid $25,000 to get an ex-employee to agree to a deposition. For management they deposed everyone - some multiple times with me getting deposed 3 separate times.

The legal pressure was not just confined within MP3tunes. EMI sent legal demands to existing partners and potential partners were told they could not work with MP3tunes or risk losing their license to sell EMI music. More than one digital company told us they wanted to work with us, but were prohibited from doing so by EMI. They used their government-granted copyright monopoly to get MP3tunes blackballed in the industry.

EMI spent an estimated $10 million dollars with multiple law firms to arm their attack against MP3tunes in an attempt to thwart unlicensed personal lockers. They know it's difficult if not impossible for startups to fight long costly legal battles. Their hope is that the startup cannot fund a protracted legal battle and they win by default. This happened with the music search engine Seeqpod, Muxtape, Favtape and many others that have quietly faded away. They know that even if the digital upstart prevails in court, they will be terminally weakened. Veoh won multiple rounds of their copyright battle outright only to be forced into bankruptcy after spending $7 million on legal bills.

EMI's interpretation of 301(c) would eviscerate the purpose of the DMCA. "Where an examination of the statute as a whole demonstrates that a party's interpretation would lead to 'absurd or futile results ... plainly at variance with the policy of the legislation as a whole,' that interpretation should be rejected." Yerdon v. Henry,.... As discussed, the DMCA was enacted to clarify copyright law for internet service providers in order to foster fast and robust development of the internet. Limiting the DMCA to recordings after 1972, while excluding recordings before 1972, would spawn legal uncertainty and subject otherwise innocent internet service providers to liability for the acts of third parties. After all, it is not always evident (let alone discernible) whether a song was recorded before or after 1972. The plain meaning ofthe DMCA's safe harbors, read in light of their purpose, covers both state and federal copyright claims. Thus, the DMCA applies to sound recordings fixed prior to February 15, 1972.

Blatant infringers typically are those who upload or post unauthorized content, allowing others to experience or copy the work. See Viacom v. YouTube.... (finding reasonable a policy that terminated users who uploaded content after warning); see also 10 Grp., Inc. v. Veoh Networks ... (same). The record reveals that MP3tunes' users do not upload content to the internet, but copy songs from third-party sites for their personal entertainment. There is a difference between (1) users who know they lack authorization and nevertheless upload content to the internet for the world to experience or copy, and (2) users who download content for their personal use and are otherwise oblivious to the copyrights of others. The former are blatant infringers that internet service providers are obligated to ban from their websites. The latter, like MP3tunes users who sideload content to their lockers for personal use, do not know for certain whether the material they download violates the copyrights of others.

For example, MP3tunes employee e-mails reveal discussions about the legitimacy of some third-party sites and, on at least one occasion, a recommendation that a site be removed from Sideload.com. But ultimately there is no evidence that MP3tunes executives or employees had firsthand knowledge that websites linked on Sideload.com were unauthorized. (See Bart Decl. Exs. 64-66.) While knowledge is not an element of copyright infringement, it is relevant to a services provider's decision whether appropriate circumstances exist to terminate a user's account.

From the outset, many have been puzzled by EMI's decision to target MP3tunes as well as me personally with this lawsuit but it becomes clearer when one understands the chaos of EMI's management and their relationship to an outside legal firm. An outside corporation performs all the litigation work for EMI. This firm doesn't care if they win or lose the case because they get paid to fight. The more they fight, the more they get paid. This explains why in this latest move they went back to the same Judge with the same evidence telling him he got it wrong and asking him to reverse his findings. Unsurprisingly this rarely works, but it's a chance for more billable hours and to increase their bills to more than $6 million. The fact that it actually makes an appeal more difficult for EMI is a plus because that means more time will have to be spent on those creating even greater riches for the attorneys.

Extensive turnover in EMI's management means nobody is there to oversee the litigation costs or strategy. Currently EMI is owned by the megabank Citigroup who is likely unaware of the runaway legal expenses or fruitless strategy since they are concerned only with finding a buyer for EMI to get their multi-billion dollar investment back. The litigation firm senses this leadership vacuum and operates unimpeded taking every opportunity to drag out what is now a 4 year legal process with countless motions. An unlimited legal budget benefits only the lawyers not EMI. Maybe it will take a new owner to rein in the attorneys, but any objective analysis shows they are hurting EMI more than helping.

The record reveals that MP3tunes's users do not upload content to the internet, but copy songs from third-party sites for their personal entertainment. There is a difference between users who know they lack authorization and nevertheless upload content to the internet for the world to experience or copy, and users who download content for their personal use and are otherwise oblivious to the copyrights of others. The former are blatant infringers that internet service providers are obligated to ban from their websites. The latter, like MP3tunes users who sideload content to their lockers for personal use, do not know for certain whether the material they are downloading violates the copyrights of others.

EMI's argument misconstrues the DMCA and applicable case law. Even assuming the representative lists properly identified EMI's copyrighted works, EMI had to provide sufficient information--namely, additional web addresses--for MP3tunes to locate other infringing material.... EMI's notifications provided only enough information for MP3tunes to remove the noticed websites from Sideload.com and to find and remove copies of songs sideloaded from those websites. They did not identify the location of additional infringing material, let alone all of EMI's copyrighted works. Absent adequate notice, MP3tunes would need to conduct a burdensome investigation in order to determine whether songs in its users' accounts were unauthorized copies. As discussed, the DMCA does not place this burden on service providers.

For instance, the websites rapidshare.com, fileden.com, and filefactory.com, as well as other sites used by MP3tunes executives to sideload songs do not use the words "pirate" or "bootleg" or other slang to indicate their illegal purpose and they are not otherwise clearly infringing. They are simply popular file sharing sites.

Because of these activities, EMI's executives concede that internet users, including MP3tunes' users and executives, have no way of knowing for sure whether free songs on the internet are unauthorized.

However the financial benefit must be attributable to the infringing activity.... While Sideload.com may be used to draw users to MP3tunes.com and drive sales of pay lockers, it has non-infringing users. Moreover, MP3tunes did not promote infringement. Rather, it removed infringing links... and terminated the accounts of users who blatantly shared copyright files with others.

Actually, maybe this part is even better: Many radio stations transmit the names of the songs and bands they’re playing. DAR.fm captures that information and detects song breaks. In other words, if you record a day or so of a music station, you’ve suddenly got a tidy list of songs, identified (and sortable) by title or band. You can listen to individual songs, skip the turkeys and otherwise enjoy your totally free song collection. It’s crazy cool, like a hybrid of iTunes and satellite radio.

Internet entrepreneur Michael Robertson has just launched his own economic stimulus program. He’s going to provide jobs for a lot of lawyers.

That’s because Robertson has created a new online service called DAR.fm, which delivers a new way to listen to Internet radio streams. DAR.fm is a digital recorder for audio streams, capturing your favorite Internet radio shows whenever they’re broadcast so you can listen to them later. It works, it’s wonderful, and it’s very possibly doomed, because the world’s leading music recording companies will probably come after it with every attorney they have.

This list is just a fraction of the songs EMI makes available, but it's irrefutable that EMI uses free song files as promotion. Astonishingly they are still telling the court that they don't authorize song files to be distributed for free. They are denying these songs are legitimate in spite of overwhelming evidence of MP3 files from retailers, blogs, artist sites, label sites, and marketing sites. Even when you point to one of their own corporate blogs which offers downloads they remain steadfast in their claim that they don't distribute MP3s online for free.

Thanks to the MP3tunes user community, we have powerful evidence to refute EMI's claims that they don't distribute promotional songs. I think it's one of the first examples of crowdsourcing evidence. The evidence was assembled not by parties to the litigation or their legal teams but citizens with a computer and motivation to help out. We'll learn later this year whether it will help MP3tunes prevail.