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MP3.com: The Verdict is . . . Sell? Buy?

On Friday, it is likely that the stock price of MP3.com (MPPP) will either soar or plunge. It is on this day that a federal judge in New York will hand down a decision on the merits of the massive lawsuit against MP3.com from the Recording Industry Association of America (RIAA). Basically, the RIAA is accusing MP3.com of violating industry copyrights.

You see, MP3.com has a cool service that allows people to create an online database of their existing CD collection. So, if you have some old Bon Jovi CDs, you can zap these to your personal account and listen to them any time.

Of course, MP3.com argues that there are no copyright problems. Apparently the MP3.com technology scans a CD and determines if the user does really own it.

The RIAA suit is scary. The organization is asking for damages of about $10 billion. If such a judgment were rendered, MP3.com would be easily bankrupted.

Under this legal cloud, it is no surprise that MP3.com's stock has been a basket case, now sitting near an all-time low.

But, in the investment world, such situations can create great profit opportunities -- assuming you pick the right direction, of course. If you have the guts to play this stock before Friday, let's take a look at some of the scenarios.

First of all, MP3.com can put its fate in the hands of the judge. If the judge rules against MP3.com, the consequences are likely to be severe. The viability of the company will be in doubt. In the courtroom, nothing is guaranteed. After all, many thought OJ Simpson was guilty. A jury of his peers disagreed.

Of course, a win would be awesome. But I'm sure the RIAA will not give up and appeal. Thus, there will still be a cloud.

I think it is too risky for MP3.com to allow a federal judge to roll the dice on the company's future. While a company like Microsoft can do such a thing, it would be very draining, costly and time-consuming for MP3.com to fight this battle.

Rather, it makes more sense to pursue some type of settlement. This will end any uncertainty. Then, MP3.com can continue to pursue building its company and shareholders will not need to wonder about unquantifiable liability exposure. On the whole, it should be positive for the stock price.

So, it will be interesting to see what MP3.com does in the next few days. If I were them, I would be negotiating, not litigating.

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