I'm not sure if having to upload your music before it's de-duplicated makes a legal difference, but I bet it came into play. I have long thought of the possibility of hacking up the dropbox binary to fake hashes of known music I didn't have and get access instantly
Judge Jed S. Rakoff, in the case UMG v. MP3.com, ruled in favor of the record labels against MP3.com and the service on the copyright law provision of "making mechanical copies for commercial use without permission from the copyright owner." Before damage was awarded, MP3.com settled with plaintiff, UMG Recordings, for $53.4 million, in exchange for the latter's permission to use its entire music collection.
https://secure.wikimedia.org/wikipedia/en/wiki/MP3.com#My.MP...