I can't resist pointing out that this is exactly what Grooveshark is currently being sued for.

From what I read Grooveshark is being sued by EMI for non-payment of royalties. UMG is suing Grooveshark for uploading music from its pre-1972 catalogue. However this all depends on the wording of the licensing agreement.

This is hardly comparable to uploading DVD screeners and R5s. Grooveshark to be operating legally (as they didn't get raided I'm guessing they're operating way too close to the law - well within counter-suit territory - for the major labels to actively attack them) would have had to be uploading the labels authorized versions, which likely means UMG gave them access to their pre-1972 catalogue without giving them approval to use it.