"Although the fact Lessig retracted his counter-notice..."
I think the post by vagabondo above sums it up very well. Go and read it.
Although Lawrance Lessig is a Harvard professor, he's probably not in a position to defend a copyright infringement claim without somebody backing him up financially (american law is very expensive, and although he is a Professor in Law, he's probably not qualified to defend himself in court without professional representation). If this had been a free lecture for Harvard, then the University might have done so, but this was for Creative Commons, and they are probably not cash rich enough to assist.
What gets me is the fact that Liberation Music believe they have any chance of winning. If anybody understands DMCA and copyright law in America, it has to be Professor Lessig. If I were LM, I would be running away very fast, and trying to settle as quick as possible, not that Professor Lessig will allow that now he has decided to get a precident set.
My guess is that LM will lose, and pull up the drawbridge to the US, and never pay the damages. I only hope that if this happens, the US court will attempt to extradite the board of LM to the US. If that happened, a little bit of my rapidly diminishing respect of the US court system would be restored