The Ninth Circuit of the US Court of Appeals ruled Monday that Napster infringes on record company copyrights through the operation of its music file-trading service. Nonetheless, the ruling also directs that Napster be allowed to continue operations until the original injunction is modified to comply with the appeals court's decision.
Like Napster's confused fate, the mixed reaction to the ruling raises questions of the legality of file sharing and the questionable future of myriad Napster clones.
For or against
Reactions depend upon which side of the Napster fence you sit. Opponents of Napster, such as the Recording Industry Association of America (RIAA), which has already requested Napster remove 12,000 copyrighted songs from the service, issued a statement suggesting it is pleased with the federal appeals court decision: "We're confident that the Ninth Circuit understands the severity of our claim and will uphold the decision of the US Federal Court. Monday's decision may finally clear the way for the legitimate online marketplace to thrive in an environment that encourages both creativity and a respect for copyright."
Others in the music industry have reached agreements with Napster, including Bertelsmann AG, the parent company of BMG Entertainment. It says it will drop its lawsuit against Napster and has announced plans to invest a reported $US50 million in the company once it creates a pay service that affords artists' royalties. Napster's subscription service will become available in June or July, a Bertelsmann executive said recently.
The Consumer Electronics Association is "greatly disappointed" in the ruling, which impacts the "development of new technologies," says Jeff Joseph, vice president, communications for CEA.
"If consumers have to pay for every download, it could have a chilling effect on current technology such as MP3 players and digital recorders," Joseph says.
Larger questions loom for the music industry that has seen Napster knockoffs prosper on the coattails of Napster's success. Peer-to-peer services such as Gnutella and Freenet have been gaining mainstream momentum.
Guilty as charged
The court upheld the findings of the lower court almost universally, holding that Napster's service is not protected by fair use. The court also said the service is guilty of two kinds of copyright infringement, has failed to police its system in an attempt to stop the spread of copyrighted works, and does substantial harm to record companies.
"Napster, by its conduct, knowingly encourages and assists the infringement of [record company] copyrights," the court wrote in its decision.
The ruling is the result of a lawsuit brought by the RIAA on behalf of the five major record labels--BMG Entertainment, Warner Brothers Music Group, EMI Group, Sony Music Entertainment, and Universal Music Group -- in December 1999.
The RIAA had asked the court to find the company guilty of both contributory and vicarious copyright infringement and to shut down the service because it was causing its member companies irreparable harm. The trading of MP3 files, it said, amounts to stealing because it lets users who have not purchased songs download, play, and store them. The RIAA charged that Napster executives knew infringement was taking place and were contributing to it by providing the service.
Napster cries fair use
The Napster service lets users search for MP3 music files on the computers of other users online and download the tracks they want directly from those users, bypassing any central servers, a technique called peer-to-peer computing. The lack of central servers in the system is at the heart of Napster's defence. Because no copyrighted material resides on company servers--which only house directories of files, not the files themselves--Napster argued it was not liable for any infringement being committed.
It can't be held liable, the company further argued, because in trading files its users are simply exercising their right to fair use. Fair use is a consumer right that allows private, non-commercial trading of copyrighted materials among friends and family.
CEA supports Napster's fair use arguments.
"[CEA] can make an argument that those uses--general file sharing--falls into fair use," CEA's Joseph says.
"We recognise that there is a legitimate business here, and legitimate property should be protected," Joseph says. "But rights that existed in the analog age [such as copying cassette tapes] should transfer to the digital age. As a general principle we think that's a good starting point."
Napster further argued that the RIAA's own figures show that music sales increased in 2000 and that Napster, therefore, is not causing harm but rather is spurring sales.
Judge Marilyn H. Patel disagreed and issued an injunction against the company in late July, ordering that the service be shut down immediately, pending resolution of the trial. That injunction was stayed the next day, however, by a US Appeals Court. Monday's decision is the result of oral arguments made before the Ninth Circuit in October.
Internet industry organisation NetCoalition.com, whose members include America Online and Yahoo, applaud the part of the decision requiring the lower court to review the applicability of the Digital Millennium Copyright Act to this case.
Dismissing the DMCA from this case could mean Internet service providers would be liable for illegal sharing of copyrighted material by their users.
One of the more telling stories of division in the Napster case is reaction among recording artists.
Manager Terry McBride, who represents Barenaked Ladies, Dido, and Sarah McLachlan, says he is pleased with the court's ruling.
"I'm thankful copyrights are going to be protected," McBride says. Recognising that even if Napster is eventually forced to shut down or becomes something less, the ability to protect copyrights is still daunting. "The subscription model is inevitable; the question is what it is going to look like. Now I hope we can move forward and try to find a way to make it work for the artists."
Others think Napster has contributed to their success and the spirit of music.
"Napster can't be shut down," says Paul D. Miller, aka DJ Spooky, a pro-Napster musician. "The Napster-ization of music is an inevitable scenario. If it's not Napster, it will be any one of the ten different music-swapping programs." Rather than trying to curb music-swapping online, he promotes the creation of new licensing schemes. Miller is one of several pro-Napster musicians, along with Limp Bizkit and Ben Folds Five.
Survival of the fittest
Besides BMG, music companies such as TVT Records and edel Music AG have also signed agreements with Napster. None of the four remaining major labels, widely seen as being integral to the success of such a service, have yet made any moves toward signing such deals.
And other file-sharing services have faced a similar challenge. After closing down its file-sharing services due to copyright infringement issues, Scour plans to relaunch in March. This time it will incorporate digital rights management technologies.
CenterSpan Communications, which purchased Scour in December, feels today's ruling is "the first step in the legal process--a very strong first step that upholds the rights of copyright holders," says Keith Halasy, Centerspan corporate marketing director.
Halasy says he thinks that adding copyright protection technology will put the new Scour service in a better position to compete with Napster.
Napster, which has an estimated 60 million users, was founded by Northeastern University dropout Shawn Fanning in 1999.