Napster, the online music exchange shuttered by the recording industry's legal action, is allowed to investigate whether the record companies misused their copyright in attempt to control the market for online music, a U.S. District Court Judge ruled Friday.
The ruling marks a small victory for Napster. If the record companies misused their copyright, either through restrictive licensing or antitrust law violations, it could invalidate the suit against Napster. However, the recording companies could again bring a case after adjusting their practices, Judge Marilyn Hall Patel wrote in her ruling.
Napster's argument that the recording industry is violating antitrust laws by launching its own online joint ventures -- MusicNet and Pressplay -- was heard by Judge Patel, who wrote that evidence suggests that the industry's entry into the digital distribution market "may run afoul of antitrust laws."
"These ventures look bad, smell bad and sound bad," Judge Patel wrote. "These joint ventures bear the indicia of entities designed to allow plaintiffs (the recording companies) to use their copyrights and extensive market power to dominate the market for digital music distribution."
MusicNet is the digital music distribution company formed by AOL Time Warner Inc., Bertelsmann AG, EMI Group PLC and RealNetworks Inc., and Pressplay was formed by Vivendi Universal SA and Sony Music Entertainment Inc.
Concerns that the major-label-backed services would collude to set unfair licensing practices that would edge out competitors moved the U.S. Department of Justice to launch an investigation into the recording industry's online music initiatives last year.
Napster took out a license for the MusicNet service to be able to offer some type of online service in the future. That license, Judge Patel concluded, is so restrictive that it "effectively grants MusicNet control over which content Napster licenses."
The record companies, in a statement issued by the Recording Industry Association of America Inc., said they believe the allegations of misuse of their copyright are "without merit" and that the investigation now ordered by the court will confirm so.
In addition to the antitrust allegations, Napster was also given permission to investigate whether the recording companies actually own the copyrights they claim to own. Judge Patel indicated that she suspects this won't be a fruitful avenue for the defendant. She called it "highly unlikely that (the record companies) have failed to secure ownership interests in the works that are the foundation of their business."
Judge Patel set a hearing for March 27 to discuss the discovery granted to Napster. The parties have to submit a joint statement and plan for discovery ten days before the hearing.