Judging Napster

Napster's free service now boasts 36 million users. In September, Napster's software was installed on 30 per cent of the personal computers examined by PC Pitstop, an online computer diagnostics service, up from 12 per cent in March.

The next twist will come when a three-judge panel at the 9th US Circuit Court of Appeals finishes deliberating the validity of an earlier injunction, stayed in July, that would require the startup to close its marquee song-swapping service.

When the judges -- Mary Schroeder, Robert Beezer and Richard Paez -- will hand down their opinion is anyone's guess. What isn't in doubt is that the brouhaha over Napster has made the ruling into the most eagerly anticipated release since Madonna's Music. In part, that's because it could affect the development of the entire online music industry.

The judges' options are relatively limited. They can either uphold or overturn the original injunction, or they can send it back to Judge Marilyn Hall Patel, who issued the original injunction, for reconsideration. They also can hope that the two battling parties, Napster and the Recording Industry Association of America, can settle the issue amongst themselves, although that seems unlikely.

For Napster, an opinion upholding the original injunction would almost certainly be its death knell. It would be forced to close its key attraction -- its file-sharing service -- pushing users to programs like Gnutella and Freenet.

The two sides would likely move to trial at the district court level, although Napster's main draw would remain closed throughout the process. Even if Napster won a trial, which lawyers say probably wouldn't start until next year, it would likely suffer erosion of its customer base, making it less attractive to potential buyers or future investors.

Attorneys following the case, however, say the original injunction is unlikely to be upheld. The appeals court probably wouldn't have heard the case if it didn't believe that the original decision merited review. And the fact that they are not rushing to a decision would seem to indicate that they are not too worried about the losses the record companies claim to be suffering as Napster customers trade songs.

Overturning the original injunction also is unlikely, attorneys say. But in that event, Napster would be allowed to continue operating its service as the two sides prepared for trial and met in court.

Legal experts are betting that the panel of judges will send the case back to Patel. The judges, who asked pointed questions of the RIAA and grilled Napster attorney David Boies about the company's technology during oral arguments, might ask Patel to hold an evidentiary hearing, a mini-trial in which witnesses are called. While both sides praised the judges for their understanding of the technology, the judges may want to see a more thorough debate.

"People tend to forget that judges aren't techies, and techies aren't lawyers," says Leonard Rubin, an attorney at Gordon & Glickson.

Witnesses could range from Napster engineers and programmers to outspoken Napster critics such as Metallica drummer Lars Ulrich and rap star Dr. Dre. Attorneys for both sides could query the witnesses, and because Patel runs the courtroom, she, too, could ask questions, Rubin says.

During such a hearing, the music industry would have to prove it is suffering irreparable injury -- that Napster is causing a type of harm that money alone cannot compensate. Normally, irreparable injury would involve damaging the reputation of the plaintiff. Because this is a business case, that point might be difficult to prove.

"Since all commerce is always about money, it's always compensable," says Whitney Broussard, an attorney at Selverne, Mandelbaum & Mintz.

The recording industry also would have to demonstrate that the harm it suffers as a result of the actions of Napster and its customers is greater than the harm Napster and its customers would suffer if the service were shut down. And before Patel would issue any ruling, Napster would have to explain its widely disputed claims that it cannot modify its program to block the swapping of copyrighted materials.

While the hearing itself might take just a couple of days, Patel likely would take her time reaching a decision. Judges don't like to have their rulings overturned, and Patel would want to ensure that any appeal would leave her decision intact.

Whichever party wins this round will likely have the upper hand at trial, because the hearing is a test of the case's merits. Although the original injunction appeared to give the RIAA an advantage, the panel's opinion could turn the momentum in Napster's favor.

The ruling, which will be announced on the 9th Circuit's homepage, will have an impact not only on Napster, but also on all of the other music-sharing services that have cropped up. If Napster prevails, its lead over other file-sharing services will only widen. The publicity the case has generated and the ease of Napster's interface will encourage more people to start downloading music -- much to the chagrin of the music labels.

If the recording industry wins, its power will only be strengthened. The industry has already forced online pioneer MP3.com to settle with most of the labels. And in the background, the labels are working on their own Internet projects.

With so much to lose, both parties might be wise to consider settling.

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