Napster Served with Injunction

In a hearing here on Wednesday afternoon, Chief U.S. District Court Judge Marilyn Hall Patel, for the Northern District of California, listed illegal uses for Napster's technology which must now be stopped under the terms of the preliminary injunction. Those uses are: using MP3 files; helping people use the files; and copying the files to which the plaintiffs hold rights.

"Napster is enjoined from doing the acts I've just described," Judge Patel said.

By midnight Friday Pacific Time, Napster will have to stop providing access to the music companies' copyrighted material on its Web site, she ruled. Throughout the hearing, however, Napster insisted that the identification of material in relation to a specific copyright holder was impossible.

In case San Mateo, California-based Napster eventually wins the lawsuit, Patel ordered the music companies to pay a US$5 million bond which would be used as compensation for Napster.

The judge said the number of MP3 files that have already been downloaded from Napster's site, in addition to the number of current Napster users, presented a significant enough threat of irreparable harm to the music companies for a preliminary injunction to be necessary.

Patel cited as evidence for her decision estimates that as much as 80 percent of the material on Napster's site may be copyrighted. She also referenced Napster's own prediction it might have as many as 70 million users by the end of 2000.

In its defense earlier Wednesday, Napster suggested that the companies responsible for creating MP3 technology should really be taken to task. Napster had merely taken advantage of the available technology, the company's lawyers said.

However, the judge said that Napster had not seemed to try as hard as it could to identify people pirating material. More damning, she added, was the company's provision of software and a search engine as a means to enable music distribution.

"It's kind of like becoming an orphan by your own hand and then asking the court for help," Patel said.

She drew attention to Napster memos that showed the company was keen to make money from its music distribution site from the start of its operations.

Jonathan Rosenoer, partner for new ventures at PricewaterhouseCoopers, in New York, and author of a book about laws on the Internet, agreed that marketplace economics demand copyright enforcement.

"The problem is that you can't operate a business if you can't get a return on investment," he said. "I think the impact of the injunction will be to heighten the awareness of the legal issues that apply to the online space. You'll see both sides start to converge: Peer to peer systems, like Napster, and companies with valuable content will start to come together more."

According to one analyst, despite the injunction against Napster, the impact of the case will ultimately force the recording industry to adopt a partnership approach to competing in the market.

"Regardless of what happens with (Napster), technology like what Napster is using is now part of the Internet's backbone and infrastructure and will always be available. The recording industry needs to come to terms with the fact that this is a service they have to compete with rather than stamp out," said Eric Scheirer, media and entertainment analyst at Forrester Research Inc., based in Cambridge, Massachusetts.

Scheirer said the recording industry should look to partner as actively as possible with companies that offer different business models and ways to distribute content, such as subscription models, advertising-supported models, or pay per download.

"Rather than bring these distribution possibilities in-house, they need to go out and actively partner and provide licenses," Scheirer said.

The whole issue has brought to light important consumer needs that will drive a change in distribution methods, according to Howard Weitzman, chief executive officer of Massive Media, in Santa Monica, California, and a former entertainment industry attorney and senior executive at Universal Studios.

"One positive from the whole Napster issue, is it has shown the music industry that there is tremendous need to buy songs rather than disks, to have access to those songs, and to conduct (commerce) over the Internet," said Weitzman. "The music companies should begin to accommodate the consumer marketplace to create new business models... that address electronic distribution."

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