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Date: Thu Jul 20 2000 - 00:58:54 MDT

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Speaking of Napster and its woes...


Recording Industry Forces Napster to Face the Music Over Copyrights Issues
Daily Journal - Jul 13, 2000
Tyler Cunningham

By Tyler Cunningham
Daily Journal Staff Writer
        SAN FRANCISCO - Word around San Francisco's federal courthouse has it that Judge Marilyn Hall Patel postponed a crucial hearing in the Napster litigation until later this month because she needed more time to download the Tony Bennett catalog.
        Just a joke, certainly, but one that acknowledges Napster's popularity and the rising legal tide that may number its days.
        Napster is, of course, the Internet site that has enabled millions of users to locate and download digital copies of songs or entire compact discs for free - much to the consternation of record companies and many musicians.
        The San Mateo company has been sued for copyright infringement by several of the world's biggest record labels and a few performers, most notably Metallica. The legal battle reaches a critical point July 26, when Patel hears arguments over whether she should order a preliminary injunction shutting down Napster, the most popular and infamous of the music-download sites.
        At stake, lawyers say, is the future of the Internet, on the one hand, and the sanctity of an artist's copyright, on the other.
        "If Napster were to lose, it would substantially rewrite copyright law," said David Boies, the New York attorney recently brought onto the Napster team.
        "If Napster were to lose, it would impose liability for the first time on an Internet directory service for just making information available. And that would have very troubling implications for the future of the Internet," Boies said.
        Record companies, for their part, claim that Napster and sites like it threaten to undermine the $15 billion-a-year music industry. And the same technology could just as easily decimate the movie, software, book, magazine, newspaper or television industries.
        The recording industry has also filed a handful of suits against other Internet companies that, like Napster, hope to trade on the transfer of music files. Although all of the cases challenge the distribution of music via the World Wide Web, the particular technology involved in each site has implicated different facets of copyright law.
        Thus far, courts have sided consistently with copyright holders.
        "These companies wanted to be the first; they are testing the limits and finding out what they are," said John Genga, a partner with Paul Hastings Janofsky & Walker who specializes in entertainment and intellectual property litigation. "The rule thus far appears to be that the Internet is subject to the same rules as the brick-and-mortar world."
        The controversy began with the advent of MP3, a technology used to compress music files to roughly one-twelfth their normal size. Coupled with inexpensive "ripping" software, which allows users to convert compact discs to MP3 format, and the popularity of the Web, the new technology made possible widespread swapping of songs via phone lines.
        One of the first Web companies to facilitate the transfer was MP3.com, which opened its library of MP3 files to users in January. The site quickly drew the attention of music-industry lawyers, inspiring the lawsuit that led to the first significant victory of the recording industry over a Web company.
        The industry complained that, in order to set up its service, MP3.com copied tracks from about 45,000 copyrighted compact discs. The unauthorized reproductions, the labels said, infringed on the albums' copyrights .
        MP3.com countered that only users who owned a compact disc with a given song were given access to that song on an MP3, and thus the company should be protected under the Copyright Act's "fair use" doctrine.
        The court rejected the argument, finding that the company flunked many of the tests necessary to qualify as fair use. Among other things, the court found that the transfer of music served a commercial purpose, rather than a permitted non commercial one .
        The labels won the case on a summary judgment. Facing more than $1 billion in potential damages, MP3.com has explored settlement options, striking deals with two of the labels, Warner Music Group and BMG Entertainment.
        Perhaps more importantly, the company has reached licensing agreements with the labels, which will allow MP3.com to "publicly perform," in the language of copyright law, the music via the Internet. Lawyers hailed the licensing deals as a potential trend. And immediately on the heels of the announcement came news that BMG had also cut a deal with a yet-to-be-unveiled Internet music site.
        But while lawyers predict more licensing agreements between record labels and Web sites, the recording industry has dug in its heels against Napster. The company's popularity has made it a lightening rod for recording industry scorn.
        Record companies claim that hundreds of thousands of copyrighted works are illegally copied through Napster daily , each transfer robbing an artist of a royalty. The company brags of an astounding growth rate and anticipates 75 million users by year's end .
        Although it hasn't earned revenue, Napster hopes its steady fan base will eventually translate into money via advertising, subscriptions, sponsorships or merchandise sales. (The company's value has been estimated at anywhere from $60 million to $150 million.)
        Napster essentially directs users to MP3 files on other users' computers. Unlike MP3.com, Napster is decentralized, with no music files stored on its server. The site provides an online index of the music available on computers connected to the service at any given time. Users can then connect with those computers to download music.
        Of the many cases filed against Napster, the San Francisco filing by a collection of record companies is the leading suit. The companies claim that Napster essentially facilitated millions of separate copyright infringements. In doing so, they claim, Napster committed contributory infringement, meaning it had knowledge of the infringements and contributed to them, and vicarious infringement, meaning Napster had the right and ability to supervise its customers and economically benefited from the use of its services.
        To bolster their case, record labels are drawing a parallel with another copyright-infringement case involving a real-world, non-Internet swap meet.
        In Fonovisa v. Cherry Auction Inc. 76 F.3d 259 (1996), the defendant operated a flea market in which vendors sold copyrighted music. The 9th U.S. Circuit Court of Appeals ruled that the defendant was responsible for the copyright infringement, as vendors relied on Cherry Auction's advertising and facilities, without which the infringing activity probably wouldn't have happened. The record companies argue that Napster is essentially the same swap-meet proprietor, only "clothed in the exotic webbing of the Internet."
        Napster draws distinctions between that case and its own. Unlike Fonovisa, Napster offers access to an unlimited number of users, they say, without meeting them first and without collecting payment from the users.
        Napster's first defense was to seek refuge under the Digital Millennium Copyright Act, a 1998 amendment to the copyright law designed to protect Internet service providers from liability for copyright infringements enabled by their Web access.
        In a case of first impression for this particular "safe harbor" clause, Patel found that Napster doesn't qualify as a service provider under the law because information, the MP3, does not pass "through" its system, as the law requires. Rather, the connection occurs between two Napster users through the Internet, the judge said.
        Legal experts saw the decision as a potentially fatal blow. But while others sounded the death knell, Napster got a $15 million cash infusion for 20 percent of the company.
        With the money came a good deal of legal know-how: The company hired as its CEO Hank Barry, a former Wilson Sonsini partner who represented Liquid Audio, a successful Internet music company. Napster also hired Boies, the name partner in the New York firm of Boies, Schiller & Flexner, last seen as chief prosecutor for the U.S. Department of Justice in its antitrust suit against Microsoft Corp.
        A key point for the record labels is to show that Napster knows its users are breaking copyrights. To this end, they offer a statistical study by a Stanford University professor that shows that every Napster user they studied had infringed a copyright. The study also showed that more than 87 percent of the songs copied via the service were pirated. Their discovery also includes early Napster memos acknowledging that the music is pirated.
        Finally, the record companies claim that Napster executives know their service is used to infringe copyrights because the executives used it for that purpose. Through discovery they found Napster employees downloaded copyrighted works by the Beatles, Bruce Springsteen and Madonna, among others.
        Another key point for the record companies is to show that Napster is doing irreparable harm. They claim record companies are suffering: Although album sales nationwide are increasing, business is dropping among college students, Napster's core users.
        Napster argues there is no harm. In fact, it said, the company's presence increases compact disc sales because users often sample songs before buying compact discs. And, far from blocking the labels' entry into a new digital market, Napster argues, it is paving the way by helping consumers adjust to the new technology. Finally, it argues, to the extent that the companies have been harmed at all, the harm can't be stopped without the far greater evil of shutting down the Internet altogether. "Under the guise of copyright law, they will muzzle the way the Internet is used," said Napster attorney Daniel Johnson Jr., of Fenwick & West. "You can't have an Internet because of the potential for copyright infringement claims. That's what the RIAA wants you to believe," he said, referring to Recording Industry Association of America.

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