The record industry scored a major victory Monday against the file-sharing service and music biz nemesis Napster when a federal appeals court upheld an injunction and affirmed industry arguments that the company is engaged in copyright infringement. The decision is potentially fatal to Napster.
In a 58-page opinion, the 9th U.S. Circuit Court of Appeals largely upheld a preliminary injunction against Napster granted by U.S. District Court judge Marilyn Patel in July, declaring, "The District Court correctly recognized that a preliminary injunction against Napster's participation in copyright infringement is not only warranted but required."
Patel's injunction, which was stayed by the 9th Circuit during the appeal, will not go into effect until Patel modifies her earlier order to conform with the 9th Circuit's ruling.
Within an hour of the ruling, the Recording Industry Assn. of America applauded the court's decision and urged Napster to accept the decision without a fight.
"It's time for Napster to stand down and build their business the old-fashioned way -- by seeking permission first," said RIAA prexy-CEO Hilary Rosen, who was accompanied by several members of the org's heavy-hitting legal/lobbying team, which has expanded in recent weeks to include former Sen. Bob Dole. "I call on Napster to work in that regard."
Appeal planned
Defense attorney David Boies said Napster plans to request that the full complement of 9th Circuit judges convenes to review the panel's opinion, and added that the company will pursue the appeals process as far as it is able.
"We would disagree with holding that if Napster is enjoined that the harm would be speculative," he said. "We think the harm to Napster and Napster's users would be very real and very substantial."
Opinion was seen as a mixed blessing for German media concern Bertelsmann, which in October announced a joint venture with Napster to develop a secure, legal alternative to the company's current Internet service.
BMG in a statement on the ruling maintained that it "remains committed to the development of secure file-sharing services that compensate our artists and other rights holders."
One industry exec said, "The people at BMG are awfully smart and I'm sure they anticipated this. They have been trying to anticipate how you convert the tremendous prestige of name Napster into a new model that would be legal; now would be the time when they would start working on that."
Napster chief executive Hank Barry acknowledged that the appeals court ruling was a substantial setback for the company, but he maintained that the industry is persecuting its own customer base at its peril.
"Napster's community members purchase far more CDs than other people," he contended. "Still, the largest and most successful media companies in the world have taken aim at Napster's more than 50 million users, and today they've struck a blow."
Not 'fair use'
In its decision, the three-judge panel sided with the Recording Industry Assn. of America and rejected Napster's numerous legal defenses, including the claim that the service, which allows the online swapping of music files, is a "fair use" under the copyright laws.
In large part, the 9th Circuit agreed with Patel's reasoning that the RIAA, which represents the major distribs -- Sony, Universal, BMG, EMI and Warner Music Group -- would likely prevail on its claims that Napster is a contributory infringer because it runs a service that knowingly allows the unauthorized swapping of copyrighted files.
The appeals court parted ways with Patel only in the scope of her preliminary injunction, declaring that it was "overbroad because it places on Napster the entire burden of ensuring that no 'copying, downloading, uploading, transmitting, or distributing' of plaintiffs' works occur on the system."
Robert Schwartz, a copyright lawyer at O'Melveny & Myers who represents studios in similar copyright issues, said, "It's a terrific opinion. It's a wholesale rejection of Napster's contrived legal arguments."
The 9th Circuit ruled that the recording companies and publishers must notify Napster that it has copyrighted works on its system before Napster is required to disable access to the offending content. The court added that Napster also bears the burden of policing the system.
In the past, Napster has maintained that it is unable to block offending files without dismantling the entire system. The court rejected that claim, holding that Napster "has the ability to locate infringing material listed on its search indices and the right to terminate users' access to the system."
Boies took solace in the fact that the judges said Napster must block infringing files only "within the limits of their system," implying that the company need not alter the fundamental structure of its technology to comply with the law.
Lawyers pleased
The 9th Circuit's decision drew raves from copyright lawyers. Said Lon Sobel, editor of the Entertainment Law Reporter, "The 9th Circuit got it exactly right. The opinion is a straightforward application of non-controversial principles of copyright law. It doesn't deviate one whit from precedent both here in the 9th Circuit and nationally."
The next step in the case is that Patel will modify her injunction. At that point, the record labels and music publishers will give Napster notice of which copyrighted songs it must remove from its service.
The opinion is unclear on whether the notice must simply list the title of the song -- a relatively simple job for the record industry -- or list the Napster file, a more arduous undertaking.
One band that has already had its music removed from Napster is hard rockers Metallica. In a statement, the band said, "We have never objected to the technology, the Internet or digital distribution of music. All we have ever asked is that artists be able to control how, when and in what form their creativity is distributed through these channels. This is something that Napster has continually refused to do. Now the court has made that decision for them."
In April, Metallica and Dr. Dre filed separate copyright lawsuits in federal court in Los Angeles. The suit made headlines when drummer Lars Ulrich and attorney Howard King hand-delivered to Napster a list containing the screen names of 335,435 individuals who swapped the band's recordings over a two-day period. In response, Napster temporarily blocked those users from its service.
The Metallica and Dr. Dre cases were later consolidated with the RIAA's suit against Napster, although they were not part of the appeal. Now that the RIAA's case has been sent back to the trial court, all of the cases will be handled together.
Unaffected by the ruling are Napster's emerging artist and chat room services. The bulk of its popularity, however, is based on the ability to provide access to copyrighted hit tunes. It has boasted of having a user base of more than 22 million individuals.
Napster also has the option to seek a rehearing in the 9th Circuit, including a hearing before a larger panel. Such rehearings are rarely granted, especially where, as here, the decision was unanimous.
Napster also can attempt to seek a hearing in the U.S. Supreme Court. Failing success in the appellate courts, the case goes back to Patel for trial in the District Court later this year.
Napster also has indicated that it will urge Congress to get involved and make changes to the copyright laws.
The Napster suit has received unprecedented attention for an intellectual property case because it raises fundamental issues about the scope of copyright law and the future of digital music. It was originally filed by the RIAA last year in federal court in San Francisco.
The RIAA sought a preliminary injunction against Napster, claiming that the service violated the copyrights of its member companies and caused irreparable harm. Patel sided entirely with the RIAA and entered an injunction. Hours later, the appellate court stayed the injunction pending an appeal.
(Pamela McClintock in Washington, D.C., contributed to this report.)
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