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Limits Seen To Court's Napster Ruling

2/26/2001 02:00:00 AM Eastern

The decision reached by a U.S. Appeals Court panel in the Napster case may not have been as one-sided as the music industry claimed, giving Napster some leverage in possible negotiations for an out-of-court settlement, said a leading copyright attorney.

"There are limits to this ruling," said Jeffrey Kuester, an adjunct professor of intellectual property law and chairman of the American Bar Association's Internet Patents Committee. "It's not an outright win for either side."

Because Napster doesn't have to remove files from its service until the music industry notifies it of specific infringing files, the music industry might have to open up and listen to suspect files before requiring Napster to purge them. During that time-consuming process, new infringing files could go up on the site in a continuing cat-and-mouse game between Napster users and the music industry. That could ensure a continuing, though perhaps more limited, supply of free songs for downloading and playback on Internet audio portables.

"It will be an interesting game," Kuester said. "In the original injunction, the entire burden was placed on Napster" to find and remove infringing files, he pointed out.

To notify Napster, the music industry simply can't hand the file-sharing service a list of songs to block, Kuester said in interpreting the decision. Instead, the music industry must hand over a list of specific file names containing the infringing material.

Because Napster users themselves often name the files they're willing to share, music industry personnel might have to listen to the suspect files to identify them before notifying Napster. At any one time, there could be more than 1 million files to scan. A late-morning check of the Napster site on Feb. 21 showed 1.48 million files available for sharing.

Here's what the panel required:

"We place the burden on plaintiffs to provide notice to Napster of copyrighted works and files containing such works [emphasis added] available on the Napster system before Napster has the duty to disable access to the offending content. Napster, however, also bears the burden of policing the system within the limits of the system. Here, we recognize that this is not an exact science in that the files are user-named. In crafting the injunction on remand, the district court should recognize that Napster's system does not currently appear to allow Napster access to users' MP3 files."

The challenge that the decision imposes on the music industry could push it toward a settlement, Kuester said. "There's pressure on both sides to make a deal."

He described the panel's decision as "well-written because it doesn't ignore obvious case law."

In the meantime, the music will continue to flow freely until the district court judge recrafts the preliminary injunction, which the appeals court panel has stayed in the interim, Kuester noted.

Napster has publicly proposed a settlement in which Napster users would pay a subscription fee, music companies would receive $1 billion in royalties over five years, and digital rights management (DRM) technology would be implemented to control the use of downloaded files. Three strikes: On three key allegations of copyright infringement-fair use, contributory infringement and vicarious infringement-the panel clearly sided with the music industry in ordering a U.S. District Court judge to rewrite the preliminary injunction against Napster's continued operation.

In what it called a preliminary determination, the panel stated that "... Napster users are not fair users" of copyrighted material under the U.S. Copyright Act. "Fair use, when properly applied, is limited to copying by others which does not materially impair the marketability of the work which is copied." The panel said the Napster service is likely to impair the marketability of the music companies' own authorized download ventures, as well as the marketability of CDs.

"The record supports the district court's preliminary determinations that: (1) the more music that sampling users download, the less likely they are to eventually purchase the recording on audio CD; and (2) even if the audio CD market is not harmed, Napster has adverse effects on the developing digital download market."

In addition, the panel claimed the U.S. Supreme Court's Sony Betamax decision did not apply to the Napster case in what Kuester described as a "good reasoned distinction."

Contributory liability: If the Napster case goes to trial, it's not likely that the Sony Betamax decision will protect Napster from a finding of contributory infringement, the court said.

Like VCRs, Napster's service is capable of commercially significant non-infringing uses, the panel explained, but unlike the majority of VCR owners, Napster users distribute copyrighted material "to the general public." The Supreme Court found that the majority of VCR owners do not distribute taped TV broadcasts but merely enjoy them at home, the panel said.

As a result, Napster would likely be found guilty of contributory liability, the panel said, but "only to the extent that Napster: (1) receives reasonable knowledge of specific infringing files with copyrighted musical compositions and sound recordings; (2) knows or should know that such files are available on the Napster system; and (3) fails to act to prevent viral distribution of the works.

"The mere existence of the Napster system, absent actual notice and Napster's demonstrated failure to remove the offending material, is insufficient to impose contributory liability."

Vicarious liability: The panel also held that Napster would likely be found during a trial to be guilty of vicarious infringement for two reasons.

First, the company has the right and ability to supervise its users' conduct. "Sony did not have the ability to control user activity," Kuester noted.

Second, plaintiffs "had demonstrated they would likely succeed in establishing that Napster has a direct financial interest in the infringing activity," the panel said. "Ample evidence supports the district court's finding that Napster's future revenue is directly dependent upon 'increases in userbase.' More users register with the Napster system as the 'quality and quantity of available music increases.'"

The panel concluded that "Napster knowingly encourages and assists its users to infringe the record companies' copyrights" and that Napster "materially contributes to the infringing activity."

The 1992 Audio Home Recording Act, drawn up with the support of the music and consumer electronics industries, doesn't protect Napster, the panel noted, because the act specifically excludes computers and computer hard drives. The act defines protected digital audio recording devices as devices whose "primary purpose" is making digital copies of digital audio recordings.

The panel, however, did recognize the potential for Napster to seek "safe harbor" protection under the Digital Millennium Copyright Act, which requires Internet Service Providers (ISPs), when notified of infringing activity, to kick off a subscriber who uploads infringing material.

The panel's safe harbor comments give Napster "some wiggle room," Kuester said, though it will be a "tough argument for Napster because the act is for ISPs."

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