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Napster Takes a Blow, But Problems Still Loom for the Recording Industry
By Sounni de Fontenay
(more articles from this author)
2001-02-12
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"The Napster community is about the love of music. Napster community members love music and purchase far more CDs than most people. They share files with no expectation of gain. We have again and again stated that we intend to make payments to artists, songwriters and other rightsholders. Yet the largest and most successful media companies in the world have taken aim at our more than 50 million users, and today they have landed a blow. We will respond and deal with this situation in the courts." -- Statement from Hank Barry, CEO of Napster.

While it was not entirely a surprise, the industry waited with anticipation for today's ruling by the 9th Circuit Court of Appeals in San Francisco on the injunction against Napster. The injunction, first granted by Chief Judge Marilyn Patel of Federal District Court, was stayed by the Appeals Court shortly thereafter. In today's decision, the Appeals Court ruled that Napster was liable for facilitating the infringement of copyrights by its users. However, The three judge panel did not immediately re-instate the injunction, calling it too broad, and instead sent it back to Judge Patel to refine an injunction that would require Napster to block the trading of copyrighted music. This would have the ultimate effect of shutting down the Napster service, since, Napster has admitted that it has no way of blocking legal versus illegal downloads.

Napster attorney, David Boies (of Microsoft antitrust and Florida recount fame) said, "I don't think there is a threat of immediate shut down. That obviously depends on the scope of the injunction that the lower court would enter, and I don't want to speculate on that." Napster has said that it will fight the ruling. Again, Mr. Boies, "We will be pursuing future appellate review, including possibly an en banc hearing."

However, Napster has been bracing for this decision by the Appeals Court for months now. In agreements with Bertelsmann, Edel Records and TVT Records, Napster saw the writing on the wall and went out about transforming itself into a service that would be amenable to content creators. Napster hopes to launch a subscription version of its peer to peer file swapping service by summer.

In a statement, Hilary Rosen, president and CEO of the Recording Industry Association of America (RIAA), said,"This is a clear victory. The court of appeals found that the injunction is not only warranted, but required. And it ruled in our favor on every legal issue presented."

While the recording industry can call today's ruling a victory for their fight against digital copyright infringement, it still leaves many problems unsolved. A victory against Napster does not address p2p systems such as Gnutella and Freenet which are not centrally served & controlled. If Napster closes down, and later reopens with a paid service, will its 40+ million users flock to services such as Gnutella to continue evading the industry's grip on the distribution of music? Obviously for the industry, it is urgent for them to offer an acceptable (to consumers) alternative to Napster's current swash buckling ways to blunt any mass movement towards the Gnutellas of the world.

The Napster case also highlights the failure of the industry to come to a decision on the distribution of their content online. While the Secure Digital Music Initiative (SDMI), the music industry initiative launched in early 1999, predated Napster, its ineffectiveness failed to predict or prevent the firestorm which was p2p. In fact SDMI's missteps furthered the popularity of Napster by leaving the industry's distribution plans unresolved. With the potential closing of Napster, the rush is now on to find DRM solutions that will be both acceptable to the industry's strict security & usage standards as well as consumers, whose taste for unfethered access to content have driven download sites such as Napster and MP3.com.

Gary Shapiro, President and CEO of the Consumer Electronics Association (CEA), said in a statement released today that, "We are greatly disappointed with this ruling. We believe that the Court of Appeals has ignored basic principles of copyright infringement and fair use established in the U.S. Supreme Court's Sony Betamax decision.

"The Ninth Circuit is the same Circuit that ruled in 1981 that the VCR was illegal before the ruling was overturned by the Supreme Court. If that decision had stood, we would have no VCR or movie rentals - to the detriment of Hollywood and American consumers. We can only wonder if this ruling stands how technology and consumer access will be limited in the future.

"This ruling underscores the need for a new approach to intellectual property issues in the digital age. If the content industry has its way, the "play" button will become the "pay" button, widening the digital divide and stalling the revolution in instant, global access to education, information and entertainment."

Mr. Shapiro's statement illustrates the views of many in the industry that current copyright law, including the Digital Millennium Copyright Act (DMCA), does not take into account the changing dynamics (& rules) of the digital marketplace and is impeding the developing of new technologies. For the courts, this was not an issue, for they interpret laws on the books and are not in the business of creating new laws. This is for Congress. And Congress is likely to become the next battlefield as exemplified by the Future of Music Coalition's recent Policy Summit in Washington D.C. and MP3.com legislative lobbying efforts to change the copyright law. Indeed, it was announced today by the RIAA that they have hired Bob Dole, former Republican Senator and presidential candidate. Mr. Dole will be an adviser for the RIAA legal and lobbying teams. Forget the democrats, its republicans who control Washington today, and the RIAA is preparing for this reality. As for the Courts, the law is clear and on that basis Napster has violated it.

Hilary Rosen adds, "The implications of this case extend far beyond the music industry. The software industry has been very supportive of our efforts. Now that our colleagues in the book and motion picture communities have begun to offer their content online, their futures are at stake, too.

"American intellectual property is our nation's greatest trade asset. We cannot stand by idly as our rights and our nation's economic assets are in jeopardy or dismissed by those who would negate its value for their own enrichment.

"That's why today's decision is so especially important.

EXCERPS FROM THE RULING

"The record supports the district court's determination that "as much as eighty-seven percent of the files available on Napster may be copyrighted and more than seventy percent may be owned or administered by plaintiffs.

"The district court concluded that Napster users are not fair users.

"Direct economic benefit is not required to demonstrate a commercial use. Rather, repeated and exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a commercial use.

"Napster contends that its users download MP3 files to "sample" the music in order to decide whether to purchase the recording. Napster argues that the district court: (1) erred in concluding that sampling is a commercial use because it conflated a noncommercial use with a personal use; (2) erred in determining that sampling adversely affects the market for plaintiffs' copyrighted music, a requirement if the use is noncommercial; and (3) erroneously concluded that sampling is not a fair use because it determined that samplers may also engage in other infringing activity. The district court determined that sampling remains a commercial use even if some users eventually purchase the music. We find no error in the district court's determination. Plaintiffs have established that they are likely to succeed in proving that even authorized temporary downloading of individual songs for sampling purposes is commercial in nature.

"Napster, by its conduct, knowingly encourages and assists the infringement of plaintiffs' copyrights.

"The record supports the district court's finding that Napster has actual knowledge that specific infringing material is available using its system, that it could block access to the system by suppliers of the infringing material, and that it failed to remove the material."

REACTIONS FROM THE INDUSTRY

''BMG remains committed to the development of secure file sharing services that compensate our artists and other rightsholders. BMG recognizes the strong consumer demand for file sharing and will work with BeCG and Napster in developing industry-supported services that bring fans closer to their favorite artists,'' said Rolf Schmidt-Holtz, President and CEO, BMG Entertainment.

"Today's decision is a fair, important re-affirmation of the rights of copyright holders to be able to determine how and where their work is used," Gene Hoffman, President and CEO of Emusic, said. "We are pleased that the district court will be issuing a new injunction against Napster that will effectively block the unauthorized distribution of music files. This should establish a clear foundation for the growth of legitimate music download services on the Internet -- where artists, labels and consumers all have a voice in how digital music is enjoyed."

Book author and MusicDish contributor, Moses Avalon noted, "The concept of File-Sharing would give artists an opportunity to take control of their own careers, rather than be dependent on Major labels. Obviously this is not in the interest of the RIAA, who are the only viable opponents of the "Napster" service. Now there will still be other "napsters" but using them may border on committing a federal crime. This may someday include an independent artists promoting their own material. I know there are many song writers and musicians out there who think that now their rights are protected, but the truth is they have all lost a bit more liberty. It's a sad day for the 1st amendment."

"We are pleased with the court's decision to uphold the fundamental elements of the injunction and we hope the message is clear: Artists' rights must be respected online," said Noah Stone, executive director of Artists Against Piracy in a statement issued today. "We hope that Napster will further develop and implement a business model that not only serves music fans but provides fair and appropriate compensation for the creators of that music." Brian Robertson, President of Canadian Recording Industry Association (CRIA) commented, "The Canadian Music Industry has been the hardest hit by this unlimited access to recorded music on the internet. Canadian youth, age 12 to 24, are the world's top downloaders of music. A December survey by Ipsos-Reid of Vancouver confirmed that two thirds of young Canadians had downloaded music or an MP3 file in the survey period. "Retail sales of sound recordings in Canada fell by 6% in 2000; A drop of $84 million. At least half of this figure we attribute to the influences of Napster and related Technologies."

AND FINALLY... A PROMISE

"Finally, let me say to all the users of Napster here and overseas: We know you love music; so do we," said Hilary Rosen. "Our member companies and the artists on whose behalf this case was brought work every day to create the most expressive, passionate, diverse and exciting music in the world. This is their promise to you. If you understand and respect their desire to continue making that music for you, they will assure you that you will still be able to use the most innovative technologies to listen to their work.

"This may be a turbulent transition but the promise for the future of music is great"

A promise by the music industry? One reason for the success of Napster is that the industry, as of yet, has not allowed consumers legal access to their music using new, "innovative" technologies. Will they keep their promise this time? Let's wait and see...

Linkography

Bertelsmann - www.bertelsmann.com
BMG - www.bmg.com
CEA - www.ce.org
CRIA -www.cria.ca
Edel Records - www.edel.com
Emusic - www.emusic.com
Moses Avalon - www.mosesavalon.com
MP3.com - www.mp3.com
Napster - www.napster.com
RIAA - www.riaa.com
SDMI - www.sdmi.org
TVT Records - www.tvtrecords.com

Related MusicDish e-Journal Articles:
» Napster Gains Another Ally in TVT Records (2001-01-29)
» My, Have Times Changed! BMG and Napster in a Partnership? (2000-10-31)
» Wanted: A Survival Plan for the Music Industry - Napster and the Consequences - 'This is the end, my only friend, the end' (2001-01-29)
» Imagine All the People (Sharing All the Music) - A&M Records v. Napster (2000-11-08)
» Story of a Revolution: Napster & the Music Industry (2000-09-06)

Related News from Mi2N:
» A&M Records V Napster Decision
» NAPSTER INC. RESPONSE TO NINTH CIRCUIT COURT OF APPEALS RULING ON THE U.S. DISTRICT COURT INJUNCTION IN A&M INC. V. NAPSTER
» Statement On Napster Court Ruling From Rob Glaser, Chairman And CEO, RealNetworks
» Rosen Statement From Press Conference On 9th Circuit Decision
» Statement By Jay Berman On Today's Napster Decision
» Valenti Statement On Napster Ruling
» Napster Service Continues Rapid Growth, Reports Jupiter Media Metrix


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