February 12, 2001 8:15 AM PST

Napster faces day of reckoning

The popular music-swapping site Napster could be ordered Monday morning to halt the trading of copyrighted material if an appeals court decision sides with the music industry in the high-profile case.

The 9th U.S. Circuit Court of Appeals in San Francisco posted a brief note on its Web site Friday stating that the judges will release their decision Monday on the music-swapping company's immediate future.

No additional details were given. The decision will be released by 10 a.m. PST.

For more than three months, the three-judge panel has been deciding whether or not to uphold a lower court's July preliminary injunction against Napster. That injunction barred Napster from allowing trades of any music copyrighted by the five major labels that are participating in the lawsuit against the company, which include BMG Entertainment, EMI Recorded Music, Sony Music Group, Universal Music Group and Warner Music Group.

"We're confident that the Fans rush to Napster (appeals court) understands the severity of our claim and will uphold the decision of the U.S. federal court," Hilary Rosen, president and CEO of the RIAA, said in a statement.

"Monday's decision may finally clear the way for the legitimate online marketplace to thrive in an environment that encourages both creativity and a respect for copyright."

The market has shifted substantially since the appeals court entered the fray, highlighted by BMG parent Bertelsmann's investment in Napster. But the upcoming decision still will wield broad influence over the way music and other files are distributed online, as well as on the tense relationship between Bertelsmann, Napster and the other labels.

"What the court says in their decision might tell us more about the legal situation of other peer-to-peer networks like Gnutella," said Fred Von Lohmann, a copyright attorney with Morrison & Foerster. "And depending on how this comes out, it's going to dramatically influence the leverage that Napster and Bertelsmann have with the other labels."

Snap judgment?
The judges are reviewing a controversial decision made by district court judge Marilyn Hall Patel, which threw the online music world into a state of limbo last July.

Patel shocked many see story: Full text of Judge Patel's Rulingonlookers by releasing a decision on whether Napster should be blocked from facilitating music trades after only a few minutes of deliberation in her courtroom. After hearing several hours of arguments from the company and the record labels, she quickly agreed with the music industry that Napster's unrestricted trades had the potential to cause irreparable harm to the record labels' business.

She ordered that no music copyrighted by the music label plaintiffs be traded through the service while the case came to full trial, despite Napster's contention that this would force the company to close the doors on its service altogether. The company had "created the monster," and it was up to them to live with the consequences, she said.

Napster quickly appealed the decision, and in just a day the appeals court had put a temporary halt on Patel's order, pending its own decision. The three-judge appeals panel heard the case in early October, posing skeptical questions to each side, but has since given no hint on how they will rule.

Shifting landscape
The stakes are high and rising for Napster, boosted by October's deal between the music swapping company and Bertelsmann, the parent of major label BMG Entertainment.

In some ways, either a win or a loss in the case could be dangerous for Bertelsmann.

If Napster is forced to close the bulk of its free service, many members will likely go elsewhere to trade music, diminishing the value of the brand that Bertelsmann has aligned itself with.

But allowing the service live on without restrictions could reinforce Web surfers' growing sense that online music should be freely available, and open the door to the creation of similar services.

Bertelsmann agreed to drop its portion of the lawsuit against Napster once the two companies are able to create a legal, fee-based subscription service.

There have been few indications of which way the court might be leaning. Many court-watchers have speculated that the length of the review indicates that the court wants to make a ruling that will guide the way copyright law is interpreted throughout the larger case, which could take months or years to be completed if the two sides don't settle.

Other attorneys note that the 9th Circuit can often take up to a year to make decisions, and that four months is not unusual.

The judges will be ruling on issues that push the boundaries of conventional copyright law, and which will affect many other companies and cases.

The record companies, led by the Recording Industry Association of America (RIAA), contend that Napster's service is contributing to an unprecedented number of online copyright violations, as people download songs without any payment.

Napster has responded with a handful of potentially far-reaching legal arguments, saying that downloading songs for free online is protected by copyright law and that the company itself isn't responsible for its subscribers' copyright violations--even should they be deemed to be doing something illegal.

At its heart, Napster's argument is trying to take advantage of the same legal protections that allowed VCRs to be sold, even though they have the ability to copy movies. Attorneys say the Napster case will go a long way in determining how much this shield applies to new online technologies, which have the potential to distribute copyrighted works farther and faster than ordinary VCRs.

"Where we draw the line as to where technology makers are to be held liable is still a big question," Lohmann said. "This is hopefully going to shed some light on that."

 

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