Appeals court rules against Napster

In what many are calling a potential death knell for Napster Inc.'s free online music-swapping service, the U.S. Court of Appeals in San Francisco today upheld a lower court ruling that said Napster violated record company copyrights and can no longer facilitate the unfettered sharing of recordings through its Web site.

In a short statement issued after the appeals court handed down its decision, Napster said the ruling hasn't closed its popular service, and it vowed to "pursue every avenue in the courts and the Congress to keep Napster operating."

But the San Mateo, Calif.-based company also acknowledged that the decision could eventually lead to a shutdown of the current service. Napster said it was "very disappointed" by the ruling and will now seek further appellate review, adding that the appeals court "ruled on the basis of what it recognized was an incomplete record [of facts]."

The appeals court upheld much of a preliminary injunction that was issued against Napster last July by U.S. District Court Judge Marilyn Hall Patel (see story), although it did remand the case to Patel to rework the wording of her injunction before the ban is allowed to take effect. That allows Napster to continue operating its service for the time being.

But the three-judge panel, which heard arguments in the case last fall (see story), said it agreed that the record companies behind the lawsuit against the company "have shown that Napster users infringe at least two of the copyright holders' exclusive rights: the rights of reproduction and distribution."

The court said the plaintiffs provided "statistical evidence of massive, unauthorized downloading and uploading of . . . copyrighted works" that far outweighs what it described as the "speculative" destruction of Napster that could be caused by Patel's injunction against the company.

P.J. McNealy, an analyst at Gartner Group Inc. in Stamford, Conn., said Napster still has legal avenues it can pursue that might ultimately keep the company's free service alive. "This could end up in the Supreme Court," McNealy said.

But officials at the Recording Industry Association of America (RIAA) in Washington hailed the decision as a complete victory.

"We believed then and we believe now that a business model built on infringement is not only morally wrong but legally wrong, and we're very gratified that the [appeals court] today agreed with us 100%," said Hilary Rosen, president and CEO of the RIAA. "It's time for Napster to stand down and build their business the old fashioned way -- they must seek permission [from copyright owners] first."

Based on the strong language in today's decision, Napster's legal options are limited, claimed record industry attorneys during a press conference in Washington. "It's fair to say that the decision pretty much writes Napster's epitaph," said Charles Cooper, an attorney who's working on the case for RIAA. "Its days as an instrument for electronic shoplifting are over."

Rosen urged Napster to heed today's ruling "rather than to delay the inevitable." She and other industry officials acknowledged that the decision by the appeals court has its limits, particularly when it comes to battling online piracy. But Napster's music-for-free model was a direct threat to companies that are seeking to make a business out of selling music via the Web, they added.

Rosen claimed that the Napster case also has implications for the online distribution of software and movies, and Elizabeth Fleming, a counsel at the Washington-based law firm of Preston Gates Ellis & Rouvelas Meeds LLP, agreed with that contention. "The actual music itself is copyright protected," Fleming said. "The law doesn't change because the technology changes."

Last fall, Napster signed a deal to set up a secure membership-based service for sharing files with record-company owner Bertelsmann AG (see story). Bertelsmann was one of the companies that sued Napster for copyright infringement, but the other plaintiffs are carrying on with the case.

For complete coverage of this issue, head to our Focus on Napster page.


Copyright © 2001 IDG Communications, Inc.

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