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Napster: Now Or Never?
By Duff Berschback - 06/05/2007 - 12:04 AM EDT

All songwriters should be aware of the recent decision by the 9th Circuit Court of Appeals in the Napster litigation. It's important for anyone who does or may depend upon intellectual property for a livelihood to understand the basics of the decision and its potential implications. This column will outline the court's decision, and discuss the potential near-future scenarios for Napster.

1. The Decision

In what most have seen as a stinging defeat for Napster, the Court ruled that the company is engaged in both "vicarious" and "contributory" copyright infringement. Before it reached that ruling, it had to conclude that what Napster users do is direct copyright infringement. The court rejected the argument that Napster downloads are "fair use", citing evidence at the lower court level that found such activity negatively impacted college CD sales, and adversely affected the record labels' digital distribution efforts. Similarly, the court held that downloading on Napster was not akin to the "time-shifting" of TV programs by VCR approved in the 1984 "Betamax" decision by the U.S. Supreme Court.

Contributory infringement requires a defendant who, with knowledge, induces, causes, or materially contributes to infringement. The court found Napster a contributory infringer because its conduct encourages and assists direct infringement. Vicarious infringement occurs when someone has a right and ability to supervise infringing activity coupled with a direct financial interest in that activity. Stating that Napster turns a blind eye to deliberate acts of infringement and has technology that acts as a "draw" to infringing acts, the court concluded Napster is a vicarious infringer.

What most people wanted to know after the decision was published was: "Is it shut down or not?" The Court of Appeals did not order an immediate shut down because it found that the injunction issued by the lower court was too broad. Significantly, the higher court put the burden upon the copyright owners to provide notice to Napster of their copyrighted works and the files containing such works. The lower court held a hearing March 2nd, centered on the issue of how to craft a technologically feasible injunction that complies with the Court of Appeals' order. On the same day, Napster stated it intended to use filtering technology to block access to some one million file names on the network, starting March 3rd. One outstanding point of contention is who should bear the burden of policing Napster's network for copyrighted songs-the labels argue Napster should, Napster of course argues the opposite.

When the lower court judge decides upon an order, Napster will examine it and perhaps institute a fresh appeal if it decides the order does not comport with the 9th Circuit's opinion. At that point, it is likely Napster will be shuttered as to "noticed" copyrighted works.

2. The Fallout & Comment

In the days directly following the decision, several developments occurred. First, Napster requested an "en banc" hearing. The Court of Appeals decision was by a three-judge panel, but the Court has 25 judges on it. An en banc hearing would involve 11 of the rest, drawn by lot. It is discretionary, and by no means likely that they would agree to hear the case. The probable outcome: they won't take it, but if they do, that decision will affirm 3 judge panel decision. (Winners at the panel level have the advantage because the rest of the judges rely on the original decision makers to inform them about the case, especially in a case where the decision was unanimous--no dissenting judge to muck up the picture.) Napster's risk--if it loses en banc, it has an adverse decision rendered by the whole circuit, not just a panel, against it.

Napster can't appeal to the Supreme Court until it gets a definitive ruling out of the 9th Circuit. In the meantime, it can try to fight a battle of delay and attrition at the district court level. For instance, it could argue that it can't police its system in the way the 9th Circuit assumes it can. Also, Napster may try to develop its alternative arguments dealing with the Digital Millennium Copyright Act, the defense of copyright misuse, and perhaps reiterate their argument for a "compulsory license".

As for the copyright holders, they apparently smell blood. And with all the focus on an injunction shutting Napster down, some have lost sight of the potential damages in this case, but not the labels or the publishers, you can be sure. In fact, perhaps the labels are thinking they can bankrupt Napster and then pick up its bones in bankruptcy court as a cheap way to buy its technology, which the market clearly demands.

In addition to their courtroom strategy, the labels, via their trade association RIAA, have hired a who's who of ex-politicians to fight their battles on Capitol Hill. Among them are former Senator Bob Dole, former Montana governor Marc Racicot (with close ties to President Bush). Bertelsmann, having struck a deal with Napster to secure and thus monetize its technology, has hired Joel Klein, the Justice Department's guru from the Microsoft case. Klein was likely hired to smooth the anti-trust seas should Bertelsmann somehow get the other labels to agree to license their material to Napster.

Also in the wake of this decision came an offer from Napster of $1 Billion dollars to settle the case. In a good example of "the devil's in the details", the billion was spread over five years, and payments to the song composition copyright holders were included in that figure. As analysts began to do the math, many saw the offer as a publicity stunt to try to paint the labels as greedy and intransigent. An obscure Minnesota company (J. River) that owns the "MusicMaker" digital jukebox technology quickly upped the bid to 3 Billion dollars. If it weren't for the NASDAQ debacle, perhaps a Yahoo, Microsoft, or similar technology company would put some serious money on the table.

3. Effect on Songwriters?

The great debate rages amongst the artistic community about the pros and cons of Napster and its ilk. Some see it as the greatest promotional vehicle since the advent of radio, some see it as the devil itself, sent by tech anarchists to steal artists and writers' livelihoods. Drop a line with your opinion, and please include your thoughts on what songwriters should do in response to all this change.

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