Court victory comes amid numerous digital music issues

By Ron Harris Associated Press Writer
Monday February 12, 2001

SAN FRANCISCO — Major record labels are hoping today’s long-awaited appellate court ruling in their case against Napster Inc. will cripple the online music service, forcing millions of computer users to begin paying for the songs Napster allowed them to get for free. 

If Napster wins, the ruling could unleash any number of new ventures waiting for guidance on whether the “personal use” exception to copyright law prohibits trading songs over the Internet. 

Even if Napster loses, the song-swapping technology it unleashed is here to stay, particularly in the music business, which both loathes and loves the idea of getting music to consumers via the Internet, and is developing a range of pay-for-play schemes. 

“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,” said Hilary Rosen, president of the Recording Industry Association of America, in a statement Friday. 

The five largest record labels — Sony, Warner, BMG, EMI and Universal — sued the Redwood City-based startup as soon as the service took off, saying it could rob them of billions of dollars in profits. 

The issue before the U.S. 9th Circuit Court of Appeals is whether to uphold U.S. District Judge Marilyn Hall Patel’s July injunction ordering Napster shut down pending a trial over the music industry lawsuit. 

But the three-judge appellate panel also could rule more broadly, describing how copyright law should apply to emerging technologies that make it ever more difficult to control and profit from the distribution of music as well as software, books, movies and other creative content. 

Respect for copyrights and artists royalties has been all but ignored since Napster founder Shawn Fanning released software in May 1999 that made it easy for anyone with a personal computer to search vast directories for the songs they want, and then download and trade them as MP3 files. 

These files can be copied endlessly with no loss in sound quality — a quantum leap from the “personal use” of cassette tapes and other music formats. 

But the concept of “peer-to-peer” song trading proved too popular to contain. As Napster users grew by the millions, other kinds of file-sharing programs also popped up, such as Gnutella and Freenet, ensuring that Internet music giveaways will continue. And the labels themselves are looking to use the same technology, only with paying subscribers and secure digital formats that prevent copying. 

Since the judges began deliberating in October, Napster has made friends with former business foes like Bertelsmann AG, the parent company of the BMG music unit. The German media giant has promised much-needed capital if Napster switches to a subscription-based service that pays artists’ royalties. 

But Bertelsmann’s move did not start an avalanche of similar Napster deals. The other four major labels are holding out for Napster’s demise. And new companies positioning themselves as resellers or aggregators of music content have enjoyed mild success at best. 

One reason is that they’ve been charging consumers for what Napster users can get for free. Another is that Napster has hardly been the only player the recording industry has dragged into court. 

Riffage.com, a music Web site geared toward bringing emerging artists to eager listeners, folded in December. Last month, online music retailer EMusic.com cut more than one-third of its staff and sent three top executives packing. Last week, the ripple effect brought down the Internet Underground Music Archive. The IUMA.com Web site was one of the first resources for unsigned artists before it was acquired last year by then high-flying EMusic. 

Napster fans flocked to Scour Inc. in July when it briefly appeared that the federal injunction against Napster might stick. But Scour’s similar file-sharing application also fell victim to copyright lawsuits and shut down in October. The Michael Ovitz-backed venture allowed users to share music, video, images and software. 

Gnutella, for one, appears to be lawsuit-proof. Instead of dialing in to a server like Napster or Scour services, Gnutella offers a distributed networking system where each online user is in direct contact with all others without an intermediary. 

The freely distributed Gnutella software offers no company to sue, but it is more demanding on personal computers and has yet to enjoy Napster’s popularity.  

That could change as renegade developers make it compatible with new search engines and build more applications around it. 

U.S. copyright law includes a “doctrine of fair use” which allows copies to be made and used without permission if the copying is for a nonprofit purpose, and won’t cause the creative content to lose value in the marketplace. 

Whether Napster is costing the record industry billions — or growing their customer base — is a matter of debate. 

On the eve of Monday’s ruling, University of Southern California constitutional law professor Erwin Chemerinsky wondered whether record companies would have any financial incentive to produce music if it is increasingly copied and given away electronically. 

“Authors and producers need the assurance of a return that free downloading undermines,” Chemerinsky said. “Napster is a real threat to creativity and production.” 

But a recent appellate ruling in another MP3 case sided against the music industry right to clamp down on computer duplications of musical works.