SAN FRANCISCO - Napster Inc. must stop allowing the millions of music fans who use its free Internet-based service to share copyrighted material, a federal appeals court ruled Monday.
In a ruling that Napster officials said could force the file-swapping clearinghouse to shut down, the 9th U.S. Circuit Court of Appeals said Napster must prevent users from gaining access to copyrighted content through the lists of songs archived by its users.
"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," said Hilary Rosen, president and CEO of the Recording Industry Association of America.
In a statement, Napster it was "disappointed" by the ruling and said it would appeal. "We look forward to getting more facts into the record. We will pursue every avenue in the courts and the Congress to keep Napster operating."
In a 58-page opinion, a three-judge panel told a lower court judge to rewrite her injunction to focus more narrowly on the copyrighted material. The panel also directed the Redwood City-based company to remove links to users trading copyrighted songs stored as MP3 files.
The appeals court said it was apparent that "Napster has knowledge, both actual and constructive, of direct infringement."
Napster has argued it is not to blame for its subscribers' use of copyrighted material, citing the Sony Betamax decision of 1984, in which the U.S. Supreme Court refused to hold VCR manufacturers and videotape retailers liable for people copying movies.
But the appeals court said no such protection extends to Napster because the company clearly knew its users were swapping copyrighted songs.
Napster can stay in business until U.S. District Judge Marilyn Hall Patel retools her injunction, which the appellate court called overly broad. In fact, minutes after the panel's decision, thousands of Napster users were still trading music files on just one of the company's more than 100 servers.
"We, therefore, conclude that the district court made sound findings related to Napster's deleterious effect on the present and future digital download market," the appeals court ruled. "Having digital downloads available for free on the Napster system necessarily harms the copyright holders' attempts to charge for the same downloads."
Millions of users had flooded the company's computer servers this past weekend to download free music, fearing an immediate shutdown of the service that has changed the face of music. Napster claims to have an estimated 50 million users.
Webnoize, which monitors the digital entertainment economy, estimated that 250 million songs were downloaded using Napster over the weekend. Webnoize said that, on average, 1.5 million users were logged on to the system at any one time.
Major record labels hope Monday's ruling will force millions of computer users to start paying for music the online music swapping service has allowed them to get for free.
The digital music technology Napster made popular is here to stay either way. The recording industry appears stymied by the notion of funneling music to consumers via the Internet for a price while freely available computer applications allow even the computer novice to do it for free.
The five largest record labels - Sony, Warner, BMG, EMI and Universal - sued as soon as Napster took off, saying it could rob them of billions of dollars in profits.
In May 1999, Napster founder Shawn Fanning released software that made it easy for personal computer users to locate and trade songs they had stored as computer files in the MP3 format, which crunches digital recordings down to manageable lengths without sacrificing quality.
The concept of "peer-to-peer" song trading quickly proved too popular to contain. As Napster users grew by the millions, other file-sharing programs also popped up, such as Gnutella and Freenet. And the labels themselves are looking to use the same technology, only with paying subscribers and secure digital formats that prevent copying.
After the appellate judges began deliberating in October, Napster made agreements 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.
The other four major labels not reached any similar agreement.
- May 1999: Napster Inc. file-sharing service founded by Shawn Fanning and Sean Parker and explodes in popularity.
- Dec. 7, 1999: Recording Industry Association of America sues Napster in federal court in San Francisco alleging copyright infringement.
- April 13, 2000: Heavy metal rock group Metallica sues Napster for copyright infringement and racketeering. Rapper Dr. Dre files suit two weeks later.
- May 3, 2000: Metallica drummer Lars Ulrich and the band's attorney produce list of more than 335,000 Internet user names of people the band says are illegally sharing their songs using Napster.
- May 5, 2000: U.S. District Judge Marilyn Hall Patel rules that Napster is not entitled to "safe harbor" under the Digital Millennium Copyright Act.
- July 26, 2000: Patel grants the RIAA's request for a preliminary injunction and orders Napster shut down.
- July 28, 2000: The 9th U.S. Circuit Court of Appeals stays the lower court injunction, ruling that "substantial questions" were raised about the merits and form of Patel's injunction.
- Oct. 2, 2000: Appeals court hears oral arguments.
- Oct. 31, 2000: Napster announces partnership with German media giant Bertelsmann AG to develop a membership-based distribution system that would guarantee payments to artists. Under the deal, Bertelsmann agrees to drop lawsuit against Napster and make its music catalog available to Napster, while gaining the right to buy a stake in the service.
- Feb. 12, 2001: 9th Circuit says Napster must stop allowing music fans to use its free Internet-based service to share copyrighted material. A three-judge panel allowed Napster to remain in business but told a lower court judge to rewrite her injunction that ordered Napster to shut down pending a trial in the music industry's lawsuit.
Recording industry: http://www.riaa.com