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Napster's future hangs in the balance with judge's injunction

03/07/01

BY KEVIN COUGHLIN
STAR-LEDGER STAFF

A federal judge has ordered Napster Inc. to halt the free swapping of copyrighted songs but stopped short of closing the immensely popular Web site.

The ruling either buys time for Napster to become a fee-based service or spells withering death, as Napster's 50 million users defect to other services, experts said yesterday.

Napster's not the only music site in hot water. A New York judge yesterday ruled that MP3.com made unauthorized copies of songs owned by TeeVee Toons Inc. MP3.com already has paid an estimated $133 million to settle copyright wrangles with five other labels. One of MP3's insurers also sued yesterday, claiming it wasn't responsible for covering such losses.

The landmark Napster case is likely to dictate the future of digital copyright law, affecting the way all forms of entertainment are distributed in cyberspace.

In an injunction issued late Monday, San Francisco District Judge Marilyn Hall Patel ordered the recording industry to supply Napster with names of copyrighted songs being traded on the service, and names of the artists. The Redwood City, Calif., company then has three days to block the free sharing of those titles through its online directory.

"Napster is preliminarily enjoined . . . from engaging in, or facilitating others in, copying, downloading, uploading, transmitting, or distributing copyrighted sound recordings in accordance with this Order," Patel wrote.

Although not the death blow sought by music labels, the revised order was hailed by the Recording Industry Association of America, which sued Napster in December 1999 over piracy it feared would cost the industry billions.

"We are gratified the District Court acted so promptly in issuing its injunction requiring Napster to remove infringing works from its system. We intend to provide the notifications prescribed by the court expeditiously, and look forward to the end of Napster's infringing activity," said Hilary Rosen, the association president.

Napster, racing to remake itself as a royalty-paying subscription service, said it would "take every step within the limits of our system to exclude . . . copyrighted material from being shared." Despite persistent claims that song-blocking was technically impossible, the company reversed course last weekend and attempted to do just that. Still, foes and fans alike had little trouble downloading favorite tunes.

Patel directed that "all parties . . . use reasonable measures" to identify variations in song titles and artist names that Napster users might concoct to elude the company's filters.

Her three-page edict did not specify Napster's penalty should it fail to comply. Patel ordered Napster closed last July, but an appellate court quickly stayed the injunction pending a review.

Siding strongly with Patel, the 9th U.S. Circuit Court of Appeals last month demanded one revision: requiring the recording industry to shoulder more of the burden for identifying copyright infringements on Napster.

Napster offered to settle the whole matter for $1 billion, spread over five years. In return, it wanted 40 percent of future music sales on its site. Smelling legal victory, major labels scoffed at the deal last week. The exception was German media giant Bertelsmann AG, a Napster partner keen on converting the service to a fee-based operation.

Patel's ruling gives "the record labels a great deal of power over exactly what songs are going to show up on Napster, how long they're going to be there, and how usable Napster will be for the vast number of consumers that are on there now," Eric Sheirer, an analyst with Forrester Research, told the Associated Press.

"The amazing thing is it took this long" to rein in Napster, said Rick Joyce, an analyst for Accenture.

From restaurants to funeral parlors, anyone who pays music licensing fees was watching if the record industry would let Napster break the rules, Joyce said. Now, he suggested, Patel has handed Napster a reasonable explanation for doing what it always intended -- become a profit-making company.

Others contend Sony, Warner, EMI and Universal scored a Pyrrhic victory. Inevitably, said New York University economist Nicholas Economides, Napsterites will flee to rivals like Gnutella and Freenet, so-called peer-to-peer networks that are much harder to police.

"So the recording industry will have to sue you and me -- which is very difficult," Economides said. "With Napster, (the labels) had a chance to strike a deal and make money," he said. "In the long run, the distribution of music through the Internet is so much more efficient, it will have to be adopted. Right now, the recording industry is trying to buy more time."

Meanwhile, as both sides prepare to meet Friday with a mediator, they continue their public relations war. On its Web site, Napster urges fans to lobby Congress. The RIAA has recruited former Montana Gov. Mark Racicot, a conservative Republican, for the same purpose.

And the debate sizzles in cyberspace.

"Record companies are about to find that the consumer is no longer a mindless revenue source," reads a posting on Napster's site. "We are now empowered with the tools to quickly and quietly circumvent the juggernaut that is the Record Industry. . . . The revolution has begun. And you cannot stop us."

Countered another: "I love Napster, this is great for me. But you have to admit that it hurts the artists. You know it's not right to obtain copyrighted music for free."

Kevin Coughlin covers technology. He can be reached at kcoughlin@starledger.com or (973) 392-1763.

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2001 The Star-Ledger. Used with permission.

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