MP3 Trading is Killing the Recording Industry: Killing Ain't Wrong

The Internet has done more for providing exposure for musicians than any other medium. Access is cheap, for both the messenger and the receiver. Among the target demographic, connectivity is nearly universal. Most importantly, though, there is nothing standing between the artist and the audience. No program directors, no DJs, no editors, and no executives. All a musician needs is a website and a little word of mouth (which is, in essence, what the web is really all about) and the music can be available to anyone who cares to listen.

There was a time when print zines were indispensable, when if your friends didn't listen to it chances were you'd never hear it, and going to the record store could actually provide a nice surprise in the form of new releases. Now, print is too slow to be of any real use. Reliable new listening suggestions come from people you've only encountered in a nearly theoretical context. And this morning I was annoyed to learn that my local independent record store had neglected to order any copies of Thrill Jockey's CD reissue of Mouse on Mars' Instrumentals, though the label's webpage clearly has it listed for release today.

A natural outgrowth of this is not just sending information about music via the wires, but sending music itself. Just like how you lend out and copy your CDs for your friends, and vice versa, the same is done with MP3s. Except now your friends are not just a couple of dorks you went to school with, but is potentially the entire population of the wired world. This is the point that the executives, behind the curve as usual, start to question why they are not between you and the music.

Congress decided a couple of years ago that it would hold off on really trying to regulate the Internet for a little while, to see how it developed on its own. How it developed, in the case of music trading, was Napster. The outcome of A&M Records v Napster will, in part, determine what happens with the Internet in the future. As readers of Fakejazz.com may have an interest both in the future of the Internet and their ability to access music thereon, we have provided this article to help clarify the legal context in which the case is being decided and provide some analysis on how the courts are doing.

Assuming that most of us are not experts in copyright, or have had much experience in litigation, the article will first address procedurally what has happened in Napster, what is being sought and how it might be achieved. Second, the article will provide an overview of copyright law and prior litigation which may effect how Napster is decided. Finally, the article will provide a summary of the arguments made before the court in Napster, a summary of Judge Patel's decision and an analysis of how she did.

Key

The statutes and most of the cases to which I cite in this article can be found by going to your local university's law school library. The statues are very simple because I am only citing to the Copyright Act, title 17 of the United State Code. For instance, if I cite to the definitions section of the statue, it would look like this: 17 U.S.C. § 101. So you would go to the set of books marked United States Code, find the volume numbered 17 and turn to section 101.

Cases are a bit trickier. The general rule for circuit or Supreme Court cases is each cite has three parts: volume, reporter and page number. Also included is the year decided, but that's not important right now. The two in this category that I cite to are

Sony Corporation of America v Universal City Studios, Inc. 464 U.S. 417 (1984)

Recording Industry Association of America v Diamond Multimedia, Inc. 180 F. 3d. 1072 (1999)

Sony would be found in volume 464 of the set of books labeled United States Reports at page 417. Diamond would be found in volume 180 of the books labeled Federal Reports, 3rd Series at page 1072.

The other two cases I cite to are district court cases, which are not collected in official reporters as the other cases are. Their cites are comprised of the district they were decided in and the date decided, which are the Southern District of New York and the Northern District of California respectively.

UMG Recordings v MP3.com (S.D.N.Y. May 4, 2000) A&M Records v Napster (N.D. Cal August 10, 2000)

District court cases may be published in a set of books called the Federal Supplement, but they may not, its up to the judge.

Of course, most of this information is available on the web.

1. Crash Course in Civil Suits

In order to really understand what is happening in Napster, it is helpful to have a little background information on the courts that are hearing the case, how they function and what is being asked of those courts.

1.a. Federal Jurisdiction and Appellate Process

The suit was filed in the United States District Court, Northern District of California, before Judge Marilyn Hall Patel. District Courts are Federal courts, which are generally reserved for suits involving diversity of citizenship (parties are from separate states or one party is from a foreign country), suits involving over $75,000 in claims, or issues being brought under Federal laws. The next judicial level for appeal for Federal district courts are the United States Court of Appeals, and, after that, the United States Supreme Court. Napster is eligible for Federal jurisdiction because it has been brought under the Federal Copyright Act, Title 17 of the United States Code.

Now, it is important to remember that the suit has not actually gone to trial yet. The only issues being decided are whether to grant the plaintiff's request for a preliminary injunction (discussed in the next section, 1.b. Remedies and Preliminary Injunction). The process of a lawsuit consists of the pleading stage, the discovery stage and, finally, trial. During the pleading stage the plaintiff (the party who brings a civil suit) files a complaint (stating the claim of a right and the demand for relief from violation of that right) and the defendant (the party being sued) files a response (admitting or denying each allegation of the complaint and asserting any affirmative defenses). The request for preliminary injunction is made during the pleading stage, as part of the plaintiff's complaint. After these documents have been submitted to the court, the discovery stage begins, where the parties begin gathering their evidence in preparation for trial.

Generally, a ruling by a lower court judge will not be reviewed on appeal until the suit has reached final judgement in the lower court; that is, until all questions and issues raised in the suit have been ruled upon by the lower court, either by judge or by jury. However, there are certain appeals, interlocutory appeals, which can immediately be reviewed by an appellate court, before final judgement in a lower court. In the case of Napster, because the issue is over an injunction which would stop Napster from operating, the immediate impact on the parties' interest is so great that review cannot be postponed until after the final judgement of the district court. Also, the issue is one that is decided separately from the merits of the suit: the court of appeals is not telling the district court how to rule on the case, but only whether Napster must stop operations until the district court has given its final judgement.

It goes like this: the plaintiff attorneys filed a written motion in the district court, laying out their arguments why the injunction should be granted, and the defendant attorneys filed a response. The attorneys then appear before the judge to make their respective arguments and answer any questions the judge may have. Unlike what you see on TV, judges have all the power and the attorneys have only their meager powers of persuasion: an attorney may be given, say, ten minutes to make his argument, during which the judge may interrupt at any time with comments or questions, which count against the attorney's time and to which the attorney must respond. When time is up, time is up, and the other side gets their shot. At the conclusion of oral argument the judge either issues an order or denies the motion. Same thing happens in the court of appeals, except there it's a panel of three judges, and the judges issue a written opinion at a much later date which states their decision and reasoning (district courts may also issue written opinions, but are not required to do so. Judge Patel issued one for her decision of the preliminary injunction: N.D. Cal. August 10, 2000).

1.b. Remedies and Preliminary Injunction

A remedy is the enforcement of a right or the redress of an injury that a party asks of a court. Generally speaking, remedies come in two forms, legal and equitable. A legal remedy is the default remedy that courts grant and come in the form of money damages. An equitable remedy is an alternative used when money damages cannot adequately redress the injury, and come most frequently in the form of injunctions, which is a court order commanding or preventing an action (the infinitive of injunction is "enjoin"). Injunctions may also be issued when money damages are too difficult to accurately calculate.

In many areas of law injunctions are uncommon, however, in intellectual property disputes, they are quite common. Because an intellectual property suit is generally alleging some kind of infringement, the plaintiff asks for damages for any commercial loss they may have suffered and injunctions to stop the infringer from continuing infringement. However, just because a plaintiff asks for a particular remedy does not mean that it will be granted. Part of the trial stage of a suit is, assuming the plaintiff prevails, determining which remedies are appropriate and to what extent they should be imposed. Plaintiff must prove why the defendant must be made to pay or be enjoined.

Preliminary injunctions are temporary injunctions granted before trial to prevent an irreparable injury from occurring before the court has heard and decided the case. At the conclusion of trial, the preliminary injunction ends and either no further remedy is granted, damages are awarded or a permanent injunction is issued, depending on the outcome of the trial. In a copyright suit, like Napster, to get a preliminary injunction, the plaintiff must prove probability of success on the merits--that is, they must show the judge that they are likely to win--and that they are harmed more by allowing the infringement to continue during trial than the defendant will be harmed by being forced to temporarily stop the alleged infringing action.

2. The Issues and the Controlling Law

In the United States, it having a common law system, any question of law may be resolved by either examining the applicable statutes or court decisions which have addressed the same or similar questions. Statues always take precedent over case law, and controlling case law is limited to courts which are higher than the one considering the question (meaning, in the Northern District of California, any case decided by the United States Court of Appeals, Ninth Circuit or the United States Supreme Court, would be controlling, while other Federal circuit or state court opinions would only be persuasive, but not decisive). If there are applicable statutes, case law may be useful for clarifying how understand the law and apply it to particular factual situations.

Following are the major statutes governing copyright and the cases on point for the questions at issue in Napster.

2.a. The Copyright Act

Copyright is governed almost entirely by the Copyright Act, found in Title 17 of the United States Code, first enacted in 1790, and amended in 1909, 1976, 1980, 1988, 1990, 1992 (Audio Home Recording Act) and 1998 (including the Digital Millenium Copyright Act). The Act defines copyrightable subject matter, rights granted to copyright owners, limitations on those rights (including fair use, of particular importance to Napster), and so on and so forth. It goes without saying that, like all statues, it makes for some very dull reading. Some of the important highlights include:

17 U.S.C. § 101. Definitions:

"'Phonorecords' are material objects in which sounds . . . are fixed by any method now known or later developed, and from which the sound can be perceived, reproduced or otherwise communicated, either directly or with the aid of a machine or device."

"'Sound recordings' are works that result from the fixation of a series of musical, spoken, or other sounds . . . regardless of the nature of the material objects, such as disks, tapes, or other phonorecords, in which they are embodied."

17 U.S.C. § 106. Exclusive rights in copyrighted works:

"The owner of a copyright . . . has exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords . . . (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership . . . (6) in the case of sound records, to perform the copyrighted work publicly by means of a digital audio transmission."

17 U.S.C. § 107. Limitations on exclusive rights: fair use:

"In determining whether the use made of a work in any particular case is fair use the factors to be considered shall include(1) the purpose and character of the use, including whether such use is of a commercial nature . . . (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work."

2.a.i. Fair Use

Fair use is the best defense to a claim of copyright infringement because it carries with it connotations that the use has a social benefit and is not merely an illicit theft of another's creative output and hard work. Traditional forms of fair use include such lofty endeavors as criticism and comment, new reporting, use for teaching purposes, scholarship or research and parody.

Napster cannot really claim that it is engaged in any other those activities, thus the question turns on whether Napster's use (or, rather, Napster's users' use) passes muster under the factors enumerated in 17 U.S.C. § 107: (1) the nature of the use--focus on the alleged infringement: is it commercial, creative or transformative; (2) nature of the work--focus on the original work: artistic work is generally provided greater protection than factual work; (3) amount and substantiality of use--again, focus on the alleged infringement: whether the infringing use takes the entire original work or the "heart" or the work; and (4) the effect on the potential market for the copyrighted work--focus on the interaction between the original work and the alleged infringement: whether there are lost profits, sales, market share, etc. No one factor is decisive. The factors are intended to illustrative and not exhaustive of all considerations that courts may weigh in deciding fair use.

Ultimately, what a defendant claiming fair use wants to prove is that their activity supports the policy underlying this portion of the Copyright Act: the importance of access to information in a democratic society--that there is a freedom to draw on a pool of available information and artistic expression which results in everyone being better off.

2.b. Sony Corporation of America v Universal City Studios, Inc. 464 U.S. 417 (1984)

The best thing about Sony is that it really highlights the stupidity of giant corporations trying to secure their rights in artistic expression. Universal and some other big Hollywood studios sued Sony for contributory copyright infringement (to intentionally help an unauthorized person to infringe a copyright) because of their manufacture of VCRs, which allowed the home user to tape movies off of the TV (the plaintiff's most egregious error was, perhaps, limiting their claim of infringement to individual home users, and not addressing the possibilities of bootlegging).

The plaintiff's theory is that if home users tape their movies instead of watch the broadcast that they will not watch the commercials. If they do not watch the commercials, then the commercial air time sells for less money. If the commercial air time during a movie becomes less valuable, then the movie studios cannot sell the TV rights to their movies for as high a price. Because the studios cannot sue every VCR owner in America, they went after the manufacturer for contributory infringement. Universal initially requested that VCRs be declared contraband--illegal to be trafficked in the US--however, they then graciously stated that they would be willing to accept a continuing royalty on the sale of VCRs. Effectively, Universal and the other plaintiffs would be given control over the VCR market, which they would then license back to Sony.

Fortunately the Supreme Court, in this case, was smarter than the lawyers. The Court identified their task as to strike a balance between the interests of the copyright owners interest in protection of their rights and the rights of Sony and other VCR manufacturers to carry on their business in "substantially unrelated areas of commerce." The key, Justice Stevens determined, was in the capabilities and possible applications of the device. Here the Court could have taken two paths: it could have determined that the VCR was capable of limitless infringing capabilities and thus its distribution must be tightly restricted, or they could have, as they did, rule that "the sale of copying equipment . . . does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes . . . it need merely be capable of substantial non-infringing uses" (emphasis added). In answering this question, Universal had made the Court's job very easy. Because its allegations focused on the individual home user, all the Court had to do was determine that individual home use was not infringement and, presto, VCRs are capable of substantial non-infringing uses, and, thus, not contributing to infringement.

This case is essential for Napster because it sets the standard for determining whether mechanisms or devices which facilitate copying are facilitating infringement: whether the devices are capable of substantial non-infringing uses. However, some important factors to note about this case, especially when considering its application to the facts of Napster, are that the plaintiffs in Sony represented only about 10% of the programming on television at the time the case was decided, and that a substantial portion of the other 90% had no problem with individual home use of the VCR.

2.c. Audio Home Recording Act

The Audio Home Recording Act was established in 1992 in anticipation of the impact that Congress believed DAT machines would have on home recording. The compromise it provides is based in a settlement reached between DAT manufactures and the recording industry. Essentially, the recording industry got what Universal was asking for in Sony: the copyright holders in the recording industry would receive a royalty for every DAT sold (thus increasing the price paid by the consumer) to compensate for the home duplication of their music. Also, every consumer DAT machine (but not professional models) would have an electronic control to prevent serial copying--SCMS, serial copying management system (also featured on many cd-recorders). SCMS would allow copying from cd to DAT, but not from DAT to DAT. DAT manufacturers, in return, get the privilege of marketing their products to consumers (ultimately, a market that did not really want them).

Why didn't the DAT manufacturers go to the mat like Sony did and rely on the Supreme Court's Sony decision? The facts of the DAT case are a bit different, and the recording industry would have likely prevailed. First, not as many people duplicate videos as duplicate audio recordings. Second, with DATs, unlike VCRs, quality does not degrade from copy to copy, thus encouraging more copying. Third, the commercial impact for the recording industry is bigger and more direct: copying audio records will likely cut directly into sales, whereas in Sony the benefit at risk was hypothetical decline in advertising rates.

The important parts of the Act for our consideration are as follows:

17 U.S.C. § 1001. Definitions

"A 'digital audio recording device' is any machine or device of a type commonly distributed to individuals for use by individuals . . . the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private uses."

"A 'digital musical recording' is a material object(i) in which are fixed, in a digital recording format, only sounds . . . and (ii) form which the sounds and material can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device."

17 U.S.C. § 1008. Prohibition on certain infringement actions:

"No action may be brought under this title alleging infringement of copyright based on the . . . noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings."

2.d. Digital Millenium Copyright Act

One of the amendments to the Copyright Act enacted in 1998 was the establishment of the Digital Millenium Copyright Act, which directly addressed liability for unauthorized distribution of copyrighted material on the Internet and prohibited circumvention of technological measures that control access to copyrighted material. This Act, as with the Audio Home Recording Act, is problematic because, as Congress tries to keep pace with rapidly developing new technology, they increase the number of amendments to the Act which are tied to specific technology, which may become obsolete.

The part of the Act addressing liability for unauthorized Internet distribution is found in 17 U.S.C. § 512. § 512(a) provides a safe harbor for Internet service providers, stating that they are not to be held liable for any monetary relief for infringement of copyright if their networks are used to illegally transmit copyrighted material; § 512(c) creates another safe harbor for Internet service providers whose users illegally post copyrighted material; and § 512(d) creates similar safe harbors for search engines. All of these provisions require (and assume) that the service provider or search engine does not know about the infringement. If they do know about it, then they are liable for damages. Thus, if a copyright owner notifies an ISP about infringing activity by one of its users, the ISP must stop that users infringing activity on their networks.

2.e. Recording Industry Association of America v Diamond Multimedia, Inc. 180 F. 3d. 1072 (1999)

The RIAA sued Diamond, claiming that its Rio product, a portable MP3 player, violated the Audio Home Recording Act because it did not include the SCMS control, seeking to enjoin production and distribution of Rio players and royalties for use prior to the injunction. Diamond argued that the Rio player was not a digital audio recording device as contemplated by the Audio Home Recording Act because it could not create a duplicate of any digital audio file or transfer a digital audio file to any other device--its sole output is an analog headphone jack. Thus, Rio's use is consistent with the Act's purpose to facilitate personal use

The 9th circuit, who heard the case on appeal (the same circuit that recently heard arguments on the Napster preliminary injunction) held that the Act did not broadly prohibit digital serial copying but only places restrictions on a certain type of digital recording device. Further, the court held that computer hard drives (from which the Rio players receives the MP3s it plays) are not digital audio recording devices because their primary purpose is not to make digital audio copied recordings. Thus, the Rio is not subject to the restrictions of the Audio Home Recording Act.

One problem this case may pose for Napster is, because the 9th circuit established that computers are not digital audio home recording devices, the court foreclosed Napster's ability to use 17 U.S.C. § 1008 as a defense ("No action may be brought under this title alleging infringement of copyright based on the . . . noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings").

2.f. UMG Recordings v MP3.com (S.D.N.Y. May 4, 2000)

MP3.com provides a service, free to users, where, by inserting a CD in your computer hard drive, the site can verify your ownership of that disc and allow you to download MP3s of songs from that disc to other computers, such as one at work. MP3.com purchased copies of all the CDs for which it provides MP3s and, without authorization, copied those CDs onto their servers to be able to distribute the recordings. MP3 characterizes this use as the functional equivalent of storing their users' CDs for them. The plaintiff characterized the use as the unauthorized replaying of converted versions of copyrighted CDs.

The court, in entering judgement for the plaintiff in a terse opinion heavily skewed against MP3.com, reasoned that the nature of the use was commercial in that a large user base will generate advertising revenue, and that it transformed the CDs by shifting them through cyberspace to wherever the user downloaded them. The nature of the copyrighted work were creative recordings which were copied in their entirety. The court also found that MP3.com's use compromised the plaintiff's ability to license their copyrights to another site for downloading.

This opinion is problematic on the first and fourth criteria for fair use. Regarding the nature of the use, the court's reasoning that the use is commercial is flawed. MP3.com looks to profit from advertisers and there is no discussion of MP3.com seeking a profit for inclusion in their service of any particular MP3 copyrighted by the plaintiff. Regarding the commercial impact, MP3.com does not allow users who have not provided proof of purchase of a CD access to MP3s from that CD, and they have purchased a copy of every CD themselves, thus there is no loss in sales. The district court's partial analysis needed the opportunity for review by a higher court to definitively answer the questions presented. However, the recent settlement of the case, while pending appeal, foreclosed the opportunity for such review.

3. A&M Records, Inc.v Napster, Inc. (N.D. Cal. August 10, 2000)

3.a. The Arguments

The following arguments were only regarding whether a preliminary injunction should be granted. However, part of that argument is probability of plaintiff's success on the merits of the case, so the broad arguments that would be made at trial are developed.

3.a.i. A&M

87% of the files available on Napster are copyrighted and copied without authorization, and this is all being done with Napster's full knowledge. Given that virtually no use of the service is of a non-infringing character, Sony does not apply to the facts of this case. Though Napster is currently a free service, there is evidence, in their internal memoranda, that they are delaying maximization of revenues until they attracts a larger user base. Thus, Napster has been developed with an eye towards being a commercial service.

Given this fact, Napster's users unauthorized copying of copyrighted music cannot be considered a noncommercial use, which cuts against any fair use defense. Further, the copying involved is of entire songs, artistic works, also cutting against fair use. Finally, since the rise of Napster, there is evidence which supports a decline in record sales among those groups who most heavily use Napster (gathered by surveys with college students and monitoring sales at record stores around college campuses).

3.a.ii. Napster

Private non-commercial sharing of music is lawful. Napster is basically an Internet directory which provides users with lists of other users who are prepared to share, on a one-to-one noncommercial basis, certain music files. The Audio Home Recording Act specifically immunizes any such noncommercial use by an individual. In fact, in RIAA v Diamond, the court held that the main purpose of the Act was to protect noncommercial copying of musical recordings and that copying music files from a hard drive was a protected activity. There is nothing in the law that restricts these provisions to only instances were a few users are participating.

Napster's users engage predominantly in fair use. As in Sony, Napster is capable of substantial non-infringing uses, evidenced by the numerous artists who have given permission to copy their files. Despite the plaintiff's statistics, evidence shows that Napster may increase CD sales though a wider exposure of music (sampling music before buying it). If Napster is shut down, it would set a precedent for shutting down numerous other Internet services, where users may find access to MP3s, and perhaps the Internet itself

3.b. The Decision

Judge Patel characterized the issue as defining the boundary between personal sharing and theft on a global scale, which is a bad start for Napster. She felt that the fair use doctrine developed in Sony could not be expanded to include what Napster and its users were doing, given the scale and scope of the facts of the case--too many users sharing too many files. Also, the ease and speed of downloading an MP3 distinguishes this case from Sony The evidence supported plaintiff's allegation that virtually all users were engaging in unauthorized downloading of copyrighted music, constituting a prima facie case of direct copyright infringement.

The potential non-infringing use of Napster were considered minimal, while the commercially significant use was unauthorized copying. Further, sharing files with other anonymous users did not seem to the court to be a personal use. The court also preferred the plaintiff's evidence of the impact on record sales to the defendant's evidence, finding that copyright holders may be losing out on royalties due to them.

Also, the Judge explicitly criticizes Napster for responding under the Audio Home Recording Act and Diamond. She points out that the plaintiff did not plead under the Audio Home Recording Act, making it irrelevant, and notes that the case did not hold that the Act covered the downloading of files.

3.c. Analysis

The judge's reasoning on how a Napster user's use is not permissible fair use is faulty. While its hard to make the argument that Napster is not a commercial entity, it is equally difficult to make the argument that their users' use is commercial, and it was not made in this case. The argument may be made that the item which is the object of their use is a commercial item, thus using it is a commercial use. However, that logic is circular and does not stand up to either case law or statute, both of which explicitly state that individual home use is a personal use excepted from claims of infringement. It is user's use upon which the question of liability hangs. If infringement does not adhere to the user's action, then there can be no contributory infringement by Napster.

Also, Judge Patel's handling of what law controls and how it controls is problematic. Dismissing the Audio Home Recording Act as irrelevant was a bit irresponsible. Whether the Act applies to this case is a question for the court to determine, not the plaintiffs. Plaintiff's plead under whatever laws are favorable to his case. Generally, the same laws and cases are being cited by plaintiffs and defendants, differing in only how they construe them. However, there is no rule that the defendant cannot assert a theory which relies on another, more applicable law. It is up to the trier of fact (the judge in this case) to determine what is the appropriate law, appropriately applied. The judge should have at least considered the Act. This is not likely, however, to be a reversable error. It is more likely that an appellate court may remand the case back to the district court for consideration under all controlling authority.

On the applicability of Sony, the court makes its biggest mistake. The case is very explicit that a device need only be capable of substantial non-infringing uses. There were no parameters set which were based on the amount of users or amount of their use. Judge Patel has overstepped her bounds in reading limitations into a United States Supreme Court ruling which are not apparent from the text of the case. If there is a implicit limitation based on the factual circumstances of the case, that is something that the Supreme Court will need to identify, as it is not obvious, apparent, or even suggested, by the plain language of the decision. Judge Patel's cavalier method of teasing out a convenient limitation is an affront to the principle of stare decisis, the doctrine of precedent which is the bedrock of common law jurisprudence.

On balance, there is a good argument to be made that this case is distinguishable from Sony. In that case, the plaintiff's represented about 10% of what was available on television, and numerous other producers had expressed their support of home taping. In this case, on the other hand, major labels represents about 90% of the distribution of recorded music in the US, none of whom have given their authorization for such copying. Also, videotaping shows off of a television for home use is not really comparable to what is happening with Napster. The use contemplated by the Supreme Court in Sony was individuals making copies for their own personal use, and did not consider the impact on copyright of sharing those copies with others, much less a sophisticated, world-wide bazaar facilitating unlimited trading. Thus, the chances of success in finding support for Napster in Sony, based on fact patterns, is doubtful.

Finally, its hard to argue that Napster's user base is not wholly usurping Federal law by completely disregarding the copyrights granted to the music being traded. When it comes down to it, the Copyright Act and its policy (rewarding artists, in this case, for their effort and ingenuity) is being completely undermined by the anarchy of the Internet. If for no other reason, Napster is unlikely to be found not liable, no matter how poorly the Judge's reasoning, because the judicial system, as a branch of government, cannot condone the undermining of the law.

Copyright, like all intellectual property, is intending to strike a balance between the rights of the creator and their interest in a return on their investment of time and effort and the benefit to society of free access to information and art. Napster does a great job of providing free access, but does a much poorer job at respecting the rights of the copyright owner. For this reason, Napster will likely be found liable all the way up the appellate ladder, should the case make it that far.

3.d. The Settlement

Settlement is likely the real goal of both parties, it's just a matter of deciding on a number. Napster has already settled with BMG (which is convenient since BMG's parent corporation now owns a stake in Napster), the result of which is that Napster will charge a monthly flat fee to its users, which will include royalty payments to BMG and their artists. It would be naïve to have assumed, once Napster became a corporation and ceased being a college kid's hobby, that the service would have been headed anywhere else. The evidence before the court, undisputed by either party, plainly showed that Napster had every intention of capitalizing off their user base. It was only a question of how much.

Settlement is in the best interest of both parties, as it almost always is in a civil case involving corporate entities. First, the sole function of a corporation is to generate profits for its owners (corporations can be held liable to stockholders for failing to exploit a profitable opportunity, even if the corporation's reason for not doing so is a moral position). Second, settlement is cheaper, faster and easier than going to trial. Plus it gives the parties more control over the outcome, as each has input on what the terms will be. Bargaining between the parties is more likely to result in equitable and efficient terms than a judge who may come down wholly on the side of one party or the other. Third, it is the business of both the plaintiff and the defendant to distribute music to as many listeners as possible, the more the better. The only dispute is who gets to pocket the money generated by that distribution.

The kind of settlement reached between Napster and BMG is likely where the case is heading anyway. Its unlikely that the courts would shut Napster down entirely, and is more likely that a compulsory license would be imposed--Napster may continue but has to provide compensation to copyright holders. The practical effect is that Napster charges either a flat fee for unlimited use or a per download fee, which is in line with other MP3 services.

The settlement in MP3.com is illustrative. In that case, the court award the plaintiffs a judgement in excess of $100,000,000. The size of that award would effectively put MP3.com out of business. It is important to note, however, that the plaintiffs were still willing to bargain with MP3.com. The result of the settlement is that MP3.com will only have to pay just over $50,000,000 and get to keep doing business. If the plaintiffs wanted MP3.com out of business, they would have pushed through the appeal process. Instead, they worked a compromise that allowed MP3.com to remain in business so long as they would profit from it. Given the outcome of MP3.com, Napster is likely a bit more anxious to settle than the plaintiffs, as Napster would wish to avoid a large damages award, which the plaintiffs may like to receive.

4. Conclusion

In the end, the world is not as good a place as we thought, or hoped, that it was. Napster wants your money just as much as the RIAA, BMG, A&M and the rest of the bloodless corporations. What does this mean for the user? Who knows? The settlements keep the questions form being definitively answered by the courts. It is likely, though, that the courts would come down on the side of the corporations anyway, as they often do.

Under a legal standard, Napster probably can't be doing what it is doing in the way that it is doing it and will soon stop. However, that does not mean that they can stop us. The Internet is still unregulated. Remember Sony: they can't sue all of us.