THE DAY THE MUSIC DIED:  NAPSTER REVIEWED
By Catherine M. Lee
(2001>

On Monday, February 12, 2001, a three judge panel of the Ninth Circuit Court of Appeals in San Francisco issued its long-awaited ruling on the fate of Napster, the popular online song swapping service.  In its 52-page ruling in A&M Records, Inc. v. Napster, the Court held that Napster could be liable for both contributory and vicarious copyright infringement.

The lawsuit was brought against Napster because it provides software for online users to exchange music files in the MP3 format.  The Napster software allows online users to create a directory of songs that remain on the users’ hard drives and that is available to other Napster users, thereby creating a link via the Internet for the free transfer of recordings.  On August 10, 2000, U.S. District Court Judge Marilyn Patel had issued a preliminary injunction in favor of the recording industry and ordered Napster shut down.  The Ninth Circuit then stayed the injunction pending its recently issued decision, which kept the stay in effect until the District Court could modify the injunction.

In its February 12th decision, the Ninth Circuit ruled that Napster may be held liable for contributory copyright infringement if it had knowledge of the infringing activity of its users, and induced, caused or materially contributed to it.  The Court found that Napster either knew or should have known that its users exchanged copyrighted music, that it had the ability to block users supplying copyrighted music from accessing its system, and that it did not remove the copyrighted music from its system.  

The Ninth Circuit did not make this ruling because Napster knew or should have known that its system had the capability of being utilized for copyright infringement.  The Court followed the United States Supreme Court’s precedent in Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984), where Sony, the manufacturer of video tape recorders, was not held liable for contributory infringement simply because, in addition to its product’s non-infringing uses, it knew that the video tape recorders could be used to infringe third parties’ copyrights.  Instead, the Ninth Circuit found that Napster could be liable for contributory copyright infringement if it “(1) receives reasonable knowledge of specific infringing files with copyrighted musical compositions and sound recordings; (2) knows or should know that such files are available on the Napster system; and (3) fails to act to prevent viral distribution of the works.”

Regarding vicarious liability for copyright infringement, the Ninth Circuit held that Napster must have the right and ability to supervise the infringing activity and a direct financial interest in the infringing activity before it could be held liable.  The Court found that Napster has a financial interest in the free exchange of music by its users because the exchange brings online users to its website.  The Court further found that Napster’s express reservation of rights to refuse service and to terminate accounts based on a user’s violation of law constitutes an ability by Napster to control its system.  The Ninth Circuit thus ruled that Napster must utilize its system’s existing function to search song titles to locate copyrighted musical recordings on its system and halt the exchange of such materials upon its discovery of the same.  

Following the Ninth Circuit’s ruling, on March 5th the District Court revised its preliminary injunction to enjoin Napster from engaging in, or facilitating others in, copying, downloading, uploading, transmitting, or distributing copyrighted sound recordings but specifically stated that the burden of ensuring that no such acts occur on the Napster system is shared by both Napster and the recording industry plaintiffs.  

For example, the recording industry plaintiffs must give Napster notice of their copyrighted sound recordings by providing the title of the work, the featured recording artist, the name(s) of files on the Napster system containing the work, and a certificate of ownership of each copyrighted work.   In turn, Napster must search its system for the copyrighted works shown on the lists provided by the recording industry plaintiffs and also “police” its system for the existence of copyrighted works (though the District Court’s order does not clearly define Napster’s policing responsibilities).  Upon receipt of “reasonable knowledge” of specific infringing files containing copyrighted sound recordings, either from third parties or from its own policing efforts, Napster must, within three business days, search all files on its system and prevent the downloading, uploading, transmitting or distributing of the noticed copyrighted sound recordings.  

These burdens, combined with the prohibition of Napster from continuing to facilitate the free exchange of copyrighted works, may have the practical effect of shutting down the Napster system as it currently exists.  Like the recent settlement involving MP3.com, look for Napster to pay large fees to the recording industry and attempt to negotiate proper licensing rights to continue its distribution of popular musical works.  Of broader implication, the Court’s decision provides intellectual property enforcement attorneys with important precedent to use against other on-line companies that trade in the unauthorized products of third parties.

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