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"Gimme Some Music: The Place of Napster in Copyright History"

World Licensing Law Report (BNA)
11.2000

The current disputes over digital distribution of MP3 audio files on the Internet through programs such as Napster, Gnutella, Freenet and Aimster and web sites such as MP3.com, MP3board.com and Scour.net are but one chapter in the long history of copyright law??s adaptation to technological change.

The Copyright Act is not always crystalline in its clarity. For those who ordinarily do not dwell in its complex world, the legal answer of the Act to the question ??Why can't I have this work of art, literature or music for free??? may seem to be is an unsatisfying technical tour through a labyrinth of enumerated rights and exemptions, defenses, and exceptions to exceptions. No wonder, then, that proponents of Napster and similar distribution systems have preferred anarchy on the Internet rather than protection of copyright owners?? rights in their works.

Unwieldy though the current Copyright Act may be, it properly reflects Congress' tradition of adaptation to technological change. Its provisions have sought legislative adjustments to the technological development of new media for embodying creative expression and new methods of copying and distribution, while maintaining a careful balance between consumers?? desires for access to copyrighted works and creators' incentives for the creation and dissemination of them in the first place.

Historically, Congress has adapted the copyright law to embrace technological advances either by clarifying the subject matter of copyright or by refining the scope of copyright owners' rights. Over the years, it has continued to protect the Constitutional subject matter of copyright, the 'Writings' of 'Authors,' 1 beginning with its very first statutory embodiments, the three spare categories of maps, charts and books.2 Statutory protection was later extended to engravings, etchings and designs,3 to musical compositions,4 and to new technologies such as photographs,5 motion pictures,6 and sound recordings.7 More recently, Congress confirmed that copyright protection is available for computer programs.8 Instances in which Congress has refined the scope of copyright owners' rights include enactment of the 'ephemeral recordings' exception to the copyright owner's reproduction right9 and the Digital Performance Right in Sound Recordings Act of 1995,10 among many others.

Even more recently, Congress enacted the Digital Millennium Copyright Act ('DMCA'), codified at 17 U.S.C. § 101 et seq., which sought to fine-tune the Copyright Act in a manner that expressly balanced the competing interests of copyright owners and consumers.11 The DMCA addresses content owners' hesitation to make copyrighted works available on the Internet due to fear of piracy. Among the ways in which it does so is the providing of sanctions against the circumvention of technological measures they employ to control access to their copyrighted works.12 The DMCA also maintains access to a variety of works by limiting the potential infringement liability of online service providers that meet certain specific requirements.13 In enacting the DMCA, Congress' clear intention was to resolve the issues raised by online digital distribution in a manner that maintains access to copyrighted works while ensuring that development and distribution of those works will continue.14

Applying Basic Copyright Principles

Current cases concerning digital distribution of music appear to raise complex issues because they involve both new ways to embody musical works and new ways to copy and distribute them. However, notwithstanding both the claims of revolutionary technological advances and a level of media attention uncharacteristic of most intellectual property disputes, the legal issues in this chapter of the history of copyright are not particularly complicated if we apply basic copyright principles.

The method of embodying musical works and sound recordings that provides a common thread among the Napster, MP3.com, MP3Board.com, and other pending cases is the MP3 (MPEG-1 Audio Layer 3) file format. Although there are other formats (such as .wav and .shn) for storing digital audio files, MP3 files, which contain digital information compressed to a fraction of its original size, are popular among consumers (despite a somewhat diminished sound quality) because they are small and easy to store and transfer.15

Consumers can obtain MP3 files, both authorized and unauthorized, from a variety of sources. A consumer may download an MP3 file directly from an artist or a record company's web site, from an authorized e-tailer such as emusic.com or headjams.com (which distributes authorized MP3s by new, lesser-known artists), or from a web site that provides unauthorized MP3 downloads directly or provides hyperlinks to other web sites that offer them. One web site providing such hyperlinks, MP3Board.com, has been sued by major record companies for copyright infringement.16 MP3 files can also be purchased from authorized brick-and-mortar stores.

'Streaming' technology permits the consumer to listen to an audio file, using a program such as RealPlayer, without necessarily downloading a copy.17 As with most dissemination technologies, music can be streamed to listeners from copies that are authorized as well as copies that are not. In UMG Recordings, Inc. v. MP3.com, Inc., the defendant streamed recordings from unauthorized copies of CDs to subscribers to its My.MP3.Com service who either could show that they had already purchased an authorized copy of the CD, using defendant's 'Beam-It Service,' or would agree to purchase it from one of defendant's retailers under its 'Instant Listening Service.'18 Without authorization, MP3.com had copied thousands of CDs onto its server and converted them into MP3 format. The court rejected MP3.com's fair use defense19 and held that its unauthorized copying of the CDs constituted willful infringement of the reproduction right under plaintiffs' copyrights.20 It was required to pay statutory damages of $25,000 per CD infringed. Depending on the number of CDs infringed ?? to be determined at a later phase of the trial ?? the total damages award could be approximately $118,000,000.21

Another method of distributing MP3 files is peer-to-peer ('P2P') file sharing, of which the Napster service is only one manifestation. Napster itself does not distribute MP3 files; instead, it facilitates the distribution of hundreds of thousands of MP3s among its users for free and without compensation to the copyright owners. By downloading Napster's MusicShare software, a user can access the directory and index on one of Napster's servers to locate MP3 files on other users' hard drives. The server identifies the names of MP3 files available on the user's hard drive and adds them to the server's directory and index for other users to locate. The Napster server obtains the necessary IP address from the host user and then communicates it or routing information to the requesting user. The MP3 files are then downloaded directly from one user's hard drive to another. The MP3 file itself is not transferred through Napster's servers, but users cannot access the file names and routing data unless they sign on to the Napster system.22

There are other P2P systems that also involve use of central servers to route users' requests for digital files, including iMesh, CuteMX, Aimster, Napigator (primarily an index of Napster servers), OpenNap (essentially non-Napster servers running Napster software) and Scour Exchange (which facilitates the exchange of motion pictures as well as music).23 In addition, there are other emerging P2P technologies ?? including Gnutella and FreeNet ?? that differ from Napster in that they do not store directories on a central server, which may make them more difficult to target with legal action.24

A Square Peg in a Round Hole

The most remarkable aspect of the Napster case is that the legal issues involved are so commonplace. Yet, on October 2, 2000, the United States Court of Appeals for the Ninth Circuit heard nationally-televised oral arguments in Napster's appeal of the preliminary injunction that prohibited it from facilitating the copying, downloading or distribution of thousands of plaintiffs' copyrighted musical compositions and sound recordings without authorization.25 In the Ninth Circuit, as in the district court, Napster's position was that it was the pioneer of a 'revolutionary Internet communications technology' without which P2P file-sharing would cease to exist.26 While this argument may be appealing from a public relations standpoint, the legality of the Napster service is not determined by the desire of a consumer to obtain copyrighted MP3 files for free. Thus, Napster has also had to try to convince the courts that what appears to be a cut-and-dry case of massive piracy is justified by various legal defenses ?? a task rather like trying to squeeze a square peg into a round hole.

In the first stage of the Napster litigation, Napster argued that it qualified for the safe harbor protection afforded to 'service providers' under § 512(a) of the DMCA. But in May 2000, Judge Marilyn Hall Patel rejected Napster's § 512(a) defense, holding that § 512(a) applies only where the copyrighted material is transmitted 'through a system or network controlled or operated by or for the service provider.'27 In contrast, the Napster service facilitates the transmission of MP3 files directly between users' computers through the Internet, not through Napster. She said, in addition, that Napster had not shown that it satisfied § 512(i)'s requirement that a service provider maintain a policy for terminating subscribers who are repeat infringers.28

Then, in July, relying on basic copyright principles, Judge Patel found that Napster users' activities likely constitute direct copyright infringement (a prerequisite to finding Napster liable for contributory and vicarious infringement), since as many as 87% of the MP3 files on Napster may be copyrighted, more than 70% of those may be owned by the plaintiffs, and virtually all Napster users engage in unauthorized downloading or uploading of copyrighted music. In so holding, she rejected Napster's argument that Napster users' activities are excusable as 'fair use' under the four factors set forth in section 107 of the Copyright Act: she held that all of them weighed against a finding of fair use.29

With respect to the first fair use factor, 'the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes,'30 she noted that downloading an MP3 file is not 'transformative' of the copyrighted work. Moreover, even if exchanging MP3 files using Napster is not considered commercial activity in the traditional sense, neither is it a private, noncommercial use: users are getting for free something that they ordinarily would have to pay for, which, she said, 'suggests that they reap economic advantages from Napster use.'31

The second and third fair use factors, 'the nature of the copyrighted work' and 'the amount and substantiality of the portion used in relation to the copyrighted work as a whole,'32 also weighed in plaintiffs' favor. The court found that plaintiffs' copyrighted musical compositions and sound recordings are 'creative in nature' and that Napster users' downloading or uploading of MP3s constitutes 'wholesale copying' of the entire copyrighted work.33

Finally, Judge Patel found that the fourth factor, 'the effect of the use upon the potential market for or value of the copyrighted work'34 ?? generally acknowledged to be the most important of the factors ?? weighed against a finding of fair use. Napster use, she said, harms the market for copyrighted music by reducing retail CD sales, particularly to college students, creating barriers to plaintiffs' entry into the digital downloading market, contributing to an attitude among consumers that digital audio files should be free, and depriving music publishers of royalties for individual songs.35

Not Analogous to 'Time Shifting' in Sony Case

Judge Patel also rejected Napster's arguments that users' 'sampling' of music stimulates CD sales and that what Napster has called 'space-shifting' ?? converting CDs to MP3s in order for the owner to listen to them through a different computer ?? is analogous to the 'time-shifting' of television broadcasts by VCR recording that the Supreme Court held to be permissible in the Sony case.36 Moreover, she held the 'staple article of commerce' doctrine, under which products 'capable of commercially significant noninfringing uses' are permissible, doesn't apply: she found that the use of Napster for space-shifting is minimal, authorized distribution of new artists' work is an insignificant part of the Napster service, and Napster continuously supervises the use of its service.37 By contrast, in the Sony case, 'the only contact between Sony and the users of the Betamax . . . occurred at the moment of sale.'38 Furthermore, the Napster service, unlike the Betamax recorder, is not a product but a system.

Nor was Judge Patel persuaded by Napster's remaining defenses ?? First Amendment, the Audio Home Recording Act, misuse of copyright, waiver, and failure to present evidence of copyright registration.39 Thus, the district court found that under basic copyright principles the plaintiffs are likely to succeed on the merits of their claims against Napster for contributory and vicarious copyright infringement. With respect to plaintiffs' contributory infringement claim, Judge Patel found that, at a minimum, Napster had constructive knowledge of users' transferring illegal MP3 files and materially contributed to Napster users' direct infringement by operating what plaintiffs characterized as 'essentially an Internet swap meet' (a characterization with which she agreed).40 Similarly, the court found for plaintiffs on their vicarous infringement claim because Napster has 'the right and ability to supervise its users' infringing conduct' and also 'economic incentives for tolerating unlawful behavior.'41 In addition, finding that Napster 'contributed to illegal copying on a scale that is without precedent,' Judge Patel was unsympathetic to Napster's assertion that a preliminary injunction would 'put it out of business' because it cannot separate infringing from noninfringing uses, noting that 'the business interests of an infringer do not trump a rights holder's entitlement to copyright protection.'42

Judge Patel found that the record companies have already invested substantial time, effort and funds in actual or planned entry into the digital downloading market.43 True, their digital distribution systems are not as widespread as Napster's, but developing the technology and planning the logistics for authorized delivery of secure content to be paid for is a more complex job than just giving away somebody else's property for free.44

Thus, in a sense, the Napster case can be viewed as unremarkable in that it was decided by simply applying the DMCA and well-settled principles of copyright law. It seems foolish to predict, in the absence of a crystal ball, what result the Ninth Circuit will reach. However, we believe that technological developments that support authorized P2P distribution, including file 'wrapping,' watermarking, encryption and other digital rights management (DRM) systems, can facilitate satisfaction of consumer demand for MP3 files while at the same time ensuring that copyright owners and lawful distributors are compensated for their investments of creative energy and other resources.

In addition, the courts have already demonstrated their willingness to enforce the prohibition against circumvention of technological methods of protecting copyrighted works contained in § 1201 of the DMCA. For example, in RealNetworks, Inc. v. Streambox, Inc., the district court granted a preliminary injunction prohibiting defendant's sale of the Streambox VCR, which was designed to circumvent plaintiff's Secret Handshake and Copy Switch security measures for preventing unauthorized copying of its RealAudio files, in violation of §§ 1201(a)(2) and 1201(b).45 More recently, in Universal City Studios, Inc. v. Reimerdes, the district court upheld the major motion picture studios' efforts, through use of an encryption program called CSS, to prevent piracy of movies in the DVD format. The court permanently enjoined the defendants from providing DeCSS software, which was primarily designed to circumvent the CSS system, and from hyperlinking to other websites providing such software, in violation of § 1201(a)(2).46

* * * * *

Conclusion

As with any technology, technologies for the digital distribution of music come with legal responsibilities, including the requirement that users respect the statutory rights of copyright owners to control the copying and distribution of their works. Copyright law has survived quite well since its original enactment in the First Congress in 1790. It has contributed much to our society through the successive technological evolutions that have brought us photography, motion pictures, sound recordings, broadcasting, computers and the Internet. We hope that the decisions in Napster and other pending cases will enable copyright law to continue its significant contribution. If history is a guide, the argument that new technology requires drastic change or abolition of the copyright law should again be rejected.

The article appears both in the November 2000 issue of World Licensing Law Report, published by BNA International, Inc., and in the premiere issue (also November 2000) of the same publisher's World e-commerce and IP Report.

Footnotes

*Duke Orsini, in Twelfth Night, Act II, Sc. 4, as transmogrified by some users today.

**The authors are colleagues in the New York law firm of Cowan, Liebowitz & Latman, P.C., which represents copyright owners and companies that provide and use new technologies for lawful digital distribution of copyrighted works in some of the cases the article refers to. Copyright © 2000 Morton David Goldberg and Susan R. Schick

1See U.S. Const. Art. I, § 8, cl. 8: 'The Congress shall have Power . . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.'

21 Stat. 124 (1790).

32 Stat. 171 (1802).

44 Stat. 436 (1831).

535 Stat. 1075 (1909).

635 Stat. 1075 (1909), as amended, 37 Stat. 488 (1912).

735 Stat. 1075 (1909), as amended, 85 Stat. 391 (1971).

817 U.S.C. §§ 101 and 117, as amended, 94 Stat. 3015 (1980).

990 Stat. 2541 (1976), codified at 17 U.S.C. § 112(a).

1017 U.S.C. §§ 106(6) and 114, as amended, 109 Stat. 336 (1995) and 112 Stat. 2860 (1998).

11The Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860, was enacted on October 28, 1998. See H.R. Rep. No. 105-551, part 2, at 26 (1998) (the DMCA 'fully respects and extends into the digital environment the bedrock principle of 'balance' in American intellectual property law for the benefit of both copyright owners and users.').

12See 17 U.S.C. § 1201.

13See 17 U.S.C. § 512.

14See Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights, at 17 (Information Infrastructure Task Force, September 1995), ('With no more than minor clarification and limited amendment, the Copyright Act will provide the necessary balance of protection of rights ?? and limitations on those rights ?? to promote the progress of science and the useful arts. Existing copyright law needs only the fine tuning that technological advances necessitate, in order to maintain the balance of the law in the face of onrushing technology.'); S. Rep. No. 105-190, at 3-4 (1998) (describing history and development of DMCA).

15For a more detailed discussion of MP3 technology, see Recording Industry Ass??n of Am. v. Diamond Multimedia Sys. Inc., 180 F.3d 1072, 1073-74, 51 U.S.P.Q.2d 1115 (9th Cir. 1999).

16The action is currently pending in the Southern District of New York. The record companies' complaint against MP3Board.com is available at .

17See, e.g., RealNetworks, Inc. v. Streambox, Inc., 2000 WL 127311 (W.D. Wash. 2000) (describing streaming technology and security measures used to prevent unauthorized copying of RealAudio files).

18UMG Recordings, Inc. v. MP3.com, Inc., 92 F. Supp. 2d 349, 350, 54 U.S.P.Q.2d 1668, 1670 (S.D.N.Y. 2000) (describing 'Beam-It' and 'Instant Listening' services).

19Id. at 351-53 (holding that MP3.com's use was not a 'transformative use' because it 'adds no new aesthetics, new insights and understandings to the original music recordings' and rejecting defendant's fair use defense as 'indefensible') (quotation omitted).

20See UMG Recordings, Inc. v. MP3.com, Inc., 2000 WL 1262568, at *4-5 (S.D.N.Y. 2000). The streaming did not itself form the basis of MP3.com's liability.

21Id. at *6. Prior to the statutory damages award, MP3.com settled with four of the five major record company plaintiffs, and recently negotiated a licensing arrangement with National Music Publishers' Association (which music publishers individually can determine whether to accept). See Brad King, 'Taking Stock of the Music Scene,' (October 20, 2000).

22See A&M Records Inc. v. Napster Inc., 54 U.S.P.Q.2d 1746, 1747-48 (N.D. Cal. 2000) and 55 U.S.P.Q.2d 1780, 1783-88 (N.D. Cal. 2000) (explaining operation of the Napster service). Napster has been sued by various record labels and music publishers and by popular recording artists Metallica and Dr. Dre. See Jaan Uhelszki, 'Metallica Sue Napster for Copyright Infringement,' (April 14, 2000); Andrew Dansby, 'Dr. Dre Takes Napster to Court,' (April 27, 2000). The Judicial Panel on Multidistrict Litigation has consolidated the actions against Napster for pretrial proceedings and transferred them to the Northern District of California (if filed in other districts) to be assigned to Judge Marilyn Hall Patel. See In Re Napster, Inc., Copyright Litigation, 2000 U.S. Dist. LEXIS 15493 (J.P.M.L. 2000).

23Scour, Inc. has been sued by various record companies, music publishers and movie studios for contributory and vicarious copyright infringement. See John Borland, 'Movie Studios Target Scour with Copyright Lawsuit,' (July 20, 2000); Hane C. Lee, 'Scour Searches for a Cure,' (October 9, 2000). The complaint against Scour, Inc. filed in the Southern District of New York is available at .

24See Laura Rich, 'Napsters-in-Waiting,' (July 31, 2000) (discussing new P2P sharing programs); John Borland, 'Online music-traders consider Napster alternatives,' (October 3, 2000) (noting drawbacks to Gnutella, OpenNap and FreeNet as alternatives to Napster and vulnerability to infringement actions); 'New File-Swapping Program Nears 1 Million Users,' (August 31, 2000) (describing Aimster's combination of AOL's Instant Messenger Buddy Lists with Gnutella technology).

25See A&M Records Inc. v. Napster Inc., 55 U.S.P.Q.2d 1780, 1783-88 (N.D. Cal. 2000) (granting plaintiffs' motion for preliminary injunction).

26See, e.g., Defendant-Appellant Napster, Inc.'s Opening Brief filed in A & M Records, Inc. v. Napster, Inc., Appeal Nos. 00-16401 and 00-16403 (9th Cir.), available at .

27A&M Records Inc. v. Napster Inc., 54 U.S.P.Q.2d 1746 (N.D. Cal. 2000) (denying Napster's motion for summary judgment of non-infringement).

28Id. In her later opinion granting plaintiffs' motion for a preliminary injunction, Judge Patel 'put[] an end to [Napster's] persistent attempts to invoke the protection of' § 512, finding § 512(d) inapplicable because it expressly excludes a defendant with actual knowledge of infringing activity or an awareness of 'facts or circumstances from which infringing activity is apparent.' A&M Records, Inc., 55 U.S.P.Q.2d at 1804 n. 24 (citing 17 U.S.C. §§ 512(d)(1)(A) and (B)).

29See A&M Records, Inc., 55 U.S.P.Q.2d at 1791-96.

3017 U.S.C. § 107(1).

31A&M Records, Inc., 55 U.S.P.Q.2d at 1792.

3217 U.S.C. §§ 107(2) and (3).

33A&M Records, Inc., 55 U.S.P.Q.2d at 1792.

3417 U.S.C. § 107(4).

35A&M Records, Inc., 55 U.S.P.Q.2d at 1792-94.

36See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 104 S. Ct. 774 (1983).

37A&M Records, Inc., 55 U.S.P.Q.2d at 1793-95.

38Id. at 1395.

39Id. at 1799-1802.

40Id. at 1797-98.

41Id. at 1798-99.

42Id. at 1802-4.

43Id. at 1794.

44Contrary to Napster's prior protestations that its technology is inherently incompatible with authorized distribution, it has now agreed with Bertelsmann, the parent company of record company plaintiff BMG, to use Napster's technology to arrange for secure distribution of recordings under license. Napster and Bertelsmann will jointly develop a system in which Napster will charge a subscription fee for use of its service, a portion of which will be distributed as royalties to the record company. Whether other record companies will enter into similar arrangements with Napster remains an open question. See Matt Richtel & David D. Kirkpatrick, 'In a Shift, Internet Service Will Pay for Music Rights,' N.Y. Times, Nov. 1, 2000, at A1; 'Bertelsmann, Napster Agree on Service,' Wall St. J., Nov. 1, 2000, at A3.

45RealNetworks, Inc. v. Streambox, Inc., 2000 WL 127311 (W.D. Wash. 2000). The parties subsequently settled the action. See 'Copyright lawsuit settled,' , (Sept. 8, 2000) (providing details of settlement agreement).

46Universal City Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294, 55 U.S.P.Q.2d 1873 (S.D.N.Y. 2000).

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