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Court Says: Napster Infringing on Copyrights

A panel of three judges from the United States Court of Appeals for the Ninth Circuit in San Francisco today issued its ruling, which in part affirms the July decision against Napster. The panel agreed with the July ruling of District Court Judge Marilyn Patel that Napster is indeed infringing upon copyright law, and it upped the ante by stating that Napster may be liable for damages.

Despite the news, it is still business as usual on the Napster ( www.napster.com) site today. Napster reported that millions of users flocked to the service for a last-minute downloading spree fueled by the knowledge that today's ruling would close Napster down.

The panel of judges sent the case back to the District Court, where Judge Patel is expected to rewrite her opinion in more specific and narrow terms. At question are issues such as whether Napster has the technology to remove copyrighted material from its service and has willfully refused to do so. If Napster is found to have failed to patrol its system, it could result in massive damages being rewarded to the plaintiffs.

Although Monday's ruling stopped short of shutting the site down, Hilary Rosen, president and CEO of the Recording Industry Association of America (RIAA) said in a statement, "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."

Napster, on the other hand, issued a statement saying, "Napster is not shut down, but under this decision it could be. We are very disappointed in this ruling by the three judge panel and will seek appellate review." The company also believes that the court reached its ruling based on an incomplete record, and will "pursue every avenue in the courts and the Congress to keep Napster operating." It urged users to write to Congress in support of its file trading service.

Still Growing Strong

Even while its future is threatened, Napster is proving that digital music has a following and a potentially profitable future. Jupiter Media Metrix reported on Monday that home users of the application increased from 1.3 million in February of 2000 to 9.1 million in December 2000 — or an increase of 609 percent.

"Napster's precipitous rise shows that there is a mass-market potential for digital music," said Aram Sinnreich, senior analyst, Jupiter Media Metrix. "Today's decision by the U.S. Court of Appeals will have a profound effect on how this market is brought to fruition."

The Ninth District Court of Appeals rejected a study that was provided, which indicated that CD sales where actually promoted by "sampling" downloads from Napster, nitpicking the data gathering techniques of the study. And the panel upheld the original determination that "the more music that sampling users download, the less likely they are to eventually purchase the recordings on audio CD, and even if the audio CD market is not harmed, Napster has adverse effects on the developing digital download market."

Emusic.com is one such example of a service that the court alleges has been adversely affected. Emusic has an online subscription service, which lets users download an unlimited amount of MP3s for $14.99 per month. Gene Hoffman, president and CEO of Emusic stated, "We are pleased that the district court will be issuing a new injunction against Napster that will effectively block the unauthorized distribution of music files. This should establish a clear foundation for the growth of legitimate music download services on the Internet — where artists, labels and consumers all have a voice in how digital music is enjoyed."

Not So Fast , Says Napster

Napster, itself, is anxiously seeking to reinvent itself on a subscription-based model. At the end of October 2000, the company formed an alliance with Bertelsmann and received an injection of cash specifically for the purpose of re-launching as a legitimate subscription-based service.

Napster CEO Hank Barry, states, "We intend to continue our discussions with the record companies. We have been saying all along that we seek an industry-supported solution that makes payments to artists, songwriters and other rights holders while preserving the Napster file sharing community experience."

Barry cites Napster's recent agreement with independent distributors, Edel in Germany and TVT in the U.S., as the beginning of Napster's transformation. But the major labels will likely resist turning foe into friend.

A fragmented subscription service that offers music from some labels, but not others, will likely have a hard time catching on among the spoiled Napster-users that are accustomed to all-access downloading.

Meanwhile, Prince has grown tired of waiting for a decision and announced that he will be launching his very own subscription-based service on Valentine's Day at www.Npgmusicclub.com. Prince, long known for his disputes with his record label, even changed his name to an unpronounceable symbol as a result of rights issues and is thought to have hours of unreleased music.

Prince's service will costs $7.77 per month for the basic service and $100 per year for the premium package, which includes preferred seating at Prince concerts and access to certain webcasts. Still, there is quite a difference between $100 a year and free.

Gnutella Gets Easier

Free is addictive, and if Napster is shut down, its users are likely to turn to other programs like Gnutella, an open source project created by Justin Frankel, the creater of WinAmp. When Frankel released this peer-to-peer software last year, WinAmp parent AOL quickly shut it down. But the genie was out of the bottle. Developers took the code and made it open source, so that it could live on. Unlike Napster, Gnutella does not require a central server and is not owned by a corporation. Also, Gnutella users can trade any kind of file, not just MP3s.

Although Gnutella is gaining in popularity, development in the program has effectively stopped. Gnutella alternatives like Gnotella, Newtella, LimeWire, Gnutella2, and BearShare have cropped up, promising better connections and an easier to use interface.

For Windows users, BearShare (www.bearshare.com) is by far the most popular Gnutella client. The free software was released on December 4, 2000, by a company called Free Peers, Inc., which was incorporated in Florida.

"I created BearShare for users looking for the Gnutella client of their dreams," said Vinnie Falco, founder and sole developer for FreePeers in a statement. He adds, "Everyone has been silently waiting for a program like this. This is server-room quality code delivered directly to your desktop at no cost. Other clients may give you freedom, but only BearShare gives you the POWER to share."

For many users looking for a Napster alternative, BearShare could be the answer. BearShare essentially makes Gnutella much easier to use, so that anyone can find practically any kind of audio or video file. Users can easily connect to other hosts and search for files. It also lets users resume incomplete downloads and uploads, a feature that is often frustrating with the Gnutella client.

Meanwhile, Napster-clone Scour is a looking for a comeback. After Scour filed for bankruptcy last year, CenterSpan won Scour's assets in a court auction. According to CenterSpan, which sent an e-mail to Scour users last week, Scour will re-launch as a "secure and legal channel for the distribution of digital music, video, image and text files". CenterSpan says the new beta version of Scour will be launched in the first quarter of 2001, although it hasn't determined how much it will charge.

Although things look bleak for Napster now, Phil Leigh, Vice President at Raymond James & Associates said that Napster users could use their "strong political voice" to turn the decision around. "Consider the prohibition era," he wrote in an analysis of the decision. "While the public was breaking the law to patronize bootleggers, they ultimately had the political power to force the repeal of the Prohibition Amendment."

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