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Judge Shuts Down Napster

A federal judge issued an injunction against Napster late Wednesday saying that it must stop distributing copyrighted songs. Judge Marilyn Hall Patel gave Napster until 3am ET Saturday to stop its service, although Napster can appeal the ruling.

Napster ( http://www.napster.com) officials were unavailable for comment, but the company released a streaming video press announcement showing a solemn looking founder Shawn Fanning and CEO Hank Barry. In the video, Fanning explains how he never thought that the record labels would want to "shut Napster down, shut you down" when he first created the music sharing software. Barry then explained that the company would appeal the ruling tomorrow morning but would comply with the judge's ruling if the appeal were denied. He also said that they would be burning the midnight oil fighting the ruling and thinking of ways that users can get involved in saving Napster.

The plaintiffs in the case—the RIAA which represents the five major music labels—were pleased with the court's decision. A written statement by Cary Sherman, RIAA Senior Executive Vice President and General Counsel said in part: "This once again establishes that the rules of the road are the same on-line as they are off-line and sends a strong message to others that they cannot build a business based on others' copyrighted works without permission...Now that Napster's management understands that they need the authorization of copyright owners to engage in their business, we hope that they will work with the record companies to devise innovative ways to use their technology for legitimate purposes with permission."

In December, the RIAA sued Napster claiming it encouraged the distribution of copyrighted songs. Since then, Napster solidified its management and legal team, but it was becoming clear that Napster's strategy was in trouble. First, the company claimed that it only acted as a distribution system for transmitting copyrighted material, but wasn't responsible for the members' who were actually using (and abusing) the system. After that strategy failed, Napster claimed that copying copyrighted songs was protected by law. The judge today, however, disagreed.

Recently, Napster has been trying to legitimize itself, announcing a vague "research and development pact" on Monday with secure music provider Liquid Audio (http://www.liquidaudio.com).

Also Monday, Jupiter released a report that said Napster users are 45 percent more likely to increase music spending. The report also said that the record labels should ""innovate, not litigate".

"An inherent flaw in the Recording Industry Association of America (RIAA) argument against Napster is that the association's supporting research shows a decline in record sales in college areas, with high Napster usage," explained Aram Sinnreich, an analyst with Jupiter. "However, the RIAA did not clarify that the most attrition took place before Napster's launch, and the analysis did not account for channel shift to online transactions that would have occurred independent of Napster's existence." Sinnreich said that labels must work with these file-sharing systems, otherwise consumers will shift to alternate services such as Napster and Gnutella.

Whatever ultimately happens with Napster, file sharing won't go away. Other systems like Scour Exchange and the open-source Gnutella (http://gnutella.wego.com) and FreeNet (http://freenet.sourceforge.net) projects are still around, plus they allow sharing of audio, graphic and even movie files. But how long will they last?

On July 20th, the RIAA and the MPAA filed suit against Scour (http://www.scour.com) claiming that its file sharing program, Scour Exchange, faciliates the distribution of music and movies.

"This is about stealing, plain and simple," said Jack Valenti President and CEO of the MPAA in a statement. "Creative works are valuable property and taking them without permission is stealing, whether you download movies illegally or shoplift them from a store. Technology may make stealing easy, but it doesn't make it right."

The RIAA will find it much more difficult to sue Gnutella or FreeNet, since they are open-source projects that aren't owned by anyone or have corporate backing.

Still, companies are backing on file sharing. AppleSoup (http://www.applesoup.com), a new file sharing company, launched in San Francisco last week, receiving $2.5 million in funding. The company was founded by early Napster investors.

Although Napster isn't quite dead yet, even CEO Barry admitted that if the appeals run out, Napster will be shut down "as it currently exists". Whatever happens, Napster will always be remembered as the company that started the file sharing frenzy and helped create a new paradigm for the distribution of music.

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