OFF: Court Rules Against Napster [ap]

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Court Rules Against Napster on Trading Copyrighted Material
Web Site Can Stay Up for Now

By RON HARRIS
.c The Associated Press

SAN FRANCISCO (Feb. 12) - Napster Inc. must stop allowing the millions of
music fans who use its free Internet-based service to share copyrighted
material, a federal appeals court ruled Monday.

In a ruling that Napster officials said could force the file-swapping
clearinghouse to shut down, the 9th U.S. Circuit Court of Appeals said
Napster must prevent users from gaining access to copyrighted content through
the lists of songs archived by its users.

''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,'' said Hilary Rosen, president and CEO of the Recording
Industry Association of America.

In a statement, Napster it was ''disappointed'' by the ruling and said it
would appeal. ''We look forward to getting more facts into the record. We
will pursue every avenue in the courts and the Congress to keep Napster
operating.''

In a 58-page opinion, a three-judge panel told a lower court judge to rewrite
her injunction to focus more narrowly on the copyrighted material. The panel
also directed the Redwood City-based company to remove links to users trading
copyrighted songs stored as MP3 files.

The appeals court said it was apparent that ''Napster has knowledge, both
actual and constructive, of direct infringement.''

Napster has argued it is not to blame for its subscribers' use of copyrighted
material, citing the Sony Betamax decision of 1984, in which the Supreme
Court refused to hold VCR manufacturers and videotape retailers liable for
people copying movies.

But the appeals court said no such protection extends to Napster because the
company clearly knew its users were swapping copyrighted songs.

Napster can stay in business until U.S. District Judge Marilyn Hall Patel
retools her injunction, which the appellate court called overly broad. In
fact, minutes after the panel's decision, thousands of Napster users were
still trading music files on just one of the company's more than 100 servers.

''We, therefore, conclude that the district court made sound findings related
to Napster's deleterious effect on the present and future digital download
market,'' the appeals court ruled. ''Having digital downloads available for
free on the Napster system necessarily harms the copyright holders' attempts
to charge for the same downloads.''

Millions of users had flooded the company's computer servers this past
weekend to download free music, fearing an immediate shutdown of the service
that has changed the face of music. Napster claims to have an estimated 50
million users.

Webnoize, which monitors the digital entertainment economy, estimated that
250 million songs were downloaded using Napster over the weekend. Webnoize
said that, on average, 1.5 million users were logged on to the system at any
one time.

Major record labels hope Monday's ruling will force millions of computer
users to start paying for music the online music swapping service has allowed
them to get for free.

The digital music technology Napster made popular is here to stay either way.
The recording industry appears stymied by the notion of funneling music to
consumers via the Internet for a price while freely available computer
applications allow even the computer novice to do it for free.

The five largest record labels - Sony, Warner, BMG, EMI and Universal - sued
as soon as Napster took off, saying it could rob them of billions of dollars
in profits.

In May 1999, Napster founder Shawn Fanning released software that made it
easy for personal computer users to locate and trade songs they had stored as
computer files in the MP3 format, which crunches digital recordings down to
manageable lengths without sacrificing quality.

The concept of ''peer-to-peer'' song trading quickly proved too popular to
contain. As Napster users grew by the millions, other file-sharing programs
also popped up, such as Gnutella and Freenet. And the labels themselves are
looking to use the same technology, only with paying subscribers and secure
digital formats that prevent copying.

After the appellate judges began deliberating in October, Napster made
agreements with former business foes like Bertelsmann AG, the parent company
of the BMG music unit. The German media giant has promised much-needed
capital if Napster switches to a subscription-based service that pays
artists' royalties.

The other four major labels not reached any similar agreement.

 AP-NY-02-12-01 1517EST