Court Rules Against Napster

Recognizing the wild popularity of his company, Napster founder and creator Shawn Fanning expressed his disappointment with today's ruling in a news conference: "Napster works because people who love music share and participate. Along the way, many have said we wouldn't survive. … Today we have more than 50 million members and we'll find a way to keep this community growing."

It's this huge, potential revenue pool that focused music companies' attention on Napster. But whereas the labels' first reaction was to take the matter to the courts, a more long-term look prompted a big deal — almost in a "if you can't beat 'em, join 'em" spirit.

German-owned Bertelsmann AG was the first to step up to the Napster plate, joining forces with the Internet service to start a for-pay service. Under the roughly sketched deal with the media giant, which owns the BMG label, BMG would drop its part of the lawsuit against Napster and the online company would gain the BMG catalog, which includes work from artists such as Christina Aguilera and Carlos Santana. Bertelsmann says these terms are contingent on Napster's putting in place a viable membership service.

But many business and technical details of the proposed service have yet to be disclosed, and so far none of the other labels has shown real interest in joining BMG.

So the lawsuit of the four other big music labels — Sony, EMI, Warner Bros. and Universal — will continue, as will Napster, for the moment, at least. But things will be different for Napster users as early as this summer, when the fledgling online company is slated to launch its new service. And there is the possibility that other labels will follow Bertelsmann's lead.

The content companies are not trying to defeat Napster as much as contain the company, says Toobin.

"I think they're savvy enough to recognize distribution of music over the Net is here to stay [and] they just want to make sure they have a piece of the action," said Toobin. "The great challenge for everyone involved is figuring out a way to continue this distribution over the Net while providing revenue to the creators of the music."

The Arguments

RIAA, a powerful trade group representing the major music labels, sued Napster in December 1999 for copyright infringement, alleging the popular music trading service helped facilitate massive piracy among its tens of millions of users.

But Napster says its service — which exposes emerging musicians to the online community and allows owners of copyrighted music to listen to that music from a variety of locations over the Net — constitutes legal, “fair use” by consumers of music recordings through file sharing.

In October, lawyers for the company argued in front of the appeals court that the battle over Napster is analogous to the wars waged over the Betamax video cassette recorder in the 1980s. Several Hollywood studios took Sony to court over the home-recording technology, which they alleged would illegally cut into their profits. The electronics giant successfully argued the VCR had significant non-infringement uses, which basically saved the VCR from extinction.

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