Highlights of Napster Court Decision
Feb, 12 -- Following are some of the most important points from the 9th U.S. Circuit Court of Appeals' decision today in the Napster case.
Napster Users Are Pirates
The record supports thedistrict court's determination that "as much as eighty-seven percent of the files available on Napster may be copyrighted and more than seventy percent may be owned or administered by plaintiffs."
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We agree that plaintiffs have shown that Napster users infringe at least two of the copyright holders' exclusive rights: the rights of reproduction, § 106(1); and distribution, § 106(3). Napster users who upload file names to the search index for others to copy violate plaintiffs' distribution rights. Napster users who download files containing copyrighted music violate plaintiffs' reproduction rights.
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The district court determined that Napster users engage in commercial use of the copyrighted materials largely because (1) "a host user sending a file cannot be said to engage in a personal use when distributing that file to an anonymous requester" and (2) "Napster users get for free something they would ordinarily have to buy." Napster, 114 F. Supp. 2d at 912. The district court's findings are not clearly erroneous. Direct economic benefit is not required to demonstrate a commercial use. Rather, repeated and exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a commercial use.
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The district court determined that Napster users engage in "wholesale copying" of copyrighted work because file transfer necessarily "involves copying the entirety of the copyrighted work." Napster, 114 F. Supp. 2dat 913. We agree. We note, however, that under certain circumstances, a court will conclude that a use is fair even when the protected work is copied in its entirety.
Napster Hurts CD Sales
The district court cited both the Jay and Fine Reports in support of its findingthat Napster use harms the market for plaintiffs' copyrighted musical compositionsand sound recordings by reducing CD sales among college students. The districtcourt cited the Teece Report to show the harm Napster use caused in raisingbarriers to plaintiffs' entry into the market for digital downloading of music.Napster, 114 F. Supp. 2d at 910. The district court's careful consideration ofdefendant's objections to these reports and decision to rely on the reports forspecific issues demonstrates a proper exercise of discretion in addition to a correctapplication of the fair use doctrine. Defendant has failed to show any basis fordisturbing the district court's findings.We, therefore, conclude that the district court made sound findings related toNapster's deleterious effect on the present and future digital download market.Moreover, lack of harm to an established market cannot deprive the copyrightholder of the right to develop alternative markets for the works.
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The "record company plaintiffs have already expended considerable funds and effort to commence Internet sales and licensing for digital downloads." 114 F. Supp. 2d at 915. Having digital downloads available for free on the Napster system necessarily harms the copyright holders' attempts to charge for the same downloads.
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The record supports the district court's preliminary determinations that: (1) the more music that sampling users download, the less likely they are to eventually purchase the recordings on audio CD; and (2) even if the audio CD market is not harmed, Napster has adverse effects on the developing digital download market.
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Napster also maintains that space-shifting is a fair use. Space-shifting occurswhen a Napster user downloads MP3 music files in order to listen to music healready owns on audio CD. ?
We conclude that the district court did not err when it refused to apply the"shifting" analyses of Sony and Diamond. Both Diamond and Sony are inappositebecause the methods of shifting in these cases did not also simultaneously involvedistribution of the copyrighted material to the general public; the time or space-shiftingof copyrighted material exposed the material only to the original user. InDiamond, for example, the copyrighted music was transferred from the user'scomputer hard drive to the user's portable MP3 player. So too Sony, where "themajority of VCR purchasers . . . did not distribute taped television broadcasts, butmerely enjoyed them at home." Napster, 114 F. Supp. 2d at 913. Conversely, it isobvious that once a user lists a copy of music he already owns on the Napstersystem in order to access the music from another location, the song becomes"available to millions of other individuals," not just the original CD owner.
Napster Knows About Piracy
The district court determined that plaintiffs in all likelihood would establishNapster's liability as a contributory infringer. The district court did not err; Napster,by its conduct, knowingly encourages and assists the infringement of plaintiffs'copyrights.
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It is apparent from the record that Napster has knowledge, both actual andconstructive, of direct infringement. Napster claims that it is nevertheless protectedfrom contributory liability by the teaching of Sony Corp. v. Universal City Studios,Inc., 464 U.S. 417 (1984). We disagree. We observe that Napster's actual, specificknowledge of direct infringement renders Sony's holding of limited assistance toNapster. We are compelled to make a clear distinction between the architecture ofthe Napster system and Napster's conduct in relation to the operational capacity ofthe system.
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We … will not impute the requisite level ofknowledge to Napster merely because peer-to-peer file sharing technology may beused to infringe plaintiffs' copyrights. See 464 U.S. at 436 (rejecting argument thatmerely supplying the "'means' to accomplish an infringing activity" leads toimposition of liability). We depart from the reasoning of the district court thatNapster failed to demonstrate that its system is capable of commercially significantnoninfringing uses. See Napster, 114 F. Supp. 2d at 916, 917-18. The district courtimproperly confined the use analysis to current uses, ignoring the system'scapabilities. See generally Sony, 464 U.S. at 442-43 (framing inquiry as whether thevideo tape recorder is "capable of commercially significant noninfringing uses")(emphasis added). Consequently, the district court placed undue weight on theproportion of current infringing use as compared to current and futurenoninfringing use. See generally Vault Corp. v. Quaid Software Ltd., 847 F.2d 255,264-67 (5th Cir. 1997) (single noninfringing use implicated Sony). Nonetheless,whether we might arrive at a different result is not the issue here.
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We agree that if a computer system operator learns of specific infringingmaterial available on his system and fails to purge such material from the system,the operator knows of and contributes to direct infringement. See Netcom, 907 F.Supp. at 1374. Conversely, absent any specific information which identifiesinfringing activity, a computer system operator cannot be liable for contributoryinfringement merely because the structure of the system allows for the exchange ofcopyrighted material. …We nevertheless conclude that sufficient knowledge exists to imposecontributory liability when linked to demonstrated infringing use of the Napstersystem. See Napster, 114 F. Supp. 2d at 919 ("Religious Technology Center wouldnot mandate a determination that Napster, Inc. lacks the knowledge requisite tocontributory infringement."). The record supports the district court's finding thatNapster has actual knowledge that specific infringing material is available using itssystem, that it could block access to the system by suppliers of the infringingmaterial, and that it failed to remove the material.
The district court determined that plaintiffs had demonstrated they wouldlikely succeed in establishing that Napster has a direct financial interest in theinfringing activity.
We agree. Financialbenefit exists where the availability of infringing material "acts as a 'draw' forcustomers."
The Limits of Napster's Power
The district court correctly determined that Napster had the right and abilityto police its system and failed to exercise that right to prevent the exchange of copyrighted material. The district court, however, failed to recognize that the boundaries of the premises that Napster "controls and patrols" are limited.
Put differently,Napster's reserved "right and ability" to police is cabined by the system's currentarchitecture. As shown by the record, the Napster system does not "read" thecontent of indexed files, other than to check that they are in the proper MP3 format.
Napster, however, has the ability to locate infringing material listed on itssearch indices, and the right to terminate users' access to the system. The file name indices, therefore, are within the "premises" that Napster has the ability to police. We recognize that the files are user-named and may not match copyrighted material exactly (for example, the artist or song could be spelled wrong). For Napster to function effectively, however, file names must reasonably or roughly correspond to the material contained in the files, otherwise no user could ever locate any desired music. As a practical matter, Napster, its users and the record company plaintiffs have equal access to infringing material by employing Napster's "search function."
Our review of the record requires us to accept the district court's conclusionthat plaintiffs have demonstrated a likelihood of success on the merits of thevicarious copyright infringement claim. Napster's failure to police the system's"premises," combined with a showing that Napster financially benefits from thecontinuing availability of infringing files on its system, leads to the imposition ofvicarious liability.
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There is no evidence here that plaintiffs seek to control areas outside of their grant of monopoly. Rather, plaintiffs seek to control reproduction and distribution of their copyrighted works, exclusive rights of copyright holders.
Injunction Is Good, Just Too Broad
The district court correctly recognized that a preliminary injunction againstNapster's participation in copyright infringement is not only warranted butrequired. We believe, however, that the scope of the injunction needs modification in light of our opinion. Specifically, we reiterate that contributory liability may potentially be imposed only to the extent that Napster: (1) receives reasonable knowledge of specific infringing files with copyrighted musical compositions and sound recordings; (2) knows or should know that such files are available on the Napster system; and (3) fails to act to prevent viral distribution of the works. See Netcom, 907 F. Supp. at 1374-75. The mere existence of the Napster system, absent actual notice and Napster's demonstrated failure to remove the offending material,is insufficient to impose contributory liability.
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The preliminary injunction which we stayed is overbroad because it placeson Napster the entire burden of ensuring that no "copying, downloading,uploading, transmitting, or distributing" of plaintiffs' works occur on the system.
As stated, we place the burden on plaintiffs to provide notice to Napster ofcopyrighted works and files containing such works available on the Napster system before Napster has the duty to disable access to the offending content. Napster, however, also bears the burden of policing the system within the limits of the system. Here, we recognize that this is not an exact science in that the files are user named. In crafting the injunction on remand, the district court should recognize that Napster's system does not currently appear to allow Napster access to users' MP3 files.
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We affirm in part, reverse in part and remand.
We direct that the preliminary injunction fashioned by the district court priorto this appeal shall remain stayed until it is modified by the district court to conform to the requirements of this opinion. We order a partial remand of this case on the date of the filing of this opinion for the limited purpose of permitting the district court to proceed with the settlement and entry of the modified preliminary injunction.
Even though the preliminary injunction requires modification, appellees have substantially and primarily prevailed on appeal. Appellees shall recover their statutory costs on appeal.