The Napster Decision: What's It All About?

by Bryan Pfaffenberger

Chances are you spent last weekend downloading songs like crazy from Napster, fearing--correctly--the 9th Circuit Court of Appeals in San Francisco would sustain the lower court's order to shut down the MP3-trading service. The appeals court did just that, using unusually tough language: the injunction, said the three-judge appeals panel, was "not only warranted", but "required". In other words, the appeals court agrees that Napster is causing "irreparable harm" to copyright holders and such harm must immediately stop, even though the trial hasn't actually taken place. To be sure, though, the plaintiff--the major CD producers--didn't get everything they wanted from the decision, and some key questions will have to be worked out during the course of the trial.

In this article, I'll review exactly where the appeals court departed from the lower court's decision, and assess what the court's decision might mean for Napster, the future of music trading on the Internet and copyright laws in the US. The quick take: If the appeals court's decision foreshadows how the trial will pan out, it's certainly bad news for Napster, but it's equally bad news for consumers, Internet service providers, and, ultimately, the public enthusiasm for musical expression that the Internet has done so much to foster.

THE BACKGROUND

In brief, the plaintiffs argued that Napster is guilty of contributory and vicarious infringement of the plaintiffs' rights to intellectual property, which were routinely traded by means of Napster's on-line facilities. Last July, the lower court granted the plaintiffs' request for a preliminary injunction, which means the lower court agreed that Napster's operations were causing the plaintiffs irreparable harm, and the plaintiffs would probably win the case when it went to trial. On Monday, the appeals court stayed the injunction, which it found justifiable but "overly broad". The case now goes back to the lower court, which will enforce the injunction according to the appeals court's instructions.

To understand what is going on in this case, it's important to understand the distinctions among direct, contributory and vicarious copyright infringement:

<il>Direct infringement occurs when an action infringes on at least one of the exclusive rights possessed by copyright holders under U.S. copyright law (17 U.S.C. § 106). These exclusive rights include the right of reproduction and the right of distribution.

<il>Contributory infringement occurs when a secondary party to copyright infringement knows or has reason to know that direct infringement is occurring on its systems or premises.

<il>Vicarious infringement occurs as an outgrowth of contributory infringement but with the added dimension of profit. A vicarious infringer has the right and ability to control direct infringement on its systems or premises. However, the vicarious infringer elects not to exercise such control because it is financially rewarding to ignore it. The classic case of vicarious infringement involved a flea market owner who knew perfectly well that pirated movies were on sale on his premises, and did nothing to stop it, largely because the availability of the infringing material brought him more customers.

In the Napster case, the plaintiffs argued that, although Napster did not engage in direct infringement, it is nevertheless guilty of both contributory and vicarious infringement. In other words, the plaintiffs are saying that Napster executives and personnel knew perfectly well that massive direct infringement was occurring on their system, and they had both the right and ability to stop this infringement, but failed to do so because they hoped to profit from it.

If there's no direct infringement, there can't be contributory or vicarious infringement. Not surprisingly, Napster sought to establish that the company's users are protected by the fair use exemption to the otherwise exclusive rights of copyright holders. Even if the court were to find that its users were engaged in direct infringement, Napster argued, the company should still be protected from liability for contributory or vicarious infringement based on the U.S. Audio Home Recording Act (AHRA, 17 U.S.C. § 1008), motivated in large measure by the famous Sony v. Universal Studios squabble over video cassette recorders. The AHRA holds, essentially, that manufacturers or distributors of analog or digital audio recording devices cannot be held liable for copyright infringement just because some people might use such devices for illegal purposes.

In addition, Napster sought protection under the Digital Millennium Copyright Act (DMCA, 17 U.S.C. § 512). The DMCA contains provisions inserted at the behest of Internet service providers (ISPs), who feared they could be held liable for contributory or vicarious copyright infringement, even though they could not possibly police the millions of bits flowing through their systems. In essence, the DMCA holds that an ISP cannot be held to possess "knowledge" of direct infringement unless a copyright holder expressly notifies the ISP that infringing material is present on the ISP's system. Under the DMCA's safe harbor provisions, the ISP is sheltered from liability if the infringing material is immediately removed.

THE APPELLATE COURT'S FINDINGS

In a nutshell, here's what the appellate court concluded.

Finding #1: Napster Users Are Not Protected By The Fair Use Exemption

In U.S. copyright law, the exclusive rights of copyright holders are tempered by the fair use doctrine, which holds that copyrighted material can, under some circumstances, be reproduced or distributed without permission. This doctrine is intended to protect the free flow of essential information, analysis and commentary, without which a democracy cannot function. However, there are no hard and fast rules to determine exactly what constitutes fair use. When a fair use exemption is claimed in court, judges consider (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the "amount and substantiality of the portion used" in relation to the work as a whole; and (4) the effect of the use upon the potential market for the work or the value of the work.

In brief, the appellate court determined the following:

<il>Purpose and character--To establish fair use, the reproduced work must be transformed in some way. For example, the use of a copyrighted work in a parody may qualify under the fair use guidelines, to the extent that the parody transforms the original work. Mere retransmission in a different medium doesn't qualify as "transformation" under the fair use guidelines. Napster argued that converting CD audios to MP3s "transformed" the works to the point that fair use could be claimed, but the appeals court didn't buy this argument.

Purpose and character also involves an assessment of whether the use was commercial or noncommercial. If the use was commercial, it's difficult to claim fair use. What's more, money needn't change hands to establish a commercial use. Repeated and exploitive copying can constitute commercial use if it is done to avoid the costs of purchasing the copyrighted works, and that's especially true if two strangers swap infringing copies to avoid the costs of purchasing the works. The appeals court found that those Napster users who traded copyrighted works are engaged in commercial copying, which means that fair use could be justified only if all of the other considerations favored a finding of fair use.

<il>Nature of the Use--The courts have consistently held that creative works deserve a higher level of protection under copyright law than works that are predominantly factual. The appeals court agreed the copied material was creative in nature.

<il>Portion of Work Used--To establish fair use, it's generally necessary to show that only a small proportion of the work was copied or reproduced, a portion sufficient for analysis or commentary. A work can be copied in its entirety under certain conditions; for example, a consumer can legally copy a broadcast television show in its entirety in order to watch the show at a later time. Napster argued that many of its users were engaged in "space shifting" (downloading MP3s of CDs they already owned), but the appeals court didn't buy it.

<il>Effect on the Market--Fair uses of copyrighted material should not harm the market for a copyrighted work. In reviewing the scanty and contradictory evidence that Napster downloads are hurting recording industry profits, the appeals court concluded the industry was indeed suffering irreparable losses due to the distribution of copyrighted works by Napster users, and the losses seemed likely to increase. What's more, the appeals court noted that, even if Napster isn't hurting the recording industry's profits right now, copyright holders have the right to develop alternative means to distribute copyrighted works. Napster's activities are causing irreparable harm to the recording industry, the judges concluded, by creating conditions under which it is nearly impossible for the recording industry to develop on-line distribution techniques that would incorporate adequate safeguards against user infringement.

The appeals court concluded that, to the extent Napster users swap copyrighted creative works in their entirety, they are not protected by the fair use exemption and are guilty of direct copyright infringement. Having established this point, the court went on to consider whether Napster is liable for contributory and vicarious copyright infringement. As you'll see, here's where the court's conclusions did not go entirely in the direction that the RIAA wanted.

Finding #2: Napster's Liability for Contributory Infringement Must Be Determined by the Trial

The plaintiffs alleged that Napster executives knowingly created a service to facilitate users' direct copyright infringement. That they knowingly did so is clear from Napster's own business plans, which were obtained and revealed at the preliminary hearing. However, court cases and recent legislation have altered the definition of "knowledge" when it comes to infringing works transmitted via an Internet service provider, which Napster claims to be. In the famous Betamax decision (Sony Corp. v. Universal City Studios), the US Supreme Court ruled that the makers of a recording technology cannot be held liable for contributory infringement, even if they know some users will use the equipment for infringing purposes, as long as the equipment also has substantial non-infringing uses.

The lower court refused to apply the Betamax decision to the Napster case, but the appeals court disagreed, finding that Napster indeed has "substantial non-infringing uses". Still, the appeals court noted that Napster could still be liable for contributory copyright infringement. In line with the DMCA and recent court decisions, an ISP can be held liable for contributory copyright infringement if it is notified that infringing material is present on its systems but fails to remove this material. At issue here is the plaintiffs' notification to Napster that its systems contained 12,000 infringing files. Napster terminated the accounts of these users, but, not surprisingly, the same songs were still available from other Napster users, and Napster took no steps to delete those accounts. The appeals court argued Napster ought to have done this, instead of hiding behind the claim that the system's architecture did not permit Napster's staff to perform policing tasks of this magnitude. Although the appeals court noted the weight of the evidence goes against Napster on this point, it concluded the truth of the matter will have to be determined in the trial.

Finding #3: Napster Appears to be Liable for Vicarious Infringement

Here, the appeals court agreed with the findings of the lower court: Napster gains financially by facilitating direct infringement by its users; by providing users with an incentive for using Napster's site, the company is building its "user base", which is, for Internet enterprises, a clear financial benefit. The appeals court further agreed with the lower court that Napster possesses both the right and means to detect the existence on its system of infringing material about which it had been notified; the company could, after all, use the same search services that Napster users employ.

THE TRIAL: WHAT'S AT STAKE

The appeals court's decision isn't the end of the Napster case, unless Napster elects to settle (and the plaintiffs agree). If there's a trial, it will decide a number of issues of historic importance, including the following:

<il>Does the Audio Home Recording Act (AHRA) apply to computers? The appeals court affirmed the lower court's rejection of the AHRA's applicability, claiming a computer with an associated hard drive does not have, as its primary purpose, the creation of digital audio recordings. In my opinion, this conclusion is not only wrong, but dangerous. Digital audio and computer devices are converging and will shortly become all but indistinguishable. Growing numbers of computer users are creating dedicated computer systems for their automobiles and home theater systems. Will the Napster ruling mean the public will lose the AHRA's protections when all digital audio devices are indistinguishable from computers?<il>Must ISPs police their systems? Seeking protection under the DMCA, Napster sought refuge from contributory infringement liability by claiming it's an ISP, and, therefore, can be held liable only for infringing works it did not remove after receiving an explicit request to do so. The plaintiffs argue that Napster isn't an ISP--which means Napster would be liable even if the company was never informed about the presence of infringing works on its systems. The appeals court appears to agree with Napster that the service is part of an Internet service provider, as defined by the DMCA. However, the appeals court also argues that, after notification, Napster should have policed its systems to make sure that no additional copies of the specifically cited infringing materials reappear in the future. In my opinion, this conclusion is very dangerous, because it reintroduces ISP liability through the back door. It is tantamount to saying that, once a copyright holder has notified an ISP that an infringing work is present on the ISP's systems, the ISP must police its systems zealously to ensure no additional copies of the work appear in the future, even if they are placed there by a completely different user. If this position is sustained, it will force ISPs to expend enormous amounts of time, energy and resources on policing their systems for infringing material, and could cause irreparable damage to the growth of the Internet as a public communications medium.

MY TAKE: THIS IS STUPIDITY, WRIT LARGE

Motion picture industry executives should thank their lucky stars that Universal failed in its quest to criminalize the possession of video cassette recorders (VCRs). Universal claimed the VCR would ruin the motion picture industry: theaters would close and precious little money would be available for new feature films. But it didn't happen that way. The years since the VCR's introduction have witnessed an explosion of interest in movies. New theaters are being built everywhere. Recently, videocassette sales surpassed theater receipts as the single largest source of the movie industry's income.

In the Napster case, recording industry executives are trying to shoot themselves in precisely the same way movie executives once did, and for precisely the same reason: They can't imagine giving up near-total control of the distribution medium for the works they've extorted from undercompensated artists. Although there's new evidence Napster is fueling an explosion of interest in music, and a concomitant explosion in CD sales, recording industry executives would prefer to push Napster out of the way so they, and they alone, can control the distribution of digitized music via the Internet. If they succeed, they'll surely try to impose distribution technologies that will invade user privacy, eliminate the last vestiges of fair use and generate more ill will among consumers. They could very well succeed in killing off the very Internet phenomena that have made music so intensely interesting lately.

Postscript

The Napster case plaintiffs are A&M Records, Geffen Records, Interscope Records, Sony Music Entertainment, MCA Records, Atlantic Recording Corp., Island Records, Motown Record Co. and Capital Records. You can read the decision at http://news.findlaw.com/cnn/docs/napster/napsterop0212.html.

Bryan Pfaffenberger (http://www.people.virginia.edu/~bp/) is Associate Professor of Technology, Culture and Communication at the University of Virginia, Charlottesville, and a UNIX (subsequently Linux) user since the mid-1980s. His opinions do not necessarily express those of Linux Journal.

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