"Defendant had actual, or at the very least constructive, knowledge that third parties were engaged in direct copyright infringement."
—Judge Marilyn Patel on shutting down Napster.


UPDATE: Judge To Headline-Grabbing Netco:
Stop Your Swapping
by Marc Pollack & Simon Glickman

If you're wondering why you're seeing so many geeks in black armbands, it's because Napster as we know it is over.

U.S. District Judge Marilyn Patel effectively put an end to the company behind the controversial MP3-sharing service today, dismissing its users' activities as "wholesale infringing" and granting the request of the RIAA and the litigants it represents for a preliminary injunction.

The courthouse was so packed with attorneys, journalists, Web aficionados and music-biz heavies that an overflow room with a video monitor was required to handle the throng.

Despite the weight of the issues to both sides, the mood was light throughout, with jokes flying from attorneys on both sides as well as from the judge.

Because Napster enabled users to download virtually any song imaginable for free, the labels, artists and other plaintiffs in the case have long held that the company is guilty of contributory copyright infringement.

The injunction goes into effect Friday (7/28) at midnight; while Napster can technically continue as an online business, it must do so, the judge ruled, without those aspects of the service that contribute to infringement. Such a truncated Napster would include chat rooms and its New Artist Program.

The judge set a bond of $5 million to protect Napster in the event the netco wins in the actual trial this fall. The plaintiffs said they would have no difficulty posting the bond. She declined to stay her injunction order to give Napster officials an opportunity to win an emergency stay from the U.S. Court of Appeals.

Yet CEO Hank Barry and other company operatives maintain that file-sharing falls squarely under the umbrella of fair use, and that the "substantial non-infringing uses" of the technology militate against shutting it down. In its brief, Napster cited, among other precedents, the Audio Home Recording Act as an example of permitted "personal" copying.

The Judge did not agree and she told them so. "Defendant had actual, or at the very least constructive, knowledge that third parties were engaged in direct copyright infringement," she ruled. "The Home Recording Act is irrelevant to this action."

Napster also endeavored to demonstrate such "non-infringing" uses as its New Artist Program. This didn't cut any ice, either.

"Napster was promoted by the availability of the major stars, not their ‘New Artist Program,'" Patel ruled. "What lures [users] is the infringing uses [of the site]."

Patel launched into a lengthy, point-by-point recapitulation of the RIAA's case against the netco, opining that the record-industry group had proved every one of its contentions, while Napster's case left much to be desired.

She asked both parties to submit proposals for the implementation of the injunction."The Napster service is piggy-backing on our clients," said RIAA attorney Russ Frackman during the trial. "The longer this goes on, the more impossible it will be for the courts to do anything realistic."

Lead Napster barrister David Boies countered, "The Napster service is based on providing an index of user information. Napster correlates that and presents it in the exact same format it got it." In May, Judge Patel refused Napster's motion to dismiss the lawsuit.

When Boies claimed Napster would be unable to continue in the amputated form demanded by the ruling, Patel countered, "That's their problem. They created this monster, for want of a better term."

A statement from RIAA Senior Executive VP/General Counsel Cary Sherman: "We're pleased with the court's decision. This will pave the way for the future of online music. This once again establishes that the rules of the road are the same online as they are offline and sends a strong message to others that they cannot build a business based on others' copyrighted works without permission. This is an important win for artists, too, because whether they distribute their music through big labels, small independent labels or on their own, the court has made clear that they have the right to protect their works. Whether they choose to do so is up to them, but the choice is theirs to make. 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."

Said copyright attorney Fred von Lohmann of Morrison and Forester LLP: "This case doesn't necessarily spell the doom of Gnutella or Freenet. It's not unexpected; it means Napster is now Riffage. They've gone to a site about new artists—at least that's what the courts said."

Insiders predict today's ruling will spark a series of new lawsuits against Napster. In documents filed in court, Barry said his VC firm, Hummer Winblad, had valued Napster at $64.5 million in May. Nonetheless, he added, if the cloud of illegality were ever lifted, the company's value would soar into the billions.

With that in mind, a highly placed source indicated Hummer Winblad itself may be a target of litigation, considering the company's aggressive investment in Napster.

For reactions to today's ruling, see "Napster Postmortem: What Players Are Saying."

(David Simutis in San Francisco contributed to this report by totally abusing his expense account.)

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