NAPSTER: OF BILLIONS AND BETAMAXES--UPDATE

Napster has elected to bring its case before the entire Ninth Circuit Court of Appeals, Reuters has reported, although the court's three-judge panel gave it an overall smackdown recently.

The file-sharing netco has reportedly asked the court to impose a "compulsory" licensing solution on its dispute with the record industry. It also claims in its brief that the injunction order originally issued by the Ninth Circuit and upheld--with some qualifications--by the appellate panel violates its right to free speech.

Making reference to the Sony vs. Universal "Betamax" case, Napster attorneys argue that the Supreme Court's ruling that substantial non-infringing applications for a new technology obviate potentially infringing ones should be extended to its MP3-swapping service.

Most notable, however--as reported in detail on Inside.com--is the company's request that the court simply designate a royalty rate (structurally similar to the one devised for radio stations and collected by rights organizations) for the use of copyrighted music. Negotiations with the majors to determine such a rate have thus far not yielded fruit, in part because Napster has allegedly declined to discuss damages for past infringement.

Meanwhile, a hearing in the majors' copyright-infringement suit against Napster has been set for March 2 at 10 a.m. All sides are slated to appear in the San Francisco courtroom of Judge Marilyn Patel, who was recently ordered by an Appeals Court to narrow the scope of her injunction order against the service.

It is expected that Napster will soon be forced to severely curtail or even shut down the free version of its system, which it claims has over 60 million users.

For its part, the RIAA has spent the last several days sending warning letters to Internet service providers that host underground file-sharing services, urging them to deny access to such resources or face legal action (see story, 2/23). The industry lobbying organization says the providers have been very cooperative thus far.

The non-Bertelsmann majors have presented a unified front in refusing to accept Napster's cash proposal (see story, 2/21) in exchange for dropping their litigation and licensing their content for a paid, secure version of the swappery.

Though Napster scored some killer headlines with its recent billion-dollar offer to the music industry, it appears that the humongously popular music file-sharing service still faces virtually total resistance from UMG, Sony Music and WMG. All three entities issued statements on the matter this week; the swappery was chided not only for enabling the mass free circulation of their music without permission, but also for showcasing its offer in the press.

While EMI has publicly expressed some interest in collaborating with the Bertie-backed netco, various roadblocks to a proposed merger between EMI and Bertelsmann's BMG complicate matters.

Some insiders suggest that the time pressures on Napster have moved backroom discussions of its proposed 60-40 revenue split, which already favored rights-holders, to a ratio substantially more slanted to label interests.

That Napster's publicity campaign around its proposal coincided with the Grammys only fueled industry disdain—and further enhanced the stature of RIAA head and chief Napster opponent Hilary Rosen, who collected kudos from supporters as she made the rounds of parties on Grammy night.

But Napster, realizing it must press ahead with its legal efforts—which could include sending litigator David Boies to argue the virtues of free Little River Band MP3s before the Supreme Court—has also retaliated by waging a PR assault.

Between its stance of being prepared to accommodate all the labels' concerns, mobilizing its enormous user base to rally in its support and cultivating friends on Capitol Hill, Napster is angling for every possible advantage in the image wars.

But its antagonists have made clear that, at least for now, they intend to pursue their own online ventures. UMG overlord Vivendi and Sony announced the debut of their tandem "Duet" music service, and Vivendi chief Jean-Marie Messier told France's La Tribune that they would be happy to discuss licensing their music to Napster—after it becomes a paid service.

UMG has also offered a beta version of its own subscription-based music service via Farmclub.com, though that, too, has been hit with litigation from publishers.

The recent acquisition of WMG's parent, Time Warner, by America Online ensures that Warner music—and whatever else AOL can license—could be delivered as an additional (or even premium) service to AOL users. The ability to send music files via instant messaging could help popularize such a service.

Meanwhile, Napsterites continue their frantic downloading as the latest court date looms. Hey, why is our DSL so slow today?