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While denying Napster a "fishing expedition," Patel noted "the court is equally reticent to allow plaintiffs, merely because of the quantity of music they control, to railroad Napster into potentially billions of dollars without adequately proving ownership."
PATEL GRANTS NAPSTER’S MOTION
Discovery Allowed to Swapco Regarding Majors’ Copyrights; Judge Voices Suspicion of Label-Backed Online Ventures
U.S. Ninth Circuit Court Judge Marilyn Hall Patel today granted in part Napster’s motion requesting discovery with respect to major-label litigants’ ownership and alleged misuse of copyrights. More troubling for the labels, Patel strongly suggested there were grounds for concluding that label-backed online ventures could be engaged in anti-competitive behavior.

Patel gave plaintiffs and defendant one week to submit a "joint proposed order" for proceeding on discovery; documents must be presented to court-appointed Special Master Neil Boorstyn within two weeks.

A "status conference" relating to both misuse discovery and ownership was slated for March 27 at 10 a.m. The parties have more homework due before that day, having been ordered to prepare a joint statement and plan for discovery ten days prior to the conference.

While denying Napster a "fishing expedition," Patel noted "the court is equally reticent to allow plaintiffs, merely because of the quantity of music they control, to railroad Napster into potentially billions of dollars without adequately proving ownership." She ordered the plaintiffs "to produce all documentation to their ownership of the works listed as ‘works for hire.’" Patel put off the question of work-for-hire as a legal issue unto itself for the time being, but said the court would return to it later "if appropriate."

"Since plaintiffs bear the burden of showing chain of title," Patel announced, "they must provide Napster with all of the necessary documents, redacting [i.e. editing or expurgating] only proprietary information irrelevant to the issue of ownership."

But the ownership issue--which guarantees some logistical and bureaucratic headaches for the plaintiffs at the very least, as they scramble to document the state of their copyrights in myriad artist agreements—was merely a warm-up for Patel’s most serious assessments.

In taking up Napster’s licensing agreement with MusicNet—a joint venture formed by label groups BMG, EMI and WMG and technology company RealNetworks—Patel found signs of "overreaching" on plaintiffs’ part. "The evidence…suggests that plaintiffs’ entry into the digital distribution market may run afoul of antitrust laws," she intoned.

While Napster’s allegations of copyright misuse on the labels’ part were dismissed when plaintiffs sought injunctive relief, Patel pointed out, "Since then, the factual and procedural landscape has changed significantly."

Because the court shut down Napster’s centralized file-sharing system by injunction, Patel reasoned, the netco no longer posed a threat to anyone, and the issues of misuse could be considered in a post-infringement light.

If, as alleged, the terms imposed by the license MusicNet granted Napster are found to have overreached the scope of the limited monopoly granted by copyright—and, specifically, to have controlled Napster’s options with respect to the licensing of other major-label content—the ramifications could be quite serious.

"The critical issue," Patel’s decision reads, "is that the agreement binds Napster to obtain licenses from MusicNet and not its competitors. Napster was caught in a position where its only options were to sign the agreement to gain access to the catalogs of the major record companies and thereby incur these restrictions in all their murkiness, or to refuse to sign the agreement and have virtually no access to most commercially available music."

Most damning was Patel’s rather arch assertion that "plaintiffs cannot hide behind the shell of a joint venture to protect themselves from misuse claims. The court views with great suspicion plaintiffs’ claims of ignorance as to MusicNet’s activities. Surely the three [label] parties to MusicNet discussed their joint venture before embarking on it."

A bit later she argues, "even a naif must realize that in forming and operating a joint venture, plaintiffs’ representatives must necessarily meet and discuss pricing and licensing, raising the specter of possible antitrust violations."

Patel disallowed plaintiffs’ claim that Napster’s potentially "dirty hands" prevented it from claiming a misuse defense. She also reiterated her oft-cited belief that the label-backed enterprises "look bad, sound bad and smell bad."

In granting Napster’s motion, Patel said the defendants had "demonstrated a sufficient nexus [between anti-competitive behavior and control over copyright] to allow for further discovery."

"We are pleased that the Court granted Napster's request to examine two critical issues: the record companies' ownership of artists' copyrights and anti-competitive behavior that amounts to misuse of their copyrights," reads a statement from Napster general counsel Jonathan Schwartz. "We will continue to pursue those issues in litigation as we continue amicable settlement and licensing discussions that will benefit consumers and rights holders alike." Schwartz then dismissed himself to download some happy banjo music.

A representative from MusicNet declined to comment.

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