Napster, Inc. Offers Comprehensive Rebuttal to Record Industry Efforts to Shut It Down

Brief Argues Napster File Sharing Is Legal; Accompanying Studies Demonstrate CD Sales Climbing Along with Napster Usage

San Francisco, California - July 3, 2000- Napster, Inc., the world's largest file sharing community, in its opposition brief before the United States District Court in the Northern District of California, argues that the non-commercial sharing of music is "common, legal and accepted," and said that increases in CD sales, in part driven by Napster usage, undermine record industry claims of harm.

Napster's brief, jointly filed by the firms of Boies, Schiller & Flexner LLP, and Fenwick & West LLP, opposed the record industry's motion for an injunction that seeks to shut the service down.1

The brief makes six core arguments lending great legal force to Napster's position that neither the company nor its users are violating the law.

First, the RIAA contends that Napster users are infringing. However, under the decision that protected the manufacturing of MP3 players, referred to as "the Diamond decision," and under the Federal statute called the "Audio Home Recording Act," (AHRA) consumers have an absolute right to create and transfer digital music for noncommercial purposes. And since its users are not directly infringing, Napster cannot be liable for contributory infringement.

The record industry has argued that Napster users infringe on copyright protections when they share files for their personal use. But the Ninth Circuit Court stated "AHRA protects all noncommercial copying by consumers of digital and analog musical recordings." Napster forcefully argues that the development of a new technology that expands the potential number of noncommercial copies does not alter the statute's intent or broad scope of immunity.

Second, the brief shows that because Napster's directory service is capable of numerous and substantial non-infringing uses, under the Supreme Court's decision in the Betamax case, Napster can have no liability. Under the Betamax case, as long as a technology is "capable of substantial non-infringing uses," a provider making a technology available cannot be held liable for copyright infringement, even where it may have encouraged infringing uses and the technology may in fact have been used for infringing activity. Over protests by the entertainment industry in 1984 that the Betamax technology would destroy its markets, the Sony Court refused to enjoin its distribution. At the time, Jack Valenti, President of the Motion Picture Association of American, stated that the VCR was to the movie industry "as the Boston Strangler is to a woman alone."2 Valenti now proclaims the "grave risks" to all intellectual property if "Napster and services like it" are allowed to survive.3

Third, because Napster users use the Napster service in a variety of ways that constitute "fair use," such as sampling music and "space shifting" (the process of sharing files between hard drives and players), no injunction can issue. The brief shows that Napster users are buying CDs after sampling music and making portable copies of their music files for private use, and both practices are protected under the law.

The use of the Napster service to sample a song is analogous to visiting a listening station or borrowing a CD from a friend, in order to decide whether to make a purchase. Over 84% of Napster users report downloading music files to see if they want to buy the work, according to the Fader study appended to today's brief, and even the RIAA expert's data show that sampling was the principal use of Napster. Moreover, the impact of Napster has proven positive, not negative, on Plaintiffs' CD sales, which are up 8 % this year over last year.4 On the issue of "space shifting," the brief discusses how the Ninth Circuit has ruled that "space shifting" of works already owned constitutes a fair use, calling it "paradigmatic noncommercial personal use."5

Fourth, as the Plaintiffs have themselves engaged in the practice of copyright misuse, enforcement of their copyrights against Napster is precluded. Far from opposing file sharing as a matter of law or principle, the brief shows that the Plaintiffs in this case encourage the sharing of MP3 files but want this activity to be their exclusive province.

For example, Sony Corporation of America, which owns Plaintiff Sony Music Entertainment, markets a portable listening device called the VAIO Music Clip that plays MP3 files, regardless of whether the files were made with the authorization of the copyright holders. While Sony Music now claims that Napster is harming its bottom line, Sony Electronics is seeking to profit from the vast number of MP3s currently available on the Internet. Indeed, Sony's advertising encourages its customers to "Log-on and download ATRAC3, MP3 or WAV files from your favorite music web sites." 6 Further, as the brief shows, the Plaintiffs simply did not believe that MP3s hurt their CD sales.

As discussed above, Plaintiffs have encouraged Internet users to download MP3 files from their affiliated websites; to encode Plaintiffs' works to MP3 format using encoding software; and to obtain MP3s from the Internet for use in digital players.7 Plaintiffs have expressed to the public that individuals will not be sued for obtaining MP3 copies of Plaintiffs' works from online sites.8 Napster's brief argues that, as a matter of law, "by encouraging the creation and copying of MP3 files and by making such public statements, Plaintiffs have impliedly licensed such conduct, and have waived the right to sue for it.9

The zenith of hypocrisy is the position taken by Metallica, which piously claims now that its money is being stolen by Napster's users. Not only did the band members themselves copy music rampantly in days before they were wealthy, but in August of 1997, when specifically advised that Metallica songs were being encoded into MP3 files and transferred via the web, they stated succinctly, "We don't give a f ***."10

Fifth, no injunction can issue because it would violate Napster and its users' First Amendment rights to free speech.

The Napster brief recognizes that an important free speech issue is at stake. In fact, the brief argues strongly, "Plaintiffs have virtually no likelihood of success on this claim because the relief they seek is forbidden by the U.S. Constitution."

As discussed in the brief, "Napster's directory provides users with information about the files that Napster users have made available for sharing at any given moment. The injunction that Plaintiffs seek would effectively require Napster to take down its directory. The law is clear that such directories are entitled to First Amendment protection.11 The fact that the Napster directory is electronic and resides on the Internet does not change the analysis."12 Citing the Supreme Court, the brief points out that "the relief that Plaintiffs seek is particularly egregious because it would silence the Napster community in advance of any ruling by the Court confirming that Napster's directory is protected by the First Amendment."13

Finally, no injunction can issue because to do so would irrevocably alter the status quo, result in permanent injury to Napster, and ultimately not benefit Plaintiffs. The law is clear that if Napster can show that Plaintiffs have either suffered no injury or that the injury is de minimis, no injunction can issue.

Five independent studies have all confirmed Napster's substantial positive effect on music purchases and a sixth finds no significant reduction in CD purchases. That broad body of consensus is powerful market proof that Napster's only present effect on Plaintiffs has been strongly beneficial as users sample music and buy more. Far from blocking Plaintiffs' entry into the digital download market, Napster's presence is paving the way.14 Napster is building consumer awareness and acceptance of downloading music, building demand, and providing an inventory of music that is playable by the new SDMI-compliant players like the Rio and Sony Vaio, which play both MP3 and other files in secured formats.15 This inventory is necessary to generate consumer desire to purchase these players, and consumers must, in turn, own such players to play (and buy) digital downloads.16 The real data show that freely available music is seeding the market. Moreover, since, pending trial, the market for CDs ($14 billion in the United States) dwarfs the market for digital downloads,17 even a minimal uptick in CD buying due to sampling would offset any loss of download revenues.

A complete copy of the brief and supporting materials including expert quotes are available in the press section at www.napster.com.

About Napster, Inc. Napster is the world's leading file sharing community. Napster's software application enables users to locate and share media files from one convenient, easy-to-use interface. It also provides media fans a forum to communicate their interests and tastes with one another via instant messaging, chat rooms, and Hot List user bookmarks.

Business/Technology Media Contacts: Tracy Mlakar/ Julie Gladders, mPRm Public Relations, (323) 933-3399

Consumer Media Contacts: Jill Mango / Deborah Orr, Girlie Action, (212) 334-3200 x111

1 Along with its brief and request for an evidentiary hearing, Napster filed expert reports from Peter S. Fader, Ph.D., Associate Professor of Marketing of the Wharton School of the University of Pennsylvania; Robert E. Hall, Ph.D., Robert and Carole McNeil Joint Professor of Economics, Senior Fellow, Hoover Institution, Stanford University; Lawrence Lessig, professor of law at Stanford Law School; and J.D. Tygar, Ph.D., Professor in the Department of Electrical Engineering and Computer Science (Computer Science Division) and the School of Information Management and Systems, University of California, Berkeley. Other declarations filed with the court included those of Hank Barry, CEO, Napster, Inc.; John Perry Barlow, Fellow, Berkman Center for Internet and Society, Harvard Law School; Chuck D., leader and co-founder of Public Enemy; Shawn Fanning, co-founder, Napster, Inc.; Erik Gilbert, Vice President/General Manager of 75 Ark Entertainment; Jim Guerinot, owner, Time Bomb R! ecords and personal manger of The Offspring; Randy J. Nichols, personal manager of The Pilfers; Sean Parker, co-founder, Napster, Inc.; David Rezak, music booking agent, Syracuse, New York; Derek Sivers, founder, President and CEO of CD Baby; D.J. Xealot, recording artist; Michael E. Lawrence, recording artist; and Steven Wendell Isaacs, recording artist
2 Lessig Rep. 32.
3 Valenti Decl. 7
4 Fader Rep. 20
5 Diamond, 180 F.3d at 1079.
6 Eisenberg Dep. 44:5-7. Eisenberg Dep. 27:8-10; 40:25-41:6, Exh. 220.
7 Vidich Dep. [MP3.com] 47:10-14; Kenswil Dep. 54:8-56:19; Vidich Dep., Exh.
227; Eisenberg Dep., 44:5-48:10, Exh. 227; Conroy Dep., Exh. 295, Cottrell
Dep. 141: 24, 180:7-181:10.
8 Creighton Dep. 81:22-84:22, Exh. 283.
9 Sony, 464 U.S. at 433 (1984) (anyone authorized to use a work in a particular way is not an infringer with respect to such use)
10 Ulrich Dep. 39:24-42:25, Exh. 373.
11 Bates v. State Bar of Arizona, 433 U.S. 350, 384 (1977); Princeton
Community Phone Book v. Bate, 582 F.2d 706, 710-11 (3d Cir. 1978) ("a listing placed in a book or directory . . . is entitled to the same protection as an advertisement placed in a newspaper."). 12 RTC, 907 F. Supp. at 1383
13 Pittsburgh Press Co. v. Pittsburgh Comm'n on Human Relations, 413 U.S. 376, 390 (1973).
14 See Hall Report at 36-49
15 Id. at 47-48.
16 Id. at 47-48.
17 1st Pulgram Decl., Exh. T at E0832, E0834; Cottrell Dep. 120:12-121:8, Exh. 31,