Recording industry sues music start-up, cites black market

By Courtney Macavinta, Staff Writer
CNET News.com

December 7, 1999

Major record studios sued a five-month-old music company today, claiming that its software creates a black market for illegal copies of digital music.

In a lawsuit filed in U.S. District Court in Northern California, the Recording Industry Association of America charges start-up Napster with violating federal and state laws through "contributory and vicarious copyright infringement," because it has created a forum that lets online users trade unauthorized music files directly from their PCs.

"We love the idea of using technology to build artist communities, but that's not what Napster is all about," Cary Sherman, senior executive vice president and general counsel of the RIAA, said in a statement. "Napster is about facilitating piracy and trying to build a business on the backs of artists and copyright owners."

The association, which represents the major U.S. record companies, is seeking up to $100,000 in damages for each copyright-protected song allegedly exchanged illegally using Napster software.

Napster insists that its software was developed for legitimate use by music enthusiasts who would otherwise have to wade through droves of sites on the Net to find particular artists.

"This came as a surprise; we've been spending so much time trying to figure out ways to work with the RIAA," Napster CEO Eileen Richardson said.

The lawsuit is the latest front in what has become a quicksand-like terrain for the music industry, which has been aggressively fighting to maintain control over their copyrighted material as the Web and related technologies increasingly threaten to undermine their security. In the case of Napster, it could be an uphill battle: At least two federal laws protect content "providers" from being held responsible for illegal activity over their networks.

Moreover, Napster is but one of many companies or organizations accused of contributing to the spread of illicitly obtained music. The RIAA has previously threatened to sue Web portal Lycos [ http://news.cnet.com/news/0-1005-200-340380.html ], and many other sites have been pursued for allegedly carrying copyrighted songs that can be downloaded free of charge.

But Napster says it does not host any content and only provides free software that its "music community" uses to easily search through an ever-growing network of computers that contain tracks encoded in the popular MP3 format. The tracks can be listened to using players by companies such as RealNetworks or via portable devices.

No music trades actually take place on computers owned by Napster. Nor does the company monitor users to see whether they are trading copyrighted material, although it does warn users that MP3 files could be illegally copied and that distributing such material is illegal.

The lawsuit could stifle a budding revenue model for Napster, which contends that it didn't go into business to aid copyright infringements.

Napster has said that its future business model relies on hooking artists up with music lovers by making it a cinch to find tracks on the Net. The company envisions getting a cut of music sales for driving interest and traffic to MP3s.

"We're this tiny company caught between two industries: the Net and music industry," Richardson added. "We look forward to working with the RIAA to create laws for the good of artists and music lovers."

The RIAA argues, however, that Napster is making it possible for Net users to collect an array of hits from CDs by top-selling artists such as Britney Spears, Michael Jackson, Celine Dion, the Backstreet Boys and Shania Twain--without ever paying a dime to an artist or record company. Other sites also let digital music collectors share tracks with fellow online users, such as Spinfrenzy.com, Abe's MP3, iMesh and CuteMX.

"It is the single most insidious Web site I've ever seen--it's like a burglar's tool," Ron Stone, a representative from artists' agency Gold Mountain Management, said in a statement.

The "Big Five" record companies--Warner Music, Sony Music, Universal Music, BMG and EMI--want to get a piece of the action from digital music. But they want to do it their way, with safeguards in place to curb piracy. The companies are working with the RIAA and various technology firms on the so-called Secure Digital Music Initiative [ http://news.cnet.com/news/0-1005-200-336464.html ] (SDMI), an effort to set up specifications for secure music downloads online and onto portable devices such as Diamond Multimedia's Rio.

But SDMI has run into a number of roadblacks, with internal debates [ http://news.cnet.com/news/0-1005-200-122852.html ] over technology such as watermarking and other issues causing the group to miss some key deadlines, such as having SDMI-compliant portable devices on store shelves for the holiday season.

Meanwhile, music online both legally and illegally continues to proliferate, and the demand has spawned tools such as Napster. Still, the market for digital music sales is relatively small, as most computer users are used to the free nature of MP3 files, which have fueled the growth of the Net music sector. And many artists, from gold-record seller Ice T to unknown garage bands, are starting to voluntarily encode their music in MP3 for free distribution through sites such as MP3.com or to sell through digital music vendors such as EMusic and CDNow.

Legal experts say the case against Napster is not cut-and-dried.

For example, the Digital Millennium Copyright Act (DMCA), passed last year, creates a safe harbor for sites and services that remove copyright-infringing material upon notice. And the Telecommunications Act of 1996 states that Net service providers cannot be held responsible for illegal acts committed by third parties over their networks.

However, the DMCA also outlawed distributed copyright-cracking technologies, marking lawmakers' sympathy with intellectual property owners' efforts to protect their material. In addition, the Motion Picture Association of America has successfully cited that provision of the law to get sites to take down [ http://news.cnet.com/news/0-1005-200-1453102.html ] copies of a DVD security cracker that was circulating [ http://news.cnet.com/news/0-1006-200-1430015.html ] online.

Napster is not facilitating people breaking copyright-protection technologies, however; it is helping online users create a forum to exchange music and to chat online. Just because users may be breaking the law doesn't mean Napster will automatically be held liable.

"The law has basically shielded ISPs from liability for acts of copyright infringement by users in the past," said Jon Grossman, an intellectual property lawyer at Dickstein, Shapiro, Morin and Oshinsky.

"A liberal reading of the law could shield Napster, and that will definitely be discussed by the court and whether you can call Napster an ISP," he added. "If there is some involvement on the part of the Net provider--that they are in some way involved in exercising this exchange--courts are more comfortable in finding them contributory liable, though."