CASE 2

A small Internet start-up company, founded in May 1999 by a 19-year old college dropout

Shawn Fanning, revolved around a program which builds communities around types of

music. Since going on-line in September 1999, the Napster site has raised $15 million in

venture funding, attracted over 20 million users, and facilitated the download of over 1400

songs per minute. In 1999, several major recording labels filed an action seeking damages

and injunctive relief against Napster. Napster was not sued for direct infringement, due to the

fact that the technology did not directly copy files on to its central server but merely allowed

peer-to-peer sharing. Instead, it was claimed by the recording industry that Napster's peer-topeer

file-sharing technology and Internet directory service made Napster contributorily and

vicariously liable for its users' alleged copyright infringement. Napster raised an assortment

of defences for its conduct, including

the fair use defence on the part of Napster users, including the Sony defence;

the AHRA non-commercial user exceptions;

the "safe-harbour" defence provided under the DMCA.

The Napster network allows music aficionados to, inter alia, make MP3 music files stored on

individual computer hard drives available for copying by other Napster users; search for MP3

music files stored on other users' computers; and transfer exact copies of the contents of other

users' MP3 files from one computer to another via the Internet. Napster's "peer-to-peer"

architecture replaces the traditional method of using large centralised information servers to

supply the requested files. Important factors in considering the technology are:

Napster servers do not create, copy, store or make available any of the MP3 files on its

servers (whether transient or otherwise);

the contents of all MP3 files are held at all times on the users' computers;

the contents of the MP3 files are not routed or transmitted through Napster's servers;

Napster merely holds a database of MP3 file names and, if requested, the IP address

information of each user.

It is difficult to definitively categorise Napster: it can simultaneously be viewed as a service

provider, a search engine, and a provider of information location tools such as directories or

indexes.

Direct Infringement by Napster Users

In order to prove that Napster was liable for contributory and vicarious copyright

infringement, the industry had to prove that Napster users themselves were actively engaged

in the unauthorised reproduction and distribution of copyrighted works. In order to counter

this claim, Napster had to prove that all or some of the activities indulged in by its users

exempted them from the charge of direct infringement, under the fair use defence, and if this

is the case, Napster itself could not be held liable. The district court held that the recording

industry had presented a prima facie case of direct infringement by Napster users. In doing

so, it accepted the industry's claim that more than eighty percent of the files available on

Napster may have been copyright protected and owned or administered by plaintiffs, thereby

violating the plaintiff's exclusive rights of reproduction and distribution under 106, U.S.

Copyright Act. The Court of Appeal found nothing wrong in the district court's finding and

Napster did not further argue this point. It instead relied on the fair use defence and claimed

that it could avail itself of the "safe harbour" provisions under the DMCA.

What Does "Sharing" Entail?

Napster contended that users could not be considered to be direct infringers as they were

engaged in fair use of the material. Both the district court and the appellate court concluded

otherwise. The Court of Appeal emphasised the point of unfair dealing stating that, as

opposed to direct economic gain by the users, the key issue was the "repeated and

exploitative copying of copyrighted works, even if the copies are not offered for sale".

Another hotly disputed feature was whether Napster use harmed the market for copyright

music. The district court held that Napster use harms the market for copyright musical

compositions and sound recordings, especially in relation to sales within college markets (a

high proportion of Napster users are students). The court rejected Napster's report which

showed that Napster is beneficial to the music industry because MP3 music file-sharing

stimulates more audio CD sales than it displaces. Market harm is viewed from the perspective

of the current market and any potential market into which the copyright holder may have an

interest in. The district court determined that Napster had harmed the music industry's market

in two ways: it reduces audio CD sales among college students and it raises barriers to

plaintiffs' entry into the market for the digital downloading of music. The Court of Appeal

concurred with this finding, adding the that

"lack of harm to an established market cannot deprive the copyright holder of the right

to develop alternative markets for the works

Space Shifting

What about "space-shifting"? This is where a user accesses and downloads an MP3

formatted sound recording through the Napster system in order to listen to music that she

already owns in an audio CD format. As discussed above in the RIAA v Diamond decision,

space shifting of musical compositions and sound recordings can be a fair use, and this strand

of defence stems from the Sony decision. The district and appellate courts refused to apply

the "shifting" analyses of Sony and Diamond to the MP3 decision on the basis that Napsterbased

activities had an inherent distributive element within its users' activities. Diamond and

Sony were distinguished in that the methods of shifting employed by the users did not also

simultaneously involve distribution of the copyright material to the general public; the time

or space-shifting of copyright material exposed the material only to the original user.

Conversely, it is obvious that once a user lists a copy of music he already owns on the

Napster system in order to access the music from another location, the song becomes

"available to millions of other individuals," not just the original CD owner.

The objection here revolves, once again, around the fact that Napster facilitates the

downloading and distribution of music; whereas, the end destination in the case of Diamond

and Sony hardware was the media storage device i.e. the Rio player and the Betamax VCR,

respectively.

Contributory Liability

A party is liable for contributory infringement if he has knowledge of the infringing conduct

of another, and induced, caused or materially contributed to the infringing conduct. Could

Napster really be said to have encouraged and assisted in the infringement of the plaintiffs'

copyright? Did it not have a disclaimer on its site and a specific injunction to its users against

the download and distribution of copyright music? Finally, can knowledge be assumed to

Napster? The district and appellate courts concluded that Napster had both actual and

constructive knowledge that its users exchanged copyright music in spite of the fact that the

plaintiffs' could not definitively identify more than 200 song titles.

What of the decentralised nature of peer-to-peer technology which prevents Napster from

knowing the nature of their users' activity and of the files shared. The only information that

Napster can access is to the user-given file names. First, these file names do not necessarily

reveal whether the work is copyright protected or not. The situation is more difficult in the

case of classical music as file names are usually identified by the composer and the name of

the work (for example, Beethoven, 1st symphony, 2nd movement), without any indication as to

the performers or the recording label. Secondly, Napster does not control the file names and it

is open for users to either inadvertently or deliberately misidentify their files: thus, an

unknown artiste, in order to receive maximum publicity, may name his file:

"B. Spears, Oops, I did it again".

The technology does not enable Napster to determine whether this is an infringing file or not

except by downloading and listening to all songs which appear to have potentially suspect file

names on its servers. This confirms the fact that file names, per se, do not identify the artist

or the song title, or whether the music is from a CD (in which event the Plaintiff recording

companies may own the rights) or a recording of a live concert (which many artists allow to

be freely circulated for promotional reasons). Moreover, programs such as Aimster allow

users to circumvent Napster filters by automatically transcribing copyrighted song titles into

Pig Latin. Even the District Court agreed that it would be too "burdensome or even

impossible to identify all of the copyrighted music they own"; instead, the court, in reliance

on previous case-law, held that knowledge need not relate to "specific acts of infringement".

Nonetheless, it still held that the plaintiffs had demonstrated a likelihood of success in

relation to material contribution. Relying on the district court's findings, the 9th Circuit held

that without the support services that the defendant provides, Napster users could not find and

download the music they wanted with the ease of which defendant boasts and that Napster

provides "the site and facilities" for direct infringement.

a. Identify the law on which the case has been developed and support your answer with

proper example.