Can Microsoft's Nemesis Save Napster?
When the Justice Dept. first accused Microsoft Corp. of antitrust violations, the success of the government's case was far from certain. That was before Justice's lead litigator, David Boies, shredded Microsoft in court. Now, Napster Inc. has hired Boies in the hopes that the courtroom Houdini can work the same magic for the online-music startup.
Lord knows Napster could use the help. The song-swapping-software company is being sued by the Recording Industry Association of America (RIAA) and 18 record companies for copyright infringement. If Napster doesn't come up with a strong legal defense, the site could soon find itself shut down. And unlike online rival MP3.com Inc., which settled its copyright lawsuit with two record companies for roughly $40 million, Napster can't afford to pay eight-figure settlements. "It's going to be tough for them," says Anthony Berman, an attorney at San Francisco law firm Idell, Berman & Seitel.
NO SAFE HARBOR? Boies, who did not return phone calls, is already making bold moves. Instead of pretending that Napster is unaware of piracy over its system, Napster executives say he intends to argue that individual Napster users who share copyrighted songs are not pirates at all. His novel defense will rely on so-called fair-use rights, which can allow individuals to tape a song or television program for a friend without violating copyright laws.
The pressure is mounting on Napster. On May 5, U.S. District Judge Marilyn Hall Patel rejected its request that the case be thrown out under the safe-harbor provision of the Digital Millennium Copyright Act of 1998, which protects Internet service providers from being held liable for copyright infringements that occur on their networks. And on June 12, the RIAA filed a motion for a preliminary injunction to unplug the service.
Boies, long a top corporate defense lawyer before switching to the government's side to take on Microsoft, must file a response to the RIAA's motion by July 3. That's when Napster is expected to reveal its full-blown legal defense. Copyright experts say it appears to have few legal legs to stand on. Even if Napster could wiggle into the safe harbor of the copyright act, it may have trouble meeting the law's other requirements. A service provider, for example, must show that it has "reasonably implemented" a policy for booting repeat copyright infringers. Napster execs testified that the company did not have a written policy until Feb. 7--two months after the RIAA's lawsuit was filed.
That's why Napster is counting heavily on a landmark Supreme Court ruling. In a 1984 case brought by Universal Studios Inc. and Walt Disney Co., the highest court essentially saved the VCR. The two studios had tried to block the sale of Sony Corp.'s Betamax video-recording system by charging that it was a copyright-infringement machine. The Court ruled for Sony, by a closely fought 5-4 vote, determining that the VCR offers "substantial non-infringing uses," such as being able to watch taped programs at the viewer's convenience.
DIFFERENT PICTURE. But the precedent may not apply. The VCR enabled copying of free TV. With Napster, says Neil J. Rosini, an attorney at New York's Franklin, Weinrib, Rudell & Vassallo, "the copies are coming from unauthorized sources." Also, Universal failed to demonstrate that the VCR would cause economic harm to the broadcast industry. By contrast, the RIAA's filings trumpet a litany of studies and testimony arguing that Napster is hurting record sales.
But those studies are hardly conclusive. Napster plans to present a far different picture, such as a survey by the trade group Digital Media Assn. that found that 59% of people who download or play music online said the activity led them to buy music later. This is perhaps the most important argument for Napster to win, since fair-use law frowns on products that undermine markets for original work. Once again, Boies has his work cut out for him.