Napster still not out of the woods

Bertelsmann's decision to work with Napster is good news for the besieged music-sharing service. But supporters might think twice before breaking out the champagne.

          Bertelsmann's decision to work with Napster is good news for the wildly popular but besieged music-sharing service. Still, its supporters might think twice before breaking out the champagne.

          Despite the music publisher's promise to invest in Napster and drop copyright infringement charges if it can implement new security features, Napster still faces the very real possibility that it will be shut down by a three-judge panel in San Francisco's 9th Circuit US Court of Appeals. Even if Napster successfully builds the new features – no small feat – it still must persuade other powerful publishers to follow the lead of Bertelsmann AG, the parent of BMG, which is one of the plaintiffs suing the upstart.

          "Unless all of the plaintiffs settle, it won't mean anything," says Harold McElhinny, a litigator representing Internet firms at San Francisco law firm Morrison and Foerster. "The Ninth Circuit is going to rule, I assume shortly, and as long as there are plaintiffs that continue to pursue it, it remains a live case."

          Indeed, the Recording Industry Association of America did not share Bertelsmann's conciliatory tone. "Today's announcement does not bring an end to the court case," said RIAA CEO Hilary Rosen. She pointed out that all five of the record labels that brought the suit – BMG, Universal Music, Warner Music, Sony Music Entertainment and EMI – remain plaintiffs.

          Napster, for its part, said its strategy in court would not change as a result of the new alliance. "This in a sense is further strengthening and further confirmation of the things we were arguing in the court of appeals, that there are a lot of non-infringing uses out there," Napster attorney David Boies said in a conference call with reporters.

          In July, US District Judge Marilyn Hall Patel of San Francisco found that Napster aided in massive infringement of copyrighted songs by its more than 25 million users. She granted a request by the RIAA to immediately bar Napster from listing copyrighted works on its service until the matter went to trial. The decision essentially shut Napster down, because the service had no way to distinguish between songs protected by copyright and those in the public domain.

          Napster appealed the decision to the 9th Circuit, arguing that copyright law allows users to make copies of music for non-commercial use. If there was no infringement by its users, Napster's lawyers told the appeals panel, there could be no liability on the part of Napster. The panel prevented Patel's injunction from taking effect until it could make its own ruling. That decision could come any day.

          Today's development has some parallels with another closely watched copyright battle that the RIAA waged against MP3.com Inc. (MPPP) . In that case, the music service reached agreement with most of the labels over royalties for making compact disks available online. Despite the settlement, however, proceedings against MP3.com continue, because Universal Music, one of the plaintiffs in the case, has not signed on to the agreement. It is seeking millions of dollars in damages.

          Bertelsmann's move to embrace Napster is unlikely to carry much weight with the panel, but it does signal that division is growing in the unified front assembled by the RIAA. It's too early to say whether Bertelsmann stands alone in choosing to extend an olive branch to Napster, but its move provides Napster with powerful new support in its argument that it can work with record labels to resolve copyright issues.

          Critics of the recording industry wasted no time in exploiting the announcement. "The embracing of Napster and its peer-to-peer technology by Bertelsmann comes as welcome news for consumers and artists," Sen. Orrin Hatch said in a statement. "I commend Bertelsmann for its vision and encourage others in the music industry to welcome and engage this alliance." The chair of the powerful Senate Judiciary Committee has signaled that he believes the recording industry has abused copyright law, and that he intends to make the issue a major agenda item next session.

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