Napster Takes the Defensive

SAN FRANCISCO (06/26/2000) - Seven law firms representing 16 record labels, one publisher, a rap star and an aging metal band all want a piece of Napster Inc.'s hide.

To level the playing field, Napster signed the legal profession's most-coveted free agent, David Boies, now famous for leading the team that defeated Microsoft Corp. in court and for conducting a devastating deposition of the world's richest man.

"We thought we needed to marshal additional resources on our side and work with someone who had coordinated a team before," says Napster interim Chief Executive Officer Hank Barry.

Barry, a lawyer and a partner at Hummer Winblad Venture Partners, took the reins after his firm made a US$15 million investment in the MP3 swap service.

Last week, Napster announced the appointment of yet another lawyer, former A&M Records vice president, Milton Olin, to the executive team.

On Wednesday, Napster's growing cadre of lawyers, which includes Laurence Pulgram and David Hayes from Palo Alto, California, intellectual property firm Fenwick & West, hunkered down at a hotel near Napster headquarters in San Mateo, California. Their task: Respond to the recording industry's motion to shut down the service in 35 pages or less. On Friday, the Wall Street Journal reported that the company was discussing a possible settlement with the music industry.

Napster has until July 3 to respond to a motion for a preliminary injunction filed by the recording industry June 12. A hearing before U.S. District Court Judge Marilyn Hall Patel is scheduled for July 26.

In the meantime, Napster's legal strategy is coming into focus. In a hearing last month, Napster lost its attempt to portray itself as a "mere conduit" for information, which would have granted it protection under the Digital Millennium Copyright Act of 1998. Napster since then has focused on its two strongest remaining defenses. The first, known as the "pencil defense," requires that Napster show it is a tool that has many noninfringing uses, like a pencil or a VCR. To that end, Napster has negotiated deals with independent record labels to build a case that the system is used within the recording industry to promote music.

The second and perhaps stronger argument focuses on whether the behavior of Napster users -- downloading MP3s -- violates the law.

"(The record labels) are saying that when our users carry on this one-to-one, noncommercial file-sharing that they are infringing," Barry says. "That's their claim. So we're responding to it."

Napster, after all, is not accused of violating copyright, just enabling users to do so. "If what the end users are doing is legal, then nobody would have any recourse against Napster," observes copyright attorney Whitney Broussard of Selverne, Mandelbaum & Mintz in New York.

For the court to rule in Napster's favor it would have to refine the concept of "fair use," which lets the owner of a recording make a copy for personal use or for use by friends or family. The stumbling block: Napster users are anonymous to each other and trade on a massive scale.

"When you have files exchanged between complete strangers, that is an expansive view of personal use," says Neil Rosini, a copyright attorney and legal counsel for MyPlay.com.

But what may save Napster is not a novel legal defense, but the fact that the service is far less scary to the labels than other, decentralized swapping communities. Like MP3.com, Napster could be molded -- with a skinny carrot and large legal stick -- to suit the labels' needs.

The recording industry and its legal army could bury Napster, but if its 20 million users turn to other file-swapping services like Gnutella or Freenet, the recording industry will have no one but music fans left to sue.

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