Napster Judge Questions Industry’s Practices

A federal judge gave the beleaguered Napster Inc. online song-swapping service an unexpected ray of hope Wednesday when she questioned whether the record industry’s plans for authorized digital music licensing could amount to misuse of their own copyrights.

U.S. District Judge Marilyn Patel’s comments came during a hearing on the record labels’ request for summary judgment in their 2-year-old suit, which accuses Napster of helping millions of its users violate their copyrights.

The industry already has won a preliminary injunction that led Napster to suspend its service pending a new system for distributing music approved by the labels. A summary judgment in the copyright case would render a full trial unnecessary and leave Napster facing potentially bankrupting monetary damages.

To win at this phase, the industry has to show that no factual disputes remain that would affect the outcome of the case. Armed with Patel’s sharply worded earlier rulings against Napster, the industry seemed to have a strong chance.

But in her questioning of lawyers on both sides Wednesday, Patel expressed surprise that the labels had left themselves vulnerable to one of Napster’s many last-ditch arguments.

Napster attorneys said that even if the company contributed to copyright violations, the law prevents an enforcement action if the labels are misusing their own copyrights. They said Napster should be able to obtain more documents as it tries to show that the labels’ ventures for licensing digital music run afoul of public policies or even antitrust law.

Under pressure from Washington as well as Napster and its imitators, the industry recently formed two digital-music ventures, MusicNet and Pressplay.

EMI, AOL Timer Warner Inc. and Bertelsmann have stakes in MusicNet, and Pressplay is a joint venture of Sony Music Entertainment and Universal Music Group. Together, the two groups plan to offer music from all five companies, which have 85% of the market.

In June, Napster signed a deal to distribute music from MusicNet once it emerges with a new system. One of the provisions of that deal is that MusicNet could cancel it or raise prices if Napster agrees to work with Pressplay as well, a provision that Napster said is anti-competitive.

And Napster attorney Celia Barenholtz said the five labels have a history of antitrust problems that suggest they could be using their copyrights to deprive the public of fair competition and alternate means to hear music.

On that point, Patel was a receptive audience. “I’m really curious about how the plaintiffs in this came upon the idea” for the joint ventures, she said. “Even if it passes antitrust tests, it still looks bad, sounds bad and smells bad.”

Industry attorney Russell Frackman said price-fixing had never been raised as a defense in any previous copyright case. He also said the joint ventures came after the bulk of Napster’s alleged wrongdoing.

Patel didn’t say when she might rule.

Napster isn’t alone in complaining about the record companies’ licensing practices. With the exception of EMI, the labels have granted few or no licenses to unaffiliated companies that want to offer on-demand radio or song-rental services online.

“I think Napster’s concern about access to content licenses is a wide industry concern,” said Jonathan Potter, director of the Digital Media Assn., a trade group for online music and video companies. That concern is shared by Congress, where two members have introduced legislation to regulate licensing practices, and by the Justice Department, which has launched an antitrust investigation.