AandM Records, Inc. v. Napster, Inc.

Defendant

Napster was started in 1999 by Shawn Fanning, then an 18-year-old freshman computer science student at Northeastern University. It provided a platform for users to access and download compressed digital music files, specifically MP3s, from other users' machines. Unlike many peer-to-peer services, however, Napster included a central server that indexed connected users and files available on their machines, creating a searchable list of music available across Napster's network. Napster's ease of use compared to other peer-to-peer services quickly made it a popular service for music enthusiasts to find and download digital song files for free.

Procedural background

Plaintiffs alleged both contributory and vicarious copyright infringement by Napster, and soon filed a motion for a preliminary injunction in order to stop the exchange of plaintiffs' songs on the service immediately.

Judge Marilyn Hall Patel of the United States District Court for the Northern District of California granted the preliminary injunction, on the grounds that the plaintiffs demonstrated a reasonable likelihood of success. She issued an injunction which preliminarily enjoined Napster

from engaging in, or facilitating others in copying, downloading, uploading, transmitting, or distributing plaintiffs' copyrighted musical compositions and sound recordings, protected by either federal or state law, without express permission of the rights owner.

Napster appealed to United States Court of Appeals for the Ninth Circuit.

Ninth Circuit appeal

On appeal, the Ninth Circuit ordered a stay of the District Court's injunction, pending resolution. The Ninth Circuit issued its opinion on February 12, 2001, affirming in part and reversing in part the District Court's decision.

Direct infringement

The Circuit Court agreed with the district court's threshold determination that Napster users were probably engaging in direct infringement of plaintiffs' copyrights.

Fair use defense

Turning to the question of fair use, the Circuit court agreed with the district court's "general analysis of Napster system uses" as well as with its analysis of the three "alleged fair uses identified by Napster" – which were "sampling, where users make temporary copies of a work before purchasing; space-shifting, where users access a sound recording through the Napster system that they already own in audio CD format; and permissive distribution of recordings by both new and established artists."

The court first considered these four factors on an abstract level of the system itself.

1. They agreed with the District Court's finding that downloading an MP3 is not transformative under the purpose and character of use factor, and that even though Napster didn't directly benefit financially from users' downloads (i.e., charge for the service), "repeated and exploitative copying of copyrighted works, even if the copies are not offered for sale" could be considered a commercial use.
2. The court also affirmed the district court's finding that creative works, such as the songs in question, are "closer to the core" of intended copyright protection" than non-creative works, thus favoring the plaintiffs on the second factor.
3. They considered the potential that in some cases, wholesale copying of a work may be protected, noting time-shifting as an example.
4. Finally, the Ninth Circuit agreed with the district court's finding that widespread wholesale transfer of plaintiff's music negatively affected the market for CD sales and that it also jeopardizes the record industry's future in digital markets.

The court then turned to the three uses Napster identified as fair use in the conduct of its users:

1. sampling, where users make temporary copies of a work to sample it before purchase, which the District Court found to be a commercial use even if a user purchases the work at a later time. Sampling was deemed to not be a fair use, because the "samples" were in fact permanent and complete copies of the desired media.
2. space-shifting, where users access a sound recording through the Napster system that they already own in audio CD format; here the District Court found that neither of the shifting analyses used in the Sony or RIAA v. Diamond Multimedia cases applied in this case because the "shifting" in neither case included or enabled distribution. The space-shifting argument did not succeed because, while the shift to a digital format may have been a personal storage use, it was accompanied by making the file available to the rest of the system's users.
3. permissive distribution of recordings by both new and established artists who have authorized their music to be disseminated in the Napster system, which the District Court ruled was not an infringing use and could continue, along with chat rooms and other non-distributory features of Napster.

By contrast, the court found that the owners of Napster could control the infringing behavior of users, and therefore had a duty to do so. The Ninth Circuit affirmed this analysis, finding that the plaintiffs were likely to succeed in proving that Napster did not have a valid fair use defense.

Contributory infringement

In order to prove contributory infringement, a plaintiff must show that a defendant had knowledge of infringement (here, that Napster knew that its users were distributing copyrighted content without permission across its network) and that defendant supplied material support to that infringement.

Knowledge. The District Court ruled that the "law does not require knowledge of 'specific acts of infringement'" and rejected Napster's assertion that, because they could not distinguish between infringing and non-infringing files, they did not have knowledge of copyright infringement. The Ninth Circuit upheld this analysis, accepting that Napster had "knowledge, both actual and constructive, of direct infringement."

The Ninth Circuit also held that Napster was not protected under Sony Corp. of America v. Universal City Studios, Inc., "the Betamax case", because of Napster's "actual, specific knowledge of direct infringement." "We are compelled to make a clear distinction between the architecture of the Napster system and Napster's conduct in relation to the operational capacity of the system."

We agree that if a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement. ... Conversely, absent any specific information which identifies infringing activity, a computer system operator cannot be liable for contributory infringement merely because the structure of the system allows for the exchange of copyrighted material.

that Napster has actual knowledge that specific infringing material is available using its system, that it could block access to the system by suppliers of the infringing material, and that it failed to remove the material.

Material contribution. The Ninth Circuit briefly approved the district court's analysis of this element.

Thus, the court affirmed the District Court ruling that the plaintiffs were likely to succeed on a claim of contributory infringement.

Vicarious infringement

Addressing the vicarious infringement claim, the court then considered the necessary factors: whether Napster benefited financially from the infringement and whether they were capable of supervising and controlling infringing conduct. The Ninth Circuit sided with the District Court, who held that the infringing activity was a draw to potential users and that, since and Napster's future business model was predicated on expanding the number of users, Napster stood to benefit financially from the infringing activity. As for supervision, the Circuit court agreed in part with the District Court's finding that Napster had "the right and ability to supervise its users' conduct." However, the Ninth Circuit felt that Napster's ability to patrol and enforce infringing use was limited by the design of the system itself. The system was not designed to read the contents of MP3s or check for copyright ownership or permissions, only to index by name and ensure they are valid MP3 files. Despite this departure from the District Court's reasoning, they argued that these indices and infringing files were just as searchable by Napster as they were by the plaintiffs in locating infringing files for evidence in the case. Because of Napster's failure to police within its means combined with the financial interest factor, the Ninth Circuit affirmed the District Court's finding of vicarious infringement.

Other defenses

In its defense against the injunction, Napster also cited the Audio Home Recording Act (17 U.S.C. §§ 1001-10). and the Digital Millennium Copyright Act's safe harbor clause (17 U.S.C. § 512). The Ninth Circuit agreed with the District Court's finding that downloading MP3 files is not covered by the Audio Home Recording Act. The Ninth Circuit disagreed slightly with the District Court on the safe harbor issue, however, finding that the contributory infringement does not necessarily exclude a party from safe harbor protection. The court held that the safe harbor issue would be explored further at trial.

Napster also argued that the record companies waived their rights to copyright protection because they "hastened" the spread of MP3s on the web and had their own plans to get into the digital market. Rejecting this argument, Judge Patel wrote, "This limited evidence fails to convince the court that the record companies created the monster that is now devouring their intellectual property rights." The Ninth Circuit agreed, and also rejected Napster's claim that, by creating and providing digital files via the Internet, the plaintiffs had granted Napster an "implied license". Finally, Napster argued that the plaintiffs were using copyright to control online distribution, which Napster considered beyond the scope of the limited monopoly provided by the Copyright Office. The court rejected this as well, finding that MP3s were the same works as those that appeared on CDs, just in a different format, thus the plaintiffs had every right to control their distribution of digital music files because they are the plaintiffs' copyrighted works.

Scope of the injunction

Napster contended that the injunction violated the company's First Amendment rights because it was overbroad. While the Ninth Circuit rejected this argument due to the lack of a fair use defense, they did order a stay of the injunction and agreed that the injunction was overbroad because "it places on Napster the entire burden of ensuring that no 'copying, downloading, uploading, transmitting, or distributing' of plaintiffs' works occur on the system." Recognizing that Napster's system simply indexed files with imperfect file names and did not automatically verify copyright ownership, the court found that it was the plaintiffs' burden to notify Napster of any infringing files on the system, which Napster would then remove. But the court also again noted that Napster must police the system within its means: "In crafting the injunction on remand, the district court should recognize that Napster's system does not currently appear to allow Napster access to users' MP3 files." The court also declined to adjust the bond amount and called imposition of a compulsory royalty scheme an "'easy out' for Napster" that would destroy the plaintiffs' ability to control their intellectual property.

Criticism and Impact

Among a number of amicus briefs filed on behalf of both sides of the dispute, one particularly critical brief filed by a consortium of eighteen copyright law professors at United States universities argued that the District Court misread Sony and took too narrow a view of fair use. They wrote:

Napster is the best-known example of a new technology deploying what has come to be called peer-to-peer networking, a system in which individuals can search for and share files that reside on the hard drives of other personal computers connected to the Internet. Peer-to-peer file sharing allows individuals to bypass central providers of content and to find and exchange material with one another. The decentralized model of peer-to-peer networking poses a significant challenge to sectors of the entertainment and information businesses that follow a model of centralized control over content distribution. However, this is not the sort of challenge that copyright law is designed to redress. The district court’s ruling would ban a new technology in order to protect existing business models, and would invoke copyright to stifle innovation, not to promote it.

The professors further argued that the overbroad nature of the injunction threatened the development and deployment of any future peer-to-peer file-sharing network on the Internet because it insisted on a restructuring that defeated peer-to-peer technology itself. They also argued that the finding of contributory liability was erroneous because of Napster's significant non-infringing uses and because not all unauthorized uses within the system were infringement. They concluded, "If Plaintiffs want copyright law extended to allow the suppression of new technologies, they must make their case to Congress."

Napster struggled to comply with the demands of the rewritten injunction, and in April 2001 Judge Patel called their policing efforts "disgraceful." The company turned to digital fingerprinting to try to identify infringing files. However, at a hearing on July 11, 2001, Judge Patel's dissatisfaction with Napster's 99.4% efficacy in removing infringing material prompted her to order the service shut down until it could be 100% effective. In September 2001, Napster settled with songwriters and music publishers, agreeing to pay $26 million. Napster filed for Chapter 11 bankruptcy in May 2002, and when a judge blocked its sale to Bertelsmann in September 2002, the first incarnation of Napster was finished.

A number of file-sharing networks surfaced in Napster's wake, including Morpheus, Grokster, and KaZaA, many of which faced their own legal challenges over infringing material on the network. In 2005, a similar file-sharing service, Grokster, was sued by MGM. The case, MGM Studios, Inc. v. Grokster, Ltd., went to the Supreme Court and is considered by many to be the sequel to the Napster case, another technology that "outpaced the law." Over the next few years, BitTorrent, another P2P technology, became the target of copyright scrutiny. Popular torrent trackers like the Pirate Bay faced long legal battles, but their opponents have had little success in shutting down these services permanently.