Someday, the Internet may turn out to be the greatest thing that ever happened to the music industry. In theory, it should allow companies to reach a much wider audience than is now possible through existing distributors -- and to sell digitized recordings to consumers at lower prices.
But right now, the Net terrifies Sony Music Entertainment, Warner Music Group, and the rest of the companies in the industry. Why? Largely because of Web sites like San Mateo (Calif.)'s Napster. Popular with college students, it has been branded by the Recording Industry Association of America (RIAA) as "a haven for music piracy."
Specifically, Napster provides a forum where users can exchange digitized music that is stored in the MP3 format. Custom-designed for the Web, MP3 music files can be easily transmitted from user to user over the Internet and then replayed on a computer or on portable devices such as the Diamond Rio. The member companies of the RIAA are worried about MP3 because it's being widely used to illegally copy and distribute recordings -- and costing them millions in lost revenues. The downloading of any copyrighted music from the Web without permission -- even for one-time or personal use -- is illegal.
STIFF PENALTIES. On Dec. 7, the RIAA and 18 record companies sued Napster for so-called contributory and vicarious copyright infringement. Their charge: that by helping users exchange illegal copies of music, the Web site is partially responsible for any copyright infringements that take place online. The potential penalty is steep: up to $100,000 for each copyright-protected song illegally exchanged using Napster.
The company hasn't filed a response yet, but it appears to have at least one strong defense. Under last yearís Digital Millennium Copyright Act, it's hard to sue Web sites for any illegal activities committed by users. At the request of several companies in the portal industry, for example, the act generally shields sites that are classified as so-called information location tools from liability unless they directly participated in the illegal activity.
If sites must police their users, it will dramatically change the way the Net operates
The Napster case raises critical policy issues. On the one hand, music companies have every right to protect their intellectual property from being stolen on the Web. But at the same time, there are powerful reasons to shield sites like Napster from liability. If Web sites are forced to police their users, then the cost of offering information on the Net will dramatically increase. That, in turn, could decrease the usefulness and financial viability of many types of search services.
The RIAA's suit will be one of the first tests of where the boundary lies between these two important policy priorities. Who is likely to win? According to Stuart D. Levi, a cyberlawyer at New York City's Skadden, Arps, Slate, Meagher & Flom, the answer is likely to depend on how much managers at Napster know about any illegal activities taking place on their site.
"PIRATESRUS." Under the Digital Millennium Act, Web sites "really need to have red flags that stuff is infringing the copyright laws" in order to be held liable. As an example, he says that a user "literally would have to be called 'piratesrus.com.'
"If Napster just has music generally listed and doesn't track it and doesn't know about copyright violations, then there's probably no liability," says Levi. "But if the way the site is constructed or the index is built indicates that they know the stuff is not legitimate, then the probably do. That's probably what this case will turn on: what they know."
As a result, the outcome of the suit is likely to be driven by the specific circumstances of Napster's behavior. This means that the ultimate ruling, if the case isn't settled, probably won't lay down any broad new precedents. Instead, the companies with a stake in this battle, which range from Web portals to music companies to book publishers, will probably have to wait for a series of cases to lay out the rules of the road in this area.