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Napster's Day Are Numbered?

On Monday (February 12), the Ninth U.S. Circuit Court of Appeals ordered the wildly popular song-swap service Napster to stop its millions of users from trading copyrighted material.

Calling the decision a major victory, recording industry officials and legal experts said the ruling by a three-judge panel could destroy Napster as a free song-swapping service.

Napster, a company formed around a computer program developed by a teenage college dropout, was gloomy. “Napster is not shut down, but under this decision it could be. We are very disappointed in this ruling by the three judge panel and will seek appellate review,” the company said in a statement.

News of the ruling immediately set off a feeding frenzy on the service as millions of users tried to download as many songs as possible before the looming shutdown.

“The activity is absolutely voluminous, and if you read the chatrooms, people are very disturbed,” said Aram Sinnreich, senior analyst with market research firm Jupiter Media Metrix.

The appeals court decision comes four months after an October 2 hearing in which the recording industry asked the appeals court to lift its stay on an injunction ordered in July against Napster by U.S. District Court Judge Marilyn Hall Patel.

“The District court correctly recognized that a preliminary injunction against Napster’s participating in copyright infringement is not only warranted but required,” the appeals court said.

It said Napster may be held liable for copyright infringement by its users to the extent that it knew of specific material on its system and failed to act to prevent its distribution.

But the appeals court instructed the lower court judge to modify her earlier ruling by requiring music companies to identify which of their copyrights were being infringed. Napster, to avoid liability, must then patrol its system for infringing material and block access to those songs in its search index.

“It’s clear that it’s up to the record companies to give notice to Napster on what songs are being infringed and Napster will be required very quickly to pull them off the site,” said Robert Schwartz, an entertainment lawyer for O’Melveny & Myers.

Meanwhile, Bertelsmann AG, parent of New York-based Bertelsmann Music Group, vowed to press ahead with efforts to develop a commercially viable version of Napster.

The German entertainment giant broke ranks with other recording labels and joined forces with Napster. It is providing an estimated $50 million to help transform Napster into a secure subscription service and has invited other labels to join.

Rival companies have scoffed at the invitation, saying that talks between Napster and the recording companies have been futile because Napster and Bertelsmann have provided no real business model that adequately addresses their need to compensate artists and pay royalties.

“File sharing is here to stay, and we will continue working to build a membership-based Napster service that will be supported by the music industry,” Bertelsmann e-commerce Group Chief Executive Andreas Schmidt said in a statement.

Napster CEO Hank Berry urged Napster’s 50 milion users to “contact their representatives to let Congress how much Napster means to them.”

Napster’s founder, Shawn Fanning added, “we’ll all find a way to keep this community growing.”

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