Fri, Feb 01, 2002 page19

• Hunters become the hunted in Napster case

  • By Matt Richtel / NY TIMES NEWS SERVICE
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  The major record companies, which two weeks ago surprised analysts by seeking a temporary suspension in their copyright lawsuit against Napster, were about to face potentially damaging inquiries into their own behavior on maintaining copyrights.

  According to transcripts made public Wednesday, the judge in the case said on Jan. 16 that she intended to grant a request by Napster to explore whether the record companies might have colluded to prevent Napster and other online music competitors from licensing music to sell on the Internet. The judge, Marilyn Patel of the Federal District Court in Northern California, also said she would allow Napster to explore whether the record companies might not control all the copyrights they claim to own.

  A day later, before Patel issued an order to grant the requests, the record companies asked her to suspend the lawsuit for 30 days, and she complied. The companies' request came after they had vigorously pursued the case for three years.

  When the record companies sued Napster, they asserted that its online music service, which was explosively popular, abetted copyright infringement by letting users freely exchange songs over the Internet. In a preliminary injunction issued last year, Patel agreed with the companies, saying Napster was guilty of assisting in "wholesale" infringement. She ordered Napster to prevent users from exchanging unlicensed copyrighted files.

  Last week, the record companies said they had sought the suspension because they were nearing a settlement with Napster and did not want to be distracted by the lawsuit.

  On Wednesday, Cary Sherman, general counsel for the Recording Industry Association of America, which represents the record companies, said the companies wanted to resolve the case quickly because Napster could run out of money soon and be unable to pay the millions of dollars the record companies sought.

  Of the issues invoked in Patel's order, Sherman said, "Our companies aren't worried about these claims."

  But several experts -- copyright lawyers and an analyst who closely follows the case -- said the transcript suggested that the recording industry might be more concerned over the copyright issues.

  Mark Radcliffe, a copyright lawyer in Silicon Valley, said that if Napster was permitted to seek evidence about copyright questions, such evidence could provide the basis for a viable defense in trial. And it could challenge how much control over music copyrights the labels were entitled to have, he added.

  "The labels are deathly afraid these ownership issues will come up in court," Radcliffe said.

  Others went further, saying the record companies had been disingenuous in saying they had suspended the lawsuit to expedite a settlement.

  Aram Sinnreich, a music industry analyst with Jupiter Media Metrix, said the industry was "lying" about its motives. The companies are facing a Justice Department investigation into antitrust issues with respect to their approach to licensing music to Internet companies, and Sinnreich said they were seeking to preserve "the secrecy they've enjoyed."

  "They're already on the grill," he said. "The last thing they need is anyone throwing more charcoal on it."

  Napster had no comment on the release of the transcript. The company joined the record labels on Jan. 17 in asking Patel to suspend the litigation. Napster, based in Redwood City, California, took its service down in July. Since then, the company has been building a subscription-based service that would charge users a monthly fee to download music files, and it recently began a test version of the service.

  Concurrently, the company has been negotiating with the record companies to settle the lawsuit and license their music for sale, but it is also continuing to defend the lawsuit in hopes of avoiding having to pay damages. No trial date has been set in the case.

  For their part, the five major record companies, which control 80 percent or more of the music sold in the US, have recently begun their own commercial services through two joint ventures. One venture is Pressplay, jointly owned by Sony Music and Vivendi Universal; the other is MusicNet, owned by Bertelsmann, the EMI Group, AOL Time Warner and RealNetworks, an Internet company that runs the service.

  Napster has said that the joint ventures are anti-competitive and that Napster should be allowed to seek evidence about their formation and about whether they preclude Napster from competing on an even playing field. In her ruling on Jan. 16, Patel agreed to let Napster pursue the area. She wrote, "I decided there are some significant issues with respect to misuse that defendants ought to be able to pursue."

  Patel also said she planned to allow Napster to gather evidence to support its claim that the record companies did not necessarily control the Internet distribution rights to all the copyrights they claim to own.

  If the two sides do not settle the case within the 30-day time frame allotted for settlement, Patel may choose to issue her order allowing Napster to seek such evidence, people close to the case said.
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