Legal tune-up

The Napster case is not just about free music on the Internet. The implications of the federal appeals court ruling affect anyone doing business on the Internet.

Napster is an Internet program that enables users to easily download digital copies of music, usually in the MP3 format. In July 2000, a federal district court granted the music industry’s request for a preliminary injunction against Napster, forcing it to pull the plug on its music sharing community on the basis of contributory copyright infringement.

Two days later, a panel of judges from the Ninth Circuit issued an emergency stay, pending an appellate hearing.

Following that hearing Feb. 12, the three-judge panel for the Ninth Circuit ruled that “a preliminary injunction against Napster’s participation in copyright infringement is not only warranted, but required.”

The case now returns to the lower court for a final ruling. In the meantime, Napster has begun exploring agreements with music publishers (most notably Bertelsmann, a plaintiff in the current case).

Napster will undoubtedly appeal, and the case is likely to head to the United States Supreme Court. But in the interim, the Napster rulings have meaning beyond the music industry. They are a clear warning that courts will continue to deal with new technology in much the same way they have with old technology

This case underscores the need for companies doing business on the Internet to understand they shouldn’t ignore intellectual property laws. This includes businesses that have active Web sites, as well as those which provide Internet access to their employees as part of their employment.

Direct copyright infringement

The Ninth Circuit judges ruled that not only did the evidence show that Napster abets copyright infringement but that individual Napster users are infringing copyrights.

“Repeated and exploitative unauthorized copies of copyrighted works were made to save the expense of purchasing authorized copies,” the panel said.

The court found that Napster users infringe at least two of the copyright holders’ exclusive rights: the rights of reproduction and the rights of distribution. Those who upload file names to the search index for others to copy violate plaintiffs’ distribution rights; those who download files containing copyrighted music violate plaintiffs’ reproduction rights, the court held.

Despite the enormity of the Napster community –on average, 1.5 million users were logged on to the system at any one time — the court sent a clear message that a company which maintains an anonymous and noncommercial relationship with its users can still be liable for those users’ illegal acts.

The message is of particular importance not only to employers whose employees may be uploading or downloading files on Napster, but that any violation of copyright laws by employees may put the employer at legal risk as well.

Contributory infringement

The finding of direct infringement of Napster users was necessary before the court could address claims that Napster was engaged in contributory infringement. Traditionally, “one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a contributory infringer.”

In other words, liability exists if the defendant engages in “personal conduct that encourages or assists the infringement.”

Napster, the court concluded, by its conduct, knowingly encouraged and assisted the infringement of artists’ and music owners’ copyrights.

For employers who provide Internet access to their employees, the message is similarly clear.

Vicarious liability

Vicarious copyright liability extends beyond an employer/employee relationship to cases in which a defendant “has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.” The fact that Napster had no involvement with the actual copying of copyrighted works is an insufficient defense.

“Napster’s failure to police the system’s premises, combined with a showing that Napster financially benefits from the continuing availability of infringing files on its system, leads to the imposition of vicarious liability.”

Lessons to be learned

  • Review the content of your company’s site, including links and metatags which may infringe the intellectual property rights of others.
  • If your businesses site permits others to post to it, be sure your terms of use agreement provides warranties that such postings are not violating any such rights.
  • Review your business’s acceptable use policy and periodically recirculate it to ensure your employee’s are familiar with it.
  • Take appropriate steps to end any infringing activity as soon as you become aware of it.

David Posteraro ([email protected]) is an attorney at Arter & Hadden LLP and is a member of the firm’s E-Group. The E-Group is a multidisciplinary group of attorneys which focuses its practice on entrepreneurs, Internet, e-commerce and emerging growth companies. He can be reached at (216) 696-4664. For more information about the E-Group and to read SBN “Matter of Law” reprints, visit www.arterhadden.com/egroup.