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  General Practice, Solo & Small Firm DivisionMagazine

 
VOLUME 19, NUMBER 2 MARCH 2002

INTELLECTUAL PROPERTY LAW

What Napster Means for Copyright Infringement Litigation

By Eric Osterberg

We have been bombarded with analysis concerning the significance of the Ninth Circuit's decision in A&M Records, Inc. v. Napster, Inc., for the online distribution of music and peer-to-peer file sharing. But while we wait to see whether Napster survives the new injunction's proscriptions, it is worth considering the significance of the Ninth Circuit's decision with respect to copyright litigation.
Who bears the burden of proof? The Napster opinion creates doubt concerning which party bears the burden of proof with respect to affirmative defenses raised in opposition to a motion for a preliminary injunction. Ninth Circuit precedent holds that on a motion for a preliminary injunction, the plaintiff bears the burden of showing not only that it is likely to prevail on the merits of its infringement claim but also that it is likely to prevail against any affirmative defenses raised by the defendant. Surprisingly, the Napster court did not reject the plaintiffs' claim that the defendant bore the burden of showing a likelihood of success on its affirmative defenses.
Standard of review. Napster is a stern reminder of how difficult it is to overturn a district court's preliminary findings. Time and again the opinion reminds us that the district court has significant discretion in the preliminary injunction context. In the court's words, "As long as the district court got the law right, it will not be reversed simply because the appellate court would have arrived at a different result if it had applied the law to the facts of the case."
Contributory infringement. The Napster decision further develops the law concerning contributory copyright infringement in two ways. First, it articulates a standard for determining when a computer system operator is liable for contributory copyright infringement, requiring that the operator knew of specific infringing material available for copying on the system and failed to purge that material. Second, Napster addresses the proper application of the U.S. Supreme Court's holding in Sony Corp. v. Universal City Studios, Inc., that in order for VCR manufacturers to be liable for contributory infringement, they would have to have sold equipment "with constructive knowledge of the fact that their customers may use that equipment to make unauthorized copies of copyrighted material." In Sony, the Supreme Court declined to impute that knowledge to the VCR manufacturers because it found the VCR capable of substantial noninfringing uses. Therefore, the manufacturers could not have known that consumers were likely to use the VCR to infringe.
The district court in Napster held that the defendant had the constructive knowledge the VCR manufacturers lacked because the defendant failed to show that significant noninfringing uses were being made of its technology. The Ninth Circuit rejected the district court's reasoning and held that "the district court improperly confined the use analysis to current uses, ignoring the [Napster] system's capabilities." Thus, Napster stands for the proposition that in evaluating constructive knowledge of infringement with respect to new technology, the court must consider the uses of which the new technology is capable, not only those uses in practice at the time of the lawsuit.
Vicarious liability. Napster cements existing case law concerning vicarious liability and the burden on those with a duty to supervise. Quoting a 1996 Ninth Circuit case, the court found: "In the context of copyright law, vicarious 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 Ninth Circuit agreed with the district court that plaintiffs were likely to show that Napster has a direct financial interest in its users' infringement because the availability of infringing material on Napster draws customers. With respect to the "right and ability to supervise," the court held that "[t]he ability to block infringers' access to a particular environment for any reason whatsoever is evidence of the right and ability to supervise." The Ninth Circuit agreed with the district court that Napster's reservation of rights policy posted on its website showed Napster's right and ability to supervise.
Scope of injunction. The Ninth Circuit remanded the case because it found the district court's injunction overbroad. The district court 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." The Ninth Circuit ruled that Napster should be required only to eliminate infringements plaintiffs can identify. In particular, the Ninth Circuit required the district court to consider that Napster has access only to lists of files available on its system, not the actual files themselves. Therefore, Napster may be able to eliminate only files with names that correspond, at least closely, to song titles and may not be able to eliminate all infringing files.
Fair use. The copyright law requires a court to consider the following factors in determining whether use of a copyrighted work is a fair use: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use on the potential market for or value of the copyrighted work. With regard to the purpose and character of the use, the Napster court reiterated that copying a work into a different medium is not a transformative use. The court also held that a court need not find direct economic benefit in order to find a use commercial. Rather, "repeated and exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a commercial use and in fact are a commercial use when the copies are made to save the expense of purchasing authorized copies."
With respect to the effect of the use on the potential market for the work, the Ninth Circuit agreed with the district court's finding that Napster harmed the market by reducing CD purchases among college students and making it more difficult for plaintiffs to penetrate the market for digital downloading of music. The Ninth Circuit held that it was not necessary for plaintiffs to show that they were already in the market for digital downloads; it was enough that they wanted to enter the market.
The Ninth Circuit agreed with the district court's conclusion that sampling is not a fair use because it impacts adversely on record sales. Moreover, the court agreed with prior Second Circuit case law that holds that even if a use helps the copyright owner's sales, that fact does not excuse the unauthorized use.
The Ninth Circuit rejected Napster's argument that users' "space shifting" of recordings they already own from CDs to MP3 files is a fair use. The court distinguished Napster users from VCR and RIO users in that Napster users make their works available to millions of other users, not just the original CD owner.
The district court concluded that the Digital Millennium Copyright Act does not shelter contributory infringers from liability for copyright infringement. The Ninth Circuit rejected that broad conclusion, citing congressional commentary and a law review article for the proposition that the Act protects qualifying service providers from all monetary relief for direct, vicarious, and contributory copyright infringement. The court deferred ruling on whether Napster fit within the statute, choosing to wait for the record to be fully developed.
The Ninth Circuit agreed with the district court that the Audio Home Recording Act does not limit a computer system operator's liability for the downloading of MP3 files to computer hard drives. The court reiterated a prior holding that computers are not digital recording devices within the meaning of the Act and further held that computers do not make "digital music recordings" as defined by the Act.

Eric Osterberg is an associate in the New York office of Brown Raysman Millstein Felder & Steiner LLP.

This article is an abridged and edited version of one that originally appeared on page 10 of IPL Newsletter, Spring 2001 (19:3).