Napster's request for rehearing denied
( 2001-06-26 11:38) (7)
A federal appeals court handed Napster yet another legal defeat Monday by rejecting its request for a chance to challenge the crippling injunction won by the music industry against its song-swapping service.
Barring an appeal to the Supreme Court, Napster now faces a full trial in the record industry's copyright infringement suit against it, which legal experts say could result in damages large enough to put it out business as an independent entity.
"This decision puts to rest any questions that Napster has raised regarding the earlier decision and affirms the rights of copyrighted holders on the Internet," said Cary Sherman, senior vice president and general counsel for the Recording Industry Association of America (RIAA).
Napster said it was disappointed with the ruling and was reviewing its legal options as the case moves to a full trial.
Napster first requested the rehearing after a three-judge panel for the US Court of Appeals for the Ninth Circuit ruled that it was infringing on copyrights and that an injunction, ordered earlier by US District Court Judge Marilyn Hall Patel, was not only warranted but required.
Napster's response was to request a rehearing either before the original panel or a broader 11-judge panel of the appeals court, saying that the injunction against the company was too broad and violated its rights to free speech.
The recording industry had sought the injunction to bar Napster from offering its songs on the service while a full copyright infringement case proceeded in court.
A date for that trial has not been set, although the injunction, which has been in force since March, has already succeeded in curtailing activity on Napster.
"We recognized going in that rehearing petitions are infrequently granted. That is especially so at this stage of the case, where no trial has yet been held in the underlying case," said Jonathan Schwartz, general counsel for Napster.
"We will now review our legal options going forward," he said, adding the company will continue to comply with the injunction.
Pinning hopes on new service
Schwartz said Napster also believes the launch of a new secure membership service later this summer will put to rest many of the record industry's outstanding legal issues.
Analysts said Napster could face millions, or even billions, of dollars in damages if the record labels win the case at trial.
"Napster's next option is to just let it go to a full trial and take its chances there or to appeal to the US Supreme Court on the injunction," said Ric Dube, an analyst with Webnoize.
The world's biggest record labels -- including Vivendi Universal's Universal Music, Sony Music, Aol Time Warner's Warner Music, EMI Group Plc, and Bertelsmann AG's BMG -- first sued Napster in December 1999, claiming it was a haven for copyright piracy that would cost them billions of dollars in lost music sales.
According to research firm Webnoize, the average number of files shared by a user on Napster fell from 220 in February to just 21 by the end of May. WebNoize also estimated that just 360 million files were traded through the service in May, versus 2.79 billion in February.
Meanwhile, Napster released Friday a new version of its software that allows users to find many songs that were inadvertently being blocked as a result of the injunction.
A spokesman said the latest version should enable people to trade songs by independent or other artists that are not required to be blocked under the terms of the injunction.
Napster also got a shot in the arm earlier this month when it clinched a licensing deal with MusicNet -- a joint music subscription service between RealNetworks Inc and three big labels -- BMG, EMI, and AOL Time Warner. Under that deal, Napster will be able to carry these labels' music once it launches a new version that pays royalties.
But Dube said if the recording labels win the case at trial, they can hold Napster for significant damages, which are likely to exceed the value of the company.
"The major companies can come out of this owning Napster," he said.
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