Judge: If You Own Music, Prove It

["Charles Brown" <CharlesB@xxxxxxxxxxxxxxxxxxxxx>]

Judge: If You Own Music, Prove It

By Brad King
Feb. 22, 2002 PST
<http://www.wired.com/news/mp3/0,1285,50625-2,00.html>

In a stunning turnaround, a district court judge ruled
Friday that the five major record labels must prove
they own thousands of music copyrights. And prove those
copyrights weren't used to monopolize and stifle the
distribution of digital music.

The ruling is the latest wrangling in the music
industry's copyright infringement case against Napster,
the file-trading service that at one time boasted 80
million users sharing billions of songs a month.

For two years, Napster lawyers had been beaten back by
9th District Court Judge Marilyn Hall Patel, who last
year issued a temporary injunction forcing the company
to shut down its popular service.

On Friday, the tide dramatically shifted. Patel, who
called both sides "dirty," said that Napster's
misguided attempts to build a business using illegally
obtained music paled in comparison to what could be
massive misuse and heavy-handed tactics by the
recording industry.

If the labels can't prove ownership of the copyrights,
they can't ask the courts for damages for copyright
infringement. That may not mean Napster is in the
clear. It depends on how the court rules on ownership
of songs. For instance, if the artists retain ownership
it would be up to those artists to make a deal with, or
sue, companies like Napster.

"Despite Napster's unclean hands, any balancing of
equities must account for the fact that the Napster
service is no longer functioning and thereby not
infringing," Patel said in her written ruling. "When it
became apparent to Napster that it could not comply
with this court's injunction, it disabled the ability
of its users to share music files.

"In contrast, (the record labels') allegedly
inequitable conduct is currently ongoing and the extent
of the prospective harm is massive. If Napster is
correct, plaintiffs are attempting the near
monopolization of the digital distribution market. The
resulting injury affects both Napster and the public
interest."

Patel gave the record labels three weeks to produce
documentation to a "special master" who will advise her
on copyright laws.

Napster's defense team was understandably happy with
Patel's decision, but didn't rule out the possibility
that the two sides would work out a settlement that
allows the company to launch its legal service.

"We are pleased the court granted Napster's request to
put before the Court two critical issues: the record
companies' ownership of artists' copyrights and
anticompetitive behavior that amounts to misuse of
their copyrights," said Jon Schwartz, Napster's general
counsel.

"We will continue to pursue those issues as we continue
amicable settlement and licensing discussions that will
benefit consumers and rights holders alike."

The crux of Napster's copyright ownership argument
revolves around a strange clause in copyright law
called "works-for-hire," which essentially determines
who owns the songs and albums. Any work of art -- in
this case, music -- commissioned or created by an
employee of a company becomes the property of that
business. For example, reporters who work for
newspapers don't own their stories.

Musicians are in a gray area. Since they sign contracts
and don't draw a base salary, it's unclear if they are
freelancers who retain ownership or employees who
forfeit their rights.

The Recording Industry Association of America, the
music industry's trade organization, hoped to avoid
this kind of confusion when it successfully lobbied to
change the law in 1999.

Later, a clause preventing copyrights from reverting to
their authors was inserted into unrelated legislation.
By adding four words -- "as a sound recording" -- deep
within the Satellite Home Viewer Improvement Act of
1999, Congress essentially changed the work-for-hire
section of the copyright code.

The language adds sound recordings to the categories of
artists' work deemed work for hire, and therefore not
subject to the stipulation that copyrights return to
the artist 35 years after first granted. Musicians wereincensed at this change and after protracted
negotiations, Congress agreed to remove the clause.

Since that language was removed, other companies have
unsuccessfully made these same challenges, most notably
MP3.com, the digital locker service. So far, none had
received merit from the courts.

Patel saved her harshest words for the claim that the
recording industry used its ownership of music
copyrights to control digital music distribution. While
dozens of online music companies folded over the last
two years, the major record labels were building their
own services, MusicNet and PressPlay.

"(The record labels) hotly dispute this allegation and
noted at oral argument that both MusicNet and PressPlay
were designed with numerous protections (none of which
are in the record) to avoid implicating antitrust
concerns," said Patel. "The current record on the
licensing practices of these joint ventures and their
operations is negligible.

"However, even a naif must realize that in forming and
operating a joint venture, plaintiffs' representatives
must necessarily meet and discuss pricing and
licensing, raising the specter of possible antitrust
violations."

Napster lawyers have alleged the record industry
withheld their copyrights from digital music services
until three of the major labels could launch MusicNet.
Once that service was launched, just days after Napster
was shut down, company could only obtain wildly
restrictive licenses to sell music.

Patel said proving copyright misuse was difficult, but
added the recording industry's licensing terms appeared
suspect. "MusicNet did not suddenly appear full blown
from the head of a fictitious entity. The evidence
suggests that plaintiffs formed a joint venture to
distribute digital music and simultaneously refused to
enter into individual licenses with competitors,
effectively requiring competitors to use MusicNet as
their source for digital licensing."

Both sides will meet on March 27 to set a date for
hearings on misuse.