Napster’s future tough to label

Although Napster is now working with Bertelsmann, the owner of major record label BMG, its ability to deliver a service that protects copyright holders could determine the course of litigation with the recording industry. Both Napster and members of the Recording Industry Association of America continue to develop new distribution strategies while waiting for the Ninth Circuit Court of Appeals to determine whether the file-trading service should be shut down.
Last week Bertelsmann announced it would lend Napster an undisclosed sum in exchange for a promise that the file-trading company would develop a service that would generate revenue for artists and publishers. Napster’s CEO said the agreement is proof that their service had non-infringing uses, but the RIAA reiterated that it would continue to press forward with its lawsuit. “Today’s announcement does not bring an end to the court case,” RIAA CEO Hilary Rosen said in a statement. “There are multiple plaintiffs in addition to BMG, and BMG itself has said that it won’t withdraw its complaint against Napster until they actually implement a legitimate business model.”
Opinion varies as to the whether the newly formed alliance will aide Napster in its court case. One observer familiar with copyright law says it won’t. “This is basically the same service as it was before; it’s still file sharing,” said an attorney, Fred von Lohmann. “As long as users are able to upload whatever the want in an insecure format, I don’t think there is a fundamental change in the service.”
Bertelsmann executives stressed the alliance would serve to develop a new, file-trading network, while Napster’s team claimed that the service would in fact be an expansion of the current file-trading application. The ideas are subtly different, but the difference could become important as the court case moves towards its conclusion. “It doesn’t seem like they are 100 percent in synch,” said Whitney Broussard, an entertainment lawyer in New York. “Hank Barry (Napster CEO) seems to be saying the new system is going to be staying as the same service, and Strauss Zelnick (BMG President) is saying this is going to be the death of the old Napster with a new, copyright-friendly Napster phoenix rising from the ashes.”
In a memo circulated to BMG employees, Zelnick stressed that the parent company was building a new service with Napster. “Under the terms of the agreement, BeCG (Bertelsmann e-commerce group) will fund the development of a new service that compensates our artists while maintaining the integrity of the Napster community,” Zelnick said in the letter. “Once the new business is implemented and the existing service discontinued, BMG will license its catalogue and withdraw its lawsuit against Napster.”
In their press conference, Bertelsmann executives stressed that the alliance would work towards developing a new service that would build on the principles of Napster’s architecture while adding security and payment methods. “We developed a new business model... for distribution in the future,” said Andreas Schmidt, CEO of Bertelsmann’s e-commerce group. “Once that is developed, we’ll drop the lawsuit and provide our catalogue. ... That’s why (Napster creator) Shawn (Fanning) has to get back to California and get to coding.”
Barry and Napster defense lawyer David Boies used a different tack while describing the new venture, saying it would be an enhanced version of the old application with added layers that would include a membership level. “Our arguments don’t change,” Boies said. “In a sense, this is further conformation for our arguments in the court of appeals, which is that there are a lot of non-infringing uses out there.” “I think our position from the beginning (has been) that there is no infringement,” Boies said. “Nevertheless, the company has said it wants to form these alliances, including the support the major record labes can give Napster.”
Von Lohmann, for one, doesn’t buy Boies’ argument. “Bertelsmann has said that they are giving a license, and permission, to Napster,” von Lohmann said. “As long as the other labels don’t get permission, then this lawsuit continues to move forward.” But the deal might help slow down the attacks that Napster has faced from the recording industry. “One could only imagine that it is going to be harder to go for Napster’s throat because Bertelsmann is on both sides of this, like Sony filing the amicus brief,” Broussard said.

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