Last week's federal appeals court decision that online file-swapping service Napster is violating copyright law clears the way for copyright holders to put their works online, experts said.
"This certainly will give impetus to [the studios offering movies online]," said Steven Metalitz, partner at the Washington law firm of Smith Metalitz. "This decision will enhance the environment so it can happen more quickly. This will make it much more feasible than it would have been prior to this decision."
Studios are developing technology that will allow them to download movies to customers' computers. For a fee, users will be able to download and watch movies, like The Matrix
or Erin Brockovich, on their PC. Once it is watched, the copy will be erased so that users will not be able to send perfect digital copies to their friends and neighbors.
"The biggest beneficiary from today's decision will be the consumer because it will encourage content owners to put their creative works online knowing that the courts have confirmed what everybody knows: You cannot take for free what belongs to someone else," said Motion Picture Association of America President Jack Valenti. "The fruits of this ruling will be seen in the film industry within six months as studios start to put movies online and offer consumers an exciting new high-quality and legal opportunity to choose what they want to watch."
Last week's decision by the Ninth Circuit Court of Appeals, in San Francisco, ultimately will shut down Napster as the free service its fans have grown to know and use. The court ruled that, although Napster's technology itself does not violate copyrights, the people who run Napster know its capabilities and could prevent infringement by keeping copyrighted material off the service. The court didn't go so far as to enjoin Napster, sending the decision back down to a federal district court for further polishing.
All is not lost for Napster, however. It is now a front-runner in the new online music-subscription business. To continue operating, it will have to strike agreements with record companies, which hold copyrights to the music Napster wants its subscribers to share. This is not necessarily a bad deal for Napster. With a little (or a lot of) capital from new partner Bertelsmann and license deals with record labels, Napster could become a real pay-subscription service.
What's more, it's unlikely that Napster could have made money with its existing model. Creating technology that allows subscribers to obtain and swap copyrighted music without a charge is great for consumers but does nothing financially for the company, other than give it valuable exposure and brand awareness.
"What would Napster gain if [it] won the case? The right for people to get this for nothing. But then what's their business? This can only be a business if they charge money for it," said Kevin Baine, a partner with the Washington law firm of Williams & Connolly, who represented the MPAA and others filing briefs supporting the recording industry.
So while Napster spent some 14 months battling the record companies in court, it got those same 14 months for people to get familiar with Napster, to get addicted to it, to become-perhaps-willing to pay eight or ten bucks a month for it. At least, that's Bertelsmann's bet.
"Today's decision is another step in the process of accommodating the legitimate rights of the copyright holders and the important interests of Napster users," Bertelsmann said in a statement. "Bertelsmann is committed to implementing a win-win strategy-one that secures and compensates the rights of artists, copyright holders and the music industry, while also enabling Napster to provide music lovers with a first-class file-sharing system. That is why Bertelsmann made the deal with Napster in the first place and why we will redouble our efforts to reach a mutually satisfactory solution."
One alternative Napster has is to ask for some legislative relief from Congress, although it's unclear what form that might take. The company already has one important ally on Capitol Hill: Senate Judiciary Committee Chairman Orrin Hatch (R-Utah), who repeatedly has said publicly that, as a songwriter himself, he supports Napster in theory. "I do not think it is any benefit for artists or fans to have all the new, wide-distribution channels in the online world controlled by those who have controlled the old, narrower ones," Hatch told Georgetown University students last month at a forum sponsored by the pro-Napster Coalition for the Future of Music.
Napster has hired Manus Cooney, until recently, one of Hatch's top committee aides, to lobby for it. But the recording industry also has girded for battle, and, although Cooney has great connections, he's just one against an oncoming army.
Led by one-time presidential candidate Bob Dole, an army of lobbyists hired by the Recording Industry Association of America (RIAA) includes Chuck Cooper, a partner at Washington law firm Cooper Carvin & Rosenthal and a member of President George W. Bush's legal team in Florida; Kenneth Geller, attorney at Washington law firm Mayer, Brown & Platt and former deputy solicitor general for President Ronald Reagan; Robert Rabin, former assistant attorney general in the Clinton administration; Jonathan Yarowsky, a lobbyist with Washington law firm Patton Boggs and former special associate counsel to President Clinton; and former Reps. Vin Weber (R-Minn.) and Vic Fazio (D-Calif.), both of whom now lobby at Washington law firm Clark & Weinstock.
The legal front also remains open. Napster attorney David Boies, known for representing both the government in the Microsoft antitrust suit and Al Gore in the Florida election recount, can continue appealing court rulings all the way to the Supreme Court, which could take years.