Napster raises antitrust issues

By Ron Harris
Associated Press

SAN FRANCISCO — Napster Inc. found a sliver of legal daylight Wednesday, raising issues of collusion and antitrust in federal court as the recording industry's copyright infringement suit crept forward.

What began as a hearing to consider the recording industry's request for summary judgment quickly derailed into a discussion about the possibility of an anticompetitive structure behind MusicNet, the joint venture of Seattle-based RealNetworks and record labels BMG, Warner and EMI. That online music service is scheduled to launch later this year.

U.S. District Judge Marilyn Hall Patel did not rule on the summary judgment request, instead taking it under submission. She did, however, launch into a vigorous discussion about the workings of MusicNet and how that newly formed business overlapped with the individual labels' suit against Napster.

Patel said MusicNet appeared to have the hallmarks of an anticompetitive business enterprise that "looks bad, sounds bad and smells bad."

Napster's attorney argued to the court that an agreement reached earlier this year between MusicNet and Napster contained a provision unfairly giving MusicNet the right to terminate the contract if Napster sought agreements with other labels.

Patel seemed equally perplexed about the provision. She told recording industry attorney Russell Frackman she saw MusicNet as an attempt by some of his client labels to tap into the growing online music market collectively and "shroud it in some mysterious sort of joint venture."

Napster attorney Celia Barenholtz argued the recording industry may have misused its copyright music as a byproduct of the formation of MusicNet and pressplay, the online venture of the Sony and Universal labels. Napster wants additional information on the formation of those two businesses for possible antitrust law violations, as it may form the basis for a new legal defense.

If the recording industry was found to have misused its copyright material, it might not be able to successfully pursue an infringement claim on those works.

Barenholtz argued the industry's misuse comes into play as the major labels pool their power in the formation of MusicNet and pressplay, and set price controls to limit the marketplace, leaving Napster with few choices, other than to sign agreements with industry leaders.

To support its contention that the recording industry has set up an anticompetitive operation, Napster submitted a declaration from Roger Noll, a Stanford professor and expert in the economics of antitrust and intellectual property.

Noll examined the business structure of the recording industry and found it to have ventured into the territory of antitrust in forming MusicNet and pressplay.

"To summarize, the joint ventures in digital distribution inherently have an anticompetitive effect on prices. Moreover, the power of these joint ventures is directly derived from the exercise of copyrights in recordings," Noll wrote in his declaration.

On the issue of copyright ownership — claimed by the recording industry, but challenged by Napster — Patel seemed convinced that the plaintiffs' simple applications to the U.S. Copyright Office would lead to a determination that the labels owned the material.

However, she left a final determination on copyright ownership open to further inquiry and said she may appoint a special master to examine all documentation, including artist contracts, before making a final ruling.