Case Analysis Napster

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Louisiana State University, Alexandria *

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3201

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Business

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Feb 20, 2024

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Coco 1 Case Analysis of A&M Records, Inc. v. Napster, Inc. A look into Napster as a Company Back in the early 2000s, Napster, an online media sharing company was sued by A&M Records. Napster is a company that is currently, as of 2024, a streaming service for music alongside other companies such as Apple Music, Spotify, Pandora, etc (Napster, 2023). Napster, in the early 2000s as stated before, was a media sharing platform that allowed users to share mpeg3 files or MP3 files. It was illegal to do so as people were sharing files over the internet and artists and record companies held these pieces of music as intellectual property (Lamont, 2013). Napster was basically allowing people to steal property of their favorite musicians. Nowadays, since their big scandal, Napster has been through quite a lot of changes. This even went as far as a total buyout of the company only a short time after the original scandal ended (Harris, 2023). The brand was brought in and out of the public eye ever since and never actually recovered the popularity it once had during their “seismic” business venture at the start of the century (Lamont, 2013). Throughout Napster’s vital brand changes and other happenings in the 2010s, they kept a pretty steady revenue flow just until recently. According to Statista, a business statistics website, Napster’s maximum revenue collected from a global market was 208 million U.S. dollars in the year 2016 and their minimum was 106 million U.S. dollars in the year 2019 (Götting, 2021). Just until recently their revenue decided to drop an estimated 50% to just around 100 million dollars from 200 million dollars. Although it is a relatively small company with only “138 employees”, a 50% drop in revenue in only two to three years means something bad is happening within the company (Zippia, 2023). Ultimately after the big lawsuit, Napster never recovered from their mishappenings and ended up always being a lesser version of some of the music platforms that are popular today. The reason for being a lesser version of other

Coco 2 platforms is because other platforms are leading in today's market and competition has become more fierce in recent years (Sanchez, 2018). Apple Music and Spotify have become the leading brands in today’s music industry in the streaming category. What Happened with Napster? In 1999, two teenagers, Shawn Fanning and Sean Parker, created an online file sharing network program that allowed users to share files such as music, movies, and other audio based files through the internet on their computers. In the matter of not even a year, the program and company exploded (Harris, 2023). It eventually caught wind in a court case that brought the company to its knees a few years later. Many people enjoyed the freeness of Napster to download whatever you wanted; there are people that still talk about how great it was even to this day (Harris, 2023). Many different record companies and other music related companies noticed that Napster wasn’t abiding by the laws of copyright in the United States of America. Napster was illegally allowing users to download any song from any artist at the users disposal resulting in the big lawsuit over intellectual property that we now know today (Harris, 2023). The Body of the Court Case This entire case is based upon the area of the court that deals with “copyright infringement” in the form of “musical works” (Clarkson & Miller, 2021). Musical compositions are considered intellectual property and are under copyright laws that are under protection by the laws of the United States. The company that is acting as the plaintiff in this case is A&M Records. Some notable artists that were under their wing were Soundgarden, Janet Jackson, The Police, and even Sheryl Crow (Pfenninger, 2024). A&M Records claimed that Napster was in the business of “wholesale reproduction and distribution of copyrighted works” which basically means that Napster was enabling people to distribute material owned by A&M Records to users

Coco 3 illegally (Justia, 2001). This was true as users of the program could download mp3s from other Napster users online through the program supplied by Napster (Lamont, 2013). Napster countered A&M Records’ accusations with a statement that indicates that Napster’s users were under “fair use” of the content that A&M Records was making because of three possible applications; “sampling”, “space-shifting”, and “permissive distribution” by the artists themselves (Justia, 2001). Firstly, the “sampling” claim that Napster made was completely shot down by the court and A&M Records. Sampling the music refers to the taking of a “sample” by the user “in order to decide whether to purchase the recording ” (Justia, 2001 ). The court eventually came to the conclusion that A&M Records would likely “prevail in establishing that sampling does not constitute a fair use” of the recordings being downloaded (Justia, 2001). The second claim that Napster made was that users were “space-shifting” the audio itself. Space-shifting “occurs when a Napster user downloads MP3 music files in order to listen to music he already owns on audio CD” (Justia, 2001). The court of the ninth circuit, district nine’s court of appeals, also shot down the claim that Napster users were in their rights for fair use with the activity of space-shifting. The last claim that Napster made for its users was the “permissive distribution” of songs by the independent artist or other, already established artist (Justia, 2001). There were actual artists that were allowing people to spread their work throughout the Napster platform. This could have been to get the artist attention and exposure from people that never would have even found them without Napster. The court did not pursue this claim by Napster as it was considered “noninfringing” by the court (Justia, 2001). This court decision meant that it wasn’t illegal to freely spread work that you made on a platform that allowed you to do so. The court's final verdict for Napster’s claims was that the “plaintiffs will likely succeed in establishing that

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Coco 4 Napster users do not have a fair use defense” (Justia, 2001). Napster had nowhere to go as their claims of fair use were thrown out by the court and A&M Records were in the right as the court’s outcome was in their favor. The Outcome of the Court Case The court ultimately decided that Napster was not in their right to fair use. The court claimed that Napster was “secondarily liable” for their users’ direct infringement and they were labeled with participation in “contributory copyright infringement and vicarious copyright infringement” (Justia, 2001). Contributory infringement is established when “the secondary infringer ‘know [knows] or have [has] reason to know’ of direct infringement” (Justia, 2001). Napster did know that their audience of users were illegally downloading and sharing many various artists' material through their program as it was very obvious because Napster set the program up to allow it. Vicarious Infringement refers to “has [having] the right and ability to supervise the infringing activity and also has [having] a direct financial interest in such activities” (Justia, 2001). This means that, to be accused of vicarious infringement, Napster had to have direct knowledge and supervision of direct infringement and also had to have a financial investment located within the infringing activity. The court decided that Napster did indeed have “direct financial interest in the infringing activity” as the program draws in “customers” in order to get them to download copyrighted material (Justia, 2001). This tied the knot that the court claimed and ultimately got Napster in a weak spot in the end. Napster had to pay and settle with the companies and artists that were suing them.

Coco 5 Napster After the Fact The court's decision was ultimately to release a preliminary injunction onto Napster. A preliminary injunction is, in Napster’s case, was not to cease operations of their business but was to “remand” the case and require Napster to prove they could monitor their users activities (Justia, 2001). Remanding the case means that the case would go through another trial to come up with another conclusion. Eventually though, Napster had to cease operations because they were unable to comply with the eventual conclusion of the remand case. Although they were forced to shut down, this wasn’t the end of the Napster brand (Harris, 2023). Firstly, Napster was set to be liquidated to a media company by the name of “Roxio”. They acquired Napster for “$5.3 million in cash” to gain access to Napster’s brand, portfolio and trademarks (Harris, 2023). The next deal that was struck was with Best Buy. Napster was bought by them for “$121 million” (Harris, 2023). Another brand deal that was mentioned earlier in this text was the deal with Best Buy and Rhapsody. Rhapsody acquired Napster through Best Buy and never actually got into the United States until recently (Harris, 2023). Napster has since been on the market as a standard streaming service. Writer’s Perspective This topic is near and dear to my heart as it is a topic that covers music. I am a musician myself so I know how it feels if I were to not get compensated for work that I have created. Artists should definitely not just let people pirate their music for free under a random company that allows them to. Artists and record companies should be allowed to express and advertise their creations without the fear of someone stealing their intellectual property.

Coco 6 People aren’t as reluctant to take the law of copyright and intellectual property as seriously as other laws because they see it as a borderline free thing in life. Music is heard everywhere you go throughout the country and any form of video or audio can become a victim of someone stealing it because of ignorance to copyright laws set in place by the government. Although I do agree with copyright laws like the ones in this case, I believe that sometimes the laws go a little overboard in what they allow and don’t allow. I personally think that the courts did an excellent job with kickstarting the shutdown of the Napster. Allowing Napster to get their side of the story out inside the courtroom helped a lot with making sure everyone was on the same page (Justia, 2001). Determining if Napster was allowed to use the infringement material under a “fair use” law was vital in the eventual outcome in the case that basically changed the music industry in a very big way (Clarkson & Miller, 2021). Although the users of Napster were doing the actual direct copyright infringing, Napster should and did get punished for their role in conducting “contributory copyright infringement” (Justia, 2001). I think Napster was justly punished as the company knew exactly what their users were doing under their supervision and they were profiting on it. Conclusion In the end, what Napster did was wrong. Everything that happened in the music industry not only with A&M Records but with most artists and record companies should have never happened. Napster knew it was illegal to allow users to distribute copyrighted material and only chose to confront this in court. Although this hurt everyone involved, it was ultimately for the better of the industry. Napster and A&M records’ case made history within today's world.

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Coco 7 References Clarkson, K. W., & Miller, R. L. (2021). Business law: Text and cases . Cengage. Götting, M. C. (2021, June 7). Napster Revenue Worldwide 2019 . Statista. https://www.statista.com/statistics/1100594/napster-revenue-worldwide/ Harris, M. (2023, February 16). A short history of Napster . Lifewire. https://www.lifewire.com/history-of-napster-2438592 Justia US Law. (2001, February 12). A&M Records, inc. v. Napster, Inc., 239 f.3d 1004 (9th cir. 2001) . Justia Law. https://law.justia.com/cases/federal/appellate-courts/F3/239/1004/636120/ Lamont, T. (2013, February 24). Napster: The day the music was set free . The Guardian. https://www.theguardian.com/music/2013/feb/24/napster-music-free-file-sharing Napster. (2023, December 22). Napster: Music from every angle . https://www.napster.com/us Pfenninger, L. J. (2024). On A&M Records: Headliners . On A&M Records. https://www.onamrecords.com/#:~:text=Known%20as%20the%20artist %2Dfriendly,Sheryl%20Crow%20and%20many%20others. Sanchez, D. (2018, August 22). Napster proves that streaming music can be profitable . Digital Music News. https://www.digitalmusicnews.com/2018/08/21/realnetworks-napster- profitable/ Zippia. (2023, August 22). Working At Napster . https://www.zippia.com/napster-careers-47050/#

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Case Analysis Napster

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