Many online music fans reflect on July 26, 2000, as the day the music almost died. On that day a U.S. court ruled that Napster, the file-sharing phenomenon that took the world by storm, was engaged in copyright infringement and should be shut down. While the service survived for nearly 18 months longer, that initial decision clearly marked the beginning of the end for Napster.
Since the conclusion of the Napster battle, the recording industry has sought both business and legal solutions to the online music issue.
On the business side, new fee-based subscription alternatives have been introduced, though none has proven to be particularly popular. On the legal front, the next generation of file sharing services, including Kazaa, Morpheus, and Grokster, have been hit with lawsuits premised on legal arguments similar to those used in the Napster litigation.
The last week of April, 2003, is also likely to be well-remembered — as the next stage in the evolution of online music. In one week's time, Apple Computer introduced a new, fee-based music service that instantly seemed to render the competition obsolete, while two U.S. court decisions foreshadowed a shift away from suing music services toward suing music swappers.
On the business front, Apple Computer entered the digital music business with a bang, offering up a fee-based service as unique as some of its hardware offerings. Unlike its stodgy competitors, Apple's digital music service allows for individual music downloads competitively priced at 99 cents (U.S.) per track, free 30-second samples of any track, and a substantial 200,000-song library. Most importantly, it treats its users like customers, rather than criminals, by establishing only limited restrictions on making additional copies of purchased tracks.
The Apple initiative is likely to shake up the fee-based digital music business by pitting the subscription model against the individual song approach. The latter is likely to win out as users are certain to gravitate to a service that offers more choice, fewer restrictions, and better value.
Recent legal developments are even more dramatic. In a shocking decision, on April 25 a California court dismissed a recording industry suit against Morpheus and Grokster, ruling that the companies were not liable for copyright infringements that took place using their software. The court focused on the fundamental differences between the centralized peer-to-peer file sharing system used by Napster and the decentralized model used by Morpheus and Grokster. While Napster controlled the single database identifying all songs available on its system, Morpheus and Grokster lend themselves to virtually no central control.
Napster's centralized model therefore led to a finding of contributory copyright infringement, while the court was unwilling to reach a similar conclusion for Morpheus and Grokster. Moreover, harkening back to the famed U.S. Supreme Court case examining the legality of Sony's Betamax machine, the court added that the companies are "not significantly different from companies that sell home video recorders or copy machines."
Although the recording industry has vowed to appeal, there are two principles at the heart of the decision that are likely to survive. First, courts are increasingly willing to "look under the hood" by examining the technologies that underlie a particular dispute. In this case, the court was unwilling to simply treat all file sharing as the same. Since today's file sharing software adopts the decentralized model, pinning copyright liability on a service that exerts little or no control over its users will be a tall order.
Second, while the court's decision points liability away from file sharing services, it does not leave the file sharers themselves in the clear. In fact, the outcome of the case suggests that the recording industry may now turn its attention with renewed vigour toward the actual individuals who engage in file sharing, since a finding of copyright infringement is much easier to obtain in those cases.
That approach would be consistent with the second important decision rendered in late April. At that time a court gave the go-ahead for the Recording Industry Association of America to force Verizon, a leading U.S. Internet service provider, to reveal the identities of several of its subscribers accused of copyright infringement. Verizon, which has vowed to appeal, cited privacy concerns in seeking to preserve the confidentiality of its subscribers, but the court ruled that the RIAA request was consistent with U.S. digital copyright legislation.
These most recent online music activities suggest that, for better or worse, music consumers will be at centre stage in the next round of business and legal developments. The recording industry is likely to emulate Apple Computer by providing alternatives that do a better job of responding to consumer interests and purchasing habits, but at the same time it is also virtually certain to target the most active file sharers with aggressive lawsuits.
