University of Hawaii Law Review

Summer, 2001

Casenotes

*767 NO FREE MUSIC: EFFECT OF A & M RECORDS, INC. V. NAPSTER, INC. ON THE

MUSIC INDUSTRY AND INTERNET COPYRIGHT LAW

Emily E. Larocque [FNa1]

Copyright © 2001 University of Hawai'i Law Review; Emily E. Larocque

I. Introduction

The world has gone digital. [FN1] There are digital TVs, digital phones, digital business transactions, movies and music stored digitally on DVDs and CDs, and more recently, music stored digitally on personal computers and transferred digitally via the Internet. The latter advance in the digital arena has spawned litigation between members of the music industry [FN2] and Napster, Inc. (Napster), a small Internet start-up company that allows users to share music files. [FN3] The A & M Records, Inc. v. Napster, Inc. dispute [FN4] "concerns the boundary between sharing and theft, personal use and the unauthorized worldwide distribution of copyrighted music and sound recordings." [FN5]

Because of recent advances in digital technology this dispute has come to the forefront. In the past, music files were too big to store and transfer between computers in a convenient manner because downloading a single song from the Internet for storage on a personal computer could take hours. [FN6] With *768 the advent of new data compression algorithms like MPEG-1 Audio Layer 3 (MP3), [FN7] which reduces the data size by a factor of 12 with no perceivable reduction in sound quality, [FN8] the time required to transfer songs between personal computers now takes minutes. [FN9]

With MP3-type technology, transferring what is essentially CD quality music between computers is as simple and easy as sending email. Like CDs, the format is digital, so the sound quality will not degrade with repetitive playbacks, unlike older media such as analog audiotapes. This is a great windfall for the home user who can download [FN10] her favorite music and develop personal music libraries so long as she can find it on the web. Companies like Napster have played a leading role in facilitating this activity by creating the MP3 music file sharing industry. Napster servers store library or directory-type information of the music files that other users have available for transfer, and the Napster servers and user-side Napster software facilitate the transfer of the desired music. [FN11]

Everyone is happy except the music industry and the musicians who want to get paid for their efforts in creating this music. [FN12] It is specifically these types of unauthorized uses of copyrighted material that copyright law is *769 designed to eliminate. [FN13] Copyright law protects musicians and the music industry by giving owners of works of authorship, which includes sound recordings, [FN14] the exclusive right "to reproduce the copyrighted work in copies" and "to perform the copyrighted work publicly by means of a digital audio transmission." [FN15]

This Recent Development focuses on how Napster [FN16] will affect copyright law as it relates to the Internet, specifically how the doctrines of contributory infringement, vicarious infringement, and certain defenses will be applied under the framework of the Digital Millennium Copyright Act. [FN17] Part II summarizes copyright law prior to Napster, [FN18] discussing previous decisions that define the terms contributory infringement, vicarious infringement and the defenses of fair use and the staple article of commerce doctrine. It also sets out pertinent sections of the Digital Millennium Copyright Act [FN19] that limit liability for certain Internet entities and discusses why Congress deemed these limitations necessary. Part III analyzes the Napster decisions, [FN20] and Part IV discusses the possible effect these decisions will have on copyright law, specifically whether it will enable or stifle further technological Internet advances.

*770 II. Background

A. Potential Liabilities for Internet Entities

Although the Copyright Act of 1976 [FN21] does not specifically address contributory or vicarious infringement, courts recognize that these forms of liability are accepted legal doctrines that hold one individual accountable for the actions of another. [FN22] To fill this void, courts look to the Patent Act, [FN23] which expressly defines contributory and vicarious liability as to patent infringement, and extend these liabilities to copyright infringement. [FN24] Courts have little trouble with this extension because "vicarious liability is imposed in virtually all areas of law, and the concept of contributory infringement is merely a species of the broader problem identifying the circumstances in which it is just to hold one individual accountable for the actions of another." [FN25]

1. Contributory copyright infringement

Courts apply contributory liability in copyright infringement action when it would be equitable to hold one party responsible for the actions of another. [FN26] An advantage of this form of liability to the plaintiff is that the plaintiff does not have to individually sue each of potentially thousands or millions of direct *771 infringers. [FN27] Contributory liability focuses on the third party defendant's relationship with the direct infringing activity. [FN28]

Courts find contributory copyright infringement [FN29] when one "with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another." [FN30] This requires direct infringing activity by a third party, which occurs whenever a party violates one of the copyright owner's exclusive rights. [FN31] Actual knowledge of the infringing activity is not required; it will be inferred if one has a "reason to know of the infringing nature" of the activity. [FN32] A drawback of this form of liability is that courts have not clearly or consistently defined exactly what behavior rises to the level of "inducing, causing or materially contributing to the directly infringing activity" creating uncertainty as to what behavior constitutes contributory infringement as to Internet activities. [FN33]

*772 2. Vicarious copyright infringement

Whereas contributory infringement concerns the defendant's relationship with the act of direct infringement, vicarious infringement focuses on the defendant's relationship with the person who is directly infringing. [FN34] Even though courts also look to equity under this form of liability, the circumstances in which vicarious liability will apply are slightly different from contributory infringement. [FN35] While knowledge and participation are indicative contributory infringement, [FN36] benefit and control are central to vicarious liability. [FN37]

Courts find vicarious copyright infringement [FN38] if a defendant "has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities." [FN39] The greater the degree of control the defendant has over the direct infringer, the more likely a court is to find vicarious infringement. [FN40] For example, courts often find vicarious copyright liability in the landlord-tenant relationship that exists in the operation of night clubs. [FN41] This is because landlords have a great degree of control over the operation of the night club through such devices as lease agreements. However, the level of control that courts will require for vicarious copyright infringement on the Internet remains uncertain. [FN42] In addition, claims of contributory or vicarious infringement often must withstand the affirmative defenses of fair use and staple article of commerce.

B. Potential Defenses for Internet Entities

1. Fair use

The fair use doctrine is an affirmative defense to direct infringement. [FN43] It has its roots in common law and is defined as a privilege of those other than *773 the copyright holder to use the copyrighted material in a reasonable manner without consent. [FN44] When Congress codified this common law doctrine, it stated that courts implied the author's consent to reasonable use of the copyrighted works because it was necessary to further the constitutional goal of promoting the progress of science and the useful arts. [FN45] Without the doctrine, subsequent authors and artists would have little incentive to improve prior works. [FN46]

Fair use limits the exclusive rights inuring to a copyright holder as defined in § 107 of the Copyright Act of 1976. [FN47] In a list that is meant to illustrate and not limit, [FN48] § 107 describes the works Congress intended fair use to apply, works such as "criticism, comment, news reporting, teaching . . . scholarship, and research." [FN49] Section 107 also sets forth the four factors the court must consider. [FN50] These are the purpose and character of the use, the nature of the copyrighted work, the amount and substantiality of the portion used, and the effect of the use upon the potential market for or value of the copyrighted work. [FN51] Congress intended these factors to be weighed on a case-by-case basis because of the fact intensive nature of the balancing test. [FN52]

As to the first factor of fair use, the purpose and character of the use, courts consider two aspects of the use: whether the new work is transformative [FN53] and *774 whether it is commercial in nature. [FN54] In considering the second factor of fair use, if the copy is creative in nature, courts are less apt to find fair use. [FN55] Determination by the courts of the third factor, the portion used, will not favor fair use if the "heart of the original" is taken. [FN56] When considering the fourth factor, the effect on the market, courts will not find fair use if it finds the use in question is harmful or potentially harmful, should the use become widespread. [FN57]

2. Staple article of commerce

While the fair use defense applies to direct infringing activity, the staple article of commerce doctrine applies to some activities of contributory infringement. [FN58] The staple article of commerce doctrine allows certain products that are capable of infringing uses to remain in the market. [FN59] In this context, an article of commerce is a product or commodity that may be used or sold in connection with copyrighted material. [FN60] Under this doctrine, the sale of an article of commerce does not constitute contributory infringement if the product is capable of substantial noninfringing uses. [FN61]

For example, in Sony Corp. of Am. v. Universal City Studios, Inc., the Court applied the staple article of commerce doctrine to the VCR finding that because it was a household product that could be used for both infringing and noninfringing uses, its sale could not be restricted based on a contributory infringement claim. [FN62] In the context of copyright law, courts strike a balance *775 between the copyright holder's legitimate demand for protection and the rights of others to engage in substantially unrelated areas of commerce. [FN63] Otherwise, an injunction against an infringing use of an article of commerce, might adversely affect noninfringing uses of that article. [FN64]

C. Recent Legislation Addressing Technological Advances and the Internet

In an effort to ensure that traditional copyright liabilities and defenses keep pace with the requirements of the technological advances of the Internet and digital arena, Congress passed two acts: the Digital Performance Rights in Sound Recordings Act of 1995, [FN65] and the Digital Millennium Copyright Act of 1998 (DMCA). [FN66] While the latter limits liability as to certain infringing activity, [FN67] the former ensures rights for the copyrightholder of a digital recording. [FN68]

The central aspect of the DMCA is that it limits copyright liability of providers of on-line services for certain acts of transmitting or providing access to on-line information. [FN69] This is commonly referred to as the safe harbor provision. [FN70] Its goal is to advance Internet technology by limiting liability for certain Internet entities that transmit, route, or provide connections for material that goes through or is temporarily stored on the Internet entities' equipment. [FN71] According to Senator Orrin Hatch who led efforts to pass the DMCA, its purpose is to "harmonize the copyright laws" with technological changes ensuring that digital copyright content would continue to be protected *776 while at the same time allowing the "flexibility necessary to allow the Internet technology and businesses to flourish . . . ." [FN72]

While the safe harbor provision of the DMCA limits liability for service providers, [FN73] the Digital Performance Rights in Sound Recordings Act ensures rights in digital recordings. [FN74] The Digital Performance Rights in Sound Recordings Act amended the Copyright Act "to provide an exclusive right to perform sound recordings publicly by means of digital transmissions . . . ." [FN75] Congress passed the DMCA partly in response to concerns of the music industry that digital transmissions would become a "celestial jukebox" that would replace the sale of tangible sound recordings. [FN76] It is against this backdrop of recently passed legislation affecting digital copyright that the Napster controversy arose.

III. A & M Records, Inc. v. Napster, Inc.

A. Facts

Napster is a small Internet start-up company that developed a system that allows users to share MP3 music files with others. [FN77] Napster makes its proprietary software freely available for users to download from the Napster website. [FN78] The procedure to set up a personal computer to use the Napster system involves three basic steps. [FN79] After downloading Napster's software, a user can access the Napster system from her computer. [FN80] The server-side Napster software reads the list of MP3 files [FN81] that the user has elected to share and adds these to a directory and index on the Napster server. [FN82] To locate a song, the user enters a name on the search page of the user software and clicks *777 the "Find It" button. [FN83] The server software then searches the directory that currently logged on [FN84] users have elected to share and returns a list of files that match. [FN85]

The user downloads the desired file by highlighting it on the returned list and clicking the "Get Selected Song(s)" button. [FN86] This signals the Napster server to initiate communication between the user and host computer. [FN87] At this point, the Napster server obtains the IP address [FN88] from the host and sends it to the user computer that will use the information to establish an Internet connection with the host. [FN89] Although the MP3 file is never routed directly through the Napster server, Napster servers locate the files and facilitate the transfer. [FN90] At no time in this process is payment sought or provided. [FN91]

The plaintiffs, [FN92] A & M Records, among others, are music publishers that financially depend upon the sale of sound recordings because they earn royalties from the sales. [FN93] They filed suit against Napster alleging contributory and vicarious federal copyright infringement. [FN94] Napster responded by filing a motion for summary judgment claiming its system falls within the safe harbor provision of the DMCA, 17 U.S.C § 512(a). [FN95] Alternatively, Napster *778 asserted the affirmative defenses of fair use and staple article of commerce doctrine. [FN96] The District Court for the Northern District of California first addressed the applicability of the safe harbor provision and in a following proceeding addressed the infringement claims and defenses. [FN97]

B. Applicability of the Safe Harbor Provision to Napster

Napster argued that its entire system, which Napster defined as its hardware and software that facilitated searching for, indexing and downloading files, qualified as a "service provider" [FN98] as defined in the safe harbor provision. [FN99] In the alternative, Napster asked the court to apply the safe harbor provision to its role in downloading MP3 files only. [FN100] The district court relied on a narrow reading of the safe harbor provision, 17 U.S.C. § 512(a), and the legislative history of the DMCA in finding that Napster does not meet the requirements of § 512(a). [FN101] This provision states: "[a] service provider shall not be liable . . . for infringement of copyright by reason of the provider's transmitting, routing, or providing connections for, material through a system or network controlled or operated by or for the service provider . . . ." [FN102] The court's analysis hinged on its interpretation of the individual terms "transmitting," "routing," and "providing connections" through a system. [FN103]

By relying on its narrow interpretation of the statute and Napster's own statements, [FN104] the district court determined that MP3 files were "not transmitted 'through' the system within the meaning of subsection 512(a)." [FN105] The court rejected Napster's broad interpretation of this term. [FN106] The court *779 used Napster's statements on the "passivity of its role" [FN107] as indicative that the transmission does not go through the system but between parts of the system. [FN108]

To refute Napster's contention that it "provided connections" by providing IP addresses between users, the district court again relied on § 512(a)'s legislative history. [FN109] It stated that even though Napster's servers convey address information, the connection itself occurs through the Internet, and the legislative history demonstrates that the safe harbor provision was meant to apply only to activities "in which a service provider plays the role of a 'conduit' for the communications of others." [FN110]

Although the court relied on its own interpretation of the term "routing," it similarly determined that Napster does not route [FN111] files through its system. [FN112] The court found that the route the MP3 files took was through the Internet not the Napster server. [FN113] The court went on to hold that "[b]ecause Napster does not transmit, route, or provide connections through its system, it has failed to demonstrate that it qualifies for the 512(a) safe harbor," and thus, denied summary judgment to Napster. [FN114]

On appeal, the Ninth Circuit Court of Appeals agreed with the district court that the balance of hardships tipped in the music industry's favor such that summary judgment should be denied. [FN115] However, the Ninth Circuit warned that it "need not accept a blanket conclusion that § 512 . . . will never protect secondary infringers." [FN116] Therefore, it left final determination of issue for trial where the parties would develop the facts more completely. [FN117]

*780 C. Application of Contributory and Vicarious Infringement Liability

Because Napster's motion for summary judgment was denied, the district court considered the music industry's motion to preliminarily enjoin Napster from "engaging in or assisting others in copying, downloading, uploading, transmitting, or distributing copyrighted music without the express permission of the rights owner." [FN118] This required the district court to consider whether it should hold Napster liable for contributory or vicarious copyright infringement and whether any defenses apply.

1. Contributory infringement liability and the staple article of commerce defense

As to the contributory infringement claim, the court found that the music industry satisfied its initial burden of establishing a prima facie case of direct copyright infringement by a third party. [FN119] The music industry then satisfied the "knowledge of the infringing activity" [FN120] prong of contributory infringement by advancing sufficient evidence to show that Napster had actual knowledge of the infringing activity, or at least, had reason to know about the infringing activity. [FN121]

The music industry's evidence of direct knowledge consisted of documents written by a Napster co-founder "mention[ing] the need to remain ignorant of users' real names . . . 'since they are exchanging pirated music,"' and that Napster is "pushing demand" for pirated music. [FN122] The music industry also provided evidence that it had informed Napster that its service contained more than 12,000 infringing files. [FN123] The Ninth Circuit agreed with the district court that Napster haddirect knowledge of infringement. [FN124]

*781 As evidence of constructive knowledge, [FN125] the district court accepted the following facts: Napster executives had experience in the recording industry, Napster had sufficient knowledge of intellectual property laws to sue the music group Offspring for unauthorized use of the Napster logo, and Napster promoted its website service with depictions of infringing files. [FN126]

In its defense, Napster was unable to convince the district court that the Napster service was "capable of substantial noninfringing uses" [FN127] such that the staple article of commerce doctrine advanced in Sony Corp. of Am. v. Universal City Studios, Inc. [FN128] should apply. [FN129] The district court found the potentially noninfringing use of space-shifting was not a substantial use because the "most credible explanation for the exponential growth of traffic to the website is the vast array of free MP3 files" and not the ability to space-shift. [FN130] In addition, the district court stated that Napster's service was unlike Sony's sale of the VCR because "Napster exercises ongoing control over its service[,]" whereas "'the only contact between Sony and the users of the [VCR] . . . occurred at the moment of sale."' [FN131]

The Ninth Circuit did not agree with the breadth of the district court's application of the staple article of commerce doctrine. [FN132] It did not find Sony as distinguishable as the lower court, stating that the lower court erred by ignoring the potential noninfringing uses by focusing on the current uses of the Napster system. [FN133] Based on Sony, the Ninth Circuit stated that when an article of commerce is "capable of both infringing and 'substantial noninfringing uses[,]" constructive knowledge of infringing activity will not be sufficient to *782 find contributory infringement. [FN134] It stated that "in an online context, evidence of actual knowledge of specific acts of infringement is required . . . ." [FN135]

Although the Ninth Circuit did not agree with the district court imputing the required level of knowledge based on evidence of constructive knowledge, it did agree that Napster evidenced sufficient knowledge to satisfy the "knowledge of infringing activity" prong of contributory infringement. [FN136] The Ninth Circuit based this on a finding that Napster had sufficient direct knowledge. [FN137] After agreeing with the district court that Napster satisfied the "knowledge of infringing activity" prong of contributory infringement, the court considered whether Napster's actions constituted material contribution to the infringing activity of its users. [FN138]

The district court found and the Ninth Circuit agreed that this prong was met by categorizing Napster as an "Internet swap meet" of infringing material. [FN139] The district court based this determination on a finding that the Napster fact pattern was similar to previous cases in which courts found material contribution. [FN140]

The court's characterization of Napster as an "Internet swap meet" is a reference to Fonovisa, Inc. v. Cherry Auction, Inc. [FN141] In Fonovisa, the court found that a swap meet operator knew of and materially contributed to the infringing activity of vendors selling counterfeit music recordings by providing the space for the infringers to sell the counterfeit music. [FN142] Similarly, in SEGA Enterprises Ltd v. MAPHIA, the court found an electronic bulletin board service acting as a central depository for unauthorized computer game copies materially contributed by providing software, hardware, and phone lines needed for uploading and downloading of copyrighted material. [FN143] The district court found that Napster, like the defendants in Fonovisa and MAPHIA, materially contributed by providing the software and database information essential to facilitate the downloading of copyrighted material. [FN144] After finding that the music industry demonstrated a likelihood of success as *783 to contributory infringement, the district court considered the vicarious liability claim. [FN145]

2. Vicarious copyright infringement

The district court found Napster satisfied the "right and ability to supervise the infringing activity" [FN146] prong of vicarious copyright infringement based partly on Napster's own assertions. [FN147] Napster argued that it is technologically difficult to distinguish legal from illegal conduct, while at the same time touted "its improved methods of blocking users about whom the rights holders complain[ed]." [FN148] The district court found that the latter was "tantamount to an admission that the defendant can, and sometimes does, police its service." [FN149]

The Ninth Circuit agreed that Napster "had the right and ability to police its system[,]" but determined that the district court failed to recognize the limitations of this ability. [FN150] It noted that the district court failed to recognize that Napster's ability is limited by the system's architecture, which does not read the content of the files other than to determine that they are properly formatted. [FN151] The Ninth Circuit concluded that Napster's ability to police its system is limited to terminating users' access to the system upon locating infringing material in its databases based on the file name only. [FN152]

The Ninth Circuit agreed with the district court that Napster satisfied the financial interest prong of vicarious copyright infringement. [FN153] The district *784 court found that Napster "has a direct financial interest" [FN154] in the infringing activities even though the company currently makes no money. [FN155] The future expectation of a profit rather than actual financial gain was sufficient for the court to make this determination. [FN156] In finding a reasonable likelihood of success as to vicarious infringement claim, the Ninth Circuit affirmed that "[t]he ability to download myriad popular music files without payment seems to constitute the glittering object that attracts Napster's financially-valuable user base." [FN157]

D. Napster's Defense of Fair Use

Lastly, the district court considered Napster's claim that sampling and space-shifting were fair uses. [FN158] In its analysis, the court focused predominantly on the first and fourth factors of fair use, which are the purpose and character of the use and the effect of the use on the market for the copyrighted work respectively. [FN159] As to the second factor, the nature of the copyrighted work, [FN160] the court merely stated that the original work and digital recording were similar in nature because they both constituted entertainment, cutting against a finding of fair use. [FN161] As to the third factor, the amount copied in relation to the work as a whole, [FN162] there was no dispute that the process of downloading MP3 files involves copying the entire copyrighted song. [FN163]

*785 As to the first factor, the district court found that the purpose and character [FN164] of the Napster system weighed against a finding of fair use because Napster's service is commercial in nature. [FN165] The Ninth Circuit further explained that "commercial use is demonstrated by a showing that repeated and exploitative unauthorized copies of copyrighted works were made to save the expense of purchasing authorized copies." [FN166]

The Ninth Circuit agreed with the district court that sampling and space-shifting, two activities Napster claimed were noncommercial, were both commercial in nature. [FN167] The district court's reasoning was that the music industry regulates these activities through royalties and free promotional downloads, and that Napster's free service would affect the commercial market. [FN168] Thus, it distinguished space-shifting by Napster users from time-shifting by VCR users because Napster users were able to obtain and distribute to millions worldwide, near perfect, permanent copies they otherwise would have to purchase. [FN169] It also found that space-shifting was only an occasional use of the Napster system, whereas time-shifting was the principal use of the VCR in Sony. [FN170] As to the first factor, the district court held that the global potential of Internet music file swapping, combined with the court's distaste for users getting a CD-quality product for free, militated against fair use. [FN171]

The district court also found the fourth factor, the effect on the market, [FN172] weighed against finding fair use, because the music industry produced sufficient evidence to show that Napster's service harmed the market for its songs. [FN173] The court found Napster's service harmed both the existing market and potential market for the music industry's songs. [FN174] The existing market was harmed based on evidence that Napster activities reduce sales among college students. [FN175]

*786 Even if there was an increase in sales in the existing market, the district court stated this fact would not favor Napster. [FN176] The court based this finding on its determination that the potential market was harmed because Napster's activities created barriers to the music industry's entry into the derivative [FN177] digital music downloading market. [FN178] The court found that the music industry advanced sufficient evidence of its plans to enter the downloading market of secure music using measures such as encryption and watermarking. [FN179]

Because the district court found the scales tipped against Napster on all four fair use factors, it did not have to do any balancing to find against Napster on its copyright infringement defense of fair use. [FN180] Accordingly, the district court found, and the Ninth Circuit agreed that "any potential non-infringing use of the Napster service is minimal or connected to the infringing activity or both. The substantial or commercially significant use of the service was, and continues to be, the unauthorized downloading and uploading of popular music, most of which is copyrighted." [FN181]

Since the district court found substantial evidence of contributory and vicarious infringement, and no defenses applicable, it granted the music industry's preliminary injunction against "engaging in, or facilitating others *787 in copying, downloading, uploading, transmitting, or distributing plaintiffs' copyrighted musical compositions and sound recordings[,]" which had the effect of essentially shutting the service down. [FN182]

The Ninth Circuit agreed with this preliminary injunction in concept, but on remand instructed the district court to narrow its scope to reflect the limited ability of the Napster system to detect infringing files and imposed a burden on both parties to police infringing files. [FN183] The Ninth Circuit disagreed with the district court over the level of knowledge required to find contributory liability, and level of control over the infringing activity to find vicarious liability. [FN184]

To be held liable for contributory infringement, the Ninth Circuit held that Napster must "(1) receive[] reasonable knowledge of specific infringing files with copyright musical compositions and sound recordings; (2) know[] or should know that such files are available on the Napster system; and (3) fail[] to act to prevent viral distribution of the works." [FN185] To be held liable for vicarious infringement, the Ninth Circuit held that Napster must fail "to affirmatively use its ability to patrol its system and preclude access to potentially infringing files listed in its search index." [FN186] On remand, the district court ordered Napster to prevent files from being included in the Napster index that it has "reasonable knowledge" is infringing based on information provided by the music industry [FN187] or through its own policing efforts. [FN188]

*788 IV. Effect of Napster on Copyright Law as it Applies to the Internet

The Napster litigation is one of the latest efforts of the courts to reign in and define the limits of Internet copyright law. It manifests the tension between Congress's desire to provide copyright protection while at the same time promote technological advances on the Internet. [FN189] Due to this tension, which is magnified by the Internet's unique capabilities and worldwide implications, copyright law is changing with the goal of finding the proper balance between these desires.

The establishment of high-speed, high-capacityelectronic information systems makes it possible for one individual, with a few key strokes, to deliver perfect copies of digitized works to scores of other individuals . . . . The emergence of integrated information technology is dramatically changing, and will continue to change, how people and businesses deal in and with information and entertainment products and services, and how works are created, reproduced, distributed, adapted, displayed, performed, owned, licensed, managed, presented, organized, sold, accessed, used and stored. This leads, understandably, to a call for adaptation of-or change in- the law. [FN190]

The Napster litigation is evidence of a recent trend in copyright law toward increased liability for certain Internet entities. Based on Napster, courts applying the safe harbor provision of the DMCA will narrow its scope, [FN191] resulting in increased liability for contributory and vicarious infringment. [FN192]

A. Narrowing of the Scope of Application of the Safe Harbor Provision

The Napster litigation is helping to define which Internet entities the courts will grant safe harbor. Although the purpose of the DMCA is to limit *789 liability, [FN193] courts are leaning toward narrowly construing application of the safe harbor provision. [FN194] This is evidenced by the district court's scrutiny of what communication it considers to be "through" a system. [FN195]

For the safe harbor provision to apply, it appears that the data or bits must physically travel through the service provider's hardware. [FN196] Control and facilitation of communication, like the service Napster provides, will not suffice. [FN197] This trend of increased scrutiny is further evidenced by the courts' application of copyright infringement liability for Internet entities.

B. Shift in Liability as to Contributory and Vicarious Liability

Napster and other recent case law support the claim that courts are imposing increased liability on Internet equipment manufacturers and service providers for copyright infringement. [FN198] The Napster litigation indicates that courts will apply a standard for copyright liability for Internet entities somewhere between the standard applied in Sony Corp. of Am. v. Universal City Studios, Inc., [FN199] for third party infringement, and applied in UMG Recordings, Inc. v. MP3.com, Inc. [FN200] for direct infringement.

*790 The Sony standard allows a certain amount of infringing activity [FN201] as to third party infringement because of an overriding benefit to the consumer and to industry advancement. [FN202] Courts weigh the inherent technological limitations of the device against the harm created by the infringing activity. [FN203] If the infringing activity is limited in scope of distribution and duration of use, courts are more willing to allow a certain amount of infringement based on the greater benefit achieved by the continued use of the infringing device. [FN204]

On the other end of the spectrum, when courts apply the MP3.com standard for direct infringement, they do not balance the benefit to the consumer if the device is used directly to infringe copyrighted material. [FN205] Courts have little trouble finding that even if an infringers' actions actually provide a benefit to the consumer and/or the copyright owner, the infringer is still not free "to usurp a further market that directly derives from reproduction of [a] plaintiffs' copyrighted works." [FN206] Courts will not consider the overriding benefit to the consumer. [FN207] Instead, they will be concerned only with protecting the copyrightholders' interests. [FN208]

Because both Napster and Sony concern contributory and vicarious infringement as to the use of a new technology, the courts were compelled to consider whether benefits to the consumer and industry justify the invasion of *791 the copyrightholders' rights. [FN209] However, after Napster, it is evident that courts will more carefully scrutinize the extent of the invasion of the copyrightholders' rights, and limit the weighing of consumer benefit in its analysis.

Although courts will now scrutinize third party infringing activity on the Internet to a greater degree than the Sony Court, courts will not go so far as to apply the standard of the MP3.com court. The decision of the Ninth Circuit Court of Appeals to limit the scope of the preliminary injunction of Napster users' infringing activity supports this conclusion. [FN210] Unlike MP3.com, a blanket finding of infringing activity will not suffice for courts to impose third party liability, instead there must be a sufficient level of knowledge to impose contributory liability and an ability to police the system to impose vicarious liability. [FN211] This distinction recognizes the concerns of Internet service providers in lobbying for limited liability as to infringing activity on the Internet. [FN212]

The most significant justification for the overall trend toward increased liability for Internet entities is the potential worldwide implications of Napster-like activity. [FN213] Unlike Sony, one Napster user could distribute essentially perfect copies worldwide in a matter of minutes creating significant and far reaching harmful effects. [FN214] Technology has developed significantly since Sony, and the Napster decision is evidence that copyright law is developing accordingly. Even in Sony, the Court recognized that copyright law would *792 continue to adapt as technology advances. [FN215] The strong statement made by the MP3.com court in setting its award for damages provides additional support for this rationale. [FN216] The court stated that:

[s]ome of the evidence in this case strongly suggests that some companies operating in the area of the Internet may have a misconception that, because their technology is somewhat novel, they are somehow immune from the ordinary application of the laws of the United States, including copyright law. They need to understand that the law's domain knows no such limits. [FN217]

V. Conclusion

In recent years, the Internet has transformed the manner and method that people perform personal and business transactions. [FN218] At least in the United States, nearly half of all households have access to the Internet. [FN219] It naturally follows that there will be implications as to the law, especially copyright law. Congress recognized these changes by passing the Digital Performance Rights in Sound Recordings Act of 1995 [FN220] and the DMCA in 1998. [FN221]

The courts are now beginning to interpret these acts and how they interact with traditional copyright law. Napster is one of the first cases to do so. [FN222] To *793 date, this litigation indicates that courts will scrutinize infringing activity on the Internet, while at the same time consider possible fair uses so as not to restrict the potential for technological advances via the Internet. In addition, if infringing activity is found, courts are willing to send strong messages that this activity will not be tolerated. [FN223] Future litigation will further refine Internet copyright law beyond the steps taken in Napster and MP3.com.

[FNa1]. J.D. Candidate, May 2002, William S. Richardson School of Law, University of Hawai'i.