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Napster Prepares Defense, Weighs New Biz Models
LOS ANGELES (Reuters) - As Napster Inc. prepares its defense in a legal battle that threatens to shut down its popular music-sharing service, the company says it is seeking ways to coexist with the record labels it is now fighting.

"We're trying to find a structure that works with everybody and respects copyrights," Napster CEO Hank Barry said in an interview Friday. "We're talking with independent labels, artists and everyone who can add a voice. We're eager to work with all constituencies interested in the Napster community."

San Mateo, Calif.-based Napster's software lets fans swap songs by trading MP3 files, a compression format that turns music on compact discs into small computer files.

Barry declined comment on rumors that Napster was holding settlement talks with the record industry, although sources close to the situation said the reports were overblown.

"There may be some discussions going on, but we intend to go to court on July 26," said Amy Weiss, a spokeswoman for the Recording Industry Association of America (RIAA).

The RIAA -- representing Seagram Co. Ltd.'s Universal Music, Bertelsmann AG's BMG, Sony Corp.'s Sony Music and Time Warner Inc.'s Warner Music Group, which is merging with EMI Group Plc EMI Music -- sued Napster in December, charging it was a haven for online music piracy.

On June 13, the trade group filed a motion for a preliminary injunction against Napster and the case will be heard in U.S. District Court in San Francisco on July 26.

Barry said Napster's lawyers, including David Boies, lead attorney for the Justice Department in the Microsoft antitrust case, were working hard to prepare court briefs due by Napster on July 3.

While Barry said Napster was open to discussing new business models with the music industry, the two sides remained far apart on whether its software helps or hurts record sales.

A part of Napster's defense has included the argument that it is merely a technology company and not responsible for what its users do online. It is, however, required by law to bar users if a copyright holder claims they are infringing by using its services. Napster has already barred users identified by heavy metal band Metallica in a separate lawsuit.

In this phase of the litigation, Barry said the question becomes whether one-to-one noncommercial file sharing by Napster users is an infringement.

"If these users are not infringing, we're not liable. There's a whole lineage of cases where law is applied to new technology and this is a case like that," he said.

The RIAA's Weiss said Napster "seems to have a different legal strategy every day. They went from a defense with no basis in fact to a defense with no basis in law."

"They seem to have a brand new legal strategy and are saying wholesale piracy on an exponential level is legal, which is laughable," she said.

The RIAA has cited an industry survey that found declines in CD sales near college campuses since 1997, But another survey released this week by the Norman Lear Center at the University of Southern California Annenberg School for Communication found use of Napster had not harmed CD sales.

"Napster has to navigate the thin waters between the legal issues that could shut it down and the expectations of their users," said Charles Hamlin, president of online market research firm InsightExpress. "They don't want to be seen by their community as caving into the record industry," he said.

"The trend is moving away from traditional music stores and the more the music industry tries to prevent software-sharing communities, the more popular they're becoming," he said.

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