A&M RECORDS, INC., a corporation; GEFFEN RECORDS, INC.,
a corporation; INTERSCOPE RECORDS; SONY MUSIC ENTERTAINMENT, INC.; MCA RECORDS,
INC.; ATLANTIC RECORDING CORP.; ISLAND RECORDS, INC.; MOTOWN RECORD CO.;
CAPITOL RECORDS, INC., Plaintiffs-Appellees, v.
NAPSTER, INC., Defendant-Appellant. JERRY LEIBER, individually and doing business as, JERRY
LEIBER MUSIC; MIKE STOLLER and FRANK MUSIC CORP., on behalf of themselves and
all others similarly situated, Plaintiffs-Appellees, v.
NAPSTER, INC., Defendant-Appellant.
No. 00-16401, No. 00-16403
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
2001 U.S. App. LEXIS 5446
October 2, 2000, Argued and Submitted, San Francisco, California
February 12, 2001, Filed
SUBSEQUENT HISTORY:
[*1] As Amended April 3, 2001.
PRIOR HISTORY: Appeals from the United States District Court for the Northern District of
California. D.C. No. CV-99-05183-MHP. D.C. No. CV-00-00074-MHP. Marilyn Hall
Patel, Chief District Judge, Presiding.
Original Opinion Previously Reported at:
2001 U.S. App. LEXIS 1941.
DISPOSITION: AFFIRMED IN PART, REVERSED IN PART AND REMANDED.
COUNSEL: David Boies, Jonathan Schiller and Robert Silver, Boies, Schiller
& Flexner, Armonk, New York, Laurence F. Pulgram, David L. Hayes, Daniel
Johnson, Jr. and Darryl M. Woo, Fenwick
& West, Palo Alto, California, for the defendant-appellant.
Russell J. Frackman, George M. Borkowski, Jeffrey D. Goldman, Roy L. Shults and
Peter B. Gelblum, Mitchell, Silberberg
& Knupp, Los Angeles, California; Carey R. Ramos, Paul, Weiss, Rifkind, Wharton
& Garrison, New York, New York, for the plaintiffs-appellees.
Hannah Bentley, San Anselmo, California, for amicus Casanova Records.
Andrew P. Bridges, Wilson, Sonsini, Goodrich
& Rosati, Palo Alto, California, for amicus Digital Media Association.
Scott E. Bain, Wiley, Rein
& Fielding, Washington, D.C.,
for amici Ad Hoc Copyright Coalition; Commercial
[*2] Internet Exchange; Computer
& Communications Industry Association; Information Technology Association of
America; Net-coalition.com; United States Internet Industry Association, and
United States Telecommunications Association.
Scott R. McIntosh, Civil Division, Department of Justice, Washington, D. C.,
for amicus United States.
Ann Brick, San Francisco, California, for amici American Civil Liberties Union
and the American Civil Liberties Union of Northern California.
Judith B. Jennison, Perkins Coie, San Francisco, California, for amicus Scour,
Inc.
Ralph Oman, Dechert, Price
& Rhoads, Washington, D.C., as amicus. Christopher Tayback, Quinn, Emanuel,
Urquhart, Oliver
& Hedges, Los Angeles, California, for amicus National Academy of Recording Arts
& Sciences.
E. Edward Bruce,
Covington
& Burling, Washington, D.C., for amicus Business Software Alliance.
Kevin T. Baine, Williams
& Connolly, Washington, D.C., for amici Motion Picture Association of America,
Inc., Software
& Information Industry Association, American Film Marketing Association,
Association of American Publishers, American Society of Media Photographers,
Professional Photographers Association,
[*3] Graphic Artists Guild, Interactive Digital Software Association, American
Society of Composers, Authors and Publishers, Broadcast Music, Inc., Producers
Guild of America, Directors Guild of America, Inc., Writers Guild of America,
West, Inc., American Federation of Musicians of the United States and Canada,
Reed Elsevier, Inc., American Federation of Television and Radio Artists,
Office of the Commissioner of Baseball, Songwriters Guild of America, and
AmSong, Inc.; Joel M. Litvin, New York, New York, for amicus National
Basketball Association.
Salvatore A. Romano, Seyfarth, Shaw, Washington, D.C., for amici National
Association of Recording Merchandisers, Inc. and Video Software Dealers
Association.
Erwin Chemerinsky, University of Southern California School of Law, Los
Angeles, California, for amicus Law Professors Erwin Chemerinsky, Kenneth L.
Karst, Steven Shiffrin, Rodney A. Smolla and Marcy Strauss.
Barry I. Slotnick, Richards
& O'Neil, New York, New York, for amicus Association for Independent Music.
Morton David Goldberg, Cowan, Liebowitz
& Latman, New York, New York, for amici Alliance Entertainment Corp., Audible
Inc., Blue Spike, Inc., The Clandestine
[*4] Group, Inc., Digimarc Corporation, Digital Media on Demand, Inc., Full-Audio
Corporation, InterTrust Technologies Corporation, Oak Technology, Inc.,
Reciprocal,
Inc., RioPort, Inc., RPK SecureMedia Inc., Verance Corporation, and VNU USA,
Inc.
Richie T. Thomas, Squire, Sanders
& Dempsey, Washington, D.C., for amici Consumer Electronics Association, Digital
Future Coalition, and Computer
& Communications Industry Association.
Karen B. Tripp, Houston, Texas, for amici Association of American Physicians
& Surgeons, Inc. and Eagle Forum Education and Legal Defense Fund.
Professor Jessica Litman, Wayne State University Law School, Detroit, Michigan;
Professor Keith Aoki, University of Oregon School of Law; Professor Ann Bartow,
University of South Carolina School of Law; Professor Dan Burk, University of
Minnesota; Professor Julie Cohen, Georgetown University School of Law;
Professors Christine Haight Farley and Peter Jaszi, Washington College of Law,
American University; Professor Lydia Pallas
Loren, Lewis and Clark College Northwestern School of Law; Professor Pamela
Samuelson, Boalt Hall School of Law, University of California Berkeley;
Professor Shubha Ghosh, University
[*5] at Buffalo, SUNY; Professors Paul J. Heald, Allen Post Professor of Law, L.
Ray Patterson, Pope Brock Professor of Law, and Laura N. Gasaway, University of
Georgia School of Law; Professor Michael Madison, University of Pittsburgh
School of Law; Professor Ruth Okediji, University of Oklahoma Law School;
Alfred C. Yen, Associate Dean for Academic Affairs and Professor of Law, Boston
College Law School; Professor Diane Zimmerman, New York University School of
Law, and Professor Dennis Karjala, Arizona State University College of Law, for
amicus Copyright Law Professors.
JUDGES: Before: Mary M. Schroeder, Chief Judge, Robert R. Beezer and Richard A. Paez,
Circuit Judges. Opinion by Judge Beezer.
OPINIONBY: Robert R.
Beezer
OPINION:
ORDER
The Opinion filed February 12, 2001 in this appeal is amended as follows:
Slip opinion at 2196, lines 4-6-delete the see generally citation to
"Copyright Infringement Issues on the Internet" and insert:
"see generally 3 Melville B. Nimmer
& David Nimmer, Nimmer On Copyright
§§ 12.04[A][2]
& [A][2][b] (2000) (confining Sony to
contributory
infringement analysis:
"Contributory
infringement itself is of two types -- personal conduct
[*6] that forms part of or furthers the
infringement and contribution of machinery or goods that provide the means to infringe")."
Slip opinion at 2203, first full paragraph, lines 1-2-insert
"not" between
"Napster argues that the district court erred in" and
"finding that ..."
Slip opinion at 2204, last paragraph, line 5-delete"
911 F.2d 970 at 976-77" and insert
"
911 F.2d at 976-77"
AMENDED OPINION
BEEZER, Circuit Judge:
Plaintiffs are engaged in the commercial
recording, distribution and sale of
copyrighted
musical compositions and sound
recordings. The complaint alleges that Napster, Inc. ("Napster") is a
contributory and
vicarious copyright
infringer. On July 26, 2000, the district court granted plaintiffs' motion for a
preliminary injunction. The
injunction was slightly modified by written opinion on August 10, 2000.
A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000). The district court preliminarily enjoined Napster
"from engaging in, or facilitating others in
copying,
downloading, uploading, transmitting, or distributing plaintiffs'
copyrighted
musical compositions and sound
recordings, protected by either
[*7] federal or state law, without express permission of the rights owner."
Id. at 927. Federal Rule of Civil Procedure 65(c) requires successful plaintiffs to post a
bond for damages incurred by the enjoined party in the event that the
injunction was wrongfully issued. The district court set bond in this case at $ 5 million.
We entered a temporary stay of the
preliminary injunction pending resolution of this appeal. We have jurisdiction pursuant to
28 U.S.C. § 1292(a)(1). We affirm in part, reverse in part and remand.
I
We have examined the papers submitted in support of and in response to the
injunction application and it appears that Napster has designed and operates a system
which permits the transmission and retention of sound
recordings employing
digital technology.
In 1987, the Moving Picture Experts Group set a standard file
format for the storage of
audio
recordings in a
digital
format called
MPEG-3, abbreviated as
"MP3."
Digital MP3 files are created through a process colloquially called" ripping." Ripping
software allows a computer owner to copy an
audio compact disk ("audio CD") directly onto a computer's hard
drive by compressing
[*8] the
audio information on the CD into the MP3
format. The MP3's compressed
format allows for rapid transmission of
digital
audio files from one computer to another by electronic mail or any other file
transfer protocol.
Napster facilitates the transmission of MP3 files between and among its
users. Through a process commonly called
"peer-to-peer" file sharing, Napster allows its
users to: (1) make MP3
music files stored on individual computer hard
drives available for
copying by other Napster
users; (2) search for MP3
music files stored on other
users' computers; and (3) transfer exact copies of the contents of other
users' MP3 files from one computer to another via the Internet. These functions are
made possible by Napster's MusicShare
software, available free of charge from Napster's Internet site, and Napster's network
servers and server-side
software. Napster provides technical support for the indexing and searching of MP3
files, as well as for its other functions, including a
"chat room," where
users can meet to discuss
music, and a directory where participating artists can provide information about
their
music.
A. Accessing the System
In order to copy MP3 files through the Napster
[*9] system, a
user must first access Napster's Internet site and
download n1 the MusicShare
software to his individual computer. See http://www.Napster.com.
Once the
software is installed, the
user can access the Napster system. A first-time
user is required to register with the Napster system by creating a
"user name" and password.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n1
"To
download means to receive information, typically a file, from another computer to yours
via your modem .... The opposite term is upload, which means to send a file to
another computer."
United States v. Mohrbacher, 182 F.3d 1041, 1048 (9th Cir. 1999) (quoting Robin Williams, Jargon, An Informal Dictionary of Computer Terms
170-71 (1993)).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
B. Listing Available Files
If a registered
user wants to list available files stored in his computer's hard
drive on Napster for others to access, he must first create a
"user library" directory on his computer's hard
drive. The
user then saves his MP3 files in the library directory, using self-designated file
names.
[*10] He next must log into the Napster system using his
user name and password. His MusicShare
software then searches his
user library and verifies that the available files are properly formatted. If in
the correct MP3
format, the names of the MP3 files will be uploaded from the
user's computer to the Napster
servers. The content of the MP3 files remains stored in the
user's computer.
Once uploaded to the Napster
servers, the
user's MP3 file names are stored in a server-side
"library" under the
user's name and become part of a
"collective directory
"of files available for transfer during the time the
user is logged onto the Napster system. The collective directory is fluid; it
tracks
users who are connected in real time, displaying only file names that are
immediately accessible.
C. Searching For Available Files
Napster allows a
user to locate other
users' MP3 files in two ways: through Napster's search function and through its
"hotlist" function.
Software located on the Napster
servers maintains a" search index" of Napster's collective directory. To search the files available from Napster
users currently connected to the net-work
servers, the individual
user accesses a form in the
[*11] MusicShare
software stored in his computer and enters either the name of a
song or an artist as the object of the search. The form is then transmitted to a
Napster
server and automatically compared to the MP3 file names listed in the
server's search index. Napster's
server compiles a list of all MP3 file names pulled from the search index which
include the same search terms entered on the search form and transmits the list
to the searching
user. The Napster
server does not search the contents of any MP3 file; rather, the search is limited to
"a text search of the file names indexed in a particular cluster. Those file
names may contain typographical errors or otherwise inaccurate descriptions of
the content of the files since they are designated by other
users."
Napster, 114 F. Supp. 2d at 906.
To use the
"hotlist" function, the Napster
user creates a list of other
users' names from whom he has obtained MP3 files in the past. When logged onto
Napster's
servers, the system alerts the
user if any
user on his list (a
"hotlisted
user") is also logged onto the system. If so, the
user can access an index of all MP3 file names in a particular hotlisted
user's library and
[*12] request a file in the library by selecting the file name. The contents of the
hotlisted
user's MP3 file are not
stored on the Napster system.
D. Transferring Copies of an MP3 file
To transfer a copy of the contents of a requested MP3 file, the Napster
server
software obtains the Internet address of the requesting
user and the Internet address of the" host
user" (the
user with the available files). See generally
Brookfield Communications, Inc. v. West Coast Entm't Corp., 174 F.3d 1036, 1044 (9th Cir. 1999) (describing, in detail, the structure of the Internet). The Napster
servers then communicate the host
user's Internet address to the requesting
user. The requesting
user's computer uses this information to establish a connection with the host
user and
downloads a copy of the contents of the MP3 file from one computer to the other over the
Internet,
"peer-to-peer." A downloaded MP3 file can be played directly from the
user's hard
drive using Napster's Music-Share
program or other
software. The file may also be transferred back onto an
audio CD if the
user has access to equipment designed for that purpose. In both cases, the quality
of the original sound
recording
[*13] is slightly diminished by transfer to the MP3
format.
This architecture is described in some detail to promote an understanding of
transmission mechanics as opposed to the content of the transmissions. The
content is the subject of our
copyright infringement analysis.
II
We review a grant or denial of a
preliminary injunction for abuse of discretion.
Gorbach v. Reno, 219 F.3d 1087, 1091 (9th Cir. 2000) (en banc). Application of erroneous legal principles represents an abuse of
discretion by the district court.
Rucker v. Davis, 237 F.3d 1113, 2001 WL 55724, at *4 (9th Cir. 2001) (en banc). If the district court is claimed to have
relied on an erroneous legal
premise in reaching its decision to grant or deny a
preliminary injunction, we will review the underlying issue of law de novo. Id. at *4 (citing Does 1-5
v. Chandler,
83 F.3d 1150, 1152 (9th Cir. 1996)).
On review, we are required to determine,
"whether the court employed the appropriate legal standards governing the
issuance of a
preliminary injunction and whether the district court correctly apprehended the law with respect to
the underlying issues in the case.
[*14]
" Id.
"As long as the district court got the law right, 'it will not be reversed
simply because the appellate court would have arrived at a different result if
it had applied the law to the facts of the case. '"
Gregorio T. v. Wilson, 59 F.3d 1002, 1004 (9th Cir. 1995) (quoting
Sports Form, Inc. v. United Press, Int'l, 686 F.2d 750, 752 (9th Cir. 1982)).
Preliminary injunctive relief is available to a party who demonstrates either:
(1) a combination of probable success on the merits and the possibility of
irreparable harm; or (2) that serious questions are raised and the balance of
hardships tips in its favor.
Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 874 (9th Cir. 2000)." These two formulations represent two points on a sliding scale in which the
required degree of irreparable harm increases as the probability of success
decreases." Id.
III
Plaintiffs claim Napster
users are engaged in the wholesale reproduction and distribution of
copyrighted works, all constituting direct
infringement. n2 The district court agreed. We note that the district court's conclusion
that plaintiffs have presented
[*15] a prima facie case of direct
infringement by Napster
users is not presently
appealed by Napster. We only need briefly address the threshold requirements.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n2 Secondary liability for
copyright infringement does not exist in the absence of direct
infringement by a third party.
Religious Tech. Ctr. v. Netcom On-Line Communication Servs., Inc., 907 F. Supp. 1361, 1371 (N.D. Cal. 1995) ("There can be no
contributory
infringement by a defendant without direct
infringement by another."). It follows that Napster does not facilitate
infringement of the copyright laws in the absence of direct
infringement by its
users.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
A.
Infringement
Plaintiffs must satisfy two requirements to present a prima facie case of
direct
infringement: (1) they must show ownership of the allegedly infringed material and (2) they
must demonstrate that the alleged
infringers violate at least one exclusive
right granted to copyright
holders under
17 U.S.C. § 106. See
17 U.S.C. § 501
[*16] (a) (infringement occurs when alleged
infringer engages in activity listed in
§ 106); see also
Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th Cir. 1987); see, e.g.,
S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1085 n.3 (9th Cir. 1989) ("The word 'copying' is shorthand for the
infringing of any of the copyright owner's five exclusive rights ...."). Plaintiffs have sufficiently demonstrated ownership. The record supports the
district court's determination that
"as much as eighty-seven percent of the files available on Napster may be
copyrighted and more than seventy percent may be owned or administered by plaintiffs."
Napster, 114 F. Supp. 2d at 911.
The district court further
determined that plaintiffs' exclusive rights under
§ 106 were violated:" here the evidence establishes that a majority of Napster
users use the service to
download and upload
copyrighted
music. ... And by doing that, it constitutes--the uses constitute direct
infringement of plaintiffs'
musical compositions,
recordings." A&M Records,
Inc. v. Napster, Inc., Nos. 99-5183, 00-0074, 2000 WL 1009483, at *1 (N. D. Cal. July 26, 2000) (transcript
[*17] of proceedings). The district court also noted that
"it is pretty much acknowledged ... by Napster that this is
infringement." Id. We agree that plaintiffs have shown that Napster
users infringe at least two of the copyright
holders' exclusive rights: the rights of reproduction,
§ 106(1); and distribution, 4229
§ 106(3). Napster
users who upload file names to the search index for others to copy violate
plaintiffs' distribution rights.
Napster
users who
download files containing
copyrighted
music violate plaintiffs' reproduction rights.
Napster asserts an affirmative defense to the charge that its
users directly infringe plaintiffs'
copyrighted
musical compositions and sound
recordings.
B.
Fair Use
Napster contends that its
users do not directly infringe plaintiffs' copyrights because the
users are engaged in
fair use of the material. See
17 U.S.C. § 107 ("The
fair use of a
copyrighted work ... is not an
infringement of copyright."). Napster identifies three specific alleged fair uses:
sampling, where
users make temporary copies of a work before purchasing;
space-shifting, where
users access a sound
recording through the Napster system that they already
[*18] own in
audio CD
format; and permissive distribution of
recordings by both new and established artists.
The district court considered factors listed
in
17 U.S.C. § 107, which guide a court's
fair use determination. These factors are: (1) the purpose and character of the use;
(2) the nature of the
copyrighted work; (3) the
"amount and substantiality of the portion used" in relation to the work as a whole; and (4) the effect of the use upon the
potential market for the work or the value of the work. See
17 U.S.C. § 107. The district court first conducted a general analysis of Napster system uses
under
§ 107, and then applied its reasoning to the alleged fair uses identified by
Napster. The district court concluded that Napster
users are not fair
users. n3 We agree. We first address the court's overall
fair use analysis.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n3 Napster asserts that because plaintiffs seek injunctive relief, they have
the burden of showing a likelihood that they would prevail against any
affirmative defenses raised
by Napster, including its
fair use defense under
17 U.S.C. § 107. See
Atari Games Corp. v. Nintendo, 975 F.2d 832, 837 (Fed. Cir. 1992) (following Ninth Circuit law, and stating that plaintiff must show likelihood
of success on prima facie
copyright infringement case and likelihood that it would overcome copyright misuse defense); see also
Dr. Seuss Enters. v. Penguin Book USA, 924 F. Supp. 1559, 1562 (S.D. Cal. 1996) ("The plaintiff's burden of showing a likelihood of success on the merits
includes the burden of showing a likelihood that it would prevail against any
affirmative defenses raised by the defendant."), aff'd,
109 F.3d 1394 (9th Cir. 1997);
Religious Tech. Ctr. v. Netcom On-Line Communication Servs., 923 F. Supp. 1231, 1242 n.12 (1995) (same); 2 William W. Schwarzer et al., California Practice Guide, Federal
Civil Procedure Before Trial P13: 47 (2000) (advising that when a
preliminary injunction is sought
"plaintiff must demonstrate a likelihood of prevailing on any affirmative
defense as well as on plaintiff's case in chief"). But see
Fair Use of
Copyrighted Works, H.R. Rep. 102-836 n.3 (criticizing a Northern District of New York case
in which
"the district court erroneously held that where the copyright owner seeks a
preliminary injunction, the copyright owner bears the burden of disproving the [fair use] defense"); see also 1 William F. Patry, Copyright Law
& Practice, 725, 725 n.27 (1994) (citing cases placing burden on defendant at
preliminary injunction stage).
The district
court stated that
"defendant bears the burden of proving ... affirmative defenses."
Napster, 114 F. Supp. 2d at 912. Plaintiffs assert that the district court did not err in placing the burden on
Napster. We conclude that even if plaintiffs bear the burden of establishing
that they would likely prevail against Napster's affirmative defenses at the
preliminary injunction stage, the record supports the district court's conclusion that Napster
users do not engage in
fair use of the
copyrighted materials.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[*19]
1. Purpose and Character of the Use
This factor focuses on whether the new work merely replaces the object of the
original creation or instead adds a further purpose or different character. In
other words, this factor asks
"whether and to what extent the new work is 'transformative. '"See
Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579, 127 L. Ed. 2d 500, 114 S. Ct. 1164 (1994).
The district court first concluded that
downloading MP3 files does not transform the
copyrighted work.
Napster, 114 F. Supp. 2d at 912. This conclusion is supportable. Courts have been reluctant to find
fair use when an original work is merely retransmitted in a different medium. See,
e.g.,
Infinity Broadcast Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir. 1994) (concluding that retransmission of radio broadcast over telephone lines is not
transformative);
UMG Recordings, Inc. v. MP3. com, Inc., 92 F. Supp. 2d 349, 351 (S.D.N.Y.) (finding that reproduction of
audio CD into MP3
format does not
"transform" the work), certification denied,
2000 U.S. Dist. LEXIS 7439, 2000 WL 710056 (S.D.N.Y. June 1, 2000) ("Defendant's
copyright infringement
[*20] was
clear, and the mere fact that it was clothed in the exotic webbing of the
Internet does not disguise its illegality.").
This
"purpose and character
"element also requires the district court to determine whether the allegedly
infringing use is commercial or noncommercial. See
Campbell, 510 U.S. at 584-85. A
commercial use weighs against a finding of
fair use but is not conclusive on the issue. Id. The district court determined that
Napster
users engage in
commercial use of the
copyrighted materials largely because (1)
"a host
user sending a file cannot be said to engage in a personal use when distributing
that file to an anonymous requester
"and (2)
"Napster
users get for free something they would ordinarily have to buy."
Napster, 114 F. Supp. 2d at 912. The district court's findings are not clearly erroneous.
Direct economic benefit is not required to demonstrate a
commercial use. Rather, repeated and exploitative
copying of
copyrighted works, even if the copies are not offered for sale, may constitute a
commercial use. See
Worldwide Church of God v. Philadelphia Church of God, 227 F.3d 1110, 1118 (9th Cir. 2000) (stating
[*21] that church that copied religious text for its members
"unquestionably profited" from the unauthorized
"distribution and use of [the text] without having to account to the copyright
holder");
American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 922 (2d Cir. 1994) (finding that researchers at for-profit laboratory gained indirect economic
advantage by photocopying
copyrighted scholarly articles). In the record before us,
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. See
Worldwide Church, 227 F.3d at 1117-18;
Sega Enters. Ltd. v. MAPHIA, 857 F. Supp. 679, 687 (N.D. Cal. 1994) (finding
commercial use when individuals downloaded copies of video games
"to avoid having to buy video game cartridges"); see also
American Geophysical, 60 F.3d at 922. Plaintiffs made such a showing before the district court. n4
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n4 Napster counters that even if certain
users engage in
commercial use by
downloading instead of purchasing the
music,
space-shifting and
sampling are nevertheless noncommercial in nature. We address this contention in our
discussion of these specific uses, infra.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[*22]
We also note that the definition of a financially motivated transaction for the
purposes of criminal copyright actions includes trading
infringing copies of a work for
other items,
"including the receipt of other
copyrighted works." See No Electronic Theft Act ("NET Act"), Pub. L. No. 105-147,
18 U.S.C. § 101 (defining
"Financial Gain").
2. The Nature of the Use
Works that are creative in nature are
"closer to the core of intended copyright protection" than are more fact-based works. See
Campbell, 510 U.S. at 586. The district court determined that plaintiffs'
"copyrighted
musical compositions and sound
recordings are creative in nature ... which cuts against a finding of
fair use under the second factor."
Napster, 114 F. Supp. 2d at 913. We find no error in the district court's conclusion.
3. The Portion Used
"While 'wholesale
copying does not preclude
fair use per se, 'copying an entire work 'militates against a finding of
fair use.'"
Worldwide Church, 227 F.3d at 1118 (quoting
Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1155 (9th Cir. 1986)). The district court
[*23] determined that Napster
users engage in
"wholesale
copying" of
copyrighted work because file transfer necessarily
"involves
copying the entirety of the
copyrighted work."
Napster, 114 F. Supp. 2d at 913. We agree. We note, however, that under certain circumstances, a court will
conclude that a use is fair even when the protected work is copied in its
entirety. See, e.g.,
Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 449-50, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984) (acknowledging that
fair use of time-shifting necessarily involved making a full
copy of a protected work).
4. Effect of Use on Market
"Fair use, when properly applied, is limited to
copying by others which does not materially impair the marketability of the work which
is copied."
Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566-67, 85 L. Ed. 2d 588, 105 S. Ct. 2218 (1985)."The importance of this [fourth] factor will vary, not only with the amount of
harm, but also with the relative strength of the showing on the other factors."
Campbell, 510 U.S. at 591 n.21. The proof required to demonstrate present or future market
[*24] harm varies with the purpose and character of the use:
A challenge to a noncommercial use of a copy-righted work requires proof either
that the particular use is harmful, or that if it should become wide-spread, it
would adversely affect the potential market for the
copyrighted
work. ... If the intended use is for commercial gain, that likelihood [of
market harm] may be presumed. But if it is for a noncommercial purpose, the
likelihood must be demonstrated.
Sony, 464 U.S. at 451 (emphases added).
Addressing this factor, the district court concluded that Napster harms the
market in
"at least" two ways: it reduces
audio CD sales among college students and it
"raises barriers to plaintiffs' entry into the market for the
digital
downloading of
music."
Napster, 114 F. Supp. 2d at 913. The district court relied on evidence plaintiffs submitted to show that
Napster use harms the market for their
copyrighted
musical compositions and sound
recordings. In a separate memorandum and order regarding the parties' objections to the
expert reports, the district court examined each report, finding some more
appropriate and probative than others.
[*25]
A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896, 2000 WL 1170106 (N.D. Cal. 2000). Notably, plaintiffs' expert, Dr. E. Deborah Jay, conducted a survey (the
"Jay Report") using a random sample of college and university students to track their
reasons for using Napster and the impact Napster had on their
music purchases. Id. at *2. The court recognized that the Jay Report focused on just
one segment of the Napster
user population and found
"evidence of lost sales attributable to college use to be probative of
irreparable harm for purposes of the
preliminary injunction motion."
114 F. Supp. 2d at 923, Id. at *3.
Plaintiffs also offered a study conducted by Michael Fine, Chief Executive
Officer of Soundscan, (the
"Fine Report") to determine the effect of online sharing of MP3 files in order to show
irreparable harm. Fine found that online file sharing had resulted in a loss of
"album" sales within college markets. After reviewing defendant's objections to the
Fine Report and expressing some concerns regarding the methodology and
findings, the district court refused to exclude the Fine Report insofar as
plaintiffs offered it to show irreparable harm. Id. at *6.
[*26]
Plaintiffs' expert Dr. David J. Teece studied several issues ("Teece Report"), including whether plaintiffs had suffered or were likely to suffer harm in
their existing and planned businesses due to Napster use. Id. Napster objected
that the report had not undergone peer review. The district court noted that
such reports generally are not subject to such scrutiny and overruled
defendant's objections. Id.
As for defendant's experts, plaintiffs objected to the report of Dr. Peter S.
Fader, in which the expert concluded that Napster is beneficial to the
music industry because MP3
music file-sharing stimulates more
audio CD sales than it displaces. Id. at *7. The district court found problems in
Dr. Fader's minimal role in overseeing the administration of the survey and the
lack of objective data in his report. The court decided the generality of the
report rendered it
"of dubious reliability and value." The court did not exclude the report, however, but chose
"not to rely on Fader's findings in determining the issues of
fair use and irreparable harm."
114 F. Supp. 2d at 912, Id. at *8.
The district court cited both the Jay and Fine Reports in support of its
finding that Napster use harms
[*27] the market for plaintiffs'
copyrighted
musical compositions and sound
recordings by reducing CD sales among college students. The district court cited the
Teece Report to show the harm Napster
use caused in raising barriers to plaintiffs' entry into the market for
digital
downloading of
music.
Napster, 114 F. Supp. 2d at 910. The district court's careful consideration of defendant's objections to these
reports and decision to rely on the reports for specific issues demonstrates a
proper exercise of discretion in addition to a correct application of the
fair use doctrine. Defendant has failed to show any basis for disturbing the district
court's findings.
We, therefore, conclude that the district court made sound findings related to
Napster's deleterious effect on the present and future
digital
download market. Moreover, lack of harm to an established market cannot deprive the
copyright
holder of the right to develop alternative markets for the works. See
L.A. Times v. Free Republic, 2000 U.S. Dist. LEXIS 5669, 54 U.S.P.Q.2D (BNA) 1453, 1469-71 (C.D. Cal. 2000) (stating that online market for plaintiff newspapers' articles was harmed
because plaintiffs
[*28] demonstrated that
"[defendants] are attempting to exploit the market for viewing their articles
online"); see also
UMG Recordings, 92 F. Supp. 2d at 352 (" Any allegedly positive impact of defendant's activities on plaintiffs' prior
market in no way frees defendant to usurp a further market that directly
derives from reproduction of the plaintiffs'
copyrighted works."). Here, similar to L.A. Times and UMG
Recordings, the record supports the district court's finding that the
"record company plaintiffs have already expended considerable funds and effort
to commence Internet sales and licensing for
digital
downloads."
114 F. Supp. 2d at 915. Having
digital
downloads available for free on the Napster system necessarily harms the copyright
holders' attempts to charge for the same
downloads.
Judge
Patel did not abuse her discretion in reaching the above
fair use conclusions, nor were the findings of fact with respect to
fair use considerations clearly erroneous. We next address Napster's identified uses of
sampling and
space-shifting.
5. Identified Uses
Napster maintains that its identified uses of
sampling and
space-shifting were wrongly excluded
[*29] as fair uses by the district court.
a.
Sampling
Napster contends that its
users
download MP3 files to
"sample" the
music in order to decide whether to purchase the
recording. Napster argues that the district court: (1) erred in concluding that
sampling is a
commercial use because it conflated a noncommercial use with a personal use; (2) erred in
determining that
sampling adversely affects the market for plaintiffs'
copyrighted
music, a requirement if the use is non-commercial; and (3) erroneously concluded that
sampling is not a
fair use because it determined that samplers may also engage in other
infringing activity.
The district court determined that
sampling remains a
commercial use even if some
users eventually purchase the
music. We find no error in the district court's determination. Plaintiffs have
established that they are likely to succeed in proving that even authorized
temporary
downloading of individual
songs for
sampling purposes is commercial in nature. See
Napster, 114 F. Supp. 2d at 913. The record supports a finding that free promotional
downloads are highly regulated by the record company plaintiffs and that the companies
collect
royalties for
[*30]
song samples available on retail Internet sites. Id. Evidence relied on by the
district court demonstrates that the free
downloads provided by the record companies consist of thirty-to-sixty second samples or
are full
songs programmed to
"time
out," that is, exist only for a short time on the downloader's computer.
Id. at 913-14. In comparison, Napster
users
download a full, free and permanent copy of the
recording.
Id. at 914-15. The determination by the district court as to the commercial purpose and
character of
sampling is not clearly erroneous.
The district court further found that both the market for
audio CDs and market for online distribution are adversely affected by Napster's
service. As stated in our discussion of the district court's general
fair use analysis: the court did not abuse its discretion when it found that, overall,
Napster has an adverse impact on the
audio CD and
digital
download markets. Contrary to Napster's assertion that the district court failed to
specifically address the market impact of
sampling, the district court determined that
"even if the type of
sampling supposedly done on Napster were a non-commercial use,
[*31] plaintiffs have demonstrated a substantial likelihood that it would adversely
affect the potential market for their copy-righted works if it became
widespread."
Napster, 114 F. Supp. 2d at 914. The record supports the district court's preliminary determinations that: (1)
the more
music that
sampling
users
download, the less likely they are to eventually purchase the
recordings on
audio CD; and (2) even if the
audio CD market is not harmed, Napster has adverse effects on the developing
digital
download market.
Napster further argues that the district court erred in rejecting its evidence
that the
users'
downloading of" samples" increases or tends to increase
audio CD sales. The district court, however, correctly noted that
"any potential enhancement of plaintiffs' sales ... would not tip the
fair use analysis conclusively in favor of defendant."
Id. at 914. We agree that increased sales of
copyrighted material attributable to unauthorized
use should not deprive the copyright
holder of the right to license the material. See
Campbell, 510 U.S. at 591 n.21 ("Even favorable evidence, without more, is no guarantee of fairness. Judge Leval
[*32] gives the example of the film producer's appropriation of a composer's
previously unknown
song that turns the
song into a commercial success; the boon to the
song does not make the film's simple
copying fair."); see also
L.A. Times, 54 U.S.P.Q.2D (BNA) at 1471-72. Nor does positive impact in one market, here the
audio CD market, deprive the copyright
holder of the right to develop identified alternative markets, here the
digital
download market. See
114 F. Supp. 2d at 1469-71.
We find no error in the district court's factual findings or abuse of
discretion in the court's conclusion that plaintiffs will likely prevail
in establishing that
sampling does not constitute a
fair use.
b.
Space-Shifting
Napster also maintains that
space-shifting is a
fair use.
Space-shifting occurs when a Napster
user
downloads MP3
music files in order to listen to
music he already owns on
audio CD. See id. at 915-16. Napster asserts that we have already held that
space-shifting of
musical compositions and sound
recordings is a
fair use. See
Recording Indus. Ass'n of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1079 (9th Cir. 1999) ("Rio [a portable MP3 player] merely
[*33] makes copies in order to render portable, or 'space-shift, 'those files that
already reside on a
user's hard
drive. ... Such
copying is a paradigmatic noncommercial personal use."). See also generally
Sony, 464 U.S. at 423 (holding that" time-shifting," where a video tape recorder owner records a television show for later viewing,
is a
fair use).
We conclude that the district court did not err when it refused to apply the
"shifting" analyses of Sony and Diamond. Both Diamond and Sony are inapposite because the
methods of shifting in these cases did not also simultaneously involve
distribution of the
copyrighted material to the general public; the time or
space-shifting of
copyrighted material exposed the material only to the original
user. In Diamond, for example, the
copyrighted
music was transferred from the
user's computer hard
drive to the
user's portable MP3 player. So too Sony, where
"the majority of VCR purchasers ... did not distribute taped television
broadcasts, but merely enjoyed them at home."
Napster, 114 F. Supp. 2d at 913. Conversely, it is obvious that once a
user lists a copy of
music he already owns on the
[*34] Napster system in order to access the
music from another location, the
song becomes
"available to millions of other individuals," not just the original CD owner. See
UMG Recordings, 92 F. Supp. 2d at 351-52 (finding spaceshifting of MP3 files not a
fair use even when previous ownership is demonstrated before a
download is allowed); cf.
Religious Tech. Ctr. v. Lerma, 1996 U.S. Dist. LEXIS 15454,
No. 95-1107 A, 1996 WL 633131, at *6 (E. D. Va. Oct. 4, 1996) (suggesting that storing
copyrighted material on computer disk for later review is not a
fair use).
c. Other Uses
Permissive reproduction by either independent or established artists is the
final
fair use claim made
by Napster. The district court noted that plaintiffs did not seek to enjoin
this and any other noninfringing use of the Napster system, including: chat
rooms, message boards and Napster's New Artist Program.
Napster, 114 F. Supp. 2d at 917. Plaintiffs do not challenge these uses on appeal.
We find no error in the district court's determination that plaintiffs will
likely succeed in establishing that Napster
users do not have a
fair use defense. Accordingly, we next address whether Napster is secondarily
[*35] liable for the direct
infringement under two doctrines of copyright law:
contributory
copyright infringement and
vicarious
copyright infringement.
IV
We first address plaintiffs' claim that Napster is liable for
contributory
copyright infringement. Traditionally,
"one who, with knowledge of the
infringing activity, induces, causes or materially contributes to the
infringing conduct of another, may be held liable as
a 'contributory'
infringer."
Gershwin Publ'g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971); see also
Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir. 1996). Put differently, liability exists if the defendant engages in
"personal conduct that encourages or assists the
infringement."
Matthew Bender & Co. v. West Publ'g Co., 158 F.3d 693, 706 (2d Cir. 1998).
The district court determined that plaintiffs in all likelihood would establish
Napster's liability as a
contributory
infringer. The district court did not err; Napster, by its conduct, knowingly encourages
and assists the
infringement of plaintiffs' copyrights.
A. Knowledge
Contributory liability requires that the secondary
[*36]
infringer
"know or have reason to know" of direct
infringement. Cable/
Home Communication Corp. Network Prods., Inc., 902 F.2d 829, 845 & 846 n. 29 (11th Cir. 1990);
Religious Tech. Ctr. v. Netcom On-Line Communication Servs., Inc., 907 F. Supp. 1361, 1373-74 (N. D. Cal. 1995) (framing issue as" whether Netcom knew or should have known of" the
infringing activities). The district court found that Napster had both actual and
constructive knowledge that its
users exchanged
copyrighted
music. The district court also concluded that the law does not require knowledge of
"specific acts of
infringement" and rejected Napster's contention that because the company cannot distinguish
infringing from noninfringing files, it does not
"know" of the direct
infringement.
114 F. Supp. 2d at 917.
It is apparent from the record that Napster has knowledge, both actual and
constructive, n5 of direct
infringement. Napster claims that it is nevertheless protected from
contributory liability by the teaching of
Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984). We disagree. We observe that Napster's
[*37] actual, specific knowledge of direct
infringement renders Sony's holding of limited assistance to Napster. We are compelled to
make a clear distinction between the architecture of the Napster system and
Napster's conduct in relation to the operational capacity of the system.
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n5 The district court found actual knowledge because: (1) a document authored
by Napster co-founder Sean Parker mentioned" the need to remain ignorant of
users' real names and IP addresses 'since they are exchanging pirated
music'"; and (2) the
Recording Industry Association of America ("RIAA") informed Napster of more than 12,000
infringing files, some of which are still available.
114 F. Supp. 2d at 918. The district
court found constructive knowledge because: (a) Napster executives have
recording industry experience; (b) they have enforced intellectual property rights in
other instances; (c) Napster executives have downloaded copy-righted
songs from the system; and (d) they have promoted the site with
"screen shots listing
infringing files."
Id. at 919.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[*38]
The Sony Court refused to hold the manufacturer and retailers of video tape
recorders liable for
contributory
infringement despite evidence that such machines could be and were used to infringe
plaintiffs'
copyrighted television shows. Sony stated that if liability
"is to be imposed on petitioners in this case, it must rest on the fact that
they have sold equipment with constructive knowledge of the fact that their
customers may use that equipment to make unauthorized copies of copy-righted
material." Id. at 439 (emphasis added). The Sony Court declined to impute the requisite
level of knowledge where the defendants made and sold equipment
capable of both
infringing and
"substantial noninfringing uses." Id. at 442 (adopting a modified
"staple article of commerce" doctrine from patent law). See also
Universal City Studios, Inc. v. Sony Corp., 480 F. Supp. 429, 459 (C. D. Cal. 1979) ("This court agrees with defendants that their knowledge was insufficient to make
them
contributory
infringers."), rev'd,
659 F.2d 963 (9th Cir. 1981), rev'd,
464 U.S. 417, 78 L. Ed. 2d 574, 104 S. Ct. 774 (1984); Alfred C. Yen,
[*39] Internet Service Provider Liability for Subscriber
Copyright Infringement, Enterprise Liability, and the First Amendment,
88 Geo. L.J. 1833, 1874 & 1893 n. 210 (2000) (suggesting that, after Sony, most Internet service providers lack
"the requisite level of knowledge" for the
imposition of
contributory liability).
We are bound to follow Sony, and will not impute the requisite level of
knowledge to Napster merely because peer-to-peer file sharing technology may be
used to infringe plaintiffs' copyrights. See
464 U.S. at 436 (rejecting argument that merely supplying the
"'means' to accomplish an
infringing activity" leads to imposition of liability). We depart from the reasoning of the
district court that Napster failed to demonstrate that its system is capable of
commercially significant noninfringing uses. See
Napster, 114 F. Supp. 2d at 916, 917-18. The district court improperly confined the use analysis to current uses,
ignoring the system's capabilities. See generally
Sony, 464 U.S. at 442-43 (framing inquiry as whether the video tape recorder is
"capable of commercially significant noninfringing uses")
[*40] (emphasis added). Consequently, the district court placed undue weight on the
proportion of current
infringing
use as compared to current and future noninfringing use. See generally
Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 264-67 (5th Cir. 1997) (single noninfringing use implicated Sony). Nonetheless, whether we might
arrive at a different result is not the issue here. See
Sports Form, Inc. v. United Press Int'l, Inc., 686 F.2d 750, 752 (9th Cir. 1982). The instant appeal occurs at an early point in the proceedings and
"the fully developed factual record may be materially different from that
initially before the district court. ..."
Id. at 753. Regardless of the number of Napster's
infringing versus noninfringing uses, the evidentiary record here supported the district
court's finding that plaintiffs would likely prevail in establishing that
Napster knew or had reason to know of its
users'
infringement of plaintiffs' copyrights.
This analysis is
similar to that of Religious Technology Center v. Netcom On-Line Communication
Services, Inc., which suggests that in an online context, evidence of actual
knowledge of specific
[*41] acts of
infringement is required to hold a computer system operator liable for
contributory
copyright infringement.
907 F. Supp. at 1371. Netcom considered the potential
contributory copyright liability of a computer bulletin board operator whose system
supported the posting of
infringing material.
Id. at 1374. The court, in denying Netcom's motion for summary judgment of noninfringement
and plaintiff's motion for judgment on the pleadings, found that a disputed
issue of fact existed as to whether the operator had sufficient knowledge of
infringing activity.
Id. at 1374-75.
The court determined that for the operator to have sufficient knowledge, the
copyright
holder must
"provide the necessary documentation to show there is likely
infringement."
907 F. Supp. at 1374;
cf.
Cubby, Inc. v. Compuserve, Inc., 776 F. Supp. 135, 141 (S.D.N.Y. 1991) (recognizing that online service provider does not and cannot examine every
hyperlink for potentially defamatory material). If such documentation was
provided, the court reasoned that Netcom would be liable for
contributory
infringement because its failure to remove
[*42] the material
"and thereby stop an
infringing copy from being distributed worldwide constitutes substantial participation" in distribution of
copyrighted material. Id.
We agree that if a computer system operator learns of specific
infringing material available on his system and fails to purge such material from the
system, the operator knows of and contributes to direct
infringement. See
Netcom, 907 F. Supp. at 1374. Conversely, absent any specific information which identifies
infringing activity, a computer system operator cannot be liable for
contributory
infringement merely because the structure of the system allows for the exchange of
copyrighted material. See
Sony, 464 U.S. at 436, 442-43. To enjoin simply because a computer network allows for
infringing use would, in our opinion, violate Sony and potentially restrict activity
unrelated to
infringing use.
We nevertheless conclude that sufficient knowledge exists to impose
contributory liability when linked to demonstrated
infringing use of the Napster system. See
Napster, 114 F. Supp. 2d at 919 ("Religious Technology Center would not mandate a determination that Napster,
[*43] Inc. lacks the knowledge requisite to
contributory
infringement."). The record supports the district court's finding that Napster has actual
knowledge that specific
infringing material is available using its system, that it could block access to the
system by suppliers of the
infringing material, and that it failed to remove the material. See
Napster, 114 F. Supp. 2d at 918, 920-21. n6
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n6 As stated
by the district court:
Plaintiffs ... demonstrate that defendant had actual notice of direct
infringement because the RIAA informed it of more than 12,000
infringing files. See Creighton 12/3/99 Dec., Exh. D. Although Napster, Inc. purportedly
terminated the
users offering these files, the
songs are still available using the Napster service, as are the
copyrighted works which the record company plaintiffs identified in Schedules A and B of
their complaint. See Creighton Supp. Dec. PP 3-4.
114 F. Supp. 2d at 918.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
B. Material Contribution
Under the facts as found
[*44] by the district court, Napster materially contributes to the
infringing activity. Relying on Fonovisa, the district court concluded that
"without the support services defendant provides, Napster
users could not find and
download the
music they want with the ease of which defendant boasts."
Napster, 114 F. Supp. 2d at 919-20 ("Napster is an integrated service designed to enable
users to locate and
download MP3
music files."). We agree that Napster provides
"the site and facilities" for direct
infringement. See
Fonovisa, 76 F.3d at 264; cf.
Netcom, 907 F. Supp. at 1372 ("Netcom will be liable for
contributory
infringement since its failure to cancel [a
user's]
infringing message and thereby stop an
infringing copy from being distributed world-wide constitutes substantial participation."). The district court correctly applied the reasoning in Fonovisa, and properly
found that Napster materially contributes to direct
infringement.
We affirm the district court's conclusion that plaintiffs have demonstrated a
likelihood of success on the merits of the
contributory
copyright infringement claim. We will address the scope of the
[*45]
injunction in part VIII of this opinion.
V
We turn to the question whether Napster engages in
vicarious
copyright infringement.
Vicarious copyright liability is an
"outgrowth" of respondeat superior.
Fonovisa, 76 F.3d at 262. In the context of copyright law,
vicarious liability extends beyond an employer/employee relationship to cases in which a defendant
"has the right and ability to supervise the
infringing activity and also has a direct financial interest in such activities." Id. (quoting
Gershwin, 443 F.2d at 1162); see also
Polygram Int'l Publ'g, Inc. v. Nevada/TIG, Inc., 855 F. Supp. 1314, 1325-26 (D. Mass. 1994) (describing
vicarious liability as a form of risk allocation).
Before moving into this discussion, we note that Sony's
"staple article of commerce" analysis has no application to Napster's potential liability for
vicarious
copyright infringement. See
Sony, 464 U.S. at 434-435; see generally 3 Melville
B. Nimmer
& David Nimmer, Nimmer On Copyright
§§ 12.04[A][2]
& [A][2][b] (2000) (confining Sony to
contributory
infringement analysis:
"Contributory
infringement itself
[*46] is of two types --personal conduct that forms part of or furthers the
infringement and contribution of machinery or goods that provide the means to infringe"). 617 PLI/Pat 455, 528 (Sept. 2, 2000) (indicating that the
"staple article of commerce" doctrine
"provides a defense only to
contributory
infringement, not to
vicarious
infringement"). The issues of Sony's liability under the
"doctrines of 'direct
infringement' and 'vicarious liability'
"were not before the Supreme Court, although the Court recognized that the
"lines between direct
infringement,
contributory
infringement, and
vicarious liability are not clearly drawn."
Id. at 435 n. 17. Consequently, when the Sony Court used the term
"vicarious liability," it did so broadly and outside of a technical
analysis of the doctrine of
vicarious
copyright infringement.
Id. at 435 ("Vicarious liability is imposed in virtually all areas of the law, and the concept of
contributory
infringement is merely a species of the broader problem of identifying the circumstances in
which it is just to hold one individual accountable for the actions of another."); see also Black's Law Dictionary 927 (7th ed.
[*47] 1999) (defining
"vicarious liability" in a manner similar to the definition used in Sony).
A. Financial Benefit
The district court determined that plaintiffs had demonstrated they would
likely succeed in establishing that Napster has a direct financial interest in
the
infringing activity.
Napster, 114 F. Supp. 2d at 921-22. We agree. Financial benefit exists where the availability of
infringing material
"acts as a 'draw' for customers."
Fonovisa, 76 F.3d at 263-64 (stating that financial benefit
may be shown
"where
infringing performances enhance the attractiveness of a venue"). Ample evidence supports the district court's finding that Napster's future
revenue is directly dependent upon
"increases in user-base." More
users register with the Napster system as the
"quality and quantity of available
music increases."
114 F. Supp. 2d at 902. We conclude that the district court did not err in determining that Napster
financially benefits from the availability of protected works on its system.
B. Supervision
The district court determined that Napster has the right and ability to
supervise its
users' conduct.
Napster, 114 F. Supp. 2d at 920-21
[*48] (finding that Napster's representations to the court regarding
"its improved methods of blocking
users about whom rights
holders complain ... is tantamount to an admission that defendant can, and sometimes
does, police its service"). We agree in part.
The ability to block
infringers' access to a particular
environment for any reason whatsoever is evidence of the right and ability to
supervise. See
Fonovisa, 76 F.3d at 262 ("Cherry Auction had the right to terminate vendors for any reason whatsoever and
through that right had the ability to control the activities of vendors on the
premises."); cf.
Netcom, 907 F. Supp. at 1375-76 (indicating that plaintiff raised a genuine issue of fact regarding ability to
supervise by presenting evidence that an electronic bulletin board service can
suspend subscriber's accounts). Here, plaintiffs have demonstrated that Napster
retains the right to control access to its system. Napster has an express
reservation of rights policy, stating on its website that it expressly reserves
the
"right to refuse service and terminate accounts in [its] discretion, including,
but not limited to, if Napster believes that
user conduct
[*49] violates applicable law ... or for any reason in Napster's sole discretion,
with or without cause."
To
escape imposition of
vicarious liability, the reserved right to police must be exercised to its fullest extent. Turning
a blind eye to detectable acts of
infringement for the sake of profit gives rise to liability. See, e.g.,
Fonovisa, 76 F.3d at 261 (" There is no dispute for the purposes of this appeal that Cherry Auction and
its operators were aware that vendors in their swap meets were selling
counterfeit
recordings."); see also
Gershwin, 443 F.2d at 1161-62 (citing Shapiro,
Bernstein & Co. v. H.L. Green Co., 316 F.2d 304 (2d Cir. 1963), for the proposition that
"failure to police the conduct of the primary
infringer" leads to imposition of
vicarious liability for
copyright infringement).
The district court correctly determined that Napster had the right and ability
to police its system and failed to exercise that right to prevent the exchange
of
copyrighted material. The district court, however,
failed to recognize that the boundaries of the premises that Napster
"controls and patrols" are limited. See, e.g.,
[*50]
Fonovisa, 76 F.3d at 262-63 (in addition to having the right to exclude vendors, defendant
"controlled and patrolled" the premises); see also
Polygram, 855 F. Supp. at 1328-29 (in addition to having the contractual right to remove exhibitors, trade show
operator reserved the right to police during the show and had its
"employees walk the aisles to ensure 'rules compliance'"). Put differently, Napster's reserved
"right and ability" to police is cabined by the system's current architecture. As shown by the
record, the Napster system does not
"read" the content of indexed files, other than to check that they are in the proper
MP3
format.
Napster, however, has the ability to locate
infringing material listed on its search indices, and the right to terminate
users' access to the system. The file name indices, therefore, are within the
"premises" that Napster has the ability to police. We
recognize that the files are user-named and may not match
copyrighted material exactly (for example, the artist or
song could be spelled wrong). For Napster to function effectively, however, file
names must reasonably or roughly correspond to the material contained in the
[*51] files, otherwise no
user could ever locate any desired
music. As a practical matter, Napster, its
users and the record company plaintiffs have equal access to
infringing material by employing Napster's
"search function."
Our review of the record requires us to accept the district court's conclusion
that plaintiffs have demonstrated a likelihood of success on the merits of the
vicarious
copyright infringement claim. Napster's failure to police the system's
"premises," combined with a showing that Napster financially benefits from the continuing
availability of
infringing files on its system, leads to the imposition of
vicarious liability. We address the scope of the
injunction in part VIII of this opinion.
VI
We next address whether
Napster has asserted defenses which would preclude the entry of a
preliminary injunction.
Napster alleges that two statutes insulate it from liability. First, Napster
asserts that its
users engage in actions protected by
§ 1008 of the
Audio Home
Recording Act of 1992,
17 U.S.C. § 1008. Second, Napster argues that its liability for
contributory and
vicarious
infringement is limited by the
Digital Millennium Copyright Act,
17 U.S.C. § 512.
[*52] We address the application of each statute in turn.
A.
Audio Home
Recording Act
The statute states in part:
No action may be brought under this title alleging
infringement of copyright based on the manufacture, importation, or distribution of a
digital
audio
recording device, a
digital
audio
recording medium, an analog
recording device, or an analog
recording medium, or based on the noncommercial use by
a consumer of such a device or medium for making
digital
musical
recordings or analog
musical
recordings.
17 U.S.C. § 1008 (emphases added). Napster contends that MP3 file exchange is the type of
"noncommercial use" protected from
infringement actions by the statute. Napster asserts it cannot be secondarily liable for
users' nonactionable exchange of
copyrighted
musical
recordings.
The district court rejected Napster's argument, stating that the
Audio Home
Recording Act is
"irrelevant" to the action because: (1) plaintiffs did not bring claims under the
Audio Home
Recording Act; and (2) the
Audio Home
Recording Act does not cover the
downloading of MP3 files.
Napster, 114 F. Supp. 2d at 916 n. 19.
We agree with the
[*53] district court that the
Audio Home
Recording Act does not cover the
downloading of MP3 files to computer hard
drives. First,
"under the plain meaning of the Act's definition of
digital
audio
recording devices, computers (and their hard
drives) are not
digital
audio
recording devices because their 'primary purpose' is not to make
digital
audio copied
recordings."
Recording Indus. Ass'n of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1078 (9th Cir. 1999). Second, notwithstanding Napster's claim that computers are
"digital
audio
recording devices," computers do not make
"digital
music
recordings" as defined by the
Audio Home
Recording Act.
Id. at 1077 (citing S. Rep. 102-294) ("There are simply no grounds in either the plain language of the definition or
in the legislative history for interpreting the term 'digital
musical
recording' to include
songs fixed on computer hard
drives.").
B.
Digital Millennium Copyright Act
Napster also interposes a
statutory limitation on liability by asserting the protections of the
"safe harbor
"from
copyright infringement suits for
"Internet service providers" contained in the
Digital Millennium Copyright Act,
[*54]
17 U.S.C. § 512. See
Napster, 114 F. Supp. 2d at 919 n. 24. The district court did not give this statutory limitation any weight favoring
a denial of temporary injunctive relief. The court concluded that Napster
"has failed to persuade this court that subsection 512(d) shelters
contributory
infringers." Id.
We need not accept a blanket conclusion that
§ 512 of the
Digital Millennium Copyright Act will never protect secondary
infringers. See S. Rep. 105-190, at 40 (1998) ("The limitations in subsections (a) through (d) protect qualifying service
providers from liability for all monetary relief for direct,
vicarious, and
contributory
infringement."), reprinted in Melville B. Nimmer
& David Nimmer, Nimmer on Copyright: Congressional Committee Reports on the
Digital Millennium Copyright Act and Concurrent Amendments (2000); see also Charles S.
Wright, Actual Versus Legal Control: Reading
Vicarious Liability for
Copyright Infringement Into the
Digital Millennium Copyright Act of 1998,
75 Wash. L. Rev. 1005, 1028-31 (July 2000) ("The committee reports leave no doubt that Congress intended to provide some
relief
[*55] from
vicarious liability").
We do not agree that Napster's potential liability for
contributory and
vicarious
infringement renders the
Digital Millennium Copyright Act inapplicable per se. We instead recognize that this
issue will be more fully developed at trial. At this stage of the litigation,
plaintiffs raise serious questions regarding Napster's ability to obtain
shelter under
§ 512, and
plaintiffs also demonstrate that the balance of hardships tips in their favor.
See
Prudential Real Estate, 204 F.3d at 874; see also
Micro Star v. Formgen, Inc. 154 F.3d 1107, 1109 (9th Cir. 1998) ("A party seeking a
preliminary injunction must show ...'that serious questions going to the merits were raised and the
balance of hardships tips sharply in its favor.'").
Plaintiffs have raised and continue to raise significant questions under this
statute, including: (1) whether Napster is an Internet service provider as
defined by
17 U.S.C. § 512(d); (2) whether copyright owners must give a service provider
"official" notice of
infringing activity in order for it to have 4252 knowledge or awareness of
infringing activity on its system; and
[*56] (3) whether Napster complies with
§ 512(i), which requires a service provider to
timely establish a detailed copyright compliance policy. See
A&M Records, Inc. v. Napster, Inc., No. 99-05183, 2000 WL 573136 (N. D. Cal. May 12, 2000) (denying summary judgment to Napster under a
different subsection of the
Digital Millennium Copyright Act,
§ 512(a)).
The district court considered ample evidence to support its determination that
the balance of hardships tips in plaintiffs' favor:
Any destruction of Napster, Inc. by a
preliminary injunction is speculative compared to the statistical evidence of massive, unauthorized
downloading and uploading of plaintiffs'
copyrighted works--as many as 10,000 files per second by defendant's own admission. See
Kessler Dec. P29. The court has every reason to believe that, without a
preliminary injunction, these numbers will mushroom as Napster
users, and newcomers
attracted by the publicity, scramble to obtain as much free
music as possible before trial.
114 F. Supp. 2d at 926.
VII
Napster contends that even if the district court's preliminary determinations
that it is liable for facilitating
copyright
[*57] infringement are correct, the district court improperly rejected valid affirmative defenses
of waiver, implied license and copyright misuse. We address the defenses in
turn.
A. Waiver
"Waiver is the intentional relinquishment of a known right with knowledge of its
existence and the intent to relinquish it."
United States v. King Features Entm't, Inc., 843 F.2d 394, 399 (9th Cir. 1988). In copyright, waiver or abandonment of copyright
"occurs only if there is an intent by the copyright proprietor to surrender
rights in his work." 4 Melville B. Nimmer
& David Nimmer, Nimmer On Copyright P 13.06 (2000); see also
Micro Star v. Formgen, Inc., 154 F.3d 1107, 1114 (9th Cir. 1998) (discussing abandonment).
Napster argues that the district court erred in not finding that plaintiffs
knowingly provided consumers with technology designed to copy and distribute
MP3 files over the Internet and, thus, waived any legal authority to exercise
exclusive control over creation and distribution of MP3 files. The district
court, however, was not convinced
"that the record companies created the monster that is now devouring their
intellectual property rights."
Napster, 114 F. Supp. 2d at 924.
[*58] We find no error in the district court's finding that
"in hastening the proliferation of MP3 files, plaintiffs didnothing more than
seek partners for their commercial
downloading ventures and develop
music players for files they planned to sell over the Internet." Id. n7
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n7 Napster
additionally asserts that the district court improperly refused to allow
additional discovery into affirmative defenses and also erroneously failed to
hold an evidentiary hearing. The denial of an evidentiary hearing is reviewed
for abuse of discretion,
Kenneally v. Lungren, 967 F.2d 329, 335 (9th Cir. 1992), as is the court's decision to deny further discovery. See
Sablan v. Dep't of Finance, 856 F.2d 1317, 1321 (9th Cir. 1988) (stating that decision to deny discovery will not be disturbed except upon a
clear showing
"that the denial of discovery results in actual and substantial prejudice"). We conclude that the court did not abuse its discretion in denying further
discovery and refusing to conduct an evidentiary hearing.
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[*59]
B. Implied License
Napster also argues that plaintiffs granted the company an implied license by
encouraging MP3 file
exchange over the Internet. Courts have found implied licenses only in" narrow" circumstances where one party
"created a work at [the other's] request and handed it over, intending that [the
other] copy and distribute it."
SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharms., Inc., 211 F.3d 21, 25 (2d Cir. 2000) (quoting
Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558 (9th Cir. 1990)), cert. denied,
121 S. Ct. 173 (2000). The district court observed that no evidence exists to support this defense:
"indeed, the RIAA gave defendant express notice that it objected to the
availability of its members' copy-righted
music on Napster."
Napster, 114 F. Supp. 2d at 924-25. The record supports this conclusion.
C. Misuse
The defense of copyright misuse forbids a
copyright
holder from
"securing an exclusive right or limited monopoly not granted by the Copyright
Office."
Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 977-79 (4th Cir. 1990), quoted in
Practice Mgmt. Info. Corp. v. American Med. Ass'n, 121 F.3d 516, 520
[*60] (9th Cir.), amended by
133 F.3d 1140 (9th Cir. 1997). Napster alleges that online distribution is not within the copyright monopoly.
According to Napster, plaintiffs have colluded to
"use their copyrights to extend their control to online distributions."
We find no error in the district court's preliminary rejection of this
affirmative defense. The misuse defense prevents copyright
holders from leveraging their limited monopoly to allow them control of areas outside
the monopoly. See
Laser-comb, 911 F.2d at 976-77;
see also
Religious Tech. Ctr. v. Lerma, 1996 U.S. Dist. LEXIS 15454,
No. 95-1107 A, 1996 WL 633131, at *11 (E.D. Va. Oct. 4, 1996) (listing circumstances which
indicate improper leverage). n8 There is no evidence here that plaintiffs seek
to control areas outside of their grant of monopoly. Rather, plaintiffs seek to
control reproduction and distribution of their
copyrighted works, exclusive rights of copyright
holders.
17 U.S.C. § 106; see also, e.g.,
UMG Recordings, 92 F. Supp. 2d at 351 ("A [copyright
holder's] 'exclusive' rights, derived from the Constitution and the Copyright Act,
include the right, within
[*61] broad limits, to curb the development of such a derivative market by refusing
to license a
copyrighted work or by doing so only on terms the copyright owner finds acceptable."). That the
copyrighted works are transmitted in
another medium--MP3
format rather than
audio CD--has no bearing on our analysis. See
id. at 351 (finding that reproduction of
audio CD into MP3
format does not
"transform" the work).
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
n8 The district court correctly stated that
"most of the cases" that recognize the affirmative defense of copyright misuse involve unduly
restrictive licensing schemes. See
Napster, 114 F. Supp. 2d at 923; see also
Laser-comb, 911 F.2d at 973 (stating that
"a misuse of copyright defense is inherent in the law of copyright"). We have also suggested, however, that a unilateral refusal to license a
copyright may constitute wrongful exclusionary conduct giving rise to a claim
of misuse, but assume that the
"desire to exclude others ... is a presumptively valid business justification
for any immediate harm to consumers." See
Image Tech. Servs. v. Eastman Kodak Co., 125 F.3d 1195, 1218 (9th Cir. 1997). But see
Intergraph Corp. v. Intel Corp., 195 F.3d 1346, 1362 (Fed. Cir. 1999) ("Market power does not 'impose on the intellectual property owner an obligation
to license the use of that property to others.'" (quoting United States Dep't of Justice
& Fed. Trade Comm'n, Antitrust Guidelines for the Licensing of Intellectual
Property 4 (1995)).
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -
[*62]
VIII
The district court correctly recognized that a
preliminary injunction against Napster's participation in
copyright infringement is not only warranted but required. We believe, however, that the scope of the
injunction needs modification in light of our opinion. Specifically, we reiterate that
contributory liability may potentially be imposed only to the extent that Napster: (1)
receives reasonable knowledge of specific
infringing files with
copyrighted
musical compositions and sound
recordings; (2) knows or should know that such files are available on the Napster system;
and (3) fails to act to prevent viral distribution of the works. See
Netcom, 907 F. Supp. at 1374-75. The mere existence of the Napster system, absent actual notice and Napster's
demonstrated failure to remove the offending material, is insufficient to
impose
contributory liability. See
Sony, 464 U.S. at 442-43.
Conversely, Napster may be vicariously liable when it fails to affirmatively
use its ability to patrol its system and preclude access to potentially
infringing files listed in its search index. Napster has both the ability to use its
search function to identify
infringing
[*63]
musical
recordings and the right to bar participation of
users who engage in the transmission of
infringing files.
The
preliminary injunction which we stayed is overbroad because it places on Napster the entire burden of
ensuring that no
"copying,
downloading, uploading,
transmitting, or distributing" of plaintiffs' works occur on the system. As stated, we place the burden on
plaintiffs to provide notice to Napster of
copyrighted works and files containing such works available on the Napster system before
Napster has the duty to disable access to the offending content. Napster,
however, also bears the burden of policing the system within the limits of the
system. Here, we recognize that this is not an exact science in that the files
are
user named. In crafting the
injunction on remand, the district court should recognize that Napster's system does not
currently appear to allow Napster access to
users' MP3 files.
Based on our decision to remand, Napster's additional arguments on appeal going
to the scope of the
injunction need not be addressed. We, however, briefly address Napster's First Amendment
argument so that it is not reasserted on remand. Napster contends that the
present
[*64]
injunction violates the First Amendment because it is broader than necessary. The company
asserts two distinct free speech rights: (1) its right to publish a
"directory" (here, the search index) and (2) its
users' right to exchange information. We note that First Amendment concerns in
copyright are allayed by the presence of the
fair use doctrine. See
17 U.S.C. § 107; see generally
Nihon Keizai Shimbun v. Comline Business Data, Inc., 166 F.3d 65, 74 (2d Cir. 1999);
Netcom, 923 F. Supp. at 1258 (stating that the Copyright Act balances First Amendment concerns with the
rights of copyright
holders). There was a preliminary determination here that Napster
users are not fair
users. Uses of
copyrighted material that are not fair uses are rightfully enjoined. See
Dr. Seuss Enters. v. Penguin Books USA, Inc., 109 F.3d 1394, 1403 (9th Cir. 1997) (rejecting defendants' claim that
injunction would constitute
a prior restraint in violation of the First Amendment).
IX
We address Napster's remaining arguments: (1) that the court erred in setting a
$ 5 million bond, and (2) that the district court should have imposed
[*65] a constructive
royalty payment structure in lieu of an
injunction.
A. Bond
Napster argues that the $ 5 million bond is insufficient because the company's
value is between $ 1.5 and $ 2 billion. We review objections to the amount of a
bond for abuse of discretion.
Walczak v. EPL Prolong, Inc., 198 F.3d 725 (9th Cir. 1999).
We are reluctant to dramatically raise bond amounts on appeal. See
GoTo. com, Inc. v. The Walt Disney Co., 202 F.3d 1199, 1211 (9th Cir. 2000); see also Fed. R. Civ. P. 65(c). The district court considered competing
evidence of Napster's value and the deleterious effect that any
injunction would have upon the Napster system. We cannot say that Judge Patel abused her
discretion when she fixed the penal sum required for the bond.
B.
Royalties
Napster contends that the district court should have imposed a monetary penalty
by way of a compulsory
royalty in place of an
injunction. We are asked to do what the district court refused.
Napster tells us that
"where great public injury would be worked by an
injunction, the courts might ... award damages or a continuing
royalty instead of an
injunction in such special circumstances.
[*66]
"
Abend v. MCA, Inc., 863 F.2d 1465, 1479 (9th Cir. 1988) (quoting 3 Melville B. Nimmer
& David Nimmer, Nimmer On Copyright
§ 14.06[B](1988)), aff'd,
495 U.S. 207 (1990). We are at a total loss to find any" special circumstances" simply because this
case requires us to apply well-established doctrines of copyright law to a new
technology. Neither do we agree with Napster that an
injunction would cause
"great public injury." Further, we narrowly construe any suggestion that compulsory
royalties are appropriate in this context because Congress has arguably limited the
application of compulsory
royalties to specific circumstances, none of which are present here. See
17 U.S.C. § 115.
The Copyright Act provides for various sanctions for
infringers. See, e.g.,
17 U.S.C. §§ 502 (injunctions); 504 (damages); and 506 (criminal penalties); see also
18 U.S.C. § 2319A (criminal penalties for the unauthorized fixation of and trafficking in sound
recordings and
music videos of live
musical performances). These statutory sanctions represent a more than adequate
legislative solution
[*67] to the problem created by
copyright infringement.
Imposing a compulsory
royalty payment schedule would
give Napster an
"easy out" of this case. If such
royalties were imposed, Napster would avoid penalties for any future violation of an
injunction, statutory copyright damages and any possible criminal penalties for continuing
infringement. The
royalty structure would also grant Napster the luxury of either choosing to continue
and pay
royalties or shut down. On the other hand, the wronged parties would be forced to do
business with a company that profits from the wrongful use of intellectual
properties. Plaintiffs would lose the power to control their intellectual
property: they could not make a business decision not to license their property
to Napster, and, in the event they planned to do business with Napster,
compulsory
royalties would take away the copyright
holders' ability to negotiate the terms of any contractual arrangement.
X
We affirm in part, reverse in part and remand.
We direct that the
preliminary injunction fashioned by the district court prior to this appeal shall remain stayed until
it is
modified by the district court to conform to the requirements of this
[*68] opinion. We order a partial remand of this case on the date of the filing of
this opinion for the limited purpose of permitting the district court to
proceed with the settlement and entry of the modified
preliminary injunction.
Even though the
preliminary injunction requires modification, appellees have substantially and primarily prevailed on
appeal. Appellees shall recover their statutory costs on appeal. See Fed. R.
App. P. 39(a)(4) ("if a judgment is affirmed in part, reversed in part, modified, or vacated,
costs are taxed only as the court orders.").
AFFIRMED IN PART, REVERSED IN PART AND REMANDED.
