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Special Event

Court Hears Arguments For and Against Napster Staying On-Line

Aired October 2, 2000 - 2:04 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

NATALIE ALLEN, CNN ANCHOR: Until the trial begins, Napster is trying to stay in business. It's taking its case before the 9th Circuit Court of Appeals in San Francisco. On one side, Napster. On the other, the Recording Industry Association of America. They'll both state their case.

Right now, David Boies, attorney for Napster, has just begun. So we'll listen in, and we'll talk about it afterwards with our analyst.

(JOINED IN PROGRESS)

DAVID BOIES, NAPSTER ATTORNEY: What the Supreme Court said is that copyright law is uniquely a creature of statute. It said so in the Constitution. Only what is proscribed by Congress can violate the copyright law. Now, the court then went on to say there is a judicial doctrine of contributory infringement.

Now, whether or not the court would reexamine that in light of recent opinions, like the Central Bank of Denver case where the court reversed several consistent years of lower court decisions that there was aiding and abetting liability on the securities laws, saying if Congress has not specifically provided for this liability, it can't exist, is a question this court doesn't have to reach today.

JUDGE RICHARD PAEZ, 9TH CIRCUIT COURT OF APPEALS: Isn't there, though, a difference between the VCR user, the homeowner in the Sony case, and the Napster user here? Isn't there really a qualitative difference between the two?

BOIES: I think there's a difference. I don't think it's a difference with a legal distinction. In other words, both are receiving the technology, both are controlling the use of that technology.

PAEZ: Well, in Sony, the manufacturers sold the recording device to the consumer.

BOIES: Yes.

PAEZ: And that was pretty much it.

BOIES: Well, this -- the...

PAEZ: There was no continuing relationship. BOIES: There was no continuing relationship, but there's nothing in the Sony case that says that, for example, Sony should have had continuing supervision, should have monitored it, should have removed the tuner. How could it have removed the tuner?

PAEZ: How would you characterize Napster's relationship with the user here?

BOIES: Napster is a supplier of a directory service that permits peer-to-peer sharing of files.

PAEZ: Meaning they just supply the technology.

BOIES: They supply the technology, they supply the software that allows them to do that, and they supply an index that allows one user to find another user's files.

PAEZ: And that's the extent of their relationship with the user?

BOIES: That's the extent of their relationship with the user. Now, they can, like every ISP, if they want to monitor it, monitor it. They can police it when they get notices. And they have received notices where people have said these sites are infringing, and they follow the DMCA's procedures for terminating those sites. And they've terminated tens of thousands of sites upon that basis.

JUDGE MARY SCHROEDER, 9TH CIRCUIT COURT OF APPEALS: Let me ask you this: In the Sony case, the Supreme Court focussed on the private, essentially private use that was being made of these Betamax recorders. The district court in this court case said that you cannot characterize a person who makes tapes available anonymously to anyone in the world who wants to use the technology -- you cannot characterize that as personal or private in the same sense that this report did in Sony. What's wrong with that?

BOIES: I think that when the Supreme Court was talking about the personal use in Sony, what they were talking about is whether the unauthorized copying representing fair use. In addition to whether the unauthorized copy represents fair use in this case, there are clearly other substantially noninfringing uses. What the Sony court said is all it takes is for the technology to be capable of a commercially significant, noninfringing use. Even if the district court was right in saying that some of the activity is infringing, as long as there is a substantial noninfringing use, Sony protects it.

So that you have to look at two parts of the Sony opinion. One is the part that says, is time-shifting -- in our case space-shifting -- fair use? We think it is because we think, at least space-shifting itself, is private and personal, because in space-shifting the user already has, himself or herself, access to the material.

If you take the district court's opinion, you would find that some of the uses are infringing. But even if some of the uses are infringing, as long as there are commercially significant noninfringing uses, Sony applies. SCHROEDER: Well, the district court said that 70 to 80 percent of the uses were infringing. If that is true, can you still maintain that there is substantial noninfringing uses?

BOIES: Absolutely, your honor. Remember, in Sony, the court found that it was -- sports programming was a significant, noninfringing use, and that was 7.3 percent of all of the uses of the Betamax. They talked about the significance of having one movie that was uncopyrighted, "My Man Gottfried." They talked about one television show, "Mr. Rogers," that gave permission, and that was significant. They talked about one public television station that said 57 percent of what that public television station offered, and they said that was significant.

So it's not what the predominant use is. This court, in the court of appeals decision that was reversed, said that what matters is the predominant use. The Supreme Court said, no, it doesn't matter what the predominant use is. And that's particularly important in a changing technology.

This is a situation in which the number of noninfringing uses is multiplying even as we speak, because what is happening is more and more people are authorizing the use of their music on Napster.

And what the Supreme Court was saying is, you can't take a snapshot and say, how is it being used today? What you have got to ask is: What is it capable of being used for, because otherwise, you are going to deprive the public of something that can be used for non- infringing uses.

And remember, what the -- what the Supreme Court says is that in the copyright area, unlike the patent area, that has a contributory infringement statute, says the copyright area -- this is court-made law and we've got to be careful about extending it because Congress has the power to determine what is copyrighted protection. But even in the patent cases, as the Sony court talks about, a product to be subject to contributory infringement has to have no other purpose. And what the Supreme Court says, what the Supreme Court says -- and I will get that -- I will get that quote because I see the court raising its eyebrows at that. But what the -- what the court says is that -- and this is on page 441, and it's talking about the patent laws.

It says unless a commodity has no use except through practice of the patented method, the patentee has no right to claim that its distribution constitutes contributory infringement. The court goes on to say, on page 436: A finding of contributory infringement does not, of course, remove the article from the market altogether. It does, however, give the patentee effective control over the sale of that item. Indeed, a finding of contributory infringement is normally the functional equivalent of holding that the article is within the monopoly granted to the patentee.

Now, that's in the patent law where there's an actual statute. Even more so in the copyright area, unless a technology...

COSSACK: All right, what David Boies is really arguing is: Look, that the other side has to prove that Napster has no effect but to have some -- what they said, commercially significant non- infringing use. And what he's arguing is this: If there is any way to use Napster that would not infringe on the commercially significant non-infringing use, in other words, would not infringe on a patented or a copyrighted material, then it has to be allowed, even if it's a very small use, one percent, two percent. And he's citing the Sony- Betamax case from several years ago, which was the first, as you know, was the first way that was able to tape shows. And he pointed out sports. Look, it doesn't copy, it doesn't infringe on a copyright with sports.

So, what he's saying is if there's any kind of small use that Napster facilities, which doesn't infringe on copyrights, then the courts have held that Napster must be allowed to go on.

BOIES: Make a distinction between products and a device.

JUDGE ROBERT BEEZER, 9TH CIRCUIT COURT OF APPEALS: So, the compilation of a directory is a device in your view? and for purposes of your argument?

BOIES: I think that a -- a device usually means something that is mechanical. I think that there isn't anything mechanical in Napster.

BEEZER: There's nothing mechanical in Napster? What's a server, is it mechanical or is it a service?

BOIES: Well, what goes to the Napster user is a service. I think that the server is obviously a device.

BEEZER: All right, so Napster is using a device and your argument is: We cannot join the use of a server; that's improper under Sony, right?

BOIES: You cold not enjoin the use, my argument would be, of the Napster service that includes the server as well as includes the software that goes with it and the directory.

BEEZER: You think the directory is a mechanical device of some kind.

BOIES: No, but I don't think Sony is limited in...

BEEZER: It's a compilation of intellectual material, is it not?

BOIES: It is.

BEEZER: And that makes it a device?

BOIES: No, I don't think it makes that a device. I don't think it makes it a device. I think it makes it protectable under the Sony document, but I don't -- I agree with the court that it is not a device. And if this court were to hold that Sony was limited to physical devices, then I think the court would hold that Napster, at least certain aspects of Napster, are not within that doctrine. BEEZER: In fact, the VCR is clearly, from beginning to end, a device...

BOIES: Absolutely not.

BEEZER: ... because it takes intellectual operator -- operators exercising intellectual -- intellect to make the darn thing work, right?

BOIES: Yes, your honor, I can so testify, particularly if you are going to use the timer.

BEEZER: The same is not necessarily true of a compilation of song titles and authors, is it?

BOIES: No, but I think that -- I think it was probably true, at least for me anyway, that operating the Napster service takes as much intellect as operating a VCR.

BEEZER: It seems to me that the district court took the position here that it was a series of service items that constituted the infringing conduct. And you mentioned just two of them, I think. You can think of no others the district court mentioned?

BOIES: No, I think there are others, your honor. I think that what you have is a combination service that yields a certain result, but you can break it down into the directory, and you can break it down to server, and you can break it down to the software that allows the connection with the server, There's also software that operates the server itself.

BEEZER: And the delivery of it.

BOIES: And the delivery of it, exactly right.

I think there are a large number of those, many of which the district court did not deal with at all.

BEEZER: When one then turns to the injunctive relief, does this distinction take on some additional importance in your view.

BOIES: It does in one sense, your honor, and that is that the injunction from the district court was one that says: You must redesign your system...

BEEZER: You argue it is so broad that you are going to have to shut it down.

BOIES: Right exactly.

BEEZER: It seems to me that is follow Sony and the VCR doctrines, you are going to operate mechanical devices until as long as you want, and in virtually whatever manner you want, so long as they are not contributing to the infringement by use of intellectual operation. BOIES: Well, we could certainly operate the servers without connecting with anybody, but that would obviously be a useless exercise. I think what is being enjoined, and one of the reasons that we argue in the remedy section that the injunction is considerably over broad, is because what it does is it enjoins the provision, necessarily, of both infringing and non-infringing material, and does so in a prior restraint.

This is...

BEEZER: Wait a minute. We're not talking First Amendment law and prior restraint, are we?

BOIES: I think you are, you honor?

BEEZER: I thought we were talking copyright infringement and piracy.

BOIES: Oh no.

BEEZER: We're not?

BOIES: You are talking that, and certainly the plaintiffs are talking about piracy.

BEEZER: You're not.

BOIES: I think.

BEEZER: You don't want to address piracy?

BOIES: I'm happy to address piracy, your honor. We don't think this is piracy because we think it's lawful. But with respect to the First Amendment, the First amendment has never been interpreted to permit an injunction that prohibited the distribution of a directory service, that is a service that goes to customers that says: Here are the people that are prepared to share these files. The First Amendment enjoins the distribution of copyrighted material all the time. But this directory service is not copyrighted, or if it is copyrighted, it is copyrighted by Napster.

So what is being done here, on the basis of what we think is a very over broad prior restraint, is to forbid, and again in a way that no appellate court has ever upheld before, a distribution of intellectual information, intellectual knowledge, owned by and created by the person that is distributing it.

So we think there is a -- as we point out in the briefs -- we think there is a...

SCHROEDER: You have used all but three minutes of your time.

BEEZER: Can I ask one question at our expense and time. Excuse me. There is a criminal statute, Title 17, 506. You were with the Justice Department. Are you aware of any criminal prosecutions that have gotten to the appellant level under that statute? BOIES: I'm not, on the appellate level.

BEEZER: There are a number of district court ones.

BOIES: There are some district court rulings, and I am aware of one in Oregon that I think may be winding its way to this -- to this court. But I don't believe that there have been any appellant decisions. If there have, I'm not aware of them.

BEEZER: OK, thank you.

SCHROEDER: We will give you three minutes.

BOIES: OK, Your Honor, thank you.

I want to come back to the first --

SCHROEDER: Do you want to reserve any time for rebuttal?

BOIES: Could I take -- just one minute now? and then...

SCHROEDER: Sure.

BOIES: ... reserve the balance.

I want to come back to the point on why that's significant of this commercial relationship. As this court ruled in the Fonifisic (ph) case, contributory infringement, vicarious infringement come out of enterprise liability, and respondiet (ph) superior liability. That depends on a commercial relationship between the direct infringer and the contributory infringer, and it depends on the direct infringer being engaged in commercial activity. Neither of those are present here.

Thank you.

ALLEN: That's David Boies with Napster. He made his case. Now we will hear from the Recording Industry of America.

Let's talk again with Roger Cossack, who is watching this.

Roger, what interested you in the last few minutes there?

COSSACK: Natalie, I think there were two points that he made that I think was very important. One is he pointed out the fact that even if there is infringement, if it is not, as he said, commercially significant, non-infringing use of that exists, then you cannot shutdown Napster, and he pointed to the fact that other cases have held maybe two or three things were enough to show that there was a nonsignificant use, or -- and then he got to First Amendment. And that was what I was waiting for him to do, which is to say: Look, you are shutting down, in a way, the free flow of information, whether in this case it may be music, in some other case, it may be some other copyrighted information. And he pointed out that the First Amendment has some effect here. ALLEN: All right, the other side gets their 20 minutes. This is Russell Frackman. with A&M Records. We will listen in to their side of the case.

BEEZER: Are you aware of the knowledge issue?

RUSSELL FRACKMAN, A&M RECORDS ATTORNEY: Yes, I am, your honor.

BEEZER: I find that extremely troublesome. You know, you may have given notice of a couple of thousands works, what are the millions of other works that are out there, and what of the legitimate releases and what of the samples in fair usage.

How -- if this is a service, is a concept I dealt with counsel, how are they expected to have knowledge of what's coming on some kid's computer in New Jersey for transmission to Guam?

FRACKMAN: I think, first of all, your honor, you start off that analysis of knowledge talking about what they designed the system to do. They designed it to be a pirate system.

BEEZER: No, they designed it for fair use. They designed it for concert work that the authors freely don't care about a copyright. Even though they have it out on a recording. That's what they tell us. I have read their brief carefully.

FRACKMAN: That may be what they tell you now, your honor, but what they tell you in the documents and the documents that Judge Patel relied on is the following: "User will understand that they are improving their experience by providing information about their tastes without linking that information to name or address or other sensitive data that might endanger them, especially since they are exchanging pirated music." That is the co-founder of Napster writing what the system is intended to do, and it is exactly what the system has done.

SCHROEDER: Let me ask you this, as a preliminary matter. Do you agree with Napster that the effect of this injunction, as a practical matter, is to shut down its operations?

FRACKMAN: I think, your honor, that to be perfectly honest with you, I don't know the answer to that. I think Judge...

SCHROEDER: Let's assume it then for purposes of this.

FRACKMAN: I think Judge Patel didn't think it would shutdown Napster. I think our expert doesn't think it will shutdown -- or I should say suspend Napster. It if does, Judge Patel certainly thought, number one, that any damage to Napster was speculative, as compared to the direct ongoing damage he saw to us. And indeed, your honor, Judge Patel made a finding that even if Napster suspends, they will be able, should they prevail ultimately at trial in this case, to restart their system.

But whether or not -- whether or not Napster chooses to suspend what they are doing, I think, as this court has said over and over again, is not relevant, even at the preliminary injunction stage. If they have created a situation, where they either choose not to or cannot continue operation because of the massive infringement that is involved, then -- then we, as the copyright owners, are entitled to injunctive relief expressly permitted under the Copyright Act.

SCHROEDER: Well, Napster argues you can't shutdown the entire operation, and essentially ban the technology, if it's capable of substantial non-infringing use. And do you disagree with their reading of the Sony case?

FRACKMAN: Absolutely, your honor, and that's actually where I was going to come in, when I commented on Judge Beezer's questioning. Napster is nothing like the VCR and Sony. I think there are a number of ways that that becomes clear.

The first is to talk about what Napster does. Napster really is and was designed to be the gate keeper of this entire system. That was their business plan because that's how they were going to make money. They were going to control the user's environment. They were going to be the content provider. Those are their words that Judge Patel quoted in her opinion.

In order to do so...

SCHROEDER: Just a moment, they don't have control over what goes on before it goes on, do they?

FRACKMAN: In the sense of actually putting a material on, no. But in the sense of being the cause for that material to be distributed, they certainly do. No one can get that material without Napster. No one can get that material without being logged on to Napster. No one can get that material without Napster using its product, its server for this particular service and purpose, which is the infringing purpose. There is a great distinction between the product, the server, that Judge Beezer referred to, which I would equate to the VCR, and the service that Napster is involved in providing on an ongoing basis. It validates whether MP3 files are there by their users.

It provides a checklist of quality and speed so their users can determine what to download. It verifies whether the MP3 files selected is available for transfer. It provides monitors -- moderators to help the users. It cues up requests so that they can be completed. It -- and last, but maybe not least, it makes -- and they brag about this -- it makes everyone a server, a public server.

They are involved in the distribution -- integrally involved in the distribution to millions of people of millions of recordings, the overwhelming number of which are copyrighted recordings and copyrighted musical compositions owned by our clients.

PAEZ: Counsel, anything on an MP3 file go through the Napster system or does it go user to user on a direct basis?

FRACKMAN: It doesn't go through the Napster system.

BEEZER: They don't even have their fingerprints, you can't find them on those things, can you?

FRACKMAN: The fingerprints you can't find because Napster doesn't want you to.

BEEZER: They don't touch them. They never have anything to do with it. My fellow in New Jersey and my fellow in Guam will have a direction connection on the Internet, right? And that's how the music is transmitted.

FRACKMAN: It is transmitted on the Internet. And we're not trying to stop the Internet certainly.

BEEZER: So you concede that even on a copyrighted piece of material, one user can transmit from New Jersey to Guam, through the Internet, and it's not an infringement?

FRACKMAN: I don't concede that, your honor. I think it depends on all sorts of facts, including the types of facts that Judge Patel found here. That user, that Napster user, user one, could not connect to user -- could not find user two, could not connect to user two, could not verify that user two has what he or she wants, all without Napster.

Napster provides that IP address so that they can connect. There isn't any other way that they could do it. It is no different than saying that the, in my view at least, a case I know Judge Schroeder is familiar with and that I indeed argued in front of her some time ago, it's no different than the swap meet owner, he doesn't have his fingerprints on those cassettes, I am just letting my swap meet to use to sell what I want it to be sold for.

SCHROEDER: This is really different from that because he can go in any time to see exactly what was going on. And he could control what was going on in those premises. The -- here Napster doesn't have any idea at any point in time what's being transmitted and what isn't.

FRACKMAN: Well, your honor, I would submit, number one, that they know what's being transmitted is copyrighted material, overwhelmingly copyrighted material. Indeed, as Judge Patel noted in her opinion, the executives of Napster downloaded copyright material. Their Digital Millennium Copyright Act compliance agent, Mr. Parker, downloaded innumerable pieces of copyrighted material. The same person who was charged with Napster for complying with the Digital Millennium Copyright Act is downloading infringing material, the same person who said the system is to infringe. And there isn't a case around that says that you have to know every single piece of copyrighted material that you are contributing to the infringement of.

And I would submit, in this case, your honor, the Phono-Visa (ph) case is on point, because in the Phono-Visa case, there certainly was no evidence that the owner of the swap meet did or could know every single copyright that the vendor was infringing by selling infringing material or counterfeit material.

Indeed, it was just the opposite, and that has been the law. And they can't cite a single case and haven't cited a single case to this court or the district court that provides for specific knowledge at the time of specific infringements, although in this particular case they have that specific knowledge through their executives. Our complaint listed 200 copyrights. They're still all available on Napster. We sent them notice of 12,000 copyrights. They're all -- they're available on Napster.

And, your honor, I would say finally on that point, the Digital Millennium Copyright Act itself supports our view. And we cited it and quoted it in our brief. But I think it's very important to your honor's particular question here.

The legislative history of 512(d), says, "The important intended objective of this standard is to exclude sophisticated pirate directories, which refer Internet users to other selected Internet sites where pirate software, books, movies and music can be downloaded or transmitted from the safe harbor," exactly, at least by analogy, to what Napster is doing here. There is nothing at all in the statute that requires specific knowledge on a case-by-case basis, or else have you exactly what transpires here: You make sure you don't have knowledge.

Napster's original plans provided -- and we cited this to the court -- that they would have knowledge. They were going to market that knowledge. The demographics, they chose not to have specific knowledge, but rather to be content with the overwhelming knowledge that 80 or 90 percent of what they were distributing, permitting to be distributed, was copyrighted. And that is the basis on which they built the system.

PAEZ: Even if you assume that and accept that, didn't Mr. Boies address the other substantial non-infringing uses, sampling? He didn't address the new-artist program.

FRACKMAN: Well, I would say, your honor, a couple of points on that. The court, of course, found that none of these were substantial non-infringing uses. As a matter of fact, having viewed an enormous record...

PAEZ: How about potentially...

FRACKMAN: Or potentially. I think -- I think here -- here is part of the weakness in the argument. You say: Well, we may be able to get consent in the future from some people and, therefore, that permits us now to infringe almost everybody's copyright. That's not what substantial non-infringing use could possibly mean or be capable of. They could go out tomorrow and offer some people, I suppose, lots of money for consent. But that's not what it means. The court found it is not presently a commercially viable use, the new-artist program. As a matter of fact, it represents only 1.2 percent of the copyrights that were being transferred.

They say: Well, maybe this can be used for the Human Genome Project in the future. So because in the future, this system may be able to be used for the Human Genome Project, I can now create and implement and supervise a system that now infringes copyrights millions at a time? It doesn't make any sense. It's not what Sony stood for, it's not what the facts of Sony stood for, and it's not what the facts of this case show.

SCHROEDER: So you think that, if -- if there is a substantial infringement going on, the entire technology has to be closed down?

FRACKMAN: I think -- we are not, your honor, talking about a technology. I think I want to make that clear. We're talking about a business and a business plan. And in this particular business plan, implementing a technology that has been around for quite a while -- and we told the court that in our papers -- in this particular business plan, there is no substantial -- no commercial, substantial non-infringing use.

When you look through their documents over and over again, they talk about building a user base based on the quantity and quality of the recordings.

SCHROEDER: Does it have to be commercially viable in order to be in there?

FRACKMAN: The Supreme Court -- I think here the Supreme Court -- I thinks counsel conceded that it has to be commercially viable. The Supreme Court talks about commercial viability. The cases that follow the Supreme Court talk about commercial viability. I would submit that commercially viable or otherwise, there is no substantial non- infringing use here, and so you don't have to reach that point.

I would also submit to the court, and just very recently, in the last two weeks, a panel of this court decided a case called the Worldwide Church of God versus the Philadelphia Church of God -- I have to think I know who's going to win that battle -- but decided a case in which the court said, and this was -- this was this court's description of the Sony case, "Under the unique circumstances of that case, to wit copying of videotapes for time shifting for personal use to enable a viewer to see such a work which he had been invited to witness in its entirety free of charge."

And, your honor, the facts of Sony are unique. And the proof of that pudding is the tasting, that when you go through the cases in 16 years ever since Sony, there has only been one case by my reading, the Vald (ph) case, that has upheld a defense based on a substantial non- infringing use, staple article of commerce. And that was in very unusual circumstances where the use was expressly permitted by the copyright act under section 117 permitting archival copies of software to be made. That's the only time.

They say we're trying to narrow Sony, but, your honor, they are trying to expand Sony way beyond, way beyond the scope of Sony, way beyond the reasonableness of Sony. At bottom, Sony talks about doing what is just. When is it fair?

SCHROEDER: Let me ask you a question about fairness. Your clients are marketing -- what is being -- as I understand it, what the users of Napster are getting are songs, principally, that are on copyrighted recordings. Your clients are marketing albums. They can't -- I can no longer go out and by a 45 record. I have to buy an album. So doesn't that mean that you're really -- the fairness isn't all on your side here?

FRACKMAN: Not at all, your honor. And my kids don't each know what albums are anywhere.

SCHROEDER: Well...

FRACKMAN: You're talking about CDs, I think.

PAIS: Don't know what a 45 is, right?

FRACKMAN: Right.

SCHROEDER: They know what a CD is, though.

FRACKMAN: That's our intellectual property. That's what we sell. That's what we've been selling for years. I told Judge Patel that I've been doing this for 30 years. Thirty years ago, I used to go into garages where people were making copied eight-track tapes and putting labels on them.

And we're working on trying to do part of what the record companies have spent so much time, and you've gotten an amicus brief from some of the people who are involved in that, is to try and work on a secure download capability. And we're doing the best that we can, but, your honor, one of the analogies I also made is I don't have to put a burglar alarm in my car to make stealing my car a crime. In fact, even before burglar alarms were invented, stealing cars were a crime. And if I left my car key in my car, stealing my car would be a crime.

And the fact that we among other intellectual property owners -- and we're just a large group property owners -- and we're just one group of intellectual property owners, as your honors know, interested in this case -- that we can't stop them from doing what they're doing other than coming to court is why we're in court.

SCHROEDER: We understand that.

BEEZER: Counsel, are you aware of any complaints filed by you and your compatriots with U.S. attorneys, where they have pursued criminal infringement against any infringer using the Napster system.

FRACKMAN: Using the Napster system, no, your honor, I am not.

BEEZER: So they just ignore the problem, or you just don't complain?

FRACKMAN: Well, no, your honor. There's a criminal statute on the books.

BEEZER: Yes, and at no expense to the record companies, I take it, they can -- the government will file an indictment if there is a sufficient factual showing. And you're aware of no action taken by the government in this context?

FRACKMAN: Your honor, I think the court to a certain extent put its finger on it in the Diamond-Rio case.

There are millions of people out there, millions of individuals. Enforcement in that -- in that way, even if we attempted to do that. We don't want to attempt to put an individual in jail for using the Napster system. We want to stop it by going to the source of the problem.

BEEZER: When I was a young lawyer, I talked to a detective for the telephone company that would go around: If they could get anybody jimmying one of those telephones for the pay box, they couldn't wait to get to the prosecutor, because a little public education through a criminal -- indictment, conviction -- goes a long way to stop something that's illegal.

FRACKMAN: I think, your honor, we're seeing the public education right here today.

SCHROEDER: You're way into -- you've used almost all your time.

FRACKMAN: Yes, I apologize, your honor.

SCHROEDER: We'll give you -- we'll give a minute-and-a-half to you.

FRACKMAN: Thank you.

ALLEN: All right. We're going to hear from...

(AUDIO GAP)

CAREY RAMOS, MUSIC PUBLISHERS' ATTORNEY: I'm here along with my colleagues Jeff Knowles (ph) and Aidan Synnott on behalf of the plaintiffs in the Leiber action: songwriters and their music publishers whose works are being distributed on Napster without their permission.

And your honor, I would ask some indulgence with my time, because I think the issues that I want to address are different from Mr. Frackman's. I will not repeat the points that he made, and relate to the profound impact that Napster is having on my clients' interests.

For over 200 years, U.S. copyright law has recognized the exclusive rights of composers and lyricists to reproduce and distribute their musical works: during the last 100 years, primarily in the form of sound recordings.

As related in his declaration below, my client, Mike Stoller, began writing hit songs with Jerry Leiber in 1950. Mike was 17 years old. Elvis Presley recorded several of Mike's and Jerry's classics, including "Hound Dog" and "Jailhouse Rock." In the decades that followed, many recording artists -- including The Beatles, The Rolling Stones, Aretha Franklin, and Barbra Streisand -- have recorded their growing catalogue of hits, including "Stand By Me," "On Broadway," "Poison Ivy," "Kansas City," and many more.

SCHROEDER: We are familiar with that. If you could get to the legal points, we'd appreciate it.

RAMOS: Your honor, this relates to the impact on -- of Napster on songwriters.

What is remarkable about their careers is that they were able to make a career out of writing music. It was not just a hobby for them, and it is a career for literally thousands of songwriters across the country.

They depend on copyright law to compensate them for the use of their music, the distribution of their music: both on physical form, through CDs and tapes, and on the Internet.

Songwriters generally want their musical works to be recorded and distributed. That is how they make a living. By licensing the recording and distribution...

ALLEN: We're going to pause for just a moment, talk with Roger Cossack about what we've been hearing from this incredible debate.

Roger, we should point out this isn't just going to shape the future of copyright law in the music industry, but who knows how far this decision could go once this does get to trial against these two adversaries?

What did you think about the argument that was brought by A&M Records? And tell us more about this Sony case that we've been hearing.

COSSACK: Right. Well, I think that the question really here is something that the staff at "BURDEN OF PROOF" always laughs at me for saying. I always say, you know, the genie is out of the bottle, and I think in this case the genie really is out of the bottle, and the question is whether or not the recording industry can get it back into the bottle.

What happened -- and perhaps this is when the genie left the bottle -- was several years ago the Sony Betamax case went before the United States Supreme Court, and many of these same arguments were made.

Look, judge, if you allow this machine to be put out there, they're going to videotape Betamax, all of our copyrighted material, and we're not going to be able to sell them and we're not going to be able get our profit and we're going to use. And the courts came back in that case, and in a kind of tortured decision they said, well, look, if there is a commercially significant non-infringing use, then we're going to allow you to go ahead.

And one of the things they talked about was sports. Look, you know, sports isn't copyrighted. People want to -- they want to maybe "VCR" a sports event. Well, now here we're at the Internet, and this is -- as you know, this is VCR a thousand times over. And the Internet is -- the question is now, is there some kind of significantly commercial non-infringing use that can be made through Napster? Napster allows people to download and share music directly to each other, and what the server of Napster does is allow these people to find each other.

So all the technical things aside here is the question that really Sony is presenting: Is there something else besides the downloading of copyrighted music?

And the recording industry says, look, this is -- anything other than downloading of copyrighted music is just a sham. That's what they're telling you. On the other hand, the Napster people are saying: Look, there are a lot of people who give freely, give up their copyright; there's a lot of things that aren't copyrighted that Napster allows to be shared, and that amounts to a significant use; and therefore, you can't stop it. And that's really what these arguments are all about.

The fellow who's arguing now on behalf of Leiber and Stoller, he's up saying, look, my clients are really getting hurt because they have a lot of records that are being downloaded, and I'm sure there are. But the question really becomes whether or not Napster will be successful in convincing these judges that besides the downloading of copyrighted material, other material is being downloaded which isn't copyrighted and that it is commercially significant non-infringing use. I have to keep looking at my notes to be able to say it. And that is what the gist of this argument is all about.

ALLEN: Thank you, Roger.

We also have with us Jim Moret, who covers the entertainment industry from out in Hollywood. He's also a lawyer, and he knows about this topic very well.

Jim, what do you think about what you're hearing? And also, you've talked with a lot of artists, which it does seem it depends on the artist and how famous or not famous they are on how they think of Napster and its service.

JIM MORET, CNN ANCHOR: Right, and let me just bring up a point Roger made. He's brining up the Sony case and he's right to do so, because it was -- it was brought up by both sides really.

The Sony case, though, is a situation where, as the court pointed out today, there's a device -- namely, the Betamax or the VCR. Here, Napster is not just providing a device in the form of a server; they're providing a service, they're providing a directory. And Napster says that directory is in fact copyrighted material. But what the plaintiffs, the recording industry is saying that this system, the Napster business, was designed to allow for and to achieve piracy, and they're saying that they are not talking about shutting down the technology. The recording industry doesn't believe it can shut down the technology. I think the recording industry recognizes they have to embrace this technology. They just want to shut down what hey believe is a primary business set up for piracy.

ALLEN: Jim Moret, thanks to you. Let's go back to the court now, of appeals.

David Boies of Napster is spending a few more minutes in rebuttal.

UNIDENTIFIED MALE: How about a trial?

BOIES: That's what we're looking for, your honor, and we're looking for a trial without being shut down while we're waiting for the trial. We want a trial as fast as possible. That's what we've asked for.

SCHROEDER: But at trial, who will have the burden of showing...

BOIES: At trial, we'll have the burden of proof on some issues. But with respect to Judge Beezer's question on fair use, they will have the burden of proof, and Sony says.

At page 451 of the Supreme Court reporter, the U.S. reporter, because what the court is dealing with there is that where there's a noncommercial use -- and there's no doubt that the consumers here are engaged in noncommercial activity -- they're the ones that are alleged to be engaged in direct infringement. The likelihood of harm must be demonstrated by the plaintiff, and that is what the court holds in the Sony case.

So with respect to burden of proof on fair use, on terms of the consumer's fair use of the music, they will bear the burden of proof.

PAEZ: Well at trial, they don't raise fair use.

BOIES: No, but we...

PAEZ: You raise it.

BOIES: We raise...

PAEZ: You have the burden of raising it.

BOIES: We have the burden of coming forward and raising it.

PAEZ: Right.

BOIES: But then they have the burden of proving that there will be the substantial harm as a result of the fair use, because the consumer's use here is noncommercial.

BEEZER: You're arguing the burden of proof shifts?

BOIES: Well, the burden of proof -- the burden of going forward, as they used to tell me in evidence, is on us. But the burden of proof in terms of that particular aspect of the defense, the Sony court says it's on them.

They said that the district court had found that none of the uses were substantial. That's simply not true. In fact, at the conclusion of the hearing, the court said there is a lot of space shifting going on. She said that wasn't the predominant use, but she said there's a lot of space shifting is going on.

And space shifting in what this court in the Diamond Rio case held was clearly fair use, because it simply involves a consumer who already has access to a particular piece of music getting that music in another form or in another place. If there's a lot of space shifting going on, that's a fair use, that's a non-infringing use.

And with respect to the new artist program, the new artist program is just one aspect of where people, both new and old artists, give permission, and there are now over 20,000 artists who have given permission to have their works shared.

Now, anybody who is sharing those works is engaged in a lawful activity, and to eliminate the entire peer-to-peer technology prevents that kind of sharing from continuing.

The only other point I would do is to pick up on the vault case, which counsel mentioned. The vault case is a very important case. That is a case in which the Court of Appeals for the 5th Circuit held that Sony compelled the result of continuing to permit the sale of a device whose primary and predominant purpose was to enable the copying of copyrighted materials without authorization, because there was one single very limited use that was lawful, and that was making one archival copy. This amount of fair use goes way beyond that.

SCHROEDER: Thank you, counsel.

BOIES: Thank you, your honor.

SCHROEDER: The matter just argued is submitted for decision. The injunction remains in effect, or is stayed pending further order of the court. That concludes the court's calendar for this morning, and the court stands adjourned.

ALLEN: All right, the recording industry has made its appeal. It would like to get Napster shut down until it can take Napster on in court. It has sued to try to get Napster out of business. Both sides have made their case, and as Roger Cossack said, he believes that the genie is out of the bottle on this one. How long before we find out, Roger, what this court of appeals thinks of this argument in this appeal hearing?

COSSACK: Natalie, I think we're going to hear pretty quickly. This obviously is an important issue, because what -- you know, what the proceedings were today was that the recording industry was saying, we're here to appeal your order, not stopping Napster. The lower court ordered Napster deceased pending the trial, and the Court of Appeals said, no, we are not going to do that.

So obviously it's a very important issue. The recording industry feels that they are losing very much money by every day that Napster goes on. So I think that pending a trial, and a trial date has not been set yet, I think that you'll get a decision from the Circuit Court of Appeals very quickly.

ALLEN: Roger, thank you. Back to Jim Moret out in Los Angeles. Both sides say they are fighting for their survival. Help us understand how this could really kill the recording industry if Napster continues?

MORET: Natalie, it's not just the recording industry. It's virtually all forms of intellectual properties we know. They're movies, DVDs, books, articles, you name it. If you can get it now in any form you can imagine, it can be transmitted over the computer. And you asked me a question earlier about a rift within the recording industry, Metallica -- members of Metallica were very vocal, speaking out against Napster, filing suit against Napster. Meanwhile, Limp Bizkit, another group, embraced the Napster technology and, in fact, was sponsored for a tour.

So even within the industry there are some who believe that allowing people to sample their materials will effectively prompt them to go out and then buy a CD; whereas there are other folks who say, look, this is our life blood, we get paid every time a record is played, every time you buy our record, and Napster, you're killing our business. So there is a division even within the business.

ALLEN: Thanks, Jim Moret and Roger Cossack.

Roger, in 10 seconds, how amazing was it that we had cameras in a federal appeals court today?

COSSACK: Natalie, that may be the most amazing thing of all. I must tell you it is a -- to say that it is rare as hen's teeth that you ever get a camera in the federal court -- in fact, we even talked about it today on "BURDEN OF PROOF," whether or not that we'll ever see a camera inside the Supreme Court, and it is a very, very rare occurrence and, gee, it looked to me like everything went just fine.

ALLEN: It was certainly interesting, and we enjoyed watching it. Thanks so much, Jim Moret, Roger Cossack. I'm Natalie Allen in Atlanta. Up next, presidential politics and "TALKBACK LIVE."

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