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Case Study On Napster Information Technology Essay

Paper Type: Free Essay Subject: Information Technology
Wordcount: 3336 words Published: 1st Jan 2015

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Napster is an online service that allows computer users to share high-quality digital copies (MP3s) of music recordings through the Internet. The San Mateo-based company does not actually store the songs but instead provides an access to every user’s hard drive if he is currently logged on to the service. Napster therefore functions as a sort of clearinghouse, which collects stores and disseminates music recordings. Members can log onto this service, search for the song of their choice, by artist or song title, identify where MP3s of interest are and then download them from another user’s computer hard drive. Napster claiming to have around 15 million users in just a years’ time, has become one of the most popular sites on the Internet. Indeed, students were using Napster so much that many universities had to block the website in order to regain bandwidth.

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Right from its launch, the Napster case had been almost as controversial as it was popular. Barely a year after its launch, it was sued by the Recording Industry Association of America (RIAA). The RIAA represents major recording companies such as BMG, Universal Music, Warner Music Group, EMI and Sony Music. The RIAA said that Napster is violating the copyright laws, by allowing users to exchange digital copies of music recordings for free. The RIAA also demanded that Napster should stop its service immediately. Apart from this the RIAA wanted Napster to pay a huge sum as compensation for the revenues that were lost in the past one year after Napster’s launch.

This E-commerce case related to international business because we know that people from all over the world use Napster to download music. Napster is doing nothing but an International trade of music. This poses a big problem to the BMG, Sony Music and other major recording companies because, once one person has bought the CD and loaded it to his hard drive, the rest of the population can download it for free if they are a member of this Napster service. This brought in a huge loss of revenues for all these companies. The loss due to this type of music swapping by Napster and other related firms accounts to about $300 million. Since Napster is accused of having violated the copyright laws, this becomes a Business Ethics related case.


Napster was created between 1998 and 1999 by a 19 year old called Shawn Fanning while he attended Boston’s North Eastern University. The program was initially written to solve a friend’s problem, who wanted to find music more easily available on the Internet. It was named after Fanning’s Nickname.

The system was called ‘Peer to Peer’ because it allowed music tracks available on one user’s hard drive to be searched and downloaded to another Internet User’s computer. Truly speaking, the service was not a pure ‘Peer to Peer’ since central services which indexed the tracks available and their locations, are similar to the way which instant messaging (IM) works. The capability of the Napster service proved irresistible and Napster use peaked with 26.4 million users all over the world in February 2001.


Within a year of its launch, several major recording companies backed by the RIAA Recording launched a lawsuit against Napster. Some individual bands also sued Napster for allowing free download of music recordings. Metallica, the rock band found that a demo of their song ‘I disappear’ was eventually played on the radio after being circulated in the Napster network for quite some time. Other well-known artists like Madonna and Eminem also vented their intense anger on Napster.

However, some artists found this service turning out to be useful to them. Radiohead, a UK band pre-released some tracks of their album ‘Kid A’ on to Napster and this album subsequently became Number 1 in the US despite failing to achieve this previously.


Finally on March 5th 2001 as a result of legal action an order was issued asking Napster to cease trading of copyrighted material. Napster complied with this order, but tried to make a deal with the record companies saying that Napster will pay past copyright fees and also turn the service into a legal subscription service. In the following year, a deal was agreed with Bertelsmann AG, a German media company to purchase Napster’s assets for $8 million as part of agreement when Napster filed for Chapter 11 bankruptcy in the United States. This sale was blocked and the web site was closed. Eventually, the Napster brand was purchased by Roxio Inc. who used the brand to rebrand their Pressplay service. Pressplay is and online music store that was created in 2002. It is a joint venture between Sony Music Entertainment and Universal Music Group.

Since this time, other ‘Peer to Peer’ services such as Grokster, Kazaa and Gnutella have prospered because it has been more difficult for the copyright owners to sue in court. However, many individuals have now been sued in the US and Europe and the associations of these services with spyware and adware has damaged these services. This eventually reduced the popularity of these services.


In December 1999, as a representative of many major record companies in the music industry, the Recording Industry Association of America initiated legal actions against Napster foe the following copyright violation on the complainant’s exclusive rights for reproduction and distribution of their copyright works:

1. Napster users were directly violating the complainant’s copyright.

2. Napster was liable for contributory violation of the complainant’s copyright.

3. Napster was liable for vicarious violation of the complainant’s copyright.


Napster did not dispute the allegations of direct violation by its users. Therefore the court accused at least some of Napster’s users to be direct violaters through their activities of reproducing and distributing copyright material (music) without permission.

Contributory violation of copyright requires that the defendant should have had some knowledge of the direct violation undertaken by the exterior party and must have materially contributed to the direct violation. The court had already determined that Napster’s users directly violated the plaintiff’s copyright. Napster’s knowledge of these violating activities was proven by the appearance of well-known song titles in promotion screens, a list of 12,000 files that had been subject to copyright violations via Napster and the down loading done by company executives. Finally, material contribution was demonstrated via Napster’s provision of the site and facilities used in directly violating activities. The court consequently said that Napster was liable for contributory violation of the plaintiff’s copyright.

When there is a financial benefit due to the failure to supervise or control a direct violation of copyright where there is a possibility of doing so, a vicarious liability is said to arise. Thus the court said that Napster was liable for vicarious violation as it retained the right to block a user from accessing the network. This detainment amounted to the ability of Napster to control violating activities. However Napster failed to exercise this right for this purpose. Napster’s major attraction for the use of the system relied on the violation of its users. Also, the systems financial viability was directly related to the size of its data base. Thus the court found that Napster obtained direct financial benefit from the violation of users.


Napster unsuccessfully argued four defences to the allegations made against them.

Firstly Napster argued that their right to free speech allowed the legal continuance of their system. The courts determined that free speech is not applicable to the illegal down loading of files without a redeeming purpose.

Secondly, Napster argued that the placement of any ban against the company would result in a lot of financial suffering. However the court held that the hardship borne by Napster is not higher than the interest of the copyright holder.

Thirdly, Napster relied on a legal principle (the Betamax Defence) which states that creators of new technology should not bear the burden of preventing copyright violation where technology is capable of substantial non-violating use. The courts determined that despite Napster non-infringing uses, this principle did not apply as Napster possessed actual knowledge of specific violations and maintained the ability to control them without doing so.

Finally Napster attempted to rely on section 512(a) Digital Millennium Copyright Act (DMCA). This piece of American legislation allows an Internet service provider to provide connections for material that is temporarily stored on its service with impunity under certain conditions. However, Napster could not prove to the court that it fell under the classification of a service provider under the Act.


The District Court ordered Napster to monitor the activities of its network and to also asked them to block access to violating material when notified. Unable to do this Napster consequently shut down its service in July 2001. Due to the outcome of the case Napster eventually declared bankruptcy in 2002 and sold its assets. The Napster trademark was sold to Roxio and a new subscription service using the name was launched in October 2003.


The final decision was made by examining the case based on application and balancing of four factors outlined in Section 107 of the Copyright Act, 1957.

The four factors are

1. The purpose of the use

2. The nature of the work for which the data is being used

3. The amount of the work used

4. The effect of the use on the market for or value of the original work

The analysis of the four factors was relatively succinct and blunt in its conclusion that the exchange of music files had little chance of surviving a test of fair use. I considered the following view of the factors:

Purpose of the Use

The reason why I felt that this factor does not favour fair use is that, first of all the use of music is not transformative and secondly the users of Napster gained a ‘commercial’ benefit. In both the cases the analysis was weak and most of the time flawed but the court said that it wanted to be more sympathetic towards its users. The concept of transformative use inquires whether the downloading activities create some change in the original work and add a utility to it. This transforms the old work into a new one. For example, you read something from and old text and comment on it by giving suggestions for improvement of what has already been written. Sometimes when your suggestions are read and implemented it might lead to an improved version of something that has already been existing. In such a case the data is said to be of fair use because you have contributed in finding out something with a new utility value. Also this new thing that you have created will serve a new need and will have a new audience of users. On these lines, the US Supreme court said that a spoof of a song could be ‘transformative’ as it comments on the work and serves a different purpose, apart from the objective of the original work. The court also made it clear that the transformation of medium, from CD-ROM to an MP3 file cannot be accepted as transformative use. According to Section 107 of Indian Copyright Act, 1957 you also need to find out whether such use is of commercial nature or is for non profit educational purposes, in order to measure and analyse the nature of the use. It is also the responsibility of the District court to find out whether the allegedly fringing use is commercial or non-commercial.

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After all the analysis, the court found some commercial purpose in repeated and exploitative copying. It saved the users of Napster the expense of purchasing authorised copies. The magnitude of users download is a good indicator of his objective and purpose. A person who makes one isolated copy may be using it for a small research project or something similar to that. On the other hand if someone is making many copies, then there is a possibility that he is circulating it among his friends and thus making a huge profit.

Quantity is also a determinant of the potential market harm. Large scale copying stands a very small chance of surviving a fair use test.

Nature of the Original Work

For very obvious reasons, creative work requires more protection than fact based work. Since musical compositions and recordings definitely come under the ‘creative’ category this factor weighs against fair use. While reinforcing this premise they found a little flexibility. However, the analysis is simplistic. Since it was declared that a spoof of a song could be fair use, this factor makes little or no difference in the analysis because a spoof is possible in any type of work. Therefore no type of work should be more or less favoured when it comes to spoofing. This leaves this factor neutral while determining fair use. This shows that one factor influences the shaping of other factors in this discussion.

Amount of the Work Used

The amount of work that has been copied also needs to be taken into account while conducting the fair use test. In 1984, the U.S. Supreme court allowed individuals to record television programmes for later home viewing. That was legalised and permitted. Nevertheless, the court found that Napster users engage in ‘wholesale copying’ of entire works, which is against fair use. The court took no effort to explain why this was considered wrong. They also refused to explain why it is different from any other example of copying whole works.

Effect on the Market

The use of Napster leads to two major forms of harm to the Music industry

Loss of sales of compact discs

A heightened barrier to entry by the music industry into the market for electronic delivery of music

This will not only cause harm to the present market but will also affect the future market which is not a very desirable scenario. To reach this conclusion, the court relied on results of research conducted by the RIAA to test the effect of Napster use on sales. Napster introduced its own study and proved that the use of Napster actually increased CD sales. The court rejected this saying that there was not enough objective data collected for the research.

Overall, the court gave very little room for Napster to make a claim of fair use, having found summarily that all four of the factors weigh against fair use and in favour of violation.



At an absolute minimum, the Napster decision is a reminder to all such clearing houses that the copyright law clearly applies to sound recordings. It also makes it very clear that the courts will look critically and take strict action on large-scale services that copy and distribute works. The Napster decision demands a close look at the copyright implications of the digital library, but its shallow legal analysis offers little insight for better understanding the law. Both the district court and the appeals court seemed to have no sympathy for Napster’s legal position, and consequently neither court seemed to perceive a need to explore and explain the subtleties of the rulings. The proposed digital library has a different structure when compared to Napster. While Napster serves as a clearance house where the system does not actually store the songs but instead provides an access to every user’s hard drive if he is currently logged on to the service, a digital library manager will determine which materials are available for use and only if he permits will the user be able to download the file. The library can also be in the position of facing accusations of direct violation, along with the users who might download, copy, share, and manipulate the files. Such a library system will be most unlikely to have any benefit of the “safe harbour” for online service providers; that protection generally applies only to systems that operate as “conduits” and do not actually choose and post the content.

According to the Napster and other related cases, a library of music files on a computer system may not fit within the protections of the Audio Home Recording Act of 1992. Ultimately, the library depends on fair use and other limitations on the rights of the copyrights owner. Also, we do not get a clear picture of the fair use test from the Napster ruling case. The analysis of the Napster case shows that the court was in a hurry towards a conclusion and hence did not give proper elaboration as to why each of the factors weighed against fair use of downloaded data.

Here I will give you an elaborate meaning of the four factors that are considered in the fair use test.

Purpose of the use

Transformative uses are strongly favoured. If the original recording is being transformed into something that serves a new need and has a new set of users it is said to be transformative. Simply conversion of music file from a CD format to an MP3 format is not considered to be transformative. Courts will also be uncertain of “commercial” uses or any uses that might eventually benefit a commercial party. If the recording or music is being used for some educational purpose like a research project then it is said to be fairly used

Nature of the original work

This factor remains problematic and vague when one is looking at it as a factor to measure fair use. Creative works are generally subject to narrow fair use, when compared to fact based findings and musical works are easily deemed “creative.” Similar to the previous factor when the data is used for educational purposes the court seems to be more sympathetic towards the users.

Amount of the work used

This factor lays a limit on the amount of work that has been copied. A tolerable amount is considered to be legal. However, when it comes to music, the limit on this is reduced a music is deemed to be creative.

Effect on the market

This factor determines how the related market is being affected because of this illegal sharing of information through the internet. The music industry is affected by the decrease in sales of CDs due to the immense amount of music available for free on the internet. This not only affects the preset market but also the future market. The amount ir affects the future market should also be taken into consideration while calculating the fair use of the infringement.

Market harm may be found if the library and the owner make the entire work accessible in the same manner at the same time. On the other hand if the library and the owner make the work available in different versions or at different times market harm will be difficult to infer. In the latter case the library must make the work available in a manner that is specific to a particular course.

The examination of fair use in the Napster ruling is of course superficial. It does not give us thorough information of all the issues. A detailed study is necessary in order to examine the issue of fair use more thoroughly and also to examine its potential implications for the Digital Music Library.


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