Judge Marilyn Hall Patel's Ruling [Transcript] - Part 2

The evidence before the court overwhelmingly establishes that defendant had actual or at the very least constructive knowledge, and this applies as well to the Digital Millennium Recording Act aspect of this under subsection (D), that defendant had actual or constructive knowledge that third parties were engaging and continue to engage in direct copyright infringement by downloading/uploading MP3 files using the Napster service.

This evidence includes internal documents authored by Napster executives stating that Napster was making pirated music available, stressing the need to remain ignorant of Napster users' identities and IP addresses since they are exchanging pirated music; notice from the Recording Industry Association of America that it identified 12,000 infringing files on Napster; the fact that Napster executives had recording industry experience and at least some knowledge of copyright laws; and the fact that Napster executives downloaded copyrighted music to their own computers using the service.

So therefore, I find that plaintiffs have established a likelihood of success, in fact a strong likelihood of success, on the knowledge--or actual or constructive knowledge--of this component as well as for the safe harbor provisions under the DMCA.

The next element, the second element after--I should say the third because we've talked about direct infringement and knowledge--is that the defendant terribly contributed to copyright infringement by parties under 9th Circuit law.

The evidence shows that among other activities, defendant supplies the proprietary software, search engine, the means of establishing a connection between Napster users' computers, and without those services Napster users could not find and download the music they want--at least not via Napster. In fact, that was the whole reason for Napster's existence, if you look at their early business plans, and what they purported to do, and what they told their consumers or users they were doing.

With respect to vicarious copyright infringement, not only must direct infringement be shown, and we've gone over that, but there also must be the right and ability to supervise the infringing activity and a direct financial interest in such activity.

Again, the court finds that plaintiffs have established a likelihood of success on vicarious liability, although I could leave it at contributory infringement. I'm going to move to that one as well. That way when you take me up if I'm wrong on one, maybe I'm right on the other, whatever else, or I'm wrong on both.

(laughter)

The court: But plaintiffs have argued, and I think persuasively, that defendant is capable of exercising supervisory powers over its service. And I have to add here that though it may be technologically difficult, when you create a program that had the very purpose that Napster espouses that it had, and then you--you know it's sort of like, you know, becoming an orphan because--by your own hand and then throwing yourself on the mercy of the court because you're an orphan. It's rather hard to hear that sound of throwing themselves on the mercy of the court because this technology just isn't going to allow them to do or control the infringement.

In fact, I'm sure that anyone as clever as the people who wrote the software in the case are clever enough, as there are plenty or those minds in Silicon Valley to do it, can come up with a program that will help to identify infringing items as well. I think the evidence shows that there's no desire to do that.

Although defendant, as I said, contends that it is technologically difficult to distinguish copyrighted and authorized from not copyrighted or copyrighted and unauthorized, defendant has taken great paints to inform the court about methods it uses for blocking users about whom rights holders complain. The defendant can in fact police, and will have to given the nature of its program and the very purposes of it, police its service. And the court finds that, in fact, the defendant does have the right and ability to supervise.

With regard to the financial interest, it is true that defendant is not charging a fee, receiving any money in exchange for this service. However, it is clear also from the record that there have been substantial investments in the service and that part of the business plan or discussions among the persons who operate and direct and control Napster include talks or plans about monetizing its user base through one of several revenue-generating models.

The availability of a myriad of popular music files, most of which are copyrighted, certainly attracts people to the user base, and the court rejects defendant's argument that its noninfringing use lures customers to its service. I don't think that's what lures them. What lures them is the infringing use.

And they have, in fact, discussed among themselves ways to monetize that, that they intend sometime to make a profit. I recall reading--I think in Richardson's deposition--that, in fact, it was not a not-for-profit organization. They intend someday to make a profit.

Even if that were not the case, there certainly is, when one gets to irreparable injury, a presumption as well that is invoked by reason of having found a likelihood of success on the merits of irreparable harm, and that dovetails with this area that I'm just talking about.

Because plaintiffs have shown a likelihood of success--and I think a strong likelihood of success--on the merits, on both contributory and vicarious copyright claims, infringement claims, they're entitled to a presumption of irreparable harm, and I reject the defendant's contention that it's de minimis.

Plaintiffs presented evidence that they're likely to be injured by reduced CD sales and impediments into entry into the digital downloading market--I can't give much weight to the fact that defendants' content this will put them out of business. They have contended that there are other uses that Napster can be put to and is capable of, and if that is in fact the case, they're not deprived of doing that. Nor are they deprived of assisting the new artists or publishing the music--or assisting, rather, in the publishing of music--or copying of music of persons who authorize them to do so or to present new artists with an opportunity to be heard over the Internet, and so forth.

The court has to, of course, tailor an injunction that is narrow enough to meet only the needs that are invoked by plaintiff's copyrights. At the same time, while it may in fact have a significant--is likely to have a significant--negative impact upon defendants, I don't think that the burden shifts--or, rather, the balance of hardships shifts--in their favor because to hold otherwise would essentially allow wholesale infringing, as has been going on in this case, without the ability of plaintiffs to stop the hemorrhaging of that.

So the question is: What should that injunction look like? And I think, given the language in the Disney vs.--is it Disney vs. Powell? I'll pull it up here in a minute--case and a number of other cases have talked about the problem of whether all the copyrighted material has been identified, that the court can in fact enjoin not only that which is in suit, such as what was enumerated in the complaint or the appendix to the complaint in this case, but also all other copyrighted works owned by the plaintiff for which authorization for use has not been permitted.

And the reason that I believe that the court can fashion an injunction of that nature and of that breadth, but it does not go beyond plaintiffs, it does not go to other copyrighted works of parties who are not--persons who are not--parties to this litigation, the reason I believe I can do that is because where the business itself, the nature of the infringing is the wholesale magnitude. What is involved here, and where defendants have acknowledged that, it's very difficult to identify what is infringing and what isn't. I cannot essentially sit by on that, and plaintiffs are entitled to enforce their copyright rights and not have them infringed just because the nature of the technology is such that it's too hard to identify.

Now, how one ultimately does identify, I suppose something can be done between now and the permanent injunction time, and I will invite you to submit a proposed injunction, but for the time being, Napster is enjoined from causing or assisting or enabling or facilitating or contributing to the copying, duplicating or otherwise other infringement upon all copyrighted songs, musical compositions or material in which plaintiffs hold a copyright or with respect to plaintiffs' pre-1972 recordings in which they hold the rights.

And you can explain to me why that injunction either is not broad enough or is not narrow enough given what I have said but--and I don't know how you're going to identify all of those items--but you don't get the benefit of the DMCA essentially requiring that they provide notice to you of each and every complaint. But for now, Napster is enjoined from doing the acts that I just described.

Mr. Frackman, is there anything else that should be included in than injunction at this point?

(RIAA attorney Russell) Frackman: I don't think so, your honor. Thank you.

The court: Is there any way it can be narrowed and still--

Frackman: I don't see how, your honor.

The court: --protect your rights?

Frackman: I don't see how, your honor.

The court: Mr. Boies, Mr. Johnson?

(Napster attorney David) Boies: I don't see how that is--with respect, your honor--susceptible of being fairly implemented. We don't even have a list of what is claimed to be copyrighted under the court's order.

Even leaving aside the issues that the court has before it in the record as to how you would implement that, I frankly don't think that the injunction is something that gives us any fair ability to comply with it and still operate simply because of the way, as we've tried to explain to the court, peer-to-peer system works.

Now, as I hear the court--

The court: That's the system that has been created.

Boies: Exactly. And as I hear the court--

The court: And I think you're stuck with the consequences of that.

Boies: Right. And as I hear the court, the court is saying the court understands what the court has done but believes this is the appropriate thing to do, and--

The court: That's right.

Boies: And I --

The court: And I think it's--Napster wrote the software. It's up to them to try to write software that will remove from that, you know, from the users the ability to copy copyrighted material. And that's their problem, I think. They've created the, quote, "monster," for want of a better term, and I guess, you know, that's the consequence they face.

Boies: Just to--

The court: I mean, they can have their chat rooms, and they can solicit those new artists.

Boies: Your honor, without trying to reargue, because I know the court has made up its mind, and I accept that the court has made up its mind, however erroneous I may think it is, but the only thing I want the court to focus on is that when the court says that Napster wrote the software, what Napster did was to take file-transfer software and simply adapt it to exchanging MP3 files.

The court: Whatever it did, it's going to have to figure out how to undo it or how to operate in a way so that it is not facilitating the copying of copyrighted material period--copyrighted material of plaintiffs admittedly--and that' s up to them to figure out.

And I say that because it is such a wholesale copying effort that it's not as if there were just a handful of things that were being--you know, items or songs that were being--infringed upon.

I really am not willing to put the burden on plaintiff. I certainly believe that they should work with defendant during the period of time between now and the next proceeding to see what can be done to make sure that they're only removing--you're only removing--their copyrighted work; but in the meantime--or access to their copyrighted work--in the even meantime, we can't--you know, I can't--just let it go on. A strong case has been made.

Boies: Does the court understand that there are two separate issues that we're talking about here in terms of the scope? One issue is how would you go about changing a peer-to-peer file-transfer program to accomplish what the court wants to do even if you knew what songs were claimed to be copyrighted. That's one issue. The second issue is we don't even have a list of the songs that are claimed to be copyrighted. Do you understand that there are both of those places?

The court: I understand that. But you're--but what your client is doing is facilitating something that involves the infringing upon plaintiffs' copyrighted works, and they're going to have to figure out. Since they're doing it on such a wholesale basis, they're going to have to figure out a way to make sure they don't assist or facilitate in that any longer.

Now, if the users want to share files in some other way, that's between them, and it's up to the plaintiffs to try to enforce their rights as against them, you know, if there is a system that comes into being. And I guess there are some others that are in being that allow people to do pretty much the same thing. That's up to them to enforce those rights.

That doesn't mean that I can't restrain Napster, because they're the only ones before the court right now, from doing what they're doing.

Boies: Could I raise one other question that doesn't go to this issue?

The court: Yes.

Boies: And that is the issue of the timing when this goes into effect. And there are really two aspects of that.

One is whether the court is prepared to grant a stay pending an application to the Court of Appeals for a stay; and, second, if the court is not prepared to do that, how long the court plans to give us to implement the court's injunction.

The court: Why don't you answer the first question.

Frackman: How long?

The court: I mean the second question first. How long should they be given to--

Frackman: Right now.

The court: And you're looking at the clock.

Frackman: Yes, I am, your honor.

The court: Not the calendar.

Frackman: That's right.

(laughter)

Frackman: Intentionally.

Your honor, we filed this lawsuit on Dec. 7. We told them at the time we filed the lawsuit we would be seeking a preliminary injunction. This motion has been pending for two months. They've known since that time at least that today would very well be the day of reckoning.

If this injunction does not go into effect immediately, I think your honor knows and I think we know what's going to happen with those 20 million users until it does go into effect, and that's going to be a rush to the computer and enormous amounts of downloading.

And it's not unfair, your honor. They've had eight months of notice, and so I would say immediately would be my request.

Boies: There is obviously no way that we could fairly implement it immediately. The only way you could do it immediately is to stop the service; and if the court is going to order that--I mean, the court will obviously order what the court will order--but I would respectfully suggest to the court that to say to Napster, "You've got to figure out a way of preventing the copying of copyrighted works that are not even identified and you must do so immediately," is simply saying, "You must shut your business down."

And if the court believes that, that is the appropriate thing to do, the court will order that, but I would simply urge the court that, that goes far beyond what even the court has found.

The court: I'm not ordering them to shut their business down. I want to make that clear. What about all those substantial noninfringing uses you were trying to convince me of earlier?

Boies: Right. Well, but the problem is, your honor, is that those substantial--it's a problem of separating out the noninfringing uses from what the court finds to be infringing uses. And what I'm saying to the court and what I think the papers quite clearly demonstrate is that, that is not possible to do today. It's not possible to do. I'm not sure--

The court: None of this should come as a surprise to anyone, really.

Boies: Well, your honor, all I can--

The court: I mean, this litigation has been going on for some time now, and it should not come as a surprise.

Midnight tomorrow night, OK?

Boies: Will the court--

Today is August the 26th--

Frackman: July, your honor.

The court: I really want to be in August. I'm sorry.

July the 26th. Is that right, or 25th? 26th.

Boies: 26th, I think, your honor.

The court: Until Friday midnight, July the 28th, midnight.

No, I will not grant a stay. If you want a stay, you can go to the 9th Circuit. OK?

Boies: And is the court going to grant a bond?

The court: Why not? And if so, how much?

(RIAA attorney Carey) Ramos: Your honor, if I may address that.

The court: Maybe you should say first. How much? You answer that question.

Boies: Your honor, we think a minimum--we said in our papers we thought that the value of the business is between $800 million and a billion-and-a-half dollars. And we think it should be a minimum of $800 million.

These are substantial companies, but they're not that substantial without the posting of the bond; and we think the law absolutely requires it. This is not a matter we think is committed to the court's discretion in terms of posting an adequate bond. And I think that particularly given the breadth of the injunction that the court is issuing--and the time frame that the court is requiring at the plaintiffs' instance this be done at--the court is obligated to impose that bond.

The court: Yes?

Boies: There is no evidence in the record to the contrary in terms of the amount of the bond from the plaintiffs. We do not have anything from the plaintiffs that contradicts the need for that amount of bond.

Ramos: Your honor, that's not correct.

The court: Yes?

Ramos: I begin by reference to your honor's analogy about the orphan asking for the mercy of the court. This is the orphan not only asking for the mercy of the court but asking the court for compensation for the loss of the parents the orphan killed. I think it turns this case on its head.

Your honor indicated that the court had found a very strong likelihood of success on the merits and, frankly, I think to require us to put up a bond of anything like the amount that's been requested would be adding insult to injury.

The value of this company, if there is any value in this company, is the value of the copyrighted music of my client and Mr. Frackman's client, and to ask us to pay again for the creative efforts of our clients by posting a bond of that size I think is completely inappropriate.

The court: What are you proposing?

Ramos: Having said that, your honor, and, frankly, under the circumstances, genuinely believing that no bond here is required, I believe that there are cases in the 9th Circuit that support that conclusion. If your honor so decides, I believe the maximum, and this is in the record, the maximum should be the amount that was invested in this company prior to the filing of this lawsuit, which I believe was no more than $2 million.

I believe that any money invested after the lawsuit was filed was invested at the peril of investors and that they were on ample notice that there could be a finding of copyright liability as there, at least on a preliminary basis has been in the court.

I'm speaking for, I believe, for both sets of plaintiffs in that regard, your honor.

The court: Well, I will set a bond at $5 million.

Can that be posted by midnight--well, four o'clock on Friday?

Frackman: Most definitely, your honor.

The court: OK. Thank you. And you're excused.

Frackman: Thank you, your honor.

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