The matter before the court concerns the boundary between sharingand theft, personal use and the unauthorized worldwide distributionof copyrighted music and sound recordings.1 On December 6, 1999,A&M Records and seventeen other record companies ("record companyplaintiffs") filed a complaint for contributory and vicariouscopyright infringement, violations of the California Civil Codesection 980(a)(2), and unfair competition against Napster, Inc.,2an Internet start-up that enables users to download MP3 music fileswithout payment. On January 7, 2000, plaintiffs Jerry Leiber, MikeStoller, and Frank Music Corporation filed a complaint for vicariousand contributory copyright infringement on behalf of a putative classof similarly-situated music publishers ("music publisher plaintiffs")against Napster, Inc. and former CEO Eileen Richardson. The musicpublisher plaintiffs filed a first amended complaint on April 6,2000, and on May 24, 2000, the court entered a stipulation ofdismissal of all claims against Richardson.3 Now before thiscourt is the record company and music publisher plaintiffs' jointmotion to preliminarily enjoin Napster, Inc. from engaging in orassisting others in copying, downloading, uploading, transmitting, ordistributing copyrighted music without the express permission of therights owner.
In opposition to this motion, defendant seeks to expand the "fairuse" doctrinearticulated in Sony Corp. of America v. Universal City Studios,Inc., 464 U.S. 417 (1984), to encompass the massive downloadingof MP3 files by Napster users. Alternatively, defendant contendsthat, even if this third-party activity constitutes direct copyrightinfringement, plaintiffs have not shown probable success on themerits of their contributory and vicarious infringement claims.Defendant also asks the court to find that copyright holders are notinjured by a service created and promoted to facilitate the freedownloading of music files, the vast majority of which are copyrighted.
Having considered the parties' arguments, the court grantsplaintiffs' motion for a preliminary injunction against Napster, Inc.The court makes the following Findings of Fact and Conclusions of Lawto support the preliminary injunction under Federal Rules of CivilProcedure 65(d).
I. FINDINGS OF FACT
A. MP3 Technology
1. Digital compression technology makes it possible to store audiorecordings in a digital format that uses less memory and may beuploaded and downloaded over the Internet. See David M. Lisi Dec.(Tygar Rep.) at 11. MP3 is a popular, standard format used to storesuch compressed audio files. See Edward Kessler Dec. ¶ 3;4 LisiDec. (Tygar Rep.) at 11. Compressing data into MP3 format results insome loss of sound quality. See List Dec. (Tygar Rep.) at 12.However, because MP3 files are smaller, they require less time totransfer and are therefore better suited to transmission over theInternet. See id. at 11.
2. Consumers typically acquire MP3 files in two ways. First, usersmay download audio recordings that have already been converted intoMP3 format by using an Internet service such as Napster. See LisiDec. (Tygar Rep.) at 11. Second, "ripping" software makes it possibleto copy an audio compact disc ("CD") directly onto a computerhard-drive; ripping software compresses the millions of bytes ofinformation on a typical CD into a smaller MP3 file that requires afraction of the storage space. See id.; Kessler Dec. ¶ 32; 1 LaurenceF. Pulgram Dec., Exh. A (Conroy Dep.) at 13:19-24.
B. Defendant's Business
1. Napster, Inc. is a start-up company based in San Mateo,California. It distributes its proprietary file-sharing software freeof charge via its Internet website. People who have downloaded thissoftware can log-on to the Napster system and share MP3 music fileswith other users who are also logged-on to the system. See KesslerDec. ¶ 6. It is uncontradicted that Napster users currently upload ordownload MP3 files without payment to each other, defendant, orcopyright owners.
According to a Napster, Inc. executive summary, the Napster servicegives its users the unprecedented ability to "locate music by theirfavorite artists in MP3 format." 1 Frackman Dec., Exh. A (RichardsonDep.), Exh. 127 at ER000131.5 Defendantboasts that it "takes the frustration out of locating servers withMP3 files" by providing a peer-to-peer file-sharing system thatallows Napster account holders to conduct relatively sophisticatedsearches for music files on the hard drives of millions of otheranonymous users. See A&M Records, Inc. v. Napster, Inc., 2000WL 573136, at *1 (N.D.Cal. May 12, 2000) (citing Def.'s Mot.for Summ. Adjud.) at 4.
2. Although Napster was the brainchild of a college student whowanted to facilitate music-swapping by his roommate, see 1 FrackmanDec., Exh. B (Fanning Dep.) at 31:10-35:1, it is far from a simpletool of distribution among friends and family. According todefendant's internal documents, there will be 75 million Napsterusers by the end of 2000. See 1 Frackman Dec., Exh. A (RichardsonDep.) at 318:19-319:1, Exh. 166 at 002725. At one point, defendantestimated that even without marketing, its "viral service" wasgrowing by more than 200 percent per month. Id., Exh. 127 at ER00130.Approximately 10,000 music files are shared per second using Napster,and every second more than 100 users attempt to connect to thesystem. See Kessler Dec. ¶ 29.
3. Napster, Inc. currently collects no revenues and charges itsclientele no fees; it is a free service. See, e.g., 1 Frackman Dec.,Exh. A (Richardson Dep.) at 179:15. However, it has never been anon-profit organization. See id. at 116:10. It plans to delay themaximization of revenues while it attracts a large user base. Seeid., Exh. 127 at ER00130; 1 Frackman Dec., Exh. C (Parker Dep.) at160:1-162:14, Exh. 254 at SF00099. The value of the system grows asthe quantity and quality of available music increases. See id. at112:18-113:2, Exh. 127 at ER00130; David J. Teece Rep. at 4.Defendant's internal documents reveal a strategy of attaining a"critical mass" of music in an "ever-expanding library" as newmembers bring their MP3 collections online. See 1 Frackman Dec.(Richardson Dep.), Exh. 127 at ER00130; Exh. C (Parker Dep.) at160:1-162:14, Exh. 254 at SF00099.
Defendant eventually plans to "monetize" its user base. See id. at115:24-116:13; Teece Rep. at 4, 7-11. Potential revenue sourcesinclude targeted email; advertising; commissions from links tocommercial websites; and direct marketing of CDs, Napster products,and CD burners and rippers. See 1 Frackman Dec., Exh. C (Parker Dep.)at 160:1-162:14, Exh. 254 at SF00099-100; Teece Rep. at 2-3.Defendant also may begin to charge fees for a premium or commercialversion of its software. See Teece Rep. at 8; cf. 1 Frackman Dec.,Exh. A (Richardson Dep.) at 179:6-25. The existence of a large userbase that increases daily and can be "monetized" makes Napster, Inc.a potentially attractive acquisition for larger, more establishedfirms. See Teece Rep. at 7.
4. Napster Inc.'s value-which is measured, at least in part, by thesize of its user base-lies between 60 and 80 million dollars. SeeTeece Rep. at 11-12; Def.'s Opp. at 35. Defendant obtainedsubstantial capital infusions after the onset of this litigation. Forexample, in May 2000, the venture firm Hummer Winblad purchased atwenty-percent ownership interest in the company for 13 milliondollars; other investors simultaneously invested 1.5 million dollars.See Hank Barry Dec. ¶ 7.
5. The evidence shows that virtually all Napster users download orupload copyrightedfiles and that the vast majority of the music available on Napsteris copyrighted. Eighty-seven percent of the files sampled byplaintiffs' expert, Dr. Ingram Olkin, "belong to or are administeredby plaintiffs or other copyright holders."6 Olkin Rep. at 7.After analyzing Olkin's data, Charles J. Hausman, anti-piracycounsel for the RIAA, determined that 834 out of 1,150 files inOlkin's download database belong to or are administered byplaintiffs; plaintiffs alone own the copyrights to more than seventypercent of the 1,150 files. See Charles J. Hausman Dec. ¶ 8. Napsterusers shared these files without authorization. See id.
6. Napster, Inc. has never obtained licenses to distribute ordownload, or to facilitate others in distributing or downloading, themusic that plaintiffs own. See Kevin Conroy Dec. ¶ 4; RichardCottrell Dec. ¶ 5; Mark R. Eisenberg Dec. ¶ 21; Lawrence Kenswil Dec.¶ 15; Paul Vidich Dec. ¶ 8; Mike Stoller Dec. ¶ 11.
7. Defendant's internal documents indicate that it seeks to takeover, or at least threaten, plaintiffs' role in the promotion anddistribution of music. See, e.g., 1 Frackman Dec., Exh. C (ParkerDep.), 160:1-162:14, Exh. 254, at SF00099 (declaring that"[u]ltimately Napster could evolve into a full-fledged musicdistribution platform, usurping the record industry as we know ittoday and allowing us to digitally promote and distribute emergingartists at a fraction of the cost" but noting that "we should focuson our realistic short-term goals while wooing the industry before wetry to undermine it").7
8. Defendant's internal documents also demonstrate that itsexecutives knew Napster users were engaging in unauthorizeddownloading and uploading of copyrighted music. See, e.g. 1 FrackmanDec., Exh. C (Parker Dep.) at 160:1-162:14, Exh. 254 at SF00100(stating that Napster users "are exchanging pirated music."); id. atSF00102 ("[W]e are not just making pirated music available but alsopushing demand"). Several Napster executives admitted in theirdepositions that they believed many of the millions of MP3 musicfiles available on Napster were copyrighted.See, e.g., 1 Frackman Dec., Exh. B (Fanning Dep.) at 105:10-108:2.
9. At least on paper, the promotion of new artists constituted anaspect of defendant's plan as early as October 1999. See Sean F.Parker Dec. ¶ 5 & Exh. B;8 Scott Krause Dec. ¶ 6. New or unsignedartists now may promote their works and distribute them in MP3 formatvia the Napster service. See Krause Dec. ¶¶ 8-15. Napster, Inc. hassought business alliances and developed both Internet- andsoftware-based technologies to support its New Artist Program. SeeParker Dec. ¶ 6.
However, the court finds that the New Artist Program accounts for asmall portion of Napster use and did not become central todefendant's business strategy until this action made it convenient togive the program top billing. An early version of the Napster websiteadvertised the ease with which users could find their favoritepopular music without "wading through page after page of unknownartists." 1 Frackman Dec., Exh. C (Parker Dep.) at 104:16-105:10,Exh. 235. Defendant did not even create the New Artist Program thatruns on its Internet website until April 2000-well after plaintiffsfiled this action.9 See Krause Dec. ¶ 9, Exh. A.
Moreover, in Olkin's sample of 1,150 files (which were randomlyselected from over 550,000), only 232 files matched any of the 19,440names that were listed in defendant's new artist database as of July2000. See Olkin Reply Dec. ¶¶ 3-5; Hausman Reply Dec. ¶¶ 3-6. An RIAArepresentative who analyzed the data also noted that the list ofso-called new artists actually contained many popular starsrepresented by major record labels-among them teen sensation BritneySpears and the legendary alternative rock band Nirvana. See HausmanReply Dec. ¶ 5. Once established artists were eliminated from theresults, only eleven new artists and fourteen of their music filesremained in Olkin's sample of 1,150 files. See id. ¶ 6.
10. Defendant employs the term "space-shifting" to refer to theprocess of converting a CD the consumer already owns into MP3 formatand using Napster to transfer the music to a different computer-fromhome to office, for example.10 See Def. Opp. at 12. The courtfinds that space-shifting accounts for a de minimis portion ofNapster use and is not a significant aspect of defendant's business.
According to the court's understanding of the Napster technology, auser who wanted to space-shift files from her home to her officewould have to log-on to the system from her home computer, leave thatcomputer online, commute to work, and log-onto Napster from her office computer to access the desired file.In the meantime, many users might download it before she reachedthe office. Common sense dictates that this use does not drawusers to the system. Defendant fails to cite a single Napster,Inc. document indicating that the company saw space-shifting asan attraction for its user base, and survey evidence shows thatalmost half of college-student survey respondents previouslyowned less than ten percent of the songs they have downloaded.See E. Deborah Jay Rep. at 4, 21 & Tbl. 7.
C. The Napster Technology
1. Internet users may download defendant's proprietary MusicSharesoftware free of charge from the Napster website. This free softwareenables users to access the Napster computer network. See Kessler Dec. ¶ 6.
2. The software becomes fully functional after users register withNapster by selecting an account name, or "user name," and a password.See Kessler Dec. ¶¶ 6, 23. Persons who register may includebiographical data, but registration does not require a real name oraddress. See 2 Frackman Dec., Exh. E (Kessler Dep.) at 255:20-257:22.Napster does not associate user names with the biographicalinformation that individuals provide at registration. See id. Indeed,after a user logs-on, her physical address information is no longeravailable to the Napster server. See id.
3. The software features a browser interface, search engine, andchat functions that operate in conjunction with defendant's onlinenetwork of servers. See id. ¶¶ 6, 13. The software also contains a"hotlist" tool that allows users to compile and store lists of otheraccount holders' user names. See id. ¶ 8.
In addition, the Napster software may be used to play andcategorize audio files, which users can store in specific filedirectories on their hard drives. See id. ¶¶ 6-7. Those directories,which allow account holders to share files on Napster, constitute the"user library." Id. Some users store their MP3 files in suchdirectories; others do not. See id.
4. Defendant maintains clusters of servers that compose its networkor system. See Kessler Dec. ¶ 13. Account holders who access theNapster network may communicate, share files, and learn of designatedhotlist names only within the cluster to which they are assigned. Seeid. Users can access the network of servers free of charge.
5. Once an account holder signs on to the Napster network, theNapster browser interacts with its proprietary server-side software.See id. ¶¶ 7, 8; 2 Frackman Dec., Exh. E (Kessler Dep.) at54:16-56:10. If a user sets the "allowable uploads" function of theMusicShare software above zero, all of the MP3 file names she storesin her user library automatically become available to other onlineNapster users. See Kessler Dec. ¶ 7.
However, before the client software uploads MP3 file names todefendant's master servers, it "validates" the files stored in theuser library directories. See 2 Frackman Dec., Exh. E (Kessler Dep.)at 145:2-18. The client software reads those files to ensure they areindeed MP3 files, checking to see whether they contain the propersyntax specification and content. See id. If the files are notproperly formatted, their file names will not be not uploaded to theNapster servers. See id.
Once the file names are successfully uploaded to the servers, eachuser library, identified by a user name, becomes a "location" on theservers. Kessler Dec. ¶ 8. Napster locations are short-lived; theyare respectively added or purged every time a user signs on or off ofthe network. See id. Thus, a user's MP3 files are only accessible toother users while she is online.
6. A user who is logged-on to the Napster servers via the clientsoftware may access the content of other users' uploaded "locations"in one of two ways: (a) by utilizing defendant's proprietary searchengine,or (b) by employing the hotlist tool featured in the client software.See id. ¶ 12.
7. An account holder may use the search tools included in theNapster client software to find MP3 files. See id. ¶ 10. Theserver-side application software maintains a search index that isupdated in real time as users log-on and -off of the system. See id.;2 Frackman Dec., Exh. E (Kessler Dep.) at 56:3-10.
The file-name index contains the names of MP3 files that on-lineusers save in their designated user library directories. See KesslerDec. ¶¶ 7, 14; 2 Frackman Dec., Exh. E (Kessler Dep.) at 55:14-56:10;Exh. 2.
Users who wish to search for a song or artist may do so by enteringthe name of the song or artist in the search fields of the clientsoftware and then clicking the "Find It" button. When the search formis transmitted to the Napster network, the Napster servers send therequesting user a list of files that include the same term(s) sheentered on the search form. See Kessler Dec. ¶ 5; 2 Frackman Dec.,Exh. E (Kessler Dep.) at 56:3-10.
After the application software returns a list of specific MP3 filenames to the requesting user, the user then must peruse the list todetermine whether she desires any of those files. See id. ¶ 10. Shemust read through the list because the Napster application softwaredoes not search for a particular song or recording artist per se.Napster does not organize MP3 files based on content because,currently, they are not designed for such indexing. See id. ¶ 11.Instead, Napster performs a text search of the file names indexed ina particular cluster. Those file names may contain typographicalerrors or otherwise inaccurate descriptions of the content of thefiles since they are designated by other users. See id. ¶¶ 13, 10, 27;2 Pulgram Dec. Exh. B (Fanning Dep.) at 116:8-19.
In addition to listed text results from an executed search,Napster's servers provide other information about particular MP3files. For instance, the client software can sort the results of"echo packets" or "ping requests" that it sends out to host users;these requests help gauge the "responsiveness value" of atransmission between two users by calculating the amount of time ittakes for ping responses to be returned to the client software. See 2Frackman Dec., Exh. E (Kessler Dep.) at 56:3-10, Exh. 5 at 3; ShawnFanning Dec. ¶ 8. Users can also search for files that meet certaintechnical criteria, such as the host user's bandwidth. See id.Finally, the file name or "data object description" includes the sizeand bytes stored and "attributes of quality," such as bit rate. See 2Frackman Dec., Exh. E (Kessler Dep.) at 153:16-154:24; Fanning Dec. ¶8. These Napster options contribute to the ease with which the usercan locate and obtain the music she wants.
8. Alternatively, users may access MP3 files via the hotlistfunction. This function enables a Napster user to archive other usernames and learn whether account holders who access the network underthose names are online. See Kessler Dec. ¶¶ 8-9. A requesting user canaccess or browse all files listed in the user libraries of hotlistedusers. See id. ¶ 9. Then she can request a particular file in a hostuser's user library by selecting, or clicking on, that file name. Seeid. The hotlist function is a feature that helps make Napster users avirtual community-they are not only able to download the music theydesire, but also to obtain files from particular individuals whomthey know by user name.
9. The Napster network facilitates the same mode of file-transfer,whether a requesting user accesses a specific MP3 file with thesearch engine or the hotlist. See id. ¶ 12. Once a requesting userlocates and selects the file she wishes to download, the server-sidesoftware engages in a dialogue with her browser and that of the "hostuser" (that is, the user who makes the MP3 available fordownloading). See Kessler Dec. ¶ 12; 2 Frackman Dec., Exh. E (KesslerDep.) at 80:19-22; 56:3-10. Napster servers obtain the necessary IPaddress information from the host user. See Daniel Farmer Dec. ¶ 17;Frackman Dec., Exh. 1 (Kessler Dep.) at 103-05. The servers thencommunicate the host user's address or routing information to therequesting user; the requesting user's computer employs thisinformation to establish a connection with the host user's browsersoftware and download the MP3 file from the host user's library. SeeKessler Dec. ¶¶ 10-13; 2 Frackman Dec., Exh. E (Kessler Dep.) at56:3-10. The content of the actual MP3 file is transferred over theInternet between users, not through the Napster servers. See KesslerDec. ¶ 12; A&M Records, Inc. v. Napster, Inc., 2000 WL 573136, at *7(N.D.Cal. May 12, 2000). However, users would not be able to accessthe uploaded file names and corresponding routing data withoutsigning on to the Napster system. See Kessler Dec. ¶ 23.
10. In some instances, a requested file is not immediately readyfor download. Those files are "queued" or deferred until the hostuser is able to transmit the file. See 2 Frackman Dec., Exh. E(Kessler Dep. at 80:2-22). The request may be deferred, for example,because the host user has limited the number of downloads she canprovide simultaneously, or because the host user has signed off theNapster network. See id.
Defendant employs technology that permits users to resume queueddownloads at a later time. See 2 Frackman Dec., Exh. E (Kessler Dep.)at 112:3-13. Every MP3 file has a mathematically-generated and uniquefingerprint or "checksum." See Kessler Dec. ¶ 32; 2 Frackman Dec.,Exh. E (Kessler Dep.) at 112:3-13. Any requesting user who is unableto download a particular MP3 file may use the client software to sendthe file's checksum and full intended size to the Napster servers andattempt to locate a match for download. See 2 Frackman Dec., Exh. E(Kessler Dep.) at 112:3-13.
11. Defendant also provides Napster users with a chat service. Itscentral servers permit users who are logged-on to communicate withother online users, including those whose user names comprise thehotlist. See Kessler Dec. ¶ 13. Aside from communicating withspecific online users logged-on to the same cluster of servers,the chat service allows users to communicate in groups. Defendantorganizes these groups within "channels" or "chat rooms" named afterparticular musical genres. See id.; 2 Pulgram Dec., Exh. B (2Fanning Dep.) at 219:4-14. Alternatively, users can create theirown channels in which to communicate. See Kessler Dec. ¶ 13.
12. Defendant's New Artist Program technology functions in twointerrelated environments: (a) on its Internet website and (b)through its network-client browser and search technology. See KrauseDec. ¶¶ 9-15. The website version performs several functions. Itallows new or unsigned artists to create a "profile" that consists ofcertain biographical and descriptive data including artist and bandnames, similar artists or influences, and news about the band. Seeid. ¶¶ 9-10, Exh. C. Defendant only accepts completed forms if thesubmitting artist authorizes Napster users to share his music. Seeid. ¶ 10, Exh. D. Once defendant accepts the profile, it stores allof the relevant information in a database linked to its Internetwebsite. See id. ¶ 11. Defendant has accepted several thousand suchprofiles. See id. ¶¶ 9, 16.
Members of the public can then search the new artist database inseveral ways: (1) by artist name, (2) by artist influence, or (3) bybrowsing the different genres of music and then scrolling down listsof new artists categorized in those genres. See id. ¶ 12. The Napstersite does not store any of the new artists' music, however. See id. ¶9. Instead, those who access the website-based service acquireinformation about an artist, such as his name. See id., Exh. E. Oncean individual obtains this data, she is directed to switch toNapster's software- and network-based service tosearch for and download the new artist's music. See id. ¶ 15.
Napster account holders who use MusicShare software and log-on tothe Napster system can locate and download new artists' songs in thesame manner they would find and download any other files: byutilizing the search engine, or by browsing user libraries. See id. ¶9. While on the Napster network, both new artists and other users mayuse the chat function to market music directly or learn about newartists. See id. ¶¶ 8, 15.
D. Plaintiffs' Business
1. The music publisher plaintiffs compose music and write songs.See, e.g., Stoller Dec. ¶ 2. They depend financially upon the sale ofsound recordings because they earn royalties from such sales. See id.at ¶¶ 2, 11, 13. However, they do not get a royalty when a Napsteruser uploads or downloads an MP3 file of their compositions withoutpayment or authorization. See id. ¶ 11. The record companyplaintiffs' sound recordings also result from a substantialinvestment of money, time, manpower, and creativity. See Conroy Dec.¶ 5; Cottrell Dec. 5; Eisenberg Dec. ¶¶ 5, 21; Kenswil Dec. ¶ 5.
In contrast, defendant invests nothing in the content of the musicwhich means that, compared with plaintiffs, it incurs virtually nocosts in providing a wide array of music to satisfy consumer demand.See Teece Rep. at 14.
2. To make a profit, the record company plaintiffs largely rely onthe success of "hit" or popular recordings, which may constitute aslittle as ten or fifteen percent of albums released. See, e.g.,Eisenberg Dec. ¶ 7. Many, or all, of their top recordings have beenavailable for free on Napster. See Frank Creighton Dec. ¶ 5.
3. The record company plaintiffs have invested substantial time,effort, and funds in actual or planned entry into the digitaldownloading market. BMG Music ("BMG")11 began to explore digitaldownloading in early 1996 and has made more than twenty trackscommercially available for downloading through the digital serviceproviders ("DSPs") Amplified.com and the Liquid Music Network. SeeConroy Dec. ¶ 9.
BMG has entered several business partnerships, strategic marketingagreements, and clearinghouse relationships to develop a plan forsecure, commercial digital downloading; July 2000 was the target datefor BMG's launch. See id. at ¶¶ 10-17.
Plaintiffs Capitol Record, Inc. and Virgin Records America areaffiliated with EMI Recorded Music, North America ("EMI"). SeeCottrell Dec. ¶ 1. EMI has developed business plans to distribute itsmusic through several DSPs which represent more than 800 retailwebsites. See id. ¶ 7. All digital downloads that EMI offers will beencrypted and watermarked. See id. ¶ 12.
Sony Music Entertainment ("Sony") has already begun to makeselected singles available through its websites and those of itsartists; to obtain a permanent copy of this music, consumers must payfor the download. See Eisenberg Dec. ¶ 13. As of May 31, 2000, Sonyalso began selling downloadable music through a distribution networkof about thirty-five retail sites. See id. at ¶ 17.
Plaintiffs A&M Records, Geffen Records, Interscope Records, IslandRecords, MCA Records, Motown Records, UMG Records, and UniversalRecords (collectively, "Universal") have spent millions of dollarspreparing a secure digital distribution system scheduled for launchin mid-summer 2000. See Kenswil Dec. ¶ 9-16.
Warner Music Group and its associated labels-plaintiffs AtlanticRecording Corp., London-Sire Records Inc. (f/k/a Sire Records GroupInc.), Elektra Entertainment Group Inc., and Warner Bros. Records(collectively, "Warner")-have done due diligence and dedicated asubstantial budget to digital distribution. See Vidich Dec.¶ 7(a)-(e). Warner expects to launch its commercial digitaldistribution of hundreds of recordings by the fourth quarter of 2000.See id. at ¶ 7(e)
4. Promotional samples offered by plaintiffs and other retail sitesdiffer significantly from using Napster to decide whether to buy aCD. The record company plaintiffs have made some free downloadsavailable but have limited them in amount and duration. They have notprovided entire albums, and the downloads typically have been"timed-out" so that users can only play them for a finite period oftime-often less than a month. See Conroy Dec. ¶ 9-17; Cottrell Dec. ¶15; Eisenberg Dec. ¶ 13; Kenswil Dec. ¶ 12; Vidich Dec. ¶¶ 7(d), 8.Although plaintiffs have not been completely successful in managingthe rights to promotional downloads, record company executives accordimportance to the security of music distributed in this manner.12See Conroy Dec. ¶ 9-17; Cottrell Dec. ¶ 15; Eisenberg Dec. ¶ 13;Kenswil Dec. ¶ 12; Vidich Dec. ¶¶ 7(d), 8.
Retail sites, such as Amazon.com, offer thirty-to-sixty-second songsamples in streaming audio format, rather than as downloads. SeeDavid Lambert Reply Dec. ¶ 2. Unlike downloading, streaming does notcopy the music onto the listener's computer hard drive; it merelyallows her to hear it. See id.
Because companies like DiscoverMusic that provide song samples tothese Internet retailers enter licensing agreements, rights holdersearn royalties from this form of sampling. See id. ¶ 3.
In contrast, persons who obtain MP3 files for free using Napstercan retain and play them indefinitely-and, even if they download asong to make a purchasing decision, they may decide not to buy themusic. While Napster users can burn CDs comprised of unauthorizeddownloads they obtained to "sample" new songs, sampling on sitesaffiliated with plaintiffs does not substitute for purchasing theentire disc. See Teece Rep. at 17.
E. Effect of Napster on the Market for Plaintiffs' Copyrighted Works
1. The court finds that Napster use is likely to reduce CDpurchases by college students, whom defendant admits constitute a keydemographic. See Jay Rep. at 4,18; Michael Fine Rep. at 1; JuliaGreer Reply Dec. (Brooks Dep.) at 145:10-12 ("We believes [sic]ourselves to have a high college demographic, and beyond that to beprimarily [ages] 12 to 24."). Plaintiffs' expert, Dr. E. Deborah Jay,opined that forty-one percent of her college-student surveyrespondents "gave a reason for using Napster or described the natureof its impact on their music purchases in a way which eitherexplicitly indicated or suggested that Napster displaces CD sales."Jay Rep. at 4, 18. She also found that twenty-one percent of thecollege students surveyed revealed that Napster helped them make abetter selection or decide what to buy. See id., Tbl. 4. However,Jay's overall conclusion was that "[t]he more songs Napster usershave downloaded," the more likely they are to admit or imply thatsuch use has reduced their music purchases. See id. at 4, 18. Thereport of Soundscan CEO Michael Fine lends support to Jay's findings.After examining data culled from three types of retail stores nearcollege or university campuses,13 Fine concluded that "on-linefile sharing has resulted in a loss of album sales within collegemarkets."14 Fine Rep. at 1.
For the reasons discussed in the court's separate order, the reportby defendant's expert, Dr. Peter S. Fader, does not provide credibleevidence that music file-sharing on Napster stimulates more CD salesthan it displaces.15 Nor do the recording industry documents thatdefendant cites reliably show increased music sales due to Napsteruse. One such memorandum deals with the effect of Warner'spromotional downloads, which are "timed-out" and thus differ from MP3files obtained using Napster. See 1 Pulgram Dec., Exh. N (VidichDep.), Exh. 279 at T3122-23; Vidich Dec. ¶¶ 7(d), 8 (stating thatfree, promotional downloads are "timed-out."). Another purported"smoking gun" is a Universal survey on music-purchasing by people whodownload MP3 files. See 1 Pulgram Dec., Exh. F (Kenswil Dep.) at110:22-111:15.
However, the court has too little information about this survey torely on it, and the deponent, Universal representative LawrenceKenswil, declined to vouch for the survey's accuracy. See id. at111:8,14-15.
2. Because plaintiffs entered the digital download market veryrecently, or plan to enter it in the next few months, they areespecially vulnerable to direct competition from Napster, Inc. SeeTeece Rep. at 15-16. The court finds that, in choosing between thefree Napster service and pay-per-download sites, consumers are likelyto choose Napster. See id. at 14; Jay Rep. at 4,18 (reaching thisconclusion with regard to a survey sample of college students).
Defendant's economic expert, Dr. Robert E. Hall, opines thatplaintiffs' music could still command a high price after a periodwhen the price has been zero due to Napster use; thus, he concludes,plaintiffs will not suffer irreparable harm between now and a trialverdict against defendant. See Lisi Dec. (Hall Rep.) ¶¶ 39, 54. Thisargument does not square with Hall's assertion that preliminarilyenjoining defendant will put it out of business because users willswitch to services offered by "kindred spirits." Hall Rep. ¶ 15-19,73; see also Barry Dec. ¶ 13. If this is true, consumers will notnecessarily resume buying music if Napster is enjoined; rather, theywill go to other sites offering free MP3 files.16 Indeed, as Dr.David J. Teece avers, defendant has contributed to a new attitudethat digitally-downloaded songs ought to be free-an attitude thatcreates formidable hurdles for the establishmentof a commercial downloading market. See Teece Rep. at 14-18.
Hall also maintains that Napster, Inc. will increase the volume ofplaintiffs' online sales by stimulating consumer investment in thehardware and software needed to obtain and play MP3 files. See HallRep. ¶¶ 45-49. However, he ignores evidence of reduced CD-buying amongcollege students due to Napster use, see Jay Rep. at 18, and the dataupon which he relies to argue that Napster has enhanced sales iseither weak (in the case of the Fader Report) or unavailable for thecourt's review. See, e.g., id. ¶ 17 (relying on IDC and ForresterResearch studies), ¶¶ 27-28 (discussing reports by Student Monitor andAndersen Consulting), ¶ 34 (citing a study by the University ofSouthern California). The court therefore finds that the barriers tocommercial distribution posed by an emerging sense of entitlement tofree music probably outweigh the benefits that defendant purports to confer.
3. Downloading on Napster also has the potential to disruptplaintiffs' promotional efforts because it does not involve any ofthe restrictions on timing, amount, or selection that plaintiffsimpose when they offer free music files. See Conroy Dec. ¶ 9-17;Cottrell Dec. ¶ 15; Eisenberg Dec. ¶ 13; Kenswil Dec. ¶ 12; VidichDec. ¶¶ 7(d), 8; see also Teece Rep. at 18. Even if Napster userssometimes download files to determine whether they want to purchase aCD, sampling on Napster is vastly different than that offered byplaintiffs. On Napster, the user-not the copyright owner-determineshow much music to sample and how long to keep it.
II. CONCLUSIONS OF LAW
A. Legal Standard
1. The Ninth Circuit authorizes preliminary injunctive relief for"a party who demonstrates either (1) a combination of probablesuccess on the merits and the possibility of irreparable harm, or (2)that serious questions are raised and the balance of hardships tipsin its favor." Prudential Real Estate Affiliates, Inc. v. PPR Realty,Inc., 204 F.3d 867, 874 (9th Cir. 2000).
2. The standard is a sliding scale which requires a greater degreeof harm the lesser the probability of success. See id. In a copyrightinfringement case, demonstration of a reasonable likelihood ofsuccess on the merits creates a presumption of irreparableharm.17 See Micro Star v. Formgen, Inc., 154 F.3d 1107, 1109 (9thCir. 1998).
B. Proof of Direct Infringement
1. To prevail on a contributory or vicarious copyright infringementclaim, a plaintiff must show direct infringement by a third party.See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417,434 (1984). As a threshold matter, plaintiffs in this action mustdemonstrate that Napster users are engaged in direct infringement.
2. Plaintiffs have established a prima facie case of directcopyright infringement. As discussed above, virtually all Napsterusers engage in the unauthorized downloading or uploading ofcopyrighted music; as much as eighty-seven percent of the filesavailable on Napster may be copyrighted, and more than seventypercent may be owned or administered by plaintiffs. See Olkin Rep. at7; Hausman Dec. ¶ 8.
C. Affirmative Defense of Fair Use and Substantial Non-Infringing Use
1. Defendant asserts the affirmative defenses of fair use andsubstantial non-infringing use. The latter defense is also known asthe staple article of commerce doctrine. See Sony, 464 U.S. at 442.Sony stands for the rule that a manufacturer is not liable forselling a "staple article of commerce" that is "capable ofcommercially significant noninfringing uses." Id. The Supreme Courtalso declared in Sony, "Any individual may reproduce a copyrightedwork for a `fair use'; the copyright holder does not possess theexclusive right to such a use." Id. at 433. Defendant bears theburden of proving these affirmative defenses. See Bateman v.Mnemonics, Inc., 79 F.3d 1532, 1542 n. 22 (11th Cir. 1996) ("[I]t isclear the burden of proving fair use is always on the putative infringer.").
2. For the reasons set forth below, the court finds that anypotential non-infringing use of the Napster service is minimal orconnected to the infringing activity, or both. The substantial orcommercially significant use of the service was, and continues to be,the unauthorized downloading and uploading of popular music, most ofwhich is copyrighted.
3. Section 107 of the Copyright Act provides a non-exhaustive listof fair use factors. These factors include:
(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.
17 U.S.C. § 107.
4. In the instant action, the purpose and character of the usemilitates against a finding of fair use. Ascertaining whether the newwork transforms the copyrighted material satisfies the main goal ofthe first factor. See Campbell v. Acuff-Rose Music, Inc.,510 U.S. 569, 579 (1994). Plaintiff persuasively argues that downloading MP3files does not transform the copyrighted music. See UMG Recordings,Inc. v. MP3.com, Inc., 92 F. Supp.2d 349, 351 (S.D.N.Y. 2000)(concluding that repackaging copyrighted recordings in MP3 formatsuitable for downloading "adds no `new aesthetics, new insights andunderstandings' to the original").
5. Under the first factor, the court must also determine whetherthe use is commercial. In Acuff-Rose, the Supreme Court clarifiedthat a finding of commercial use weighs against, but does notpreclude, a determination of fairness. See Acuff-Rose, 510 U.S. at 584.
6. If a use is non-commercial, the plaintiff bears the burden ofshowing a meaningful likelihood that it would adversely affect thepotential market for the copyrighted work if it became widespread.See Sony, 464 U.S. at 451.
7. Although downloading and uploading MP3 music files is notparadigmatic commercial activity, it is also not personal use in thetraditional sense. Plaintiffs have not shown that the majority ofNapster users download music to sell-that is, for profit. However,given the vast scale of Napster use among anonymous individuals, thecourt finds that downloading and uploading MP3 music files with theassistance of Napster are not private uses. At the very least, a hostuser sending a file cannot be said to engage in a personal use whendistributing that file to an anonymous requester. Moreover, the factthat Napster users get for free something they would ordinarily haveto buy suggests that they reap economic advantages from Napster use.See Sega Enters. Ltd. v. MAPHIA, 857 F. Supp. 679, 687 (N.D.Cal.1994) ("Sega I") (holding that copying to save users expense ofpurchasing authorizedcopies has commercial character and thus weighs against findingof fair use); cf. American Geophysical Union v. Texaco, Inc.,60 F.3d 913, 922 (2d Cir. 1994) (holding that for-profitenterprise which made unauthorized copies of scholarly articlesto facilitate scientific research reaped indirect economic advantagefrom copying and, hence, that copying constituted commercial use).
8. The court finds that the copyrighted musical compositions andsound recordings are creative in nature; they constituteentertainment, which cuts against a finding of fair use under thesecond factor. See Harper & Row Publishers, Inc. v. Nation Enters.,471 U.S. 539, 563 (1985); Sega I, 857 F. Supp. at 687; PlayboyEnters., Inc. v. Frena, 839 F. Supp. 1552, 1558 (M.D.Fla. 1993)(citing In re New Era Publications Int'l v. Carol Publ'g,904 F.2d 152, 157-58 (2d Cir.), cert. denied, 498 U.S. 921 (1990)).
9. With regard to the third factor, it is undisputed thatdownloading or uploading MP3 music files involves copying theentirety of the copyrighted work. The Ninth Circuit held prior toSony that "wholesale copying of copyrighted material precludesapplication of the fair use doctrine." Marcus v. Rowley,695 F.2d 1171, 1176 (9th Cir. 1983). Even after Sony, wholesale copying forprivate home use tips the fair use analysis in plaintiffs' favor ifsuch copying is likely to adversely affect the market for thecopyrighted material. See Sony, 464 U.S. at 449-50, 456.
10. The fourth factor, the effect on the potential market for thecopyrighted work, also weighs against a finding of fair use.Plaintiffs have produced evidence that Napster use harms the marketfor their copyrighted musical compositions and sound recordings in atleast two ways. First, it reduces CD sales among college students.See Jay Rep. at 4, 18; cf. Fine Rep. at 1. Second, it raises barriersto plaintiffs' entry into the market for the digital downloading ofmusic. See Teece Rep. at 12-18.
11. Defendant asserts several potential fair uses of the Napsterservice-including sampling, space-shifting, and the authorizeddistribution of new artists' work. Sampling on Napster is not apersonal use in the traditional sense that courts haverecognized-copying which occurs within the household and does notconfer any financial benefit on the user. See, e.g, Sony, 464 U.S. at423, 449-50. Instead, sampling on Napster amounts to obtainingpermanent copies of songs that users would otherwise have topurchase; it also carries the potential for viral distribution tomillions of people. Defendant ignores critical differences betweensampling songs on Napster and VCR usage in Sony. First, while"time-shifting [TV broadcasts] merely enables a viewer to see . . . awork which he ha[s] been invited to witness in its entirety free ofcharge," plaintiffs in this action almost always charge for theirmusic — even if it is downloaded song-by-song. Sony, 464 U.S. at449-50; see e.g., Conroy Dec. ¶ 9; Eisenberg Dec. ¶ 16. They onlymake promotional downloads available on a highly restricted basis.See Conroy Dec. ¶ 9-17; Cottrell Dec. ¶ 15; Eisenberg Dec. ¶ 13;Kenswil Dec. ¶ 12; Vidich Dec. ¶¶ 7(d), 8. Copyright owners also earnroyalties from streamed song samples on retail websites likeAmazon.com. See Lambert Reply Dec. ¶ 3. Second, the majority of VCRpurchasers in Sony did not distribute taped television broadcasts,but merely enjoyed them at home. See id. at 423. In contrast, aNapster user who downloads a copy of a song to her hard drive maymake that song available to millions of other individuals, even ifshe eventually chooses to purchase the CD. So-called sampling onNapster may quickly facilitate unauthorized distribution at anexponential rate.
Defendant's argument that using Napster to sample music is akin tovisiting a free listening station in a record store, or listening tosong samples on a retail website,fails to convince the court because Napster users can keep themusic they download. Whether or not they decide to buy the CD,they still obtain a permanent copy of the song. In contrast,many retail sites only offer thirty-to-sixty-second samples instreaming audio format, see Lambert Reply Dec. ¶ 2, andpromotional downloads from the record company plaintiffs are often"timed-out." See Cottrell Dec. ¶ 15; Eisenberg Dec. ¶ 13; KenswilDec. ¶ 12; Vidich Dec. ¶¶ 7(d), 8.
The global scale of Napster usage and the fact that users avoidpaying for songs that otherwise would not be free militates against adetermination that sampling by Napster users constitutes personal orhome use in the traditional sense.18
12. Even if the type of sampling supposedly done on Napster were anon-commercial use, plaintiffs have demonstrated a substantiallikelihood that it would adversely affect the potential market fortheir copyrighted works if it became widespread. See Sony, 464 U.S.at 451. Plaintiffs claim three general types of harm: a decrease inretail sales, especially among college students; an obstacle to therecord company plaintiffs' future entry into the digital downloadingmarket; and a social devaluing of music stemming from its freedistribution. With regard to sampling, twenty-one percent of the Jaysurvey respondents indicated that Napster helps them decide whatmusic to purchase. See Jay Rep., Tbl. 4.
Nevertheless, Jay reached the overarching conclusion that the moresongs Napster users download, the more likely they are to reveal thatsuch use reduces their music buying. See id. at 4, 18. Jay's evidencesuggests that sampling and building a free music library throughunauthorized downloading are not mutually exclusive: it is likelythat survey respondents who sample are primarily direct infringers.Napster users-not the record companies-control the music selection,the amount and the timing of the sampling activity, and they may keepmany songs after deciding not to purchase the entire CD.
Defendant maintains that sampling does not decrease retail musicsales and may even stimulate them. To support this assertion, itrelies heavily on the Fader Report, which concludes that consumers donot view MP3 files as perfect substitutes for CDs. See Lisi Dec.(Fader Rep.) ¶ 63. Fader cites a survey that he did not conduct forthe assertion that "60% of online users who download free digitalmusic do so to preview music before buying the CD." Fader Rep. ¶ 74.Examining the results of a different survey that he purportedlydesigned, but did not carefully supervise, he reports that abouttwenty-eight percent of Napster users indicate that their musicpurchases have increased since they began using the Napster software.See id. ¶ 43. For reasons explained in the court's evidentiary order,the Fader Report is unreliable and fails to rebut plaintiffs' showingof harm. Plaintiffs have demonstrated a meaningful likelihood thatthe activity defendant calls sampling actually decreases retail salesof their music.
13. Any potential enhancement of plaintiffs' sales due to samplingwould not tip the fair use analysis conclusively in favor ofdefendant. Indeed, courts have rejected the suggestion that apositive impact on sales negates the copyright holder's entitlementto licensing fees or access to derivative markets. See Ringgold v.Black Entertainment Television, 126 F.3d 70, 81 n. 16 (2d Cir. 1997)(noting that, even if allegedly infringing use of plaintiff's posterin television program increased poster sales, plaintiff retainedright to licensingfee); DC Comics, Inc. v. Reel Fantasy, Inc., 696 F.2d 24, 28(2d Cir. 1982) (stating that speculated increase in plaintiff'scomic book sales due to unauthorized use of Batman and Green Arrowfigures on advertising flyers did not establish fair use defenseas matter of law); MP3.com, 92 F. Supp.2d at 352 (holding thatallegedly positive impact on plaintiffs' prior market "in no wayfrees defendant to usurp a further market that directly derives fromreproduction of [the] copyrighted works.").
The MP3.com opinion is especially instructive. Although MP3.com'sactivities arguably stimulated CD sales, the plaintiffs "adducedsubstantial evidence that they . . . [had] taken steps to enter [thedigital downloading market]." MP3.com, 92 F. Supp.2d at 352. Thefourth factor thus weighed against a finding of fair use. Plaintiffsin the instant action similarly allege that Napster use impedes theirentry into the online market. The record company plaintiffs havealready expended considerable funds and effort to commence Internetsales and licensing for digital downloads. See Conroy Dec. ¶¶ 9-18;Cottrell Dec. ¶¶ 6-17; Eisenberg Dec. ¶¶ 9-22; Vidich Dec. ¶¶ 7-10.Plaintiffs' economic expert opined that the availability of free MP3files will reduce the market for authorized, commercial downloading.See Teece Dec. at 14-18. This point is corroborated by the fact thatall forty-nine songs available for purchase on Sony's website can beobtained for free using Napster. See Eisenberg Dec. ¶ 16. Ifconsumers choose to buy, rather than burn, entire CDs they are stillmore likely to obtain permanent copies of songs on Napster than buythem from Sony's site or listen to streamed samples at other onlinelocations.
The court concludes that, even assuming the sampling alleged inthis case is a non-commercial use, the record company plaintiffs havedemonstrated a meaningful likelihood that it would adversely affecttheir entry into the online market if it became widespread. See Sony,464 U.S. at 451. Moreover, it deprives the music publisher plaintiffsof royalties for individual songs. The unauthorized downloading ofplaintiffs' music to sample songs would not constitute a fair use,even if it enhanced CD sales.
14. The court is also unconvinced that Sony applies tospace-shifting. Defendant erroneously relies on the Ninth Circuit'sassertion, in a case involving an inapplicable statute, thatspace-shifting constitutes non-commercial personal use. See RecordingIndus. Ass'n of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072,1079 (9th Cir. 1999) (discussing the applicability of the Audio HomeRecording Act of 1992 to the Rio MP3 player).19Defendant also implies that space-shifting music is sufficientlyanalogous to time-shifting television broadcasts to merit theprotection of Sony. According to the gravely flawed Fader Report,space-shifting-like time-shifting-leaves the value of the copyrightsunscathed because it does not displace sales. See Fader Rep. ¶ 77;Sony, 464 U.S. at 421 (concluding that plaintiffs did not provethat time-shifting created any likelihood of harm). Defendantagain cites Fader for the statistic that seventy percent ofNapster users at least sometimes engage in space-shifting. SeeLisi Dec. (Fader Rep.) ¶ 77. In contrast, Jay opined thatapproximately forty-nine percent of her college-student surveyrespondents previously owned less than ten percent of the songsthey downloaded, and about sixty-nine percent owned less than aquarter. See Jay Rep. at 4, 21 & Tbl. 7. The court has alreadyheld that the Jay Report bears greater indicia of reliabilitythan the Fader Report. Moreover, under either analysis, theinstant matter is distinguishable from Sony because the SupremeCourt determined in Sony that time-shifting represented theprincipal, rather than an occasional use of VCRs. See Sony, 464 U.S. at 421.
15. Defendant argues that, if space-shifting is deemed a fair use,the staple article of commerce doctrine precludes liability forcontributory or vicarious infringement. Under Sony, the copyrightholder cannot extend his monopoly to products "capable of substantialnoninfringing uses." Sony, 464 U.S. at 442.
Defendant fails to show that space-shifting constitutes acommercially significant use of Napster. Indeed, the most credibleexplanation for the exponential growth of traffic to the website isthe vast array of free MP3 files offered by other users-not theability of each individual to space-shift music she already owns.
Thus, even if space-shifting is a fair use, it is not substantialenough to preclude liability under the staple article of commercedoctrine. See Cable/Home Communication Corp. v. Network Prods., Inc.,902 F.2d 829, 846 (11th Cir. 1990) (affirming finding of contributoryinfringement where defendant primarily promoted pirate computer chipsand other devices capable of descrambling pay-TV broadcasts asinfringement aids); A&M Records v. General Audio Video Cassettes,Inc., 948 F. Supp. 1449, 1456 (C.D.Cal. 1996) (rejecting Sony defensebecause counterfeiting was chief purpose of time-loaded cassettesthat defendant sold).20
16. This court also declines to apply the staple article ofcommerce doctrine because, as paragraphs (D)(6) and (E)(2) of thelegal conclusions explain, Napster exercises ongoing control over itsservice. In Sony, the defendant's participation did not extend pastmanufacturing and selling the VCRs: "[t]he only contact between Sonyand the users of theBetamax . . . occurred at the moment of sale." Sony, 464 U.S. at 438.Here, in contrast, Napster, Inc. maintains and supervises anintegrated system that users must access to upload or downloadfiles. Courts have distinguished the protection Sony offersto the manufacture and sale of a device from scenarios in which thedefendant continues to exercise control over the device's use. SeeGeneral Audio Video, 948 F. Supp. at 1456-57 (finding Sony doctrineinapplicable to seller of blank tapes who "acted as a contact betweenhis customers and suppliers of other material necessary forcounterfeiting"); RCA Records v. All-Fast Sys., Inc., 594 F. Supp. 335,339 (S.D.N.Y. 1984) (holding that defendant in position tocontrol cassette-copying machine could not invoke Sony); see alsoColumbia Pictures Indus., Inc. v. Aveco, Inc., 800 F.2d 59, 62 & n. 3(3d Cir. 1986) (holding that business which rented rooms where publicviewed copyrighted video cassettes engaged in contributoryinfringement, even when it was not source of cassettes). Napster,Inc.'s facilitation of unauthorized file-sharing smacks of thecontributory infringement in these cases, rather than the legitimateconduct of the VCR manufacturers. Given defendant's control over theservice, as opposed to mere manufacturing or selling, the existenceof a potentially unobjectionable use like space-shifting does notdefeat plaintiffs' claims.
17. Nor do other potential non-infringing uses of Napster precludecontributory or vicarious liability. Defendant claims that it engagesin the authorized promotion of independent artists, ninety-eightpercent of whom are not represented by the record company plaintiffs.See Def.'s Opp. at 10 (citing, inter alia, Krause Dec. ¶ 16), 27.However, the New Artist Program may not represent a substantial orcommercially significant aspect of Napster. The evidence suggeststhat defendant initially promoted the availability of songs by majorstars, as opposed to "page after page of unknown artists." See 1Frackman Dec., Exh. C (Parker Dep.) at 104:16-105:10, Exh. 235. Itspurported mission of distributing music by artists unable to obtainrecord-label representation appears to have been developed later.
Other facts point to the conclusion that the New Artists Programwas an afterthought, not a major aspect of the Napster business plan.Former CEO Eileen Richardson claimed in her deposition that she toldthe press Napster is not about known artists like Madonna. But,tellingly, discovery related to downloads by Napster executivesreveals that Richardson's own computer contained about five Madonnafiles obtained using Napster. See 1 Frackman Dec., Exh. A (RichardsonDep.) at 238:2-240:25.
Defendant did not launch the website aspect of its New ArtistProgram until after plaintiffs filed suit, and as recently as July2000, bona fide new artists constituted a very small percentage ofmusic available on Napster. See Krause Dec. ¶ 9, Exh. A; Olkin ReplyDec. ¶¶ 3-5; Hausman Reply Dec. ¶¶ 3-6.
In any event, Napster's primary role of facilitating theunauthorized copying and distribution established artists' songsrenders Sony inapplicable. See General Audio Video, 948 F. Supp. at1456-57; RCA Records, 594 F. Supp. at 339.
18. Plaintiffs do not object to all of the supposedlynon-infringing uses of Napster. They do not seek an injunctioncovering chat rooms or message boards, the New Artist Program or anydistribution authorized by rights holders. See Pl.'s Reply at 19. Nordo they seek to enjoin applications unrelated to the music recordingindustry.21 See id. Because plaintiffs do not ask the court toshut down such satellite activities, the fact that these activitiesmay be non-infringing does not lessen plaintiffs' likelihood of success.
The court therefore finds that plaintiffs have established areasonable probability of proving third-party infringement.
D. Contributory Copyright Infringement
1. Once they have shown direct infringement by Napster users,plaintiffs must demonstrate a likelihood of success on theircontributory infringement claim. A contributory infringer is "onewho, with knowledge of the infringing activity, induces, causes ormaterially contributes to the infringing conduct of another."Gershwin Publ'g Corp. v. Columbia Artists Management, Inc.,443 F.2d 1159, 1162 (2d Cir. 1971); see Fonovisa, Inc. v. Cherry Auction,Inc., 76 F.3d 259, 264 (9th Cir. 1996). Courts do not require actualknowledge; rather, a defendant incurs contributory copyrightliability if he has reason to know of the third party's directinfringement. See Cable/Home Communication Corp., 902 F.2d at 846;Sega Enter. Ltd. v. MAPHIA, 948 F. Supp. 923, 933 (N.D.Cal. 1996)("Sega II").
2. Plaintiffs present convincing evidence that Napster executivesactually knew about and sought to protect use of the service totransfer illegal MP3 files. For example, a document authored byco-founder Sean Parker mentions the need to remain ignorant of users'real names and IP addresses "since they are exchanging piratedmusic." 1 Frackman Dec., Exh. C (Parker Dep.) at 160:1-162:14, Exh.254 at SF00100 (emphasis added). The same document states that, inbargaining with the RIAA, defendant will benefit from the fact that"we are not just making pirated music available but also pushingdemand." Id. at 160:1-162:14, Exh. 254 at SF00102 (emphasis added).These admissions suggest that facilitating the unauthorized exchangeof copyrighted music was a central part of Napster, Inc.'s businessstrategy from the inception.
Plaintiff also demonstrate that defendant had actual notice ofdirect infringement because the RIAA informed it of more than 12,000infringing files. See Creighton 12/3/99 Dec., Exh. D. AlthoughNapster, Inc. purportedly terminated the users offering these files,the songs are still available using the Napster service, as are thecopyrighted works which the record company plaintiffs identified inSchedules A and B of their complaint. See Creighton Supp. Dec. ¶¶ 3-4.
3. The law does not require actual knowledge of specific acts ofinfringement. See Gershwin, 443 F.2d at 1163 (holding that generalknowledge that third parties performed copyrighted works satisfiedknowledge element of contributory infringement); Sega I, 857 F. Supp.at 686-87 (concluding that plaintiffs established knowledge element,even though electronic bulletin board company did not know exactlywhen infringing video games would be uploaded to or downloaded frombulletin board). Accordingly, the court rejects defendant's argumentthat titles in the Napster directory cannot be used to distinguishinfringing from non-infringing files and thus that defendant cannotknow about infringement by any particular user of any particularmusical recording or composition. See Lisi Dec. (Tygar Rep.) at 29(offering expert opinion about difficulty of identifying copyrightedworks by file name); Lars Ulrich Dep. at 36:16-37:2 (stating that inthe past he did not object to individuals taping his band's concertsand making MP3 files of such concerts available via Napster); SandersDep. at 24:23-29:13 (discussing complex process for determining chainof title for copyright owners).22
4. Defendant's reliance on Religious Technology Center v. NetcomOnline Communication Services, Inc., 907 F. Supp. 1361 (N.D.Cal.1995), does not alter the court's conclusion that plaintiffs have areasonable likelihood of proving contributory liability. The citedpassage from Religious Technology Center states:
Where a BBS [bulletin board service] operator cannot reasonably verify a claim of infringement, either because of a possible fair use defense, the lack of copyright notices on the copies, or the copyright holder's failure to provide the necessary documentation to show that there is likely infringement, the operator's lack of knowledge will be found reasonable and there will be no liability for contributory infringement for allowing the continued distribution of the works on its system.
Id. at 1374. This language is dicta because the plaintiffs inReligious Technology Center raised a genuine issue of material factregarding knowledge. More importantly, Napster is not an Internetservice provider that acts as a mere conduit for the transfer offiles. See A&M Records v. Napster, Inc., 2000 WL 57136, at *6, 8(N.D.Cal. May 12, 2000). Rather, it offers search and directoryfunctions specifically designed to allow users to locate music, themajority of which is copyrighted. See id. at *6. Thus, even if dictafrom another federal district court were binding, ReligiousTechnology Center would not mandate a determination that Napster,Inc. lacks the knowledge requisite to contributory infringement.
5. At the very least, defendant had constructive knowledge of itsusers' illegal conduct. Some Napster executives boast recordingindustry experience, see 1 Frackman Dec. (Ricardson Dep.), Exh. 129at ER00138, and defendant does not dispute that it possessed enoughsophistication about intellectual property laws to sue a rock bandthat copied its logo. See 2 Frackman Dec., Exh. M (online newsarticle about court proceedings to halt The Offspring's use ofNapster logo).23 The evidence indicates that Napster executivesdownloaded infringing material to their own computers using theservice and promoted the website with screen shots listing infringingfiles. See 2 Frackman Dec., Exh. D (Brooks Dep.) at 51:8-24,54:25-56:11, Exh. 64 at 2-4, Exh. 126 at 002260, 002263; 1 FrackmanDec., Exh. A (Richardson Dep.) at 20:5-22:10, 25:2-26:1; Exh. C(Parker Dep.) at 70:14-16, Exh. 230, ¶ 3-5; Exh. B (Fanning Dep.),Exhs. 174-76. Such conduct satisfies the objective test forconstructive knowledge-defendant had reason to know aboutinfringement by third parties. See Cable/Home Communication Corp.,902 F.2d at 846.24
6. Plaintiffs have also shown that defendant materially contributedto the infringing activity. In Fonovisa, the owners of copyrights formusical recordings stated a contributory infringement claim againstthe operators of a swap meet at which independent vendors soldcounterfeit recordings. See Fonovisa, 76 F.3d at 264. The NinthCircuit held the copyright owners' allegations were "sufficient toshow material contribution" because "it would have been difficult forthe infringing activity to take place in the massive quantitiesalleged without the support services provided by the swap meet." Id.According to plaintiffs in the instant action, "Napster isessentially an Internet swap meet-more technologically sophisticatedbut in manyways indistinguishable from the [defendant] in Fonovisa." Pl.'s Br.at 6. The court largely agrees with this characterization.
Unlike the swap meet vendors, Napster users offer their infringingmusic for free. However, defendant's material contribution is stillanalogous to that of the swap meet in Fonovisa. The swap meetprovided support services like parking, booth space, advertising, andclientele. See Fonovisa, 76 F.3d at 264. Here, Napster, Inc. suppliesthe proprietary software, search engine, servers, and means ofestablishing a connection between users' computers. Without thesupport services defendant provides, Napster users could not find anddownload the music they want with the ease of which defendant boasts.
Several contributory infringement cases involving online servicesare in accord with the court's conclusion that defendant materiallycontributes to the infringing activity. For example in Sega II, anelectronic bulletin board service acted as a central depository forunauthorized copies of computer games and materially contributed toinfringement because it provided software, hardware, and phone linesneeded for uploading and downloading copyrighted material. See SegaII, 948 F. Supp. at 933. Similarly, in Religious Technology Center, acase defendant ignores when convenient, a court in this districtstated that an Internet access provider is not a mere landlord;rather, it exerts control akin to a radio station replayinginfringing broadcasts. See Religious Tech. Ctr., 907 F. Supp. at 1375(holding that plaintiffs raised genuine issue of material fact as toservice provider's substantial participation).
Defendant marshals two district court cases in an attempt to rebutplaintiffs' argument about material contribution. See IntellectualReserve, Inc. v. Utah Lighthouse Ministry, 75 F. Supp.2d 1290, 1293(D.Utah 1999) (holding that posting links to infringing websites didnot contribute to infringement by those websites' operators);Bernstein v. J.C. Penny, Inc., 50 U.S.P.Q. 2d 1063 (C.D.Cal. 1998)(paraphrasing defendant's apparently successful argument that"multiple linking does not constitute substantial participation inany infringement where the linking website does not mention the factthat Internet users could, by following the links, find infringingmaterial on another website"). The Bernstein court offered noreasoning for its dismissal of the complaint. Neither case isfactually apposite, for Napster provides its users with much morethan hyperlinking; Napster is an integrated service designed toenable users to locate and download MP3 music files. In keeping withits view that Napster, Inc. plays a more active role in facilitatingfile-sharing than an Internet service provider acting as a passiveconduit, this court finds it probable that defendant materiallycontributed to unlawful conduct.
7. Because they have made a convincing showing with regard to boththe knowledge and material contribution elements, plaintiffs haveestablished a reasonable likelihood of success on their contributoryinfringement claims.
E. Vicarious Copyright Infringement
1. Even in the absence of an employment relationship, a defendantincurs liability for vicarious copyright infringement if he "has theright and ability to supervise the infringing activity and also has adirect financial interest in such activities." Fonovisa, 76 F.3d at262 (quoting Gershwin, 443 F.2d at 1162).
2. In Fonovisa, the swap meet operator satisfied the first elementof vicarious liability because it had the right to terminate vendorsat will; it also controlled customers' access and promoted itsservices. See id. Although Napster, Inc. argues that it istechnologically difficult, and perhaps infeasible, to distinguishlegal and illegal conduct, plaintiffs have shown that defendantsupervises Napster use. Indeed, Napster, Inc. itself takes pains toinform the court of its improved methods of blocking users about whomrights holders complain. See Def.'s Opp. Br. at 19(citing Kessler Dec. ¶ 22), 33 (citing Kessler Dec. ¶¶ 23-24).This is tantamount to an admission that defendant can, and sometimesdoes, police its service. See Religious Tech. Ctr., 907 F. Supp. at1376 (concluding that evidence that Internet access provider actedto suspend subscribers' accounts and could delete specific postingsraised genuine issue of material fact about vicarious liability).
Moreover, a defendant need not exercise its supervisory powers tobe deemed capable of doing so. See Gershwin, 443 F.2d at 1161-63. Thecourt therefore finds that Napster, Inc. has the right and ability tosupervise its users' infringing conduct.
3. Plaintiffs have shown a reasonable likelihood that Napster, Inc.has a direct financial interest in the infringing activity. Citingseveral non-governing cases from other districts, they contend thatdirect financial benefit does not require earned revenue, so long asthe defendant has economic incentives for tolerating unlawfulbehavior. For instance, in Major Bob Music v. Stubbs, 851 F. Supp. 475 (S.D.Ga. 1994), a bar derived direct financial benefit frominfringing musical performances on its premises. The court noted that"an enterprise is considered to be `profit-making' even if it neveractually yields a profit." Id. at 480; see also Walden Music, Inc. v.C.H.W., Inc., 1996 WL 254654, at *5 (D.Kan. 1996) ("The fact thatdefendant' entrepreneurial enterprise is not profiting is not adefense to the plaintiffs' copyright infringement claims.");Broadcast Music, Inc. v. Hobi, Inc., 1993 WL 404152, at *3 (M.D.La.1993) (holding defendant vicariously liable because it operated withgoal of making a profit, even though it did not actually make one),aff'd 20 F.3d 1171 (5th Cir. 1994).
Although Napster, Inc. currently generates no revenue, its internaldocuments state that it "will drive [sic] revenues directly fromincreases in userbase." 1 Frackman Dec. (Parker Dep.), Exh.251.25 The Napster service attracts more and more users byoffering an increasing amount of quality music for free. See, e.g, 1Frackman Dec., Exh. A (Richardson Dep.) at 112:18-113:2. It hopes to"monetize" its user base through one of several generation revenuemodels noted in the factual findings.
This is similar to the type of direct financial interest the NinthCircuit found sufficient for vicarious liability in Fonovisa, wherethe swap meet's revenues flowed directly from customers drawn by theavailability of music at bargain basement prices. See Fonovisa, 76F.3d at 263-64; see also Famous Music Corp. v. Bay State HarnessHorse Racing and Breeding Ass'n, 554 F.2d 1213, 1214 (1st Cir. 1977)(holding racing association vicariously liable for infringingbroadcast of music to entertain race-goers "when they were notabsorbed in watching the races"); Playboy Enters., Inc. v. Webbworld,Inc., 968 F. Supp. 1171, 1177 (N.D.Tex. 1997) (holding defendantvicariously liable because "plaintiff's photographs enhanced theattractiveness of the Neptics' website to potential customers");Polygram Int'l Publ'g, Inc. v. Nevada/TIG, Inc., 855 F. Supp. 1314,1332 (D.Mass. 1994) (finding that music used to cultivate trade showattendees' interest provided direct financial benefit to trade show).
Napster, Inc.'s cursory discussion of the second element ofvicarious liability does little to rebut this line of reasoning.Relying on Religious Technology Center, 907 F. Supp. at 1376-77,defendant maintains that it does not have a policy of ignoringinfringement, and that even if it did, its non-infringing useslure consumers to its service. The latter contention, for whichit provides no factual support, does not square with its predictionthat "the requested injunction would effectively putNapster out of business." Def.'s Opp. Br. at 31. If many ofdefendant's commercially significant uses were non-infringing,an injunction limited to unlawful activity would not have sucha dire impact. Defendant's representations about the primacy ofits legitimate uses thus appear disingenuous. The ability todownload myriad popular music files without payment seems toconstitute the glittering object that attracts Napster'sfinancially-valuable user base.
4. Plaintiffs has shown a reasonable likelihood of success on theirvicarious infringement claims.
F. Defendant's First Amendment Challenge
1. According to Napster, Inc., the requested injunction wouldimpose a prior restraint on its free speech, as well as that of itsusers and the unsigned artists that depend upon its service. ThisFirst Amendment argument centers on the fact that defendant offers anelectronic directory, which does not itself contain copyrightedmaterial. Directories have been accorded First Amendment protection.See Princeton Community Phone Book, Inc. v. Bate, 582 F.2d 706,710-11 (3d Cir.) (holding that First Amendment affords as muchprotection to listing in directory as it does to newspaperadvertisement), cert. denied, 439 U.S. 966 (1978).
2. Although an overbroad injunction might implicate the FirstAmendment, free speech concerns "are protected by and coextensivewith the fair use doctrine." Nihon Keizai Shimbun, Inc. v. ComlineBus. Data, Inc., 166 F.3d 65, 74 (2d Cir. 1999); Religious Tech.Ctr., 907 F. Supp. at 1377 (stating that, where otherwiseappropriate, imposing liability for copyright infringement does notnecessarily create First Amendment concerns because the fair usedefense encompasses this issue). This court has already determinedthat plaintiffs do not seek to enjoin any fair uses of the Napsterservice that are not completely contrived or peripheral to its existence.
3. The parties dispute the extent to which infringing andnon-infringing aspects of the service are separable. Napster, Inc.'sinterim CEO Hank Barry and Vice President of Engineering EdwardKessler both opine that the requested injunction would have thepractical effect of compelling defendant to exclude all songs fromits system, including those which plaintiffs do not own. See BarryDec. ¶ 13; Kessler Dec. ¶ 39. In this view, the injunction woulddestroy the Napster service, or if the service did not shut downcompletely, forcibly supplant peer-to-peer file-sharing with a modelunder which defendant dictated the content. See Kessler Dec. ¶ 39.Barry avers that, as a result of the injunction, Napster would loseits competitive edge vis-a-vis similar services. See Barry Dec. ¶ 13.
In contrast, plaintiffs contend that Napster's New Artist Program,message boards, chat rooms, and file-sharing applications forbusiness and scientific research would remain viable if the courtgranted the requested relief. See Pl.'s Reply at 19; Daniel FarmerDec. ¶¶ 3-4. Plaintiffs expert Daniel Farmer suggests severalpotentially viable methods of limiting the Napster service to musicfiles authorized for sharing. First, defendant could compile adatabase of authorized music and then write a software program toread the files on users' hard drives when they log-on to the Napsterservice. The program would compare those file names with theauthorized list, and only those files that matched could be uploadedonto Napster. See Farmer Dec. ¶ 3. Alternatively, defendant couldwrite a software program that prevented users from successfullysearching for file names excluded from the authorized list. See id.
In the event that Napster, Inc. cannot separate the infringing andnon-infringing aspects of its service, its First Amendment argumentstill fails. Courts will not sustain a First Amendment challengewherethe defendant entraps itself in an "all-or-nothing predicament."Dr. Seuss Enters., L.P. v. Penguin Books USA, Inc., 109 F.3d 1394,1406 (9th Cir.) (enjoining entire book that included parody instyle of Dr. Seuss poem because defendant proceeded with bookproduction after onset of litigation), cert. dismissed, 118S.Ct. 27 (1997). Even if it is technologically impossible forNapster, Inc. to offer such functions as its directory withoutfacilitating infringement, the court still must take action toprotect plaintiffs' copyrights. See, e.g., Orth-O-Vision, Inc. v.Home Box Office, 474 F. Supp. 672, 686 n. 14 (S.D.N.Y. 1979).
G. Misuse of Copyright Defense
1. Defendant essentially raises an antitrust argument as anequitable defense against the preliminary injunction motion. Underthe rubric of misuse of copyright, Napster, Inc. argues thatplaintiffs seek to aggrandize their monopoly beyond the scope oftheir copyrights by (1) restricting the flow of unsigned artists'music, which competes with their own, and (2) controlling thedistribution of music over the Internet. Alleged antitrust violationsby a copyright plaintiff generally do not afford a valid defenseagainst an infringement action and ought not to dissuade a court fromgranting injunctive relief. See 4 Nimmer on Copyright § 13.09[A], at13-286 (citing, inter alia, Orth-O-Vision, 474 F. Supp. at 689).
2. Furthermore, most of the cases defendant cites deal withimproper attempts to enlarge a copyright monopoly through restrictedor exclusive licensing. See, e.g., Practice Management Info. Corp. v.American Med. Ass'n, 121 F.3d 516, 521 (9th Cir.) (1997), as amended133 F.3d 1140 (9th Cir. 1998) (finding licensing agreement precludinguse of competitor's products to be misuse), and cert. denied522 U.S. 933 (1997); see also, e.g., Alcatel USA, Inc. v. DGI Tech., Inc.,166 F.3d 772, 792-95 (overturning district court's rejection of misusedefense based on licensing agreement allowing plaintiff to gaincontrol over uncopyrighted products), reh'g and reh'g en banc denied,180 F.3d 267 (5th Cir. 1999); Lasercomb Am., Inc. v. Reynolds,911 F.2d 970, 978-79 (4th Cir. 1990) (concluding that exclusive licensingclause inhibiting licensees from developing own products constitutedmisuse). Plaintiffs have granted no licenses to defendant, let aloneimpermissibly restrictive ones. See Conroy Dec. ¶ 4; Cottrell Dec. ¶5; Eisenberg Dec. ¶ 21; Kenswil Dec. ¶ 15; Vidich Dec. ¶ 8; StollerDec. ¶ 11.
3. Accordingly, this court rejects the misuse of copyright defense.
1. Napster, Inc. also avers that plaintiffs waived theirentitlement to copyright protection because (a) they hastened theproliferation of MP3 files on the Internet, and (b) they plan toenter the market for digital downloading themselves. These argumentsare unavailing.
Defendant has submitted deposition excerpts related to the recordcompany plaintiffs' business dealings with Internet and softwarecompanies that provide ripping software, custom CDs,26 andplayers capable of playing unencrypted MP3 files.27 See, e.g., 1Pulgram Dec., Exh. A (Conroy Dep.) at 51:8-52:16, Exh. B (CottrellDep.) at 141:10-142:142. None of plaintiffs' online partners is aparty to this action. But at least one plaintiff-Sony-sells a devicecapable of playing downloaded MP3 files, regardless of whether thedistribution of such files is authorized.See id., Exh. E (Eisenberg Dep.) at 44:5-48:10, Exh. 220.
This limited evidence fails to convince the court that the recordcompanies created the monster that is now devouring theirintellectual property rights.28 Although plaintiffs have not suedtheir business partners for contributory infringement, they typicallyhave asked them to discourage unauthorized ripping and have madesecurity part of their agreements. See, e.g., Exh. A (Conroy Dep.) at17:13-23, 18:22-19:6, 38:3-22, 51:8-14; Exh. B (Cottrell Dep.) at135:24-136:7. Defendant fails to show that, in hastening theproliferation of MP3 files, plaintiffs did more than seek partnersfor their commercial downloading ventures and develop music playersfor files they planned to sell over the Internet.29 Nor didplaintiffs invite wholesale infringement when they distributed asmall number of free MP3 files for promotional purposes, especiallysince many of these files automatically "timed-out." See Conroy Dec.¶ 9-17; Cottrell Dec. ¶ 15; Eisenberg Dec. ¶ 13; Kenswil Dec. ¶ 12;Vidich Dec. ¶¶ 7(d), 8.
To support its waiver argument, defendant primarily citesinapposite cases involving implied licenses. See, e.g., EffectsAssocs., Inc. v. Cohen, 908 F.2d 555, 559-60 (9th Cir. 1990) (findingimplied license where plaintiff created work at defendant's requestand gave work to defendant with intent that defendant copy anddistribute it), cert. denied, 498 U.S. 1103 (1991). The evidence heredoes not reveal the existence ofan implied license; indeed, the RIAA gave defendant express noticethat it objected to the availability of its members' copyrightedmusic on Napster. See Creighton 12/3/99 Dec., Exh. D.
I. Failure to Present Evidence of Copyright Registration
1. Defendant argues that, to claim infringement of multiple works,plaintiffs must specify the works with particularity and provideproof of copyright registration. The cited statutory subsection,17 U.S.C. § 411(a), provides with certain exceptions: "[N]o action forinfringement of the copyright in any work shall be instituted untilregistration of the copyright claim has been made in accordance withthis title." 17 U.S.C. § 411(a); see also Kodadek v. MTV Networks,Inc., 152 F.3d 1209, 1211 (9th Cir. 1998). A copyright infringementclaim consists of two elements: (a) ownership of a valid copyright,and (b) copying of original elements of the copyrighted work. SeeFeist Publications, Inc. v. Rural Telephone Serv. Co., 499 U.S. 340,361 (1991).
2. Napster, Inc. exaggerates the import of a non-governing case,Cole v. Allen, 3 F.R.D. 236, 237 (S.D.N.Y. 1942). In Cole, thedefendant allegedly copied episodes from six books. Cole failed toplead her infringement claim with sufficient particularity becauseshe merely listed the books' titles without specifying which portionswere copied. Here, plaintiffs have attached two schedules listingworks allegedly infringed in their entirety. Schedule A includesproof of registration; Schedule B (works recorded before 1972) doesnot because this material is governed by state law. Thus, despitetheir claim that it would be burdensome or even impossible toidentify all of the copyrighted music they own, plaintiffs have madeat least a minimal effort to describe the works in suit.
3. Furthermore, in Walt Disney Co. v. Powell, 897 F.2d 565, 568(D.C. Cir. 1990), the D.C. Circuit allowed a permanent injunctioncovering works owned by the plaintiff but not in suit. The WaltDisney court found such a broad injunction appropriate where"liability has been determined adversely to the infringer, there hasbeen a history of continuing infringement and a significant threat offuture infringement remains." Id. Here, the evidence establishes thatunauthorized sharing of plaintiffs' copyrighted music occurred on amassive scale in the past; Napster continues to be used to downloadand upload files illegally despite defendant's purportedly enhancedability to terminate infringers; and the court anticipates ahemorrhage of plaintiffs' copyrighted material as users rush toobtain free music before trial. The courts therefore finds itnecessary to issue an injunction covering both plaintiffs'copyrighted works in suit and those not yet named.
J. Irreparable Harm
1. Because plaintiffs have shown a reasonable likelihood of successon the merits of their contributory and vicarious copyrightinfringement claims, they are entitled to a presumption ofirreparable harm. See Micro Star,154 F.3d at 1109.
2. The court rejects defendant's contention that it has rebuttedthis presumption by demonstrating that any harm is de minimis. Thedeclarations of record company executives, combined with the TeeceReport, establish that plaintiffs have invested in the digitaldownloading market and that their business plans are threatened by aservice that offers the same product for free. See Conroy Dec. ¶¶9-18; Cottrell Dec. ¶¶ 6-17; Eisenberg Dec. ¶¶ 9-22; Teece Rep. at14-18 ; Vidich Dec. ¶¶ 7-10. Moreover, while the court recognizes thelimitations of a survey that only targets college students, the JayReport suggests the tendency of Napster use to suppress CD purchases,especially among heavy users. See Jay Rep. at 4, 18.
K. Balance of the Hardships
1. The court cannot give much weight to defendant's lament thatthe requested relief will put it out of business. See SunMicrosystems, Inc. v. Microsoft Corp., 188 F.3d 1115, 1119(9th Cir. 1999).
Although even a narrow injunction may so fully eviscerate Napster,Inc. as to destroy its user base30 or make its servicetechnologically infeasible, the business interests of an infringer donot trump a rights holder's entitlement to copyright protection. Nordoes defendant's supposed inability to separate infringing andnon-infringing elements of its service constitute a valid reason fordenying plaintiffs relief or for issuing a stay. See Dr. Seuss, 109F.3d at 1406.
Any destruction of Napster, Inc. by a preliminary injunction isspeculative compared to the statistical evidence of massive,unauthorized downloading and uploading of plaintiffs' copyrightedworks-as many as 10,000 files per second, by defendant's ownadmission. See Kessler Dec. ¶ 29. The court has every reason tobelieve that, without a preliminary injunction, these numbers willmushroom as Napster users, and newcomers attracted by the publicity,scramble to obtain as much free music as possible before trial.
2. Napster, Inc. contends that its service poses no harm toplaintiffs because future SDMI specifications will protect theirmusic releases in both CD and downloadable formats.31 Defendantpurportedly intends to support SDMI-compliant formats when theybecome available. See Kessler Dec. ¶ 37. However, this argumentsuffers from two fatal flaws. First, assuming SDMI protections work,they will only affect plaintiffs' new releases; neither thecopyrighted material in Schedules A and B of the complaint nor anyother existing music that plaintiffs own will be covered. See 1Pulgram Dec. (Vidich Dep.) at 54:6-55:4, 59:8-62:10. Second, becausethe SDMI specifications have not yet taken effect, they cannot shieldplaintiffs from irreparable harm at this moment-the moment in whichthe preliminary injunction is sought. See id. at 59:8-62:10. Arights-friendly regime scheduled for implementation, at the earliest,by the end of 2000 does nothing to staunch the illegal flow ofplaintiffs' copyrighted material over the Internet in the summer andautumn of this year.
3. Thus, even if the court were required to balance the hardships,which it is not because plaintiffs have raised serious questions andshown a strong likelihood of success on the merits, plaintiffs wouldprevail in their motion for a preliminary injunction.
For the foregoing reasons, the court GRANTS plaintiffs' motion fora preliminary injunction against Napster, Inc. Defendant is herebypreliminarily ENJOINED from engaging in, or facilitating others incopying, downloading, uploading, transmitting, or distributingplaintiffs' copyrighted musical compositions and sound recordings,protected by either federal or state law, without express permissionof the rights owner. This injunction applies to all such works thatplaintiffs own; it is not limited to those listed in Schedules A andB of the complaint.
Plaintiffs have shown persuasively that they own the copyrights tomore than seventy percent of the music available on the Napstersystem. See Hausman Dec. ¶ 8. Because defendant has contributed toillegal copying on a scale that is without precedent, it bears theburden of developing a means to comply with the injunction. Defendantmust insure that no work owned by plaintiffs which neither defendantnor Napster users have permission to use or distribute is uploaded ordownloaded on Napster. The court ORDERS plaintiffs to cooperate withdefendant in identifying the works to which they own copyrights. Tothis end, plaintiffs must file a written plan no later than September5, 2000, describing the most expedient method by which their rightscan be ascertained. The court also ORDERS plaintiffs to post a bondfor the sum of $5,000,000.00 to compensate defendant for its lossesin the event that this injunction is reversed or vacated.32
IT IS SO ORDERED.
1. Hereafter, the court will use the term "music" to encompassboth musical compositions and sound recordings, unless otherwisespecifically noted.
2. For the sake of clarity, the court will refer to the defendantInternet company as "Napster, Inc." The term "Napster" will be usedto denote Napster, Inc.'s integrated service, including but notlimited to its software, servers, search functions, and indexingfunctions. Where "Napster" appears as an adjective, the aspect of theservice to which the adjective refers should be clear from thecontext. The term "Napster user" refers to any individual who usesNapster software to download and/or upload files.
3. Although the parties sporadically include Eileen Richardson asa defendant in the caption, the court notes that she was dismissedfrom this action pursuant to the May 24, 2000 stipulation of dismissal.
4. In this Memorandum and Order, the court will cite to and quotefrom any declaration, deposition, or other material filed underprotective order if the parties relied upon it, or it is necessary toexplain the court's findings and conclusions. Documents unsealed onthis ground include: Russell Frackman Declaration (vols. 1 & 2),Kevin Conroy Declaration, Richard Cottrell Declaration, MarkEisenberg Declaration, Lawrence Kenswil Declaration, Paul VidichDeclaration, David J. Teece Declaration, Edward Kessler Declaration,Laurence F. Pulgram Declaration (vols. 1 & 2), Daniel FarmerDeclaration, Russell Frackman Reply Declaration, Julia Greer ReplyDeclaration, and David Lambert Reply Declaration. This list includesany, or all, supporting exhibits that may contain internal companyplans, deposition transcripts, or other material upon which the courthas relied. Any other document formerly covered by protective orderbut cited in this Memorandum and Order is also deemed to be unsealed.
5. Defendant objects to this exhibit to former CEO EileenRichardson's deposition on the grounds that it is neither properlyauthenticated nor "relevant to Napster work today." Def.'s Objectionsto Pl.'s Evidence at 10. The court does not intend to rule directlyon each of defendant's myriad objections, many of which areunfounded; however, it notes that Richardson testified that shereviewed this document and that it dated from October 1999. Sheconfirmed much of its content under oath, and defendant's counselfailed to object to the document during the deposition on relevancy,foundational, or authentication grounds.
Defendant's early business plans are relevant to this actionbecause they reveal facts about the early operation of the Napsterservice, as well as the knowledge and goals of Napster, Inc. executives.
Accordingly, Exhibit 127 to the Richardson Deposition is admissible.
6. Plaintiffs' expert Dr. Ingram Olkin, a professor of statisticsat Stanford University, divided his study into two projects. In theUser Project, a sample list of users and file names was taken everyhour for four days.
Researchers culled a random sub-sample of 1,150 users from 28,000sampled and determined that all 1,150 users offered to share at leasttwo copyrighted songs. See id. at 4-5, 7. The Download Projectperformed downloads at eight separate times for a five-minute periodand generated a list of 1,150 songs from a population ofapproximately 574, 185 files. See id. at 6. Olkin found thatplaintiffs or other copyright holders own or administer the rights to1,002 (or 87.1 percent) of the 1,150 files. Thirty-seven (or 3.2percent) of the files are likely to copyrighted and distributedwithout authorization. Dr. Olkin identified only three files (or .26percent) which were clearly offered without objection from the rightsholder, while 108 (or 9.4 percent) of the files did not presentenough data to yield a conclusion. See id. at 7. Charles J. Hausman,anti-piracy counsel for the RIAA, determined that 834 out of 1,150files in Olkin's download database belonged to or were administeredby plaintiffs and were exchanged on Napster without permission. SeeCharles J. Hausman Dec. ¶ 8.
7. Defendant's objection to Exhibit 254 of the Parker Depositionexemplifies a strategy, in which both parties have engaged, ofindiscriminately challenging unfavorable evidence. This approach isboth fruitless and burdensome for the court. Defendant characterizesExhibit 254 as irrelevant to how the company "actually operates;" yetthe early business strategies of Napster, Inc. are plainly relevantto such issues as defendant's knowledge of the infringing activityand its intended effect on the market.
While defendant raises many meritless objections, it also correctlynotes that plaintiffs failed to authenticate some of the documentsupon which they rely. For example, plaintiffs did not get ShawnFanning to authenticate Exhibits 186 and 188 to his deposition. Theyhave paid a price for this oversight. The court cannot rely ondocuments that would otherwise be "smoking guns" indicating thatNapster, Inc. sought to "bypass the record industry entirely," makerecord stores obsolete, and "bring about the death of the CD." 1Frackman Dec. (Fanning Dep.), Exh. 186 at 00017; Exh. 188.
8. Sean Parker appears to have mistakenly identified thisdocument, numbered NAP003687-an October 28, 1999 email from StephanieNorton to other Napster employees, including Parker-as Exhibit A tohis declaration. In fact, it is Exhibit B. Although the emailindicates that defendant planned to solicit interest among unsignedartists, it contains a cryptic statement regarding the creation ofindexes listing available MP3s: "For now, we should do this forUNSIGNED artists only so the RIAA thinks we are not infringing oncopyright." Parker Dec., Exh. B (second emphasis added). As is oftenthe case with defendant's internal documents, whether defendantviewed the promotion of new artists as a genuine goal or asmokescreen remains ambiguous.
9. See infra at section (C)(12) of the Findings of Fact for adescription of the two aspects of defendant's New Artist Program-awebsite version and a software-based version.
10. Defendant also provides an audio player capable of playing MP3files on a user's hard drive, regardless of how those files wereobtained. See Edward Kessler Reply Dec. in Support of Def.'s Mot. forSumm. Adjud. ¶ 29. Neither party has briefed the function of theaudio player in support of its position on the necessity of apreliminary injunction. However, the player has little or noconnection to the alleged copying that occurs when Napster usersupload or download music and, hence, is not relevant to the requestedrelief. See id. While a consumer might rip CDs and then play theresultant MP3 files on the Napster player, the court rejects anysuggestion that this activity constitutes a substantial,non-infringing use of Napster for the same reasons it dismissesdefendant' argument about space-shifting from home to office. Thecourt also notes that, because the audio player can only play musicfiles which a user already possesses, it cannot be used for sampling.
11. BMG's labels include plaintiffs Arista Records, LaFaceRecords, and RCA Records. See Conroy Dec. ¶ 1. BMG Music is also aplaintiff in this action.
12. If such music is not protected technologically, an individualconsumer may become a worldwide distributor of copyrighted materialafter obtaining a single, promotional copy in digital format. SeeTeece Rep. at 13.
13. Fine's study tracked retail music sales trends in three typesof stores in the United States: (1) all stores located within onemile of any college or university on a list acquired from QualityEducation Data; (2) all stores located within one mile of any collegeor university on a list of colleges and universities that have bannedNapster use; (3) all stores within one mile of any college oruniversity listed among the "Top 40 Most Wired Colleges in 1999,"according to Yahoo Internet Life. Researchers working on the FineReport used Soundscan Point of Sale data to compare music salestotals from the latter two categories with (1) national totals and(2) sales from the first category, "All College Stores." The reporttracked retail sales in the first quarter ("Q1") of 1997, 1998, 1999,and 2000. See Fine Rep. at 2-4.
14. Fine's conclusions were not limited to Napster, but ratherassessed the effects of online music file-sharing in general. See id.While national sales grew "significantly and consistently" in thequarters Fine studied, sales at stores near colleges or universitiesdeclined, with sales in the "Top 40 Most Wired Colleges" and"Napster-banned" subsets showing an even sharper decline than thosein the "All College Stores" category. See id. The court has noted thelimitations of the Jay and Fine Reports in its separate orderregarding the admissibility of expert opinions. Despite flaws in eachreport, the court relies on Jay's insights into the music purchasingand downloading habits of college students, as opposed to all Napsterusers, and considers the Fine Report relevant to corroborate Jay'sfindings.
15. The court's memorandum and order regarding the admissibilityof expert reports includes a detailed discussion of flaws in theFader Report. Among the shortcomings the court noted are Fader'sheavy reliance on journalistic articles and studies that he did notconduct, the fact the centerpiece of his report is a survey that heonly distantly supervised, and the lack of tables offeringstatistical breakdowns of survey respondents and their answers.
16. The availability of free MP3 music files elsewhere incyberspace means that enjoining Napster fails to provide a completepanacea for plaintiffs' problems. However, arguing that third-partiesalso facilitate unlawful activity does not constitute valid defenseto claims of contributory and vicarious copyright infringement.
17. Defendant cites Cadence Design Systems, Inc. v. Avant! Corp.,125 F.3d 824, 829 (9th Cir. 1997), cert. denied, 523 U.S. 1118(1998), for the proposition that showing a plaintiff has suffered noinjury, or de minimis injury, rebuts the presumption of irreparableharm. Such language in Cadence constitutes pure dicta.
Moreover, the passage from Nimmer on Copyright to which the Cadencecourt refers deals with defeating an allegation of substantialsimilarity by demonstrating that the amount of copying was deminimis. Defendant does not suggest that downloading entirecopyrighted songs is de minimis copying, but rather that obtainingmusic using Napster does not displace CD sales. See Def's Opp. at 29.
18. Defendant cites the Office of Technology Assessment ("OTA")report on home taping to bolster its misguided argument about theAudio Home Recording Act of 1992. See infra note 19. Plaintiffs notethat the OTA Report expressly contemplates use by "a household andits normal circle of friends, rather than the public." Pl.'s Reply at4 (citing U.S. Cong., OTA, Copyright and Home Copying: TechnologyChallenges the Law). Although this definition of home use does notcontrol, it nevertheless suggests flaws in defendant's position.
19. Defendant's opposition brief opens with a perplexing argument.It cites Recording Industry Association of America v. DiamondMultimedia Systems, Inc., 180 F.3d 1072, 1079 (9th Cir. 1999), forthe proposition that the Audio Home Recording Act of 1992,17 U.S.C. § 1001-1010 ("AHRA"), immunizes the non-commercial use ofNapster to space-shift music. The AHRA is irrelevant to the instantaction. Neither the record company nor music publisher plaintiffshave brought claims under the AHRA; moreover, the Ninth Circuit didnot hold in Diamond Multimedia that the AHRA covers the downloadingof MP3 files.
Diamond Multimedia involved a suit under the AHRA by the RecordingIndustry Association of America ("RIAA") to enjoin the manufactureand distribution of the Rio portable music player-a hand-held devicethat can receive, store, and re-play MP3 files. See DiamondMultimedia, 180 F.3d at 1074. The Ninth Circuit held that the Rioplayer is not a digital audio recording device subject to the AHRA'srestrictions. See id. at 1081. Nor are computers and their harddrives digital audio recording devices. See id. at 1078. The DiamondMultimedia court did opine that making copies with the Rio tospace-shift, or make portable, files already on a user's hard driveconstitutes "paradigmatic noncommercial personal use entirelyconsistent with the purposes of the Act [i.e. the facilitation ofpersonal use]." Id. at 1079. However, this dicta is of limitedrelevance. Because plaintiffs have not made AHRA claims, the purposesand legislative history of the AHRA do not govern the appropriatenessof a preliminary injunction against Napster, Inc. Furthermore, asexplained below, the court is not persuaded that space-shiftingconstitutes a substantial, non-infringing use of the Napster service.The Ninth Circuit did not discuss the fair use doctrine in DiamondMultimedia.
This court denies defendant's request for judicial notice of thelegislative history of the AHRA, filings in Diamond Multimedia, andcertain other materials deemed irrelevant or inappropriate forjudicial notice.
20. Relying on Vault Corp. v. Quaid Software, Ltd, 847 F.2d 255(5th Cir. 1988), defendant argues that even one substantialnon-infringing use precludes contributory liability. RAMKEY, onefeature of Quaid's computer diskette, had an unobjectionable usebecause consumers could use it to make archival copies of Vault'santi-piracy software if Vault's program were inadvertently destroyed.Based on this one use, the Fifth Circuit held that there was nocontributory copyright infringement, even though third parties didengage in direct infringement. See id. at 262. Other jurisdictionshave disagreed with the Vault approach where the product's primarypurpose is unlawful. See Cable/Home Communication Corp. 902 F.2d at846; General Audio Video, 948 F. Supp. at 1456. A Fifth Circuitopinion does not bind this court. Moreover, even the Fifth Circuitdeclined to consider the legitimate functions of Copywrite, anotherfeature of Quaid's product, because "without RAMKEY, Copywrite wouldhave no commercial value." Vault, 847 F.2d at 264 n. 16. The Napsterservice arguably has little commercial value without the availabilityof copyrighted popular music.
21. For example, defendant notes that its technology might be usedfor collaborative working relationships in business, education, andresearch. See Def's Opp. at 9 n. 10.
22. MP3 files do not bear a copyright notice or watermark. SeeLisi Dec. (Tygar Rep.) at 37-47. More than one artist may use a songtitle; and multiple recordings of the same work may carry differentauthorizations. See id. at 29.
23. Defendant objects to Exhibit M to the Frackman Declarationbecause press articles constitute hearsay and statements reportedwithin them are double hearsay. See Def.'s Objections to Pl.'sEvidence at 12.
However, defendant does not appear to dispute the truth of thematter asserted-that Napster, Inc. sued The Offspring for violatingits intellectual property rights. Indeed, defendant's second groundfor objecting indicates that it admits such a lawsuit was filed. Seeid. If the exhibit should be excluded because the suit involvedtrademark, rather than copyright, defendant effectively concedes thatit brought a trademark action.
24. This finding also puts an end to defendant's persistentattempts to invoke the protection of the Digital Millennium CopyrightAct, 17 U.S.C. § 512. In its opposition brief, Napster, Inc. attemptsto persuade the court that subsection 512(d) provides an applicablesafe harbor. However, this subsection expressly excludes fromprotection any defendant who has "[a]ctual knowledge that thematerial or activity is infringing," § 512)(d)(1)(A), or "is aware offacts or circumstances from which infringing activity is apparent." §512(d)(1)(B). Defendant has failed to persuade this court thatsubsection 512(d) shelters contributory infringers.
25. Although defendant appears to object to Exhibit 251 to theParker Deposition, it does not assert any grounds for doing so. SeeDef.'s Objections to Pl.'s Evidence at 11. The court declines tospeculate about defendant's reasons for objecting. Exhibit 251 isdeemed admissible due to defendant's failure to make a proper objection.
26. Custom CDs can be created using a CD burner, a device thatallows consumers to convert MP3 files from a computer hard drive toCD format. See, e.g., 1 Pulgram Dec., Exh. A (Conroy Dep.) at 14:10-17.
27. Player software enables consumers to play MP3 files. Suchsoftware is available on the Internet, possibly free of charge, andmay be part of the bundled software sold by PC manufacturers. See,e.g., 1 Pulgram Dec., Exh. A (Conroy Dep.) at 14:21-17:12.
28. For example, such plaintiffs as BMG and Sony have entered intoagreements with Listen.com, a site that provides links to CD-rippingapplications. See Exh. A (Conroy Dep.) at 49:22-51:20, Exh. 295; Exh.E (Eisenberg Dep.) at 135:2-24. However, BMG representative KevinConroy stated in his deposition that BMG encourages its onlinepartners "to provide only for authorized ripping" and that BMG hasagreements with such sites "to legitimately and securely market,promote, and sell [BMG] artists' music." Id. at 43:20-24, 51:8-14.
In the case of Musicmaker.com, in which EMI owns an equity stake,consumers can purchase single tracks and have them burned into acustom CD. See id., Exh. B (Cottrell Dep.) at 141:10-142:17. It isnot clear that Musicmaker.com promotes the use of pirated music.Similarly, Universal has entered agreements related to commercialdownloading with Real Jukebox, which the first phase of the SecureDigital Music Initiative ("SDMI") did not cover. See id., Exh. F(Kenswil Dep.) at 54:8-56:25; see also infra note 31 (discussing SDMIspecifications). Under its agreement with Universal, RealJukebox willbecome SDMI-compliant, but still will be able to play unencryptedfiles to the extent the SDMI-specifications allow. Defendant providesno conclusive evidence that Universal has encouraged the use of RealJukebox to play copyrighted music for which no authorization has beenobtained.
Finally, Sony VAIO Music Clip appears to be a Sony product thatfacilitates the downloading, arrangement, storage, and playback ofMP3, ATRAC3, or WAV files. However, while the VAIO Music Clip may notbe able to screen out unauthorized files, one advertisement promotesthe "secure music download capability of the software" and indicatesthat consumers should "purchase the wave of titles for major artistsand record labels that are soon to come" on music websites. See id.,Exh. E (Eisenberg Dep.) at 44:5-48:10, Exh. 220 (emphasis added).
29. An internal Universal document that mentions"superdistribution" constitutes the most compelling evidence ofdefendant's position. See id., Exh. F (Kenswil Dep), Exh. 257 atU0866. "Superdistribution" means viral distribution through a chainof consumers and their friends. See id. at 45:1-4,19-25. However, inhis deposition, Lawrence Kenswil indicated that Universal envisioneda model of viral distribution in which consumers would pay for theproduct and permission of the rights holder would be obtained priorto transmission. See id. at 45:5-46:7. That such a system eventuallymight encompass some version of Napster does not demonstrate a waiverof plaintiffs' copyrights.
According to another internal Universal plan, the "[g]oal is notjust to equal Napster et al, but to surpass them." Id., Exh. 258 atU0840. Defendant argues that Universal intended to commandeer Napsterfor its own benefit. Yet the strategic plan repeatedly employs theword "secure"-emphasizing its "secure . . . core technology" andreferring to the "perceived attractiveness of secure content byusers" as a barometer of success. Id. (emphasis added). Nowhere doesthis document state or imply that Universal planned to promoteunrestricted downloading of its music for free.
30. Because the Napster service appears to enjoy a cult following,the court doubts that a preliminary injunction would destroydefendant's user base. If users switch to other services likeGnutella while Napster is temporarily enjoined, there is a reasonablelikelihood that they will switch back, especially consideringdefendant's claim to offer more music and more efficient search toolsthan its competitors.
31. The Secure Digital Music Initiative, "SDMI," is a forum thatbrings together interested parties to develop technologyspecifications for protecting the distribution of digital media. SeeKessler Dec. ¶ 36. Some time in the future, but no earlier than theend of the year 2000, SDMI will select certain specifications forcontent media, such as CDs and digital file formats. See 1 PulgramDec., Exh. N (Vidich Dep.) at 59:8-62:10.
The first phase of SDMI covered portable physical devices, butstill allowed these devices to play unencrypted files. See 1 PulgramDec., Exh. F (Kenswil Dep.) at 54:8-54:19.
Generally speaking, the next phase of SDMI will concern two formsof digital rights management technology: encryption and watermarking.See Kessler Dec. ¶¶ 35, 36; 1 Pulgram Dec., Exh. N (Vidich Dep.) at59:8-62:10. Encryption codes files in a way that requires "keys,"such as the consumer's hardware serial numbers, to access the files'content. See Kessler Dec. ¶ 36; 1 Pulgram Dec., Exh. N (Vidich Dep.)at 53:10-56:8. Encryption technology has limitations, however. Forexample, encrypted CDs will not function in existing CD playersbecause the players will not be able to read them. See 1 PulgramDec., Exh. N (Vidich Dep.) at 52:21-53:2. Thus, consumers will haveto purchase new CD players to listen to encrypted CD music. See id.at 53:22-54:4. Also, encryption technology will provide onlyprospective protection because it will not affect existing discs. Seeid. 54:6-55:4.
Watermarking imbeds "bits" or inaudible marks on content media;future SDMI-compliant devices or software players will be able toread the presence or absence of those bits and control copyingaccordingly. See Pulgram Dec., Exh. N (Vidich Dep.) at 57:2-9;59:8-62:10. One form of copy control will allow consumers to copy CDsonto their SDMI-compliant devices, but will prevent further copyingor transmission over the Internet. See id. at 60:14-25; 61:11-62:10;Exh. 227 at TW 0556742. Some time in the future, but not beforeyear's end, several record company plaintiffs intend to implementwatermarking technology that complies with SDMI specifications. See,e.g., Pulgram Dec., Exh. N (Vidich Dep.) at 59:8-62:10); Exh. B(Cottrell Dep.) at 99:24-101:4 (EMI)). However, watermarkingtechnology also has limitations. For instance, the first phase ofSDMI-compliant devices and popular digital music software like theReal Jukebox can play formats that do not contain watermarking. SeePulgram Dec., Exh. N (Vidich Dep. at 59:8-60:25), Exh. F (KenswilDep.) at 54:8-56:19. Finally, like encryption, watermarking onlyoffers prospective copy protection; it will not affect existing mediabecause (a) such media cannot be "queried" to determine if the copyis legitimate, and (b) only future SDMI-compliant players will beable to make that query. See 1 Pulgram Dec., Exh. N (Vidich Dep.) at59:8-62:10.
32. On July 26, 2000, the court ordered defendant to comply withthe preliminary injunction by midnight on July 28, 2000; however, onJuly 28, a Ninth Circuit panel stayed the injunction. That same day,plaintiffs posted their bond.