Forget Microsoft. Think Napster.
In the age of the Internet, the most significant legal case wending through the US courts is the copyright clash involving the Napster online music service.
The Napster case, aired at hearings before Congress this week and set for a date in federal court later this month, involves the free exchange of music over the Internet.
But it goes much deeper than that.
The case "strikes at the very heart of issues that are at the root of the Internet economy," says Richard Gilbert, an economist at the University of California at Berkeley.
Those issues pit the free flow of information enabled by the Internet against the tradition of protecting intellectual property through copyright laws.
Never before has it been possible to copy and distribute information so cheaply and broadly as the Internet allows. Though it's been a boon to the economy and a revolution in spreading ideas and information, it is running up against older notions of protecting the commercial value of such ideas.
That clash, say some analysts, really has no precedent, and that makes the Napster case potentially more significant and pioneering than even the antitrust case against Microsoft.
Copyright laws have protected creative material, whether poetry, music, or art, since the 1600s. A "fair use" loophole allows some small-scale copying of material and exchange, for instance, between friends, when there is no commercial impact or intent.
The advent of the Internet, though, has ushered in new possibilities. Napster members, for example, freely exchange music over the Web in digital form. Napster provides the software and a directory of what music is available on members' computers.
The service is spreading at cyberoptic speed. Some 14 million people now have the software and about 3 million are actively trading music files.
Napster does not house or store the music itself, an arrangement the company feels shields it from copyright infringement.
The Recording Industry Association of America and several music companies disagree. They say Napster encourages copyright infringement and is building a commercial enterprise by doing so. And they've sought an injunction against the San Mateo, Calif., start-up. A hearing is scheduled July 26.
Even if the suit against Napster succeeds, there are already a host of others, like Gnutella and Scour Inc., offering similar services. Some, like FreeNet, are going a step further, creating a distribution network with no central hub and thus no target for lawsuits.
The way the music died?
But will cutting into profits cause musicians to pull the plug? "The question we should worry about," says Hal Varian, author of "Information Rules," is "whether the bypassing of copyright means there will be no music."
So far, there is no clear evidence that the online music swapping has significantly hurt CD sales. US sales of CDs and cassettes are growing this year by about 8 percent over 1999, according to those that track the industry. And while the RIAA cites a Field poll showing that Napster has harmed music sales, Napster has polls showing it increases sales by whetting appetites with free samples. The real issue is future growth as the Internet and digital music expand.
The growth of free online music has divided the artistic community. Groups like Metallica accuse Napster of encouraging stealing. Others see it and the Internet as technological facts of life that just might help artists gain independence from the giant music labels.
While the music industry is treating digital distribution as a profound threat, many analysts see the turmoil as just a sorting-out period. "The music industry is going to change tremendously," says Peter Alhadeff of the Berklee College of Music in Boston. He foresees new pricing models emerging over the next few years. There could be subscription services that give members access to all the music from a particular label for a monthly fee.
Mr. Varian notes that, while the online music start-ups are transforming distribution, the industry could make up for this in marketing and promotion. Those services, he says, grow more valuable as the Internet widens the audience for all types of music.
Ultimately, experts see the industry seeking to use or mimic Internet distribution networks. One sign of that was evident last month when two record labels, BMG Entertainment and Warner Music Group, settled a lawsuit with MP3.com, an early online music start-up. Several companies plan to sell digital music over the Internet before year's end.
Songs in code
What the industry seems to be counting on, in addition to vigorous legal actions, is encoding music in ways that make it available only to authorized users. But those codes likely will prove juicy targets for those wanting free music or those dedicated to fighting growing restrictions to online content.
Indeed, some worry that the threat to copyright could lead to heightened controls of the Internet. "I see a trend toward stronger copyright protection and have concerns they will stifle access to the Internet," says Gilbert. He cites two bills in Congress that would extend copyright protections to any collection of information, not just creative expression.
On the Napster issue, though, Congress seems inclined to let the courts and the market resolve the issue, at least for now.
(c) Copyright 2000. The Christian Science Publishing Society