Napster Calls MusicNet Monopolistic; Judge Agrees

MattW writes "Yahoo is carrying an article from the AP about a development in ongoing Napster litigation. Several major labels and RealNetworks formed MusicNet. Napster complained about an anti-competitive clause in the contract they signed with MusicNet, and Marilyn Hall Patel, best known to this community for her stern condemnation of Napster, agreed, stating that MusicNet had all the hallmarks of an anticompetitive business. The article goes on to state that, "If the recording industry was found to have misused its copyrighted material, it might not be able to successfully pursue an infringement claim on those works.""

Comments

Should have dealt with this earlier

[gorillasoft]

From the article: "Napster's attorney argued to the court that an agreement reached earlier this year between MusicNet and Napster contained a provision unfairly giving MusicNet the right to terminate the contract if Napster sought agreements with other labels."

This seems like something that Napster should have dealt with or drawn attention to during negotiation of the contract. It makes one wonder why they would even sign a contract of this nature. If nothing else, calling attention to it earlier may have helped them in ealier litigation. The only plus for them in signing the stringent agreement is that they have rights to the music now, and may be able to strike this part of the contract to enable them to gain rights to other labels' music in the future.

who /is/ fair?

[SirSlud]

Exclusivity deals are quite the hot topic right now. Intel is taking heat from the EU for exclusivity provisions it has with computer distributors. my boss and I were wondering why someone like Coke or Pepsi is allowed to ensure exclusivity with its distributors (fast food chains, etc)? Whats the difference?

Now they're on to something

[weez75]

It seems Napster has figured out that when members of a market collude (act in concert) they are in fact an oligopoly. This in many cases is more powerful than a monopoly. The number of companies with the resources to promote and distribute music is very small. That means that by antitrust definitions they have the most influence over price as well as the ability to create unfair barriers to entering the market.

What this means is that someone finally has figured out that the way to fight the situation isn't to attack record companies for protecting their works but instead, attack their methods of controlling the market.

You and I can in turn support this effort by not buying music from those colluding in this market. Quit complaining about the record companies and the way they handle Napster and Morpheus--just quit buying their products. Buy independent label artists, listen to the radio, pick up an instrument and play it. Let the file trading companies fight the antitrust battle...

Re:Now they're on to something

[fishbowl]

> This is good because IIRC RICO is a CRIMINAL
> action, and leaves the companies open to
> everything from fines to revocation of charters.

It allows for something else that I find delicious: Prison time for executives.
And the best part? You can end up in prison
because you are the highest level of authority
that "knew or should have known" about the violation.

That means you don't even have to have your manicured hands dirty to be escorted out of your
ivory tower in handcuffs. Even if you "don't know" about the corruption in your organization,
if the FBI can prove that you "should have known",
you're responsible.

I love RICO. OSHA is pretty good like this as well...

Re:Now they're on to something

[raresilk]

both legal remarks not exactly correct (nothing personal).

Under the Brooke Group case, decided by the US Supreme Court in about 1995, oligopolistic collusion to dominate a market can constitute an antitrust violation, even though none of the players has sufficient market power on its own to constitute a monopoly.

You're partially correct in that abusive business conduct might also form the basis for a RICO claim. However, you need certain specific "predicate acts" to support a RICO violation, and although criminal infringement of a copyright is a predicate act, misuse of a copyright is not. So I wouldn't be too quick to assume that this is just the "reverse Napster case" here.

RICO also comes in *both* civil and criminal flavors. Criminal RICO charges would have to be brought by the Justice Dept., and although the penalties sound scary, don't forget that the wheels of government turn slowly, and there's an awfully high burden of proof to convict someone of a crime. (And also, I suspect they're quite caught up in other stuff at Justice right now.)

In contrast, civil RICO claims can be brought by any individual/company who claims to have been "injured in business or property" by the RICO violation. A successful claimant is entitled to treble damages, so although it doesn't sound as threatening as criminal charges, civil RICO is no little mousie.

Re:Here we go again

[Bonker]

Well it looks like we will never be able to download music on the internet.

Hmm... I'm downloading music from the internet *right now* from a P2P filesharing service called USENET.

Steve Vai rocks, BTW...

Despite the best efforts of the RIAA to stamp out filesharing services, they have yet to seriously move against Usenet or convince any of the major ISP's to not carry the alt.binaries hierarchy. (I beleive Earthnet caved into the BSA and stopped carrying a lot of the alt.binaries.warez groups)

Moreover, many ISP's have started to refuse requests from entertainment companies to TOS users because they share copyrighted material. They cite issues such as DHCP IP addresses and non-provability, but what it really boils down to is the fact that the ISPs realized that they'll start losing customers if the becoming known for TOS'ing their users.

Sharing is alive and well, neighbor, and as long as its easier to share than it is to buy music, then the RIAA will just be spinning their wheels.

"The more you tighten your grip,
the more star systems will
slip through your fingers."

Not at all.

[werdna]

If nothing else, calling attention to it earlier may have helped them in ealier litigation

Only if they had a crystal ball. Napster DID counterclaim for misuse, by the way, albeit on other grounds.

But your facts are way off. The agreement did not exist at the time of the preliminary injunction hearing, so it couldn't have been raised at the time. Facts not on the record (that is, not adduced in the earlier injunction proceedings) are not relevant to the appeal, which is what we have been watching the past 18-24 months.

It couldn't have helped them on appeal. It can only help them going forward. They will use this, and already have.

Re:Here we go again

[eXtro]

Thats not entirely true. We'll always be able to download music off the internet. The only real question is when will we be able to legitimately download music off the internet? Napster got in trouble for two reasons 1) RIAA is extremely greedy and 2) Napster was greedy.

The only reason for Napster itself to exist was to skim money off of peer-to-peer networking. Once Napster became involved in fact it was no longer really peer-to-peer networking, there was an entity in the middle that operated as an information broker. Some percentage of the songs transferred via Napster were copyrighted, it seems fair that the copyright holders of those songs should be able to negotiate a percentage of Napster's revenue based on that. The RIAA, through its extreme greed, did the wrong thing and for all intents and purposes shut down Napster. If they were smart and/or less greedy they would've negotiated a fee based on the knowledge that they can't really stop file sharing but can get an indicator on what percentage of files are infringing. This would've been pure profit for them since their distribution costs are zero.

Instead they're going after each new adulterated peer-to-peer network and shutting them down. The problem is they still aren't stopping file sharing and also aren't making any money off of it. Every side really loses, including the consumer who obviously really wants to be able to download files off of the net.

Nobody's fair.

[e-gold]

And everybody (most-especially me, to get any self-interest out of the way) wants to be the middleman. The question artists and consumers should be asking themselves is, "what kind of middleman do I want?" The current middleman/men? is what I call a quintopoly (a five-way monopoly) which has survived up to now largely because of the difficulty artists have had in directly reaching their fans through traditional means. The quintopoly is top-heavy with management who are used to (as Courtney Love put it) lots of trips to Scores and other perks. Life for the artists (even when they "make it") is therefore not nearly as lucrative as many imagined before Courtney's rant, which appeared in Salon a while back.

The internet changes (or should change) all that (and yes, I hope that the change will benefit me). How can music consumers make sure that most* of the money that they spend on music goes to actual musicians instead of non-producers? Well, I have a few ideas, but

http://www.scottmccloud.com/comics/icst/icst-5/ics t-5.html

and

http://www.scottmccloud.com/comics/icst/icst-6/ics t-6.html

show some cartoons that explain things visually better than I ever could in this rant. Enjoy.
JMR

* - anyone promising artists "all" the money is probably lying.

Speaking ONLY for myself!!!

Finally Caught Out

[nellardo]

When I worked at Sony a few years back, pre-SDMI, one of the things I worked on was the technology for electronic content distribution. I was the tech liaison between Sony Corporation of America (SCA), Sony Music (SMEI), Warner Music Group (WMG), IBM (tech and business groups), and Sony research labs in Japan (aka "Tokyo").

Aside from the (questionable) joy of explaining cryptography to suits and explaining licensing requirements to geeks (Harry Fox helps throw a real monkey wrench in there, administering rights for song-writers), one of the things that came up time and time again was anti-trust issues.

SMEI and WMG were well-aware that together they represented about 30% of the market (they split that up, flip-flopping every year over who has the most based on who had bigger hits). Their expectation was that a joint venture between them would attract BMG, Universal, EMI and whoever was number six at the time. Then independents would simply have to fish or cut bait and join up as well.

Everyone was very careful to avoid using words and phrases like "controlling", "domination", etc. at least in written materials. People would verbally joke that they needed to make sure those words weren't written down, in case they ever got subpoena'ed for anti-trust, but everyone knew that the objective was making the HBO of electronic music distribution. You see, they recognized that HBO had the movie companies by the short and curlies as far as cable distribution of films went, and didn't want the same to happen to them in a new media distribution - the film companies have been worrying about this for themselves for electronic distribution for a couple of years now.

Of course, Napster beat them to it, so they beat on Napster legally. One of the funniest things about the timing of these things for me was SDMI being announced just after MP3 hit the cover of Time Magazine, when I'd been working on it for years prior. And of course they got the DMCA passed in the meantime, making cracking even the stupidest of copy control schemes illegal. Of course, every crypto expert they talked to at the time (myself included) emphasized that no scheme was foolproof and you should be sure to design the system to minimize damage in the case of a crack. Being powerful executives with lobbyists on retainer, a legal solution was obvious.

So, all in all, I'm pleasantly amused that the music companies got just a bit too eager and slipped in one phrase too many.....

ah the good old force a settlement play

[terrymr]

This was perfect timing - suddenly point out that the RIAA are in fact not the copyright owners and that they are a monopoly.

The same thing happened in the MP3.com case I believe.

The RIAA's members have been misrepresenting copyright ownership for years --- look at a cd does it say "&copy 2001 insert band name here"? - no it says "&copy 2001 insert really big record company name here".

Now go look at the copyright notice in a book - it shows the author as holding copyright doesn't it ?

In the same way the artist owns the music and the record industry licenses certain rights from the artist (unless they have an express agreement transferring the copyright to the record company - this may be the case with smaller newer artists but anybody who knows the business isn't going to assign their copyright to a corporation for life).

And don't tell me that the music is a "work made for hire" because neither the courts or congress believe in that fairy tale so the record companies can't claim ownership that way.

Oddly enough the RIAA don't even own the rights to publish the music that is owned by the music publishers. All the RIAA owns is the "mechanical rights" in the CD,tape or whatever. Or at least that's what the licenses I used to have for public performance of recordings say.

BTW IANAL

You mean they're finally figuring this out?

[dpilot]

CDs list for $17.00.
Cassettes list for about $10.00.

CD media is one piece, no replication time because it's stamped. CDs are SOOOOO cheap that they're the AOL distribution method of choice.
Cassettes have between a half dozen and a dozen pieces that need assembly, and even though they're thermally dup'ed much faster than the 1 7/8 ips they're played at, there is still a duplication time. As soon as possible, software makers got out of the cassette business.

So cheap cost = expensive price, so much for this being anything but a marketing exercise. The cost appears to have NOTHING to do with the price.

CDs came out over a decade ago at about the same price, when they were a novelty. At the time, one figures these are computer-stuff, and prices will come down as technology gets better. They haven't.

Moreover, we have many recording labels producing CDs, but there doesn't appear to be ANY significant competitive pressure. Just about any other industry would get strung up for 'collusion' or something like that, in this situation.

Napster wasn't just people cheating because the technology became available. IMHO we all know we're getting ripped off. That doesn't make Napster right, but also IMHO this puts the current situation into a more Prohibition-like setting. The current situation allowed/required by the law is STUPID and WRONG.

IMHO whenever crime reaches the epidemic proportions of Napster (or Prohibition, or drugs) something needs to be done besides simply enforcing and stiffening the law. In the case of Prohibition, it was repealed. IMHO in the case of drugs, the collateral damage of drug financing and attempts at enforcement are worse than simply controlling drugs like alcohol and cigarettes. IMHO for Napster, serious examination of pricing and collusion are necessary, combined with a review of copyright provisions. (My kids are Beatles fans, and last I know Michael Jackson gets the revenue. How does this encourage the Beatles to produce more music this many years later?)