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The Napster Question

October 30, 2000

As you read this, a three-judge panel of the Ninth Circuit Court of Appeals in San Francisco is deciding whether the Internet file-sharing service Napster will continue operating or be shut down by a lower court's injunction issued last July. The injunction was stayed by a two-judge panel of the same appeals court and allows Napster to keep operating until the lawsuit against it by the Recording Industry Association of America (RIAA) goes to trial. RIAA is suing Napster for facilitating the violation of music copyrights.

For uninitiated readers, Napster is a software program through which users can swap songs over the Internet. Computer users visit Napster.com where they download the free Napster program. Once the software is installed on the user's hard drive, the user can locate songs stored on the computers of other Napster users by title and artist. Once a specific song is located, the user double-clicks the title and the song starts to download to their hard drive in MP3 (MPEG audio layer 3) format, an efficient audio file form which compresses original CD data by 12 times without any discernible loss in sound quality.

The trouble record labels have with this new technology should be obvious. Do you like the most recently released Eric Clapton song? You can log on to Napster, find another Napster user with the song in MP3 form, and download it. The sound is usually high enough in quality to be close to that of the original CD, so much so in fact, that record labels are terrified that purchases of new CDs from their artists will plummet if Napster isn't shut down immediately. Hence their industry trade group RIAA is suing Napster for facilitating copyright infringement.

What would the verdict of the Austrian school be on such an issue? In Human Action, Ludwig von Mises limits his statements about copyrights to their relationship to what is known as external economies, or inexhaustible benefits derived from others by the use of technical or creative know-how. Authors and composers are "burdened with the cost of production, while the services of the product they have created can be gratuitously enjoyed by everybody." In the absence of copyrights, "authors and inventors would for the most part be producers of external economies."

Mises suggests that copyrights are valuable in protecting royalties justly due to the "broad class of professional intellectuals whose services society cannot do without." These intellectuals propagate knowledge through the media of "textbooks, manuals, handbooks, and other nonfiction works." He continues, "It is unlikely that people would undertake the laborious task of writing such publications if everyone were free to reproduce them."

In Man, Economy, and State, Murray Rothbard sheds much light on the compatibility of copyrights with economic freedom. In opposition to economists such as Jules Dupuit, Rothbard favored perpetual rights since perpetuality signifies true unabridged ownership of property. In contrast, the current system in the U.S. limits this ownership to a certain number of years. To Rothbard, this implies that the State is the true owner of the property and has granted its creator use of it for only a limited time.

Rothbard underscores the nature of the implied contract between buyer and seller under copyright: "any man who agrees to purchase [a] product also agrees as part of the exchange not to recopy or reproduce this work for sale." Violation of this implied contract on the part of original or subsequent buyers is implied theft.

Rothbard's arguments are clearly relevant to the issue of Napster. If users of the software allow downloading of MP3 song files from their hard drives in return for cash payments for the files, then copyrights have been infringed. Some Napster defenders point out that cash-for-MP3s transactions are not occurring on Napster, therefore copyrights are not being violated. However, the presence or lack of money is irrelevant. Money is a technological innovation for avoiding the inefficiencies of barter. In the context of barter, "sales" can still be occurring and Napster is the market through which these barter transactions take place. In this sense, copyright violations have occurred.

The crucial questions are one, does Napster have uses in which copyright violations do not take place and two, should Napster be shut down for the abuse committed by some of its users?

The answer to the first question is yes. Many users claim to have used the software to match a song melody they have heard with the artist, album, or title of a song. They then have the information they need to purchase the complete CD. As will be seen later, there is evidence that this practice is occurring, particularly among college students. In this sense the Napster client aids in improving the flow of information much better than radio and internet CD vendors. On radio, songs are played but artists, titles, and albums are not always named. Internet CD vendors such as Checkout or CD Now list samples of some songs and albums but not others.

This brings up the issue of sampling, an issue that has divided artists into pro- and anti-Napster categories. A few up and coming artists have championed the software because it has allowed their music to be discovered and has propelled interest in their CDs and live performances. And as will be seen later, there is evidence that Napster users have downloaded songs of new talent and later purchased new CDs.

Artist-song identification and sampling suggest that Napster, like millions of other sites on the Internet, is improving the flow of information and in terms of copyrights, has substantial non-infringing uses. But even if it could be proven that Napster can only be used to violate copyrights, this reason would not be a basis for shutting the site down. Coat hangers and pliers facilitate car thefts, but no one is suggesting the companies which make these products be shut down or that they police the motives of every purchaser, in original or subsequent purchases. A .38 revolver can protect your life and property or be used in an armed robbery. Should pistol manufacturers be held liable for the misuse of their product?

The real problem with the Napster issue is the federal government and its lack of consistency on the issue of copyrights, particularly in Congressional legislation and decisions by courts.

In terms of Congressional legislation, shutting down Napster is inconsistent with the Audio Home Recording Act (AHRA) of 1992. This law legitimized consumer re-recordings of songs from purchased cassettes and CDs for "personal use," a legal status that encompassed "sharing" with friends.

The sharing status seems to facilitate the violation of copyrights, at least in terms of the Austrian view. It approves exchanges between friends, which in many cases is equivalent to barter and therefore a violation of copyrights. But who approved this dilution of property rights? The federal legislature, of course.

Now let's look at case law. In 1976, Universal City Studios sued Sony Corporation charging that Sony was contributing to copyright infringement in producing and selling its product, the Betamax video cassette recorder (VCR). Sony won the first round only to see its victory reversed by the U.S. Court of Appeals for the Ninth Circuit.

The Ninth Circuit effectively banned the VCR because it enabled the infringement of copyrights through "time shifting;" consumers taping programs and watching them at a later point in time. Sony was labeled a "contributory infringer" of copyrights. What's truly frightening is that, although Sony eventually prevailed in the U.S. Supreme Court, the case took two court terms (a full year) to decide and Sony prevailed by only one vote in a 5-4 decision when Justice William Brennan changed sides in favor of the VCR.

Given the VCR's widespread use today and its role in making the movie studios filthy rich from videocassette sales and rentals, it's difficult to believe that any of this really happened. But sure enough, Motion Picture Association of America (MPAA) President Jack Valenti in the late 1970s claimed that the VCR was to movies what "the Boston strangler is to the woman alone." Today Valenti lines up against Napster not because he or the movie studios care about musicians but because they want to utilize the power of the federal government to monopolize control of some forms of technology.

The evidence that the recording industry is more interested in control than in protecting artist compensation is its steadfast refusal to compromise in a settlement with Napster. Napster has offered to charge $4.95 monthly subscriptions to its service and direct the proceeds to record labels which would provide them with as much as $500 million per year. The RIAA has not only refused to listen to these offers, it has submitted no counterproposals for a settlement suggesting that its real interest is in making Napster useless or taking it over.

Alluding to this latter possibility, Scott Ross of Moonshine Music, a small pro-Napster record label, told ZDNet on October 12, "Most record companies are trying to control Napster. They want to own it - that's my opinion. It is really not in our best interest to have them own it because it will become like MTV, where they would set licensing and advertising fees so high that basically the major labels would be the only people able to promote on it. I'd be locked out."

Music Television (MTV) is an excellent example of the perverse legacy of technological monopoly, in this case cable television. The ironically named Music Television currently plays music videos no more than an average of two consecutive hours per day. It hasn't played 5 or more consecutive hours of music in 10 years claiming that playing music hurts its ratings. The channel instead is filled with reality-based shows, sitcoms, and left-wing propaganda such as the pro-Clinton-Gore Choose or LoseM. One of it's most popular shows these days is Jackass, which recently showcased a man repeatedly diving from a ladder into a vat of elephant dung.

MTV in turn is owned by Viacom, which has an almost complete broadcast monopoly of music videos on cable TV. In addition to MTV it owns MTV2 (for former MTV viewers who actually want to watch music), VH-1, and CMT (Country Music Television). Even the Clinton Justice Department briefly considered anti-trust action but quickly abandoned it since Viacom has been a steady supplier of leftist, pro-Clinton propaganda into American homes.

The last point to make in reference to the federal government's lack of legal consistency is its anti-Microsoft jihad. Here, the federal Justice Department, during settlement talks in 1999, demanded that Microsoft make its Windows source code available to its competitors and effectively turn the product into an "open-source" operating system resembling the awful Linux. In other words, the federal government wanted to effectively push the copyrighted Windows 98 operating system into the public domain.

Further emphasizing the inconsistency of the case is that the feds continue to pursue anti-trust action against Microsoft while allowing their friends at Oracle to run TV commercials bragging that "96% of the Fortune E-50 run Oracle."[1]

In terms of economic damage to the recording industry, the empirical evidence doesn't come close to supporting RIAA's side of the case. For the first quarter of 2000, album sales in general were up by about 12% and, according to RIAA itself, CD shipments for the first half of 2000 hit a record high of 420 million units.

In terms of addressing RIAA's contention that college students are sampling from Napster and no longer buying CDs, a Greenfield-Youthstream study revealed that while 58% of college students have downloaded music from Napster, 79% still purchase new CDs.

This goes to show that if RIAA really cares about copyrights and protecting artist royalties, it should direct its wrath toward the federal government instead of embracing it. The federal government, through legislation (allowing "sharing" in the 1992 Audio Home Recording Act) and antitrust (demanding Microsoft Windows become open source) has done more to undermine copyrights than Napster and its users ever dreamed.

Notes:

[1] See the item here under the subheading "Look for the Oracle E-Business Label." Oracle not only brags to having a Microsoft-sized market share in the Fortune E-50 but also 96% of the USA Today e-Business 50 and 95% of The Street.com's Internet Sector Index.


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