AN FRANCISCO, Oct. 2 — Three federal appeals judges today pointedly questioned lawyers for the record industry about their argument that Napster, the Internet music service, is liable for contributing to copyright infringement.
The case is being closely watched as a potential bellwether of how intellectual property law will be defined on the Internet.
The exchange today created a sharply different courtroom atmosphere from that of two months ago when a lower court ordered Napster to stop aiding the exchange of copyrighted music. That court's preliminary injunction was quickly stayed, setting the stage for today's hearing, during which the United States Court of Appeals for the Ninth Circuit considered whether to reinstate the injunction pending trial.
The three judges recessed without rendering a decision today, and a final ruling may not come for at least a month.
The hearing came as executives of Napster disclosed for the first time the nature of settlement proposals they have made to record companies, suggesting that the rapidly growing start-up company's service may cease to be free to users. Hank Barry, the chief executive of Napster, said that among the proposals, his company would consider charging customers $4.95 a month, then providing "70 to 80" percent of revenue to record labels, which he said would amount to $500 million in the first year.
Mr. Barry said the record labels have been unresponsive to Napster's proposals. Hilary Rosen, president of the Recording Industry Association of America, which represents the major record companies, said the lack of response suggested that Napster had "not presented something even one company" had found enticing enough to pursue.
On July 26, Judge Marilyn Patel of the Federal District Court in Northern California issued the injunction against Napster, excoriating the Internet service as existing primarily as a means for users to exchange copyrighted music. Two days later, a two-judge panel from the Ninth Circuit issued an emergency stay, saying it found substantial questions about the "merit and form of the injunction."
In the ensuing months, a number of outside interests, including the Consumer Electronics Association and the Association of American Physicians and Surgeons, have filed court briefs on behalf of Napster's position. These allies' interests differ — and they do not necessarily support Napster's business — but each has asked the court not to limit too narrowly the exchange of copyrighted works and information over the Internet.
At today's hearing, judges questioned both sides about the scope and merits of the injunction, which Napster asserts would essentially force it to shut down because it cannot distinguish which music is copyrighted and which is not. But the judges pressed particularly hard on the record industry to defend several major points that legal observers say are central to the outcome of the case.
Napster provides software, which the company says has 32 million users, that lets the users exchange music files over the Internet. The lower court heard evidence that 87 percent of the downloaded files are copyrighted music, and Judge Patel concluded that Napster "has contributed to illegal copying on a scale that is without precedent."
But Napster asserts its users are not involved in theft, but "peer-to- peer sharing" of music in which they are making copies of music for personal, noncommercial use, an activity the company says is permissible under fair-use laws.
In one courtroom exchange today, Senior Judge Robert R. Beezer asked Russell J. Frackman , lawyer for the recording industry, whether Napster had the responsibility for policing the actions of its users. "How is Napster expected to have knowledge of what's going on in someone's computer in Hackensack, N.J.?" the judge asked. He went on to ask whether the record industry would concede that it is acceptable for "a fellow in New Jersey and a fellow in Guam" to share music over the Internet.
"We are not trying to stop the Internet," Mr. Frackman countered. He went on to assert that the recording industry objected not to a technology, but to a business model intended to "create, implement and supervise" a system that infringes copyrights on a wholesale basis.
The record industry also appeared to not necessarily benefit from the presence on the appellate panel of Judge Mary M. Schroeder, whom some legal analysts had speculated could favor the industry. The reason for the speculation is that Judge Schroeder wrote a 1996 decision in which she found that the operators of a swap meet could be held liable for contributory copyright infringement when individual vendors at a swap meet sell copyrighted works on the premises.
But when Mr. Frackman sought to make the comparison between the swap meet case and Napster, Judge Schroeder was quick to interject. "This is really different," she said, adding that the swap meet operators had greater ability to monitor the activity. "He could control what was going on on the premises," the judge said.
David Boies, the lawyer for Napster, faced tough questions, too, but he also appeared to score a point pertaining to a federal case involving the Sony Betamax videocassette recorder, which both sides assert offer key precedent and guidance for the judges. In that case, the Ninth Circuit ruled Sony was not guilty of contributory copyright infringement for selling its machine.
One central finding of that decision was that the Sony recorder could not be held liable for contributing to copyright infringement because its technology, in addition to being used primarily to videotape copyrighted television programming, could also have "substantial" other uses, like taping noncopyrighted material.
In the Napster case, Judge Patel said Napster was designed for and used primarily for infringing uses. But Judge Schroeder today asked Mr. Boies, in what appeared to be a rhetorical question, whether there still is room for noninfringing uses if 70 to 80 percent of the service is used for infringement.
Mr. Boise responded with uncharacteristic enthusiasm. "Absolutely," he said.
Officials from Napster acknowledged taht they felt optimistic after the hearing. But lawyers from both sides of the litigation cautioned that the nature of the questions today did not suggest an outcome or even provide insight into the judges' perceptions of the case.
" I just don't think you can read anything from it," said Carey R. Ramos, a lawyer representing music publishers, who filed the suit against Napster along with the record labels.
