Prompted by arguments presented by Napster's legal team, U.S. DistrictJudge Marilyn Hall Patel grilled music industry lawyers about antitrustconcerns related to MusicNet and Pressplay, joint ventures between two groupsof major record labels to distribute their music online.
"I'm really confused as to why the plaintiffs came upon this way of gettingtogether in a joint venture," Patel said. "Even if it passes antitrustanalysis, it looks bad, sounds bad, smells bad."
The question could be a dangerous one for the record companies. Napsterargues that if the labels have "misused" their copyrights, they lose theability to enforce them. If Patel accepts the argument, it could mean nodamages for Napster's past two years of file swapping.
Patel stopped well short of ruling on the issue, and it's possible that shecould decide antitrust concerns are irrelevant to Napster's case.
The court spotlight is the latest and most public official scrutiny to beturned on the record companies' joint ventures, which are serving as thefirst broad initiatives to make major label music widely available online.
Several months ago, the Justice Department opened a preliminary antitrustinvestigation into the labels' online efforts. Lawmakers critical of therecord companies have also expressed some concern about Pressplay andMusicNet's structure. None of this concern has grown intoofficial action, however.
MusicNet, which is backed by RealNetworks, AOL Time Warner, Bertelsmann andthe EMI Group, has already begun demonstrating its technology and is slatedto launch on RealNetworks' site in less than two months. Pressplay, a jointventure of Sony and Vivendi Universal, will launch on Yahoo and Microsoft'sMSN later this year.
Who made the deals?
Napster's attorneys hammered MusicNet on Wednesday as a possible out fortheir client, which faces crippling damages if it is found guilty ofwillfully violating millions of copyrights--an outcome that looksincreasingly likely.
The file-swapping company struck a deal earlier this year to carry MusicNetsongs in its own forthcoming subscription service--but the agreementcarried an exclusivity provision that barred Napster from immediatelysigning a similar deal with Pressplay for songs from Sony MusicEntertainment and Universal Music Group.
That exclusivity provision amounted to "misuse of copyright," said Napsterattorney Celia Goldwag Barenholtz. "What you have here is an attempt (to usecopyrights) to control Napster's ability to enter into an agreement withanyone else."
Record industry lawyers protested, saying that the deal was between Napsterand MusicNet, not the labels themselves. MusicNet is a joint venture anddid not tell the labels the provisions of its agreement, said RussellFrackman, attorney for the Recording Industry Association of America.
The issue does highlight what has sometimes been a contentious relationshipinside MusicNet.
Record executives involved in MusicNet have previously complained privatelyabout the Napster deal, which they say was done almost wholly under thedirection of RealNetworks Chief Executive Rob Glaser, who is also MusicNet's actingchief executive.
"We had nothing to do with it," said one senior record label executive involved with MusicNet. AOL Time Warner and EMI were not aware of the terms of the deal before it was signed, the executive said.
Whatever the terms of that single deal or the various joint ventures, Patelmade it clear she may open the case to look at whether the record companiesare using Pressplay and MusicNet to control the competition.
"Don't think that the fact that you're shrouded in some mysterious jointventure gets you out of the pickle," she told industry lawyers. "This couldhave the effect of stopping everything and having massive discovery."Discovery is a legal term for the process of requesting documents andinvestigating each side's claims.
Patel also said she is considering appointing a "special master" in thecase that could investigate the record industry's claims to owning copyrighted songs under a "work-for-hire" rule. That rule wouldessentially relegate artists such as Pearl Jam or Mariah Carey to thestatus of employees of the record companies.
Despite the criticism of record companies' claims, Patel did not back offon her skepticism of Napster's legal arguments. She dismissed severalattempts to bring up defense that would give Napster the same protection asInternet service providers and made it clear that she has not developed any sympathy for the company's past file-swapping model.
The judge did not rule on a record industry motion for summary judgment,which would declare Napster guilty of copyright infringement and movedirectly to deciding how much damages the company would have to pay. Bysignaling that she was considering a new special master in the case,however, Patel appeared unlikely to rule in favor of the record industry's attempt to bring the trial to a quick end.