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NAPSTER ROLE IN MUSIC UNRESOLVED

Monday's court ruling against swapping copyright songs on Napster will be felt by musicians, record companies and by music lovers -- whether they download tunes or buy them in the record store.

But the question of whether the Internet is a rip-off for artists or a potentially valuable way to distribute their music, remains unanswered.

"It bothers me that Napster makes money off my music and doesn't cut me in -- that's just unfair," said Dennis Drew, keyboard player for the band 10,000 Maniacs in Jamestown. "If they weren't selling advertising, I wouldn't really care."

A three-judge panel in San Francisco ruled Monday that Napster can remain in business until a lower court judge rewrites her injunction that ordered Napster to shut down pending a trial on a lawsuit filed by the recording industry.

The 9th U.S. Circuit Court of Appeals also said Napster must lock out those users who exchange copyright songs without permission.

The appellate court had earlier issued a stay of the injunction.

"It's time for Napster to stand down and build their business the old-fashioned way; they must get permission first," said Hilary Rosen, president and chief executive officer of the Recording Industry Association of America. "The court of appeals found that the injunction is not only warranted, but required. And it ruled in our favor on every legal issue presented."

The court found that "Napster has knowledge, both actual and constructive, of direct infringement" of copyrights. The industry says nearly 90 percent of the music traded via Napster's servers is pirated.

Napster can stay in business until U.S. District Judge Marilyn Hall Patel retools her injunction, which the appellate court's 58-page opinion called too broadly drawn. In fact, minutes after the panel's decision, thousands of Napster users still were trading music files on just one of the company's more than 100 servers.

The appellate court said Napster may be liable if it does not actively prohibit its users from swapping protected material. Rather than placing the entire burden on Napster, however, the court said that before the company could be found liable, the recording industry must warn Napster that it is offering copyright work on its service.

The court did not specify what sanctions Napster could face.

Drew said the impact of the Napster case will grow as the Internet reaches more households. "This is really a ruling that has more to do with the future than right now," the Jamestown musician said.

The future is now, however, for Napster user Andy Goldstein of Buffalo. He said the ruling may backfire on small record companies and little-known artists who count on the Internet for exposure.

"That's part of the fun of Napster -- listening to bands you never heard of," Goldstein said. "If Napster shuts down, the big bands, backed by the big record companies, will survive. But the small bands will be at the mercy of the big companies."

In a statement, Napster said that it was "disappointed" by the ruling and that it would appeal. "We look forward to getting more facts into the record. We will pursue every avenue in the courts and the Congress to keep Napster operating."

Fearing an immediate shutdown of the service that has changed the face of music, millions of users flooded the company's computer servers last weekend to download free music. Napster has an estimated 50 million users.

Webnoize, which monitors the digital entertainment economy, estimated that 250 million songs were downloaded using Napster during the weekend and that, on average, 1.5 million users were logged on at any one time.

Technology is available to collect royalties when music is shared on the Internet. Reciprocal Inc., with operations in Buffalo, supplies copy-protection technology for Internet music sales. Music wrapped in its copy protection can be downloaded and played for a limited time, allowing the consumer to try it before deciding whether to buy.

The court's support for copyright protections will help steer the Internet toward an orderly marketplace for music, said Larry Miller, president of Reciprocal's music division. By seeking to curtail the free downloading of music, the ruling supports traditional record stores and a pay-for-service Internet market.

"This (decision) provides a clear path . . . to go about the work of building legitimate market" for music downloads, Miller said.

Miller envisions a legitimate version of Napster as a "walled garden" where paying subscribers could download copy-protected tunes for their own use.

But with free downloads available, the legitimate pay-for-play market cannot get off the ground, he said. Reciprocal has supported more than 1 million downloads of copy-protected music, he said, a number that pales in comparison to the estimated 1 billion downloads made possible by Napster in January alone.

Miller and fans of Napster agree on one thing: Music by-the-download is here to stay.

"There's always other servers if Napster shuts down," said Scott Kaeselau, 24, of Elma, who plays in a band and hopes that Napster stays alive. He said he would be willing to pay a monthly fee for the service. "I'd pay $10 or $15 a month, but I wouldn't pay for each single song."

The five largest record labels -- Sony, Warner, BMG, EMI and Universal -- sued as soon as Napster, based in Redwood City, Calif., took off, saying it could rob them of billions of dollars in profits.

In May 1999, Napster founder Shawn Fanning released software that made it easy for users of personal computers to locate and trade songs they had stored as computer files in the MP3 format, which crunches digital recordings down to manageable size without sacrificing quality.

The concept of "peer-to-peer" song trading quickly proved too popular to contain. As Napster users grew by the millions, other file-sharing programs, such as Gnutella and Freenet, popped up. So even if Napster folds, plenty of alternatives -- some based overseas, beyond the reach of U.S. courts -- remain available.

Soon enough, as bandwidth increases, movies and other video entertainment are expected to join music in Internet trading that uses peer-to-peer technology, which is decentralized and, unlike Napster, does not require a clearinghouse.

Since the appellate judges began deliberating in October, Napster has made agreements with former business foes such as Bertelsmann AG, the parent company of the BMG music unit. The German media giant has promised much-needed capital if Napster switches to a subscription-based service that pays royalties to artists.

"This is neither the beginning nor the end of Napster. Now it's really important to move to the future with a membership-based service," said Andreas Schmidt, head of Bertelsmann's eCommerce group.

Sue Rathbun, a 21-year-old college student from Amherst, said a flat monthly fee would be preferable to a pay-per-song arrangement.

"You figure $15 a month is about what you would pay for one CD," she said. "I use Napster a lot, and I'd pay that much to keep it. But I wouldn't pay for each individual song, because you would be spending a lot of money."

Glenn Morrow, owner of Maniacs label Bar/None Records in Hoboken, N.J., said Napster has proven a point. "I gotta believe people like this technology," he said. "You can't just stop people from doing what they like." On the other hand, "artists have to be compensated; otherwise, the whole thing falls apart."

The Associated Press contributed to this report.

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