Napster judge harshly questions recording industry practices

SAN FRANCISCO (AP) _ A federal judge said MusicNet, the online music joint venture formed by RealNetworks and three major record labels, ``looks bad, sounds bad and smells bad'' as Napster raised

Thursday, October 11th 2001, 12:00 am

By: News On 6

SAN FRANCISCO (AP) _ A federal judge said MusicNet, the online music joint venture formed by RealNetworks and three major record labels, ``looks bad, sounds bad and smells bad'' as Napster raised the spectre of antitrust within the music industry.

Napster raised the issues of anticompetitive practices during a federal court hearing Wednesday as the recording industry sought summary judgement in its copyright infringement suit.

U.S. District Judge Marilyn Hall Patel did not rule on the summary judgment request, and instead took it under submission. She did, however, launch into a discussion about the workings of MusicNet and how that newly formed business overlapped with the individual labels' suit against Napster.

Napster's attorney, Celia Barenholtz, argued 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.

Seattle-based MusicNet, a joint venture between RealNetworks and record labels BMG, Warner and EMI, is scheduled to launch later this year.

Patel told recording industry attorney Russell Frackman she saw MusicNet as an attempt by some of his client labels to tap into the growing online music market collectively and ``shroud it in some mysterious sort of joint venture.''

MusicNet's agreement with Napster should not preclude the individual record labels from seeking any damages incurred prior to the deal, Frackman said. He described Napster's argument of antitrust issues as an attempt to deviate from the central issues in the case which had been going in the industry's favor as the clamps tightened on the Napster service.

``I think that's exactly what Napster wants to do is open up a fishing expedition,'' Frackman said outside the courtroom.

Barenholtz argued the recording industry may have misused its copyright music as a byproduct of the formation of MusicNet and pressplay, the online venture of the Sony and Universal labels. Napster wants additional information on the formation of those two businesses for possible antitrust law violations, as it may form the basis for a new legal defense.

``When you have competitors sitting down in a room discussing how they're going to price product, you have an anticompetitive activity,'' Barenholtz said.

MusicNet had no comment on the allegations and the joint venture is not a party to the suit, though three of its member partners are.

To support its contention that the recording industry has set up an anticompetitive operation, Napster submitted a declaration from Roger Noll, a Stanford professor and expert in the economics of antitrust and intellectual property.

Noll examied the business structure of the recording industry and found it to have ventured into the territory of antitrust in forming MusicNet and pressplay.

``To summarize, the joint ventures in digital distribution inherently have an anticompetitive effect on prices. Moreover, the power of these joint ventures is directly derived from the excercise of copyrights in recordings,'' Noll wrote in his declaration.

On the issue of copyright ownership, alleged by the recording industry but challenged by Napster, Patel seemed convinced that the plaintiffs' simple applications to the U.S. Copyright Office would lead to a determination that the labels indeed owned the material.

Patel may appoint a special master to examine all documentation, including artist contracts, before making a final ruling on copyright ownership. Both sides were asked to submit a list of potential candidates for that position within the next 10 days.

The labels are seeking the maximum allowable damages of $100,000 per infringement and Frackman said the deal with MusicNet should not absolve Napster of liability for infringements that occurred prior to the agreement.