In Re Napster, Inc. Copyright Litigation
191 F. Supp. 2d 1087 (2002)
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Rule of Law:
A defendant may raise the equitable defense of copyright misuse if the copyright holder uses its statutory monopoly to violate public policy, such as through unduly restrictive licensing agreements or anticompetitive conduct aimed at controlling a market beyond the scope of the copyright. A defendant presenting sufficient evidence of such misuse is entitled to discovery on the issue before a court rules on summary judgment.
Facts:
- A & M Records and other major record companies (plaintiffs) collectively controlled approximately 85% of music sales.
- Plaintiffs announced the formation of two joint ventures, MusicNet and pressplay, to serve as platforms for the digital distribution of their music.
- MusicNet is a joint venture between three of the five plaintiff record companies: EMI, BMG, and Warner.
- Pressplay is a joint venture between the other two plaintiff record companies: Sony and Universal.
- After being unable to obtain individual licenses from any of the plaintiffs, Napster, Inc. signed a licensing agreement with MusicNet in June 2001.
- The MusicNet agreement contained clauses that prevented Napster from seeking individual licenses from any of the five major record companies until March 2002.
- The agreement also allowed MusicNet to terminate the deal if Napster licensed content from any of the five record companies other than through MusicNet, and it imposed a different pricing structure if Napster licensed content from anyone else.
Procedural Posture:
- A & M Records and seventeen other record companies sued Napster, Inc. in the U.S. District Court for the Northern District of California for contributory and vicarious copyright infringement.
- The district court granted the plaintiffs' request for a preliminary injunction.
- The U.S. Court of Appeals for the Ninth Circuit stayed the injunction, and later largely affirmed the district court's findings and grant of injunctive relief.
- The district court entered a modified preliminary injunction against Napster.
- Plaintiffs filed a motion for summary judgment on liability and willfulness.
- In response, Napster filed an opposition and a motion under Federal Rule of Civil Procedure 56(f) to stay the summary judgment ruling to allow for further discovery on its defenses.
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Issue:
Does a defendant in a copyright infringement action raise sufficient questions of fact regarding the plaintiffs' copyright ownership and alleged copyright misuse to justify a stay of summary judgment for the purpose of conducting further discovery?
Opinions:
Majority - Chief Judge Patel
Yes. A stay of summary judgment for further discovery is warranted because the defendant has raised serious questions about both the plaintiffs' ownership of the copyrights at issue and the plaintiffs' potential copyright misuse. Napster presented sufficient evidence to suggest that the record companies were using their copyrights and joint ventures to engage in anticompetitive behavior, potentially expanding their monopoly beyond the scope of their copyrights in violation of public policy. The court found that discovery was necessary to explore the validity of the plaintiffs' copyright registrations, particularly the 'work for hire' designations, and to investigate the potentially restrictive and anticompetitive nature of the plaintiffs' joint ventures and licensing practices in the digital music market. The court also held that Napster's own infringing conduct (its 'unclean hands') did not bar it from asserting the copyright misuse defense, especially since the plaintiffs had sought equitable relief and the alleged misuse raised significant public interest concerns.
Analysis:
This decision significantly bolstered the copyright misuse defense, establishing it as a viable tool for defendants in high-stakes infringement cases, even for a defendant as notorious as Napster. By granting discovery, the court signaled that plaintiffs' own conduct in the marketplace could preclude enforcement of their copyrights, regardless of the defendant's infringement. This ruling put major copyright holders on notice that using their copyrights to control new markets, such as digital distribution, through potentially anticompetitive joint ventures and restrictive licensing could render those copyrights unenforceable. It affirmed that the public policy underlying copyright law—promoting creativity—can be undermined when copyrights are used to stifle competition, justifying a judicial check on the copyright holder's power.
