copyright-music-industri, Napster, And Intellectual Property Rights

Before the advent of the Web, people made audiotape copies of music and videos. They either gave these copies to friends and family or used them for their own personal enjoyment. Few individuals had either the interest or the means to create and distribute copies to larger populations. For the most part, these activities were ignored by the producers, distributors, and artists who had the legal rights to the content.

Then came the Web and a variety of enterprising sites such as and enabled users to listen to music from any computer with an Internet connection, without paying royalties. Using peer-to-peer (P2P) technology, Napster supported the distribution of music and other digitized content among millions of users. When asked whether they were doing anything illegal, and Napster claimed that they were simply supporting what had been done for years and, like most private individuals, were not charging for their services. Other companies extended the concept to other digitizable media such as videos and movies.

The popularity of and P2P services was too great for the content creators and owners to ignore. Music sales declined. To the creators and owners, the Web was becoming a vast copying machine for pirated software, CDs, movies, and the like. If left undeterred,’s and Napster’s services could result in the loss of many thousands of jobs and millions of dollars in revenue.

In December 2000, EMusic filed a copyright infringement lawsuit against They claimed ownership of the digital rights to some of the music made available at Other companies—Warner Brothers Music Group, EMI Group PLC, BMG Entertainment, and Sony Music Entertainment—followed suit. A year later, Napster faced similar legal claims, lost the legal battle, and was forced to pay royalties for each piece of music it supported. This resulted in its collapse. Some P2P companies moved to other countries, trying to escape U.S. copyright laws, but the legal problems follow them.

Copyright laws and copyright infringement cases have been in existence for decades. However, the legal system can be picky and slow to resolve legal difficulties and close loopholes. First, existing copyright laws were written for physical, not digital, content. Second, the Copyright Infringement Act states, “the defendant must have willfully infringed the copyright and gained financially.” With respect to the second point, a MIT student named David LaMacchia was sued for offering free copies of Excel, Word, and other software titles on the Internet. The suit was settled in his favor because there was no financial gain. (Note: This loophole in the Copyright Infringement Act was later closed.)

In 1997, the No Electronic Theft Act (NET) was passed, making it a crime for anyone, including individuals, to reproduce and distribute copyrighted works.The Act further clarified that it applies to reproduction or distribution accomplished by  electronic means. It also stated that even if copyrighted products are distributed without charge, financial harm is  experienced by the authors or creators of a copyrighted work.

Given the precedents and laws, and Napster had little recourse but to capitulate. suspended operations in April 2000 and settled the lawsuit against itself, paying the litigants $20 million each. Napster suspended service and settled its lawsuits for $26 million. With the backing of the record company Bertelsmann AG’s BMG, Napster tried—with little success— to resurrect itself as an online music subscription service. Napster eventually filed for bankruptcy in June 2002. Its assets were purchased by Roxio ( Roxio is planning to revive Napster, in a royalty-paying framework,in early 2004.

All commerce involves a number of legal, ethical, and regulatory issues. Copyright, trademark, and patent infringement, freedom of thought and speech, theft of property, and fraud are not new issues in the world of commerce. However, as this opening case illustrates, e-commerce adds to the scope and scale of these issues. It also raises a number of questions about what constitutes illegal behavior versus unethical, intrusive, or undesirable behavior.

E-commerce is one of many IT phenomena that have affected individuals, organizations, and society. This chapter examines the impacts IT has made on these groups. We present some of the legal and ethical issues related to the emerging electronic technologies and discuss various legal and technical remedies and safeguards. The chapter also looks at the impacts of IT and the Web and the growth of virtual communities.