Napster documents detail Amazon deal, executive memos

The record industry's legal battle to shut the music-swapping Napster service has disclosed the company's efforts to cash in on its popularity, including a deal with Web giant Amazon.com.

In addition, documents filed in the case quote from internal memos and depositions that the record industry says prove that "Napster was created to facilitate unlawful copying."

According to legal papers filed this week by the Recording Industry Association of America (RIAA), Napster and Amazon have an agreement that will let Napster receive revenues by sending customers to the online retailer's site. The documents were part of a record industry appeal to the court to pull all major-label music off Napster's music-trading service.

"Napster...very recently has entered into a written agreement with online retailer Amazon.com...pursuant to which Napster will receive a portion of the revenues Amazon receives from users Napster refers," the document states, referring to comments made in a legal deposition by former Napster CEO Eileen Richardson.

As business deals go, this one is fairly innocuous; even the operator of the puniest Web site can become an Amazon "associate." Under such arrangements, associates receive a tiny percentage of any purchases made by buyers who are referred to Amazon through their site.

But the agreement outlines an interesting dynamic in the online music battle. Most potential investors and partners have been wary to get too cozy with Napster, concerned about being drawn into the legal skirmish being waged by the record industry or of being perceived as a supporter of music piracy.

Amazon's deal is curious, considering that the retailer has become the largest CD seller on the Web and partly depends on the record companies for access to titles. The agreement allowing sites to become associates explicitly bars outside sites from promoting illegal activities or "otherwise violat(ing) intellectual or property rights."

Napster, meanwhile, is the record industry's No. 1 enemy because the software allows people to obtain copyrighted MP3 music files for free and create their own CDs.

Amazon spokeswoman Emily Glassman said the retailer and Napster were "in discussions" about an associate agreement but would not confirm that a deal has been signed. "We do review every application," she added.

Some analysts said the deal is unlikely to cause much of a stir, given the massive number of associate relationships Amazon maintains.

"Amazon doesn't do much filtering," said Heath Terry, consumer Internet analyst with Credit Suisse First Boston. "They probably have all kinds of sites that are even more offensive than Napster. I don't think there's much risk."

The court documents also reveal other attempts by Napster to cash in on its popularity. The legal documents say the firm has considered selling "related" digital music products, such as software that allows computer users to make MP3 files from CDs.

"As early as January 2000, Napster was even preparing for a 'liquidation event, i.e., IPO or merger/acquisition...' in order to 'cash in' on the size and growth of its user base," the record industry's document states, quoting a deposition made by Elizabeth Brooks, Napster's vice president of marketing.

Napster declined to elaborate on the documents, preferring instead to stick to the comments it made earlier this week regarding the legal fight with the record industry.

Documents address piracy
Along with the glimpses of Napster's attempts to locate possible sources of revenue, the documents quote liberally from a series of internal memos in which company executives address piracy on the service.

According to the record industry, the memos prove that "Napster knows full well that its users are using its service overwhelmingly to trade pirated MP3 files." Under federal law, that's enough to make Napster financially responsible for the copyright violations taking place on its service, RIAA attorneys argue.

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One early note from co-founder Sean Parker to John Fanning, Napster creator Shawn Fanning's uncle and also a co-founder, explicitly mentions the issue of music piracy.

"Users will understand that they are improving their experience by providing information about their tastes without linking that information to a name or address or other sensitive data that might endanger them (especially since they are exchanging pirated music)," Parker wrote in a memo quoted in the record industry's brief. The parenthetical statements were part of the original memo.

Former CEO Richardson also addressed the difficulty of keeping pirated music off the service in a deposition.

"'It's proved impossible' to stop copyrighted music from being distributed on Napster," the brief quotes Richardson as saying. "'What's been tried is...someone should try to let us know if they think there's stuff on (Napster) that intentionally infringes a copyright, and so Metallica is one band that's tried to do that, unsuccessfully.'"

Center stage
In another twist, the record industry also focused on Napster executives' own apparent use of the software.

"The Court ordered Napster to produce to plaintiffs a listing of all MP3 files that its senior executives downloaded from or shared on Napster," the brief says. "Most of these files consist of top hits of well-known artists signed to major-label companies.

"Ironically, although Napster's former CEO, Richardson, proclaimed Napster is 'not about Madonna,' her computer revealed downloads of five Madonna MP3 files," it continued.

Earlier this week, the RIAA asked the court to order the company to block all major-label content from being traded using its service, at least until the start of a full trial.

Napster executives haven't responded to the content or the context of the individual allegations in the record industry's brief but say they will file a response in early July.

In a statement and interviews yesterday, Napster CEO Hank Barry defended his company, saying it makes a file-sharing technology, not an explicit piracy tool.

"This case is about whether it is legal to share MP3 versions of sound recordings over the Internet," Barry said in his statement. "We say yes--the major labels say no."

Today the company moved to disarm some of the argument that it is entirely about piracy, striking a deal with hip-hop label 75 Ark Entertainment to "promote and market" its artists over the Napster software.

"This will not hurt product sales," 75 Ark general manager Erik Gilbert said in a statement today. "Napster is a great promotional tool for artists and labels alike."