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The week in review: Napster strikes back

Napster launches an aggressive defense of its controversial music file-swapping service in a legal case likely to have broad ramifications for the digital economy.

Napster launched an aggressive defense of its controversial music file-swapping service in a court battle likely to have broad ramifications for the digital economy.

With Microsoft foe David Boies at the head of its legal team, Napster argued downloading copyrighted songs for free is legal because members aren?t engaged in commercial activity and also because the music industry?s misuse of its market power invalidates its copyrights. The Record Industry Association of America has sued Napster for allegedly contributing to widespread copyright infringement and asked for a preliminary injunction blocking all major-label content from being traded on its service.

Turning the tables
The first of Napster?s arguments relies on the same law that protected a commercial MP3 player from a different RIAA suit last year. The Audio Home Recording Act of 1992 bars copyright suits based on a consumer?s noncommercial use of a recording device or medium. MP3, Napster?s principal medium, is a technology for compressing audio files that sprang to life on the Internet because it facilitates storing and trading music.

Napster?s second, more novel, response depends on a little-known legal doctrine, but one that could prove troublesome for the big record companies. Copyright misuse is said to occur when holders act to achieve an anti-competitive purpose. Accusing record companies of unfair practices is commonplace among disgruntled artists and consumers, and Boies would seem to be well-versed in the topic, having headed the government?s successful antitrust case against giant Microsoft.

The RIAA has previously argued that Napster?s service is a ?legally and morally wrong? undertaking that undermines legitimate e-commerce. The trade group also asserts Napster cuts into sales, a charge Napster counters with figures showing its service promotes sales.

Whatever the result, some industry observers have already concluded that file-sharing technology will probably expand to encompass other kinds of digital content, such as full-length movies or premium broadcast events. If so, e-commerce may have to adapt to file-sharing by dropping plans for subscription fees, just as most online content companies previously abandoned subscription models.

All together now
Compaq Computer and IBM joined forces against mutual foe EMC in the high-end storage market. Each will resell some of the other's hardware and software, and the duo will strive for interoperability. That goal has proven elusive, as emphasized by the two companies' declared intention to spend $1 billion to achieve a measure of standardization.

Separately, Compaq unveiled an extensive alliance with the Quanta Group, a Taiwanese manufacturing conglomerate, that is intended to improve its supply of consumer notebooks and flat-panel screens. The Houston, Texas-based PC maker has historically subcontracted with Arima and Inventec, two rival Taiwanese firms. Additionally, future Compaq notebooks may incorporate Transmeta chips, executives said.

Toshiba and specialized server maker Connex teamed to push into the booming segment of server appliances, responding to initiatives by Compaq Computer, IBM and Dell Computer as well as the progress of start-ups Cobalt Networks and Network Appliance. Established manufacturers often have relied on licensing or acquisition.

Oracle shares fell after the database software giant surprised investors with last Friday?s resignation of president and chief operating officer Ray Lane. Oracle did not give any reasons for Lane's long-talked about departure.

A new day dawning
Intel and Via Technologies settled the bulk of their wide-ranging lawsuit in a way that will allow Via to sell Pentium III-compatible chipsets, but Intel is still hoping for royalties for chipsets incorporating processors from rival AMD.

Nvidia will shift its attention to the Macintosh market for the first time, underlining both the graphics chip company?s strategic expansion as well as the re-emergence of Apple systems. Separately, 3dfx plans to have its first Mac-specific graphics boards on shelves this month. The moves signal a tougher battle for ATI Technologies, which has owned the Mac graphics market in recent years.

Netpliance quadrupled the price of its I-opener Internet appliance, to $400 from $99, raising doubts over its long-term prospects. The company?s all-in-one Internet access device combines an Internet terminal, keyboard, built-in mouse and 10-inch liquid crystal display. Some observers wondered whether minor upgrades justify a price comparable to a low-end PC.

The drive to make portable devices upgradeable and expandable may be creating a new standards battle that could cause customer headaches. Rival devices use different connection or storage technologies that don't work with other products, and analysts say there is no clear standard on the horizon.

Going my way?
SBC Communications introduced a do-it-yourself kit intended to help eliminate long waits for residential DSL to be installed, matching a Bell Atlantic package. Separately, Verizon Communications, formed by the merger of Bell Atlantic and GTE, cut prices for its high-speed Internet service by 20 percent in certain regions to better compete with cable operators. Excite@Home too offers self-starter kits in retail outlets.

Internet service providers looking for new sources of revenue are moving into data storage and security, prompting some online data backup and file recovery companies to begin targeting ISPs.

Momentum is building for online music companies looking to tap into ad-based downloads. The idea is unappealing to MP3 veterans racking up free music collections over file-swapping services such as Napster, but sounds promising to record executives scrambling to find profits in the swelling online music trade.

Botched coupon deals have let shoppers waltz out with free or nearly free deals in recent weeks. Computer glitches and pricing errors hit, and crafts retailer, and watchful Net bargain hunters who trade tips on special message boards soon swooped in to load up on the steeply discounted or free goods. A malfunction at Web portal AltaVista also falsely gave customers the right to claim freebies.

Also of note
Intel canceled plans for high-end versions of its 800-MHz Xeon processor, saying computer makers didn't want the chip ? A Web site trying to make a name for itself by publishing deleted Securities and Exchange Commission filings scored a coup last month when Lehman Brothers attempted to delete a misfiled form detailing more than $20 billion of the firm's holdings ... Of the 154 high-tech mutual funds that existed before April 1, only two managed to end the second quarter in the black.