Intellectual Property Newsletter Issue No. 14 July 2001

Contents

Montana Enacts the Uniform Electronic Transactions Act

Ninth Circuit Upholds Preliminary Injunction Against Napster

The Three Stooges Live On

Who Owns Rights in Works Made for Hire?

What the Heck are MEGA Tags?

Montana Enacts the Uniform Electronic Transactions Act

The 2001 Montana Legislature has enacted the Uniform Electronic Transactions Act, which went into effect July 1. Like the federal Electronic Signatures in Global and National Commerce Act enacted last year, the primary purpose of the Uniform Electronic Transactions Act is to remove barriers to electronic commerce by establishing the validity of contracts that are memorialized by an electronic record and signed by an electronic signature. The Act will prevent a party to a qualified electronic transaction from using the statute of frauds as a defense to avoid obligations arising under the transaction.

The Uniform Electronic Transactions Act only applies to transactions which the parties have agreed to conduct electronically. To be effective, an electronic record must be capable of being retained by the recipient. An electronic record will not be effective if the sender or the sender's information processing system inhibits the ability of the recipient to print or store the record. The Act does not eliminate any of the legal requirements for a binding contract other than those requiring pen and ink. The Act does not apply to records or signature requirements under the Uniform Commercial Code, with the exception that it does apply to Articles 2 and 2A, which concern sales and leases of goods. The Act also does not apply to wills, codicils, or testimentary trusts.

Montana has not adopted another major uniform law concerning e-commerce, the Uniform Computer Information Transactions Act ("UCITA"). Because the Montana Legislature convenes in odd-numbered years only (except under special circumstances), it will not have another opportunity to consider UCITA until 2003.

Ninth Circuit Upholds Preliminary Injunction Against Napster

On March 5, 2001, the United States District Court for the Northern District of California entered a revised preliminary injunction restraining Napster, Inc. from facilitating its users in downloading unauthorized copies of music recordings over the Internet. A & M Records, Inc. v. Napster, Inc., No. C 99-05183, C 00-1369 (N.D. Cal. Mar. 5, 2001). The injunction does not prevent Napster from operating altogether, and places a significant burden upon the record companies that sued Napster to identify recordings that are being copied. What the courts' treatment of Napster will mean for its future and for future of the market for downloaded recordings remains to be seen.

Napster operates an Internet Web site that can be used for obtaining copies of audio recordings which are digitally stored in the MP3 format. Napster does not copy recordings or store copies on its own servers. Instead, it allows users to download MP3 files from the computer hard drives of other users who are logged on to the Napster system. Napster provides free software and a searchable directory of the available music files, which changes depending upon which users are logged on to the Napster system at any given time.

Several record companies sued Napster for contributory copyright infringement on December 6, 1999. The district court entered a preliminary injunction on July 26, 2000, in which it prohibited Napster from assisting its users to download copyrighted recordings pending trial. A & M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000). The United States Court of Appeals for the Ninth Circuit entered a stay of the preliminary injunction pending an appeal by Napster. In a decision issued on February 12, 2001, the Ninth Circuit affirmed the preliminary injunction, but required the district court to modify it so as to place more of a burden on the record companies to identify recordings that are being copied. A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001).

Revised Injunction

In its revised injunction, the district court directed the recording companies to provide Napster with notice of song titles, artists' names, and specific file names corresponding to works that are being copied. Napster is required to police its directories and block access to identifiable infringing files. Napster must also...