SAN FRANCISCO - A federal appellate judge told a lawyer for the recording industry Monday that demands for Napster Inc. to scale back or shut down its music-sharing service might be a tall order considering the nebulous nature of the Internet.
''How are they supposed to have knowledge of what comes off of some kid's computer in Hackensack, N.J., to a user in Guam?'' 9th U.S. Circuit Court of Appeals Judge Robert Beezer told Russell Frackman, a lawyer representing the Recording Industry Association of America.
Frackman said the answer may reside in the ability of Napster to take copyrighted song titles and redesign its popular service so as not to transmit those files.
The exchange came during a critical hearing in the ongoing legal battle between Napster and the RIAA. The industry group claims Napster contributes to copyright infringement by allowing its purported 32 million users to download music directly from each others' computers.
The recording industry considers the case pivotal in its battle against online piracy.
Attorneys for each side had 20 minutes to make their case Monday. The three-judge appeals panel adjourned without reaching a decision, which could come at any time.
Through pointed questioning, the judges appeared to suggest that U.S. District Court Judge Marilyn Hall Patel's injunction in July shutting down Napster could prohibit legal uses of the music-sharing software, such as the trading of noncopyrighted music.
David Boies, who prosecuted the government's antitrust case against Microsoft Corp., argued that Napster is merely an Internet service provider and should not be held responsible for all the activities of its users.
Napster attorneys also claim the promotion of artists who permit their songs to be shared would be hurt by reinstating Patel's injunction, which was stayed just hours before it was to take effect in July.
Crucial to Napster's case is a 1984 Supreme Court decision that allowed Sony to continue manufacturing VCRs that can duplicate copyrighted materials. Attorneys for the company claim that ruling also covers Napster's service.
But Frackman argued that Napster was specifically created to aid users in infriging copyrights. He said the music industry is not ''trying to stop the Internet'' - but simply trying to stop Napster from allowing pirated music to be swapped.
Napster, started in a Northeastern University dorm room last year, pioneered the concept known as peer-to-peer computing, in which people share files from their own computers rather than a central server. In Napster's case, users can download music from each other that is stored in the MP3 format.
Napster chief executive Hank Barry said the company has been in discussion with individual record labels about a possible settlement, but no deals have been reached.
One solution might be a monthly fee to use Napster's service, though Barry said that is just one of several proposals he has put on the bargaining table.
''Whether $4.95 a month or $1.99, the whole structure of this thing is trying to compensate artists,'' Barry said. ''We're willing to pay very substantial amount to the artists. With a very conservative estimate, the first-year payments to the artists would be in the neighborhood of a half a billion dollars.''
Even if the recording industry succeeds in shutting down Napster, it still faces the enormous challenge of trying to halt the online swapping of pirated digital music.
Unlike Napster, popular programs such like Gnutella and Freenet allow users to swap music without going through a central server. Experts say shutting down such services would be next to impossible because of the Internet's very nature.
Hilary Rosen, president and CEO of the RIAA, has said she hopes for ''increased cooperation between innovation and industry'' to get more music available online.
''It is really awfully hard in the marketplace today to compete with free,'' Rosen said Monday.
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On the Net:
Napster: http://www.napster.com
Recording Industry Association of America: http://www.riaa.com