The verdict is in

— 1:51 PM on February 12, 2001

And millions of Napster users breathed a sigh of relief... Napster will not be shut down - at least not yet. Basically they get to continue to operate as long as they remove illegal material when asked to do so.

The district court correctly recognized that a preliminary injunction against Napster's participation in copyright infringement is not only warranted but required. We believe, however, that the scope of the injunction needs modification in light of our opinion. Specifically, we reiterate that contributory liability may potentially be imposed only to the extent that Napster: (1) receives reasonable knowledge of specific infringing files with copyrighted musical compositions and sound recordings; (2) knows or should know that such files are available on the Napster system; and (3) fails to act to prevent viral distribution of the works. See Netcom, 907 F. Supp. at 1374-75. The mere existence of the Napster system, absent actual notice and Napster's demonstrated failure to remove the offending material, is insufficient to impose contributory liability. See Sony, 464 U.S. at 442-43. Conversely, Napster may be vicariously liable when it fails to affirmatively use its ability to patrol its system and preclude access to potentially infringing files listed in its search index. Napster has both the ability to use its search function to identify infringing musical recordings and the right to bar participation of users who engage in the transmission of infringing files.
Not a bad deal for Napster considering they're all about the unsigned artist now. I can just see the record labels setting up an office that constantly searches Napster for copyrighted material. You can check out the full decision here or at this mirror (don't know how long that one will last). CNet also has coverage if you can stand the huge Flash ads.
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