Supreme Court in Sony

The sound recordings industry, it is said, is "an ever changing and dynamic field", with its consumers being listeners as well as amateur and professional performers. The structural organization of the sound recordings industry is premised on an artist, who performs the music, record companies, which are music recording companies that sign a recording contract with the artist to record the artists' music and advertise, promote and market the artist and a distributor, who is the wholesaler that sells the music records to the stores.

However, music as a form of creative work extends beyond the recording of popular music and to a large extent is an art form for many composers of serious music and the demarcation between music as an art and music as a business today is to a large extent blurred. The sound recordings industry is firstly, susceptible to technological change because of its organization as an "intricate maze of activities" and the considerable amount of crossover and integration between one activity and another.

Whilst the industry has definite distinctions between the various functions and activities for songwriting, publishing, performing, producing, manufacturing and marketing records within the industry, the industry may not always follow any established pattern of ownership, operation and distribution. It is submitted here that because the industry is organized in such a manner, technology may be easily diffused when it is newly introduced and technological change will occur rapidly changing the structure of the industry.

This is particularly so with the development of Internet and digital technologies and it is compelling to believe, looking at the evidence provided in this part of this dissertation, that "the absolute transformation of everything we ever thought about music will take place within ten years, and that nothing is going to be able to stop it" and that there is "absolutely no point in pretending that it is not going to happen. " Some studies show that the introduction of digital music enhances the growth of the music industry.

For example, a survey of 16,903 people between the ages of 13 through 39, who buy and listen to music indicates that 66% would make purchases of a CD or a cassette featuring a song after they have listened to it online, indicating that the opportunities presented to the sound recordings industry by the Internet and digital technologies have increased the sales of music. In this survey, it was shown that 92% of those who downloaded music listened to the music on their home desktop computer while 10% listen to the music on a portable device and 14% used their home stereo.

Over a third of those polled, who have streamed music online, have said that they are more likely to purchase music from a store after they have downloaded music online and only 6% of those polled have said that listening to music online has made them less likely to purchase music in the form of a CD. At the same time, whilst a third of those who have downloaded music said it made them more likely to buy music, 57% had said that their buying patterns were not affected. There are however, conflicting statistics as to the impact digital distribution of sound recordings has on the industry and in A.

M. Records, Inc. v. Napster, Inc. ,  the United States District Court for the Northern District of California was presented with statistics to show that Napster users were less inclined to make music purchases in the form of a CD or cassette and this was particularly so among college students. In this case, A. M. Records and seventeen other record companies filed a complaint for contributory and vicarious copyright infringement and unfair competition against Napster, Inc. , an Internet start-up, which allowed its users to download MP3 music files for free.

The Napster software technology featured a browser interface, search engine and chat functions and operated in conjunction with Napster's online network of servers that allowed its users to compile and store lists of other account holders' user names. The Napster software may also be used to play and categorize audio files, which users can store in specific file directories on their hard drives. These directories which allow users to share files on Napster constitute the "user library" and whilst some users store their files in these libraries, others do not.

The peer-to-peer file sharing network, connecting millions of computers worldwide and allowing its software users to search for MP3 files containing digital music over the Internet, file share their music without having to go through a centralized server  and find and chat with other MP3 users while online using Internet Relay Chat (hereinafter "IRC"),  coupled with the fact that the Napster code was made freely available for download on the Internet, had allowed million of Internet users to share and trade music through the Internet.

This caused alarm within the sound recordings industry as the technology facilitated the distribution of copyrighted works in a manner that was unprecedented. In defense to the claim of copyright infringement,  Napster raised the defense of fair use as well as the argument that the use of the Napster technology was capable of a substantial non-infringing use, as enunciated by the Supreme Court in Sony v. Universal City Studios.

Going through the four pronged test for the finding of fair use, the Court decided that the use of Napster was for private uses,  that copyrighted musical compositions and sound recordings were creative in nature, that the downloading or uploading of the copyrighted work constituted a copying of the entire work and that the market for copyrighted works owned by the copyright owners was harmed by the use of Napster.