Unofficial Translation of the Complaint

Against KaZaa in the Netherlands

IN THE NAME OF THE QUEEN

OdC/EV

Judgment 29 November 2001

THE PRESIDENT OF THE DISTRICT COURT IN AMSTERDAM, PASSING A JUDGMENT IN INTERLOCUTORY PROCEEDINGS IN THE MATTER:

Cause-list number KG 01/2264 OdC of:

The private company with limited liability KAZAA B.V., having its registered office in Amsterdam,

plaintiff in the main action in identical summons dated 9 and 12 November 2001,

respondent in the counterclaim,

procurator litis Mr. Chr.A. Alberdingk Thijm

against:

1. the association VERENIGING BUMA,

2. the foundation STICHTING STEMRA,

both having their registered office in Amstelveen,

defendants in the main action,

plaintiffs in the counterclaim,

procurator litis Mr. E.A.P. Engels.

COURSE OF THE PROCEEDINGS

At the hearing of 20 November 2001, plaintiff in the main action, hereafter Kazaa, has argued and claimed in accordance with the summons attached as a photocopy to this judgment.

Defendants in the main action, hereafter Buma/Stemra, have set up a defence with conclusion: that the provision requested be refused, and have subsequently demanded in the counterclaim that Kazaa be ordered to take such measures that no longer infringing public communications and reproductions can take place with respect to musical works that are part of the Buma/Stemra repertoire, by means of the computer program provided by it, under forfeiture of a penalty.

Kazaa has disputed the demand in the counterclaim. After a further debate, parties have submitted documents, including exhibits and pleadings on behalf of the passing of judgment.

GROUNDS FOR THE DECISION

In the main action and in the counterclaim:

1. This judgment is based on the following facts:

1. Via its website, www.Kazaa.com, Kazaa provides a computer program for the exchange of several kinds of files by the individual users via the internet. The software that Kazaa distributes via its website is sometimes called peer-to-peer technology. By meas of this technology, the individual users may independently offer information, but can also find and download information from other individual users (peers).

1. Kazaa’s computer program is used inter alia for the exchange of text, image and sound files. These include also works protected by copyright and neighbouring rights. Because the owners of the copyright on these works are not compensated for the use of their works, Kazaa has been discussing this matter with the owners in question of the copyright, including, as most important discussion partner, Buma/Stemra.

1. On behalf of the owners of the copyright, with respect to virtually the entire protected world music repertoire, Buma/Stemra exercises the publication and reproduction rights in the Netherlands, including the mechanical reproduction right, i.e. multiplication of a musical work by recording it on sound carriers.

1. Around September 2000, Kazaa wrote to Buma/Stemra in order to start discussions about a possible license for the use of music by the users of Kazaa’s software. Subsequently, on 21 October 2000, the first discussion between parties took place.

1. On 21 December 2000, parties concluded a Letter of Intent, in which the object of the negotiations is defined – in so far as relevant -:

“(…)

1. FastTrack (designer of the Kazaa computer program, pres.) and Buma/Stemra shall enter into negotiations about terms and conditions on which FastTrack may obtain a worldwide license for its members which will allow them to share musical works on the KaZaA network, without being liable for copyright infringement.

2. FastTrack will design KaZaA in such a way that it provides a controlled environment where the consumption of music can be tracked to the extent that the information can be used to compensate copyright and neighbouring right owners.

3. (…)

4. FastTrack will design the DRMS in such a way that it only allows KaZaA members to listen to musical works within the KaZaA network, i.e. the system will not allow downloads that enable users to listen to musical works on other applications besides the KaZaA network.

(…)”

Parties have expressed the intention to complete the negotiations as quickly as possible and to conclude a final agreement on 14 February 2001 at the latest.

1. Due to delays on the negotiation path, the date of 14 February 2001 has proven not to be viable. In a meeting of parties on 15 March 2001, Buma/Stemra stated it still wished to conclude a licensing agreement. In this meeting, Buma/Stemra submitted a first draft agreement. In the minutes of the meeting of 15 March 2001, it is further stated – in so far as relevant here:

“Licensing agreement

Buma/Stemra states that the licensing agreement can and should be based on its standard agreements for tracks on demand on-line and webcasting. FastTrack states that it is under the impression that the record companies would more easily grant licenses for streaming. Therefore, it wishes to limit the license with Buma/Stemra to a streaming for the time being.”

1. By letter of 20 April 2001, Koopman wrote to the counsel of Kazaa and Nicklas Zennström (CEO of Kazaa) – in so far as relevant -:

“Nicklas and I (…) agreed that Nicklas would send statistical information on users and usage of Kazaa. These data may be instrumental in achieving a draft agreement, that can be proposed to the Management or maybe even to the Board of Buma/Stemra. As you know, we need to convince our members and affiliates (…) of considering and concluding a license agreement for the activities of P2P and/or sharing networks.

(…)

We wish to emphasize that the current activities of Kazaa take place without author’s rights and –as far as we know – neighbouring rights licenses. Although Buma/Stemra plays a part in that, the fact that Kazaa is now working without such licenses may influence an eventual decision by Board and/or Management. (…)”

1. By letter of 16 May 2001, Mrs. Olga Meijer (lawyer with Buma/Stemra) advised that Buma/Stemra is still waiting for the result of international meetings with sister organisations and approval of the board of Buma/Stemra.

1. After some correspondence from both sides and a meeting on 2 July 2001 between Kazaa’s counsel, on the one side, and Meijer and Koopman on behalf of Buma/Stemra, on the other side, various drafts of the licensing agreement were exchanged. The last draft agreement dates back to 6 August 2001. With respect to the neighbouring rights, the following has been stipulated in article 8 paragraph 3 of that agreement:

“This agreement does not relate to rights pursuant to the Neighbouring Rights Act, such as the rights of the performing artist and the phonogram producer. FastTrack declares that the use of music as referred to in this agreement takes place with the approval of the performing artists and phonogram producers.”

1. By fax message of 4 October 2001, Meijers wrote, on behalf of Buma/Stemra, to Kazaa that they were forced to break off the negotiations about the licensing agreement. Furthermore, she wrote – in so far as relevant –:

“(…) This eventually added up to us sending you an agreement that was nearly complete. What failed, was certain information that we repeatedly have asked for, but never received. (…)

Furthermore the latest international developments, including but not only the suit that was filed by RIAA against Morpheus, MusicCity and Kazaa, make discussions about the actual form and contents of a copyright license inappropriate and relatively worthless.

Finally we are shocked by the fact that the Kazaa application and network are obviously used for the dissemination of highly illegal material such as child pornography. (…)

We see no possibility of granting a license in the short term. This means that all reproduction and distribution of music past, present and future via FastTrack/Kazaa was/is done without a copyright license. I insist that you will immediately stop any further copyright infringements and that you will take all necessary steps to insure that our entire repertoire is removed and will stay removed of your service. (…)”

1. Kazaa demands in the main action to order Buma/Stemra to continue the negotiations with it on the basis of the conversations and negotiations already held, with due observance of the principle of reasonableness and fairness, in order to conclude the intended licensing agreement, under forfeiture of a penalty.

1. Kazaa argues to this end as follows. At any rate, parties have reached agreement about the fact that Buma/Stemra would grant a licensing agreement to Kazaa. This appears i.a. from the minutes of the discussion of 2 July 2001, as well as from the circumstance that parties have reached agreement about the main points of the draft agreements provided by Buma/Stemra. Alternatively, in so far as no agreement had been reached yet on main points, Kazaa states that, under the given circumstances, the breaking off of the negotiations by Buma/Stemra is contrary to reasonableness and fairness, at any rate unlawful towards Kazaa. In view of the stage of the negotiations and the extent of the agreement already reached, Kazaa had every reason to trust that Buma/Stemra would not break off the negotiations one-sidedly. Furthermore, Kazaa argues that Buma/Stemra is the only organisation in the Netherlands that has been granted permission to mediate – as a company – with respect to copyrights for music. By refusing a license, Buma/Stemra abuses its economic position of power by refusing a license for the introduction of a new product that it does not provide itself, but for which there is a demand indeed from the side of the consumer.

1. In defence of the demands in the main action, Buma/Stemra has argued that parties had not yet reached agreement and that it did not act contrary to reasonableness and fairness by breaking off the negotiations with Kazaa. The starting point of Buma/Stemra in the negotiations had always been that, besides the copyright license, Kazaa had to have approval of the neighbouring rights owners at its disposal, as well as that the international situation might be a reason not to proceed to the conclusion of a licensing agreement. In addition, Buma/Stemra argued it was prepared to continue the consultations with Kazaa – under certain circumstances – and, consequently, it denies that Kazaa should have an urgent interest in its demand.

Furthermore, Buma/Stemra contests Kazaa’s argument that the latter had reason to trust that an agreement would be achieved. For example, the fees that Kazaa would have to pay to Buma/Stemra had not been discussed yet, which, according to Buma/Stemra is one of the most essential parts of any agreement that might be concluded. The cause of this originates from the side of Kazaa, as, despite repeated requests from Buma/Stemra, it has failed to provide the necessary information based on which a fee could have been determined.

Buma/Stemra contests that it abuses its rights or its position of power. It had a definite interest, after all, in refusing the license.

1. In the counterclaim, Buma/Stemra demands that Kazaa be ordered to take measures, so that no longer, by means of the computer program offered by it, infringing publications and reproductions of those musical works can take place with respect to musical works that are part of the Buma/Stemra repertoire, on forfeiture of a penalty.

1. Buma/Stemra argues to this end that, by means of the computer program referred to in 1.a, Kazaa infringes copyrights. Putting music files at the disposal of all other users by users concerns communication to the public of the musical works concerned in the sense of the Copyright Act. Downloading of these music files, made accessible by Kazaa for other users, is an infringing reproduction, which does not fall under section 16b of the Copyright Act. By infringing copyrights or by enabling it, Kazaa acts unlawfully and is liable for the massive infringements that are made by means of its computer program. By providing this computer software knowingly and wilfully to third parties, in the knowledge that, by means of that software, massive infringement will be made of the rights of others, who suffer damage as a result, Kazaa acts unlawfully.

Moreover, Buma/Stemra argues that it pointed out to Kazaa several times that the fact that it started its activities without a license might have consequences and that it was questionable whether a licensing agreement might be achieved. In addition, Kazaa’s present activities go beyond that which would fall under any agreement between parties. The agreement between parties would be restricted to ‘streaming’ (merely the possibility to listen to music files of others) and would not relate to the downloading of files. Therefore, Kazaa cannot invoke the fact that Buma/Stemra did not interfere in its activities for some time, thus Buma/Stemra argues.

1. Against the claims made in the counterclaim, Kazaa defended itself by arguing that Buma/Stemra has no urgent interest in its claim. Buma/Stemra has been informed, after all, of Kazaa’s activities for over a year. In addition, due to the course of time and the statements of Buma/Stemra, Kazaa was strengthened in its confidence that its activities were permitted, at any rate, that Buma/Stemra would not sue it in law.

Moreover, Kazaa argues that the demand in the counterclaim has been formulated in a too broad and unclear manner. The prohibition is international and worldwide and is not directed to the peer-to-peer network, but to the software provided by Kazaa. According to Kazaa, it cannot do anything to make an end to the infringing actions stated by Buma/Stemra. Technically, it is not able to take a network out of the air and a prohibition of the supply of its software program actually boils down to its bankruptcy, according to Kazaa. Kazaa contests the argument of Buma/Stemra that, by making its computer program available, it infringes copyrights independently. Kazaa, after all, as an intermediary, does not communicate to the public in the sense of the Copyright Act. It does not concern complicity or liability either, because Kazaa is only the producer of a computer program and cannot be held liable for the behaviour of the users of that program.

Moreover, Kazaa contests that, by providing the computer program, it acts unlawfully. In its Terms of Service, Kazaa prohibits its users from infringing copyrights. When an alleged copyright infringement is reported, Kazaa has the possibility to block the username of the user concerned – if it knows who is that user. Kazaa argues it is not able to trace copyright infringements independently and is not obliged to do so either.

Finally, Kazaa contests that its users infringe copyrights. First of all, because Buma/Stemra wrongly refused to grant a license and, secondly, because the larger part of the files that have been made available to users will never be communicated to the public (because other users are not looking for them) and because with respect to the peer-to-peer network it concerns private communication, which does not involve communication to the public or making available to the public. Thirdly, it is argued that the downloading of musical works via peer-to-peer networks is exempted from the reproduction rights of the author pursuant to Section 16b of the Copyright Act. For it concerns a copy for one’s own private use.

ASSESSMENT OF THE DISPUTE

In the counterclaim:

1. First, it must be put that, by giving its users the opportunity of downloading music files by means of its computer program without a license, Kazaa acts contrary to copyright. That parties were negotiating about a licensing agreement, does not alter this fact. In so far as parties have negotiated about that, it applies, after all, that any agreement would only concern the so-called “streaming”. That it was parties’ intention to restrict the agreement to this, appears also from minutes prepared by Kazaa of the meeting of 15 March 2001 (see 1.f). Kazaa should have understood then that its current computer program, which, in addition to merely listening to music files via the Kazaa network, also gives users the opportunity of downloading music files, while files may be recorded in their entirety on the computer of the user, would result in copyright infringement.

Kazaa’s argument that it cannot be considered a user of copyrights in the sense of the Copyrights Act 1912 does not hold. Kazaa, after all, contacted Buma/Stemra in order to conclude a licensing agreement. In doing so, it did not make a reservation, particularly not in the sense that its actions would not fall under the Copyright Act 1912. On the contrary, by requesting a license itself, it cannot successfully plead that it is not the reproducer of the works. In addition, Kazaa opened a website in which it makes software available to its users with the specific purpose of giving those users the opportunity of making (music) files available, looking for or downloading them. That is not altered by the fact that the final provision of music files by one user to the other takes place by means of a peer-to-peer network and therefore actually not by means of Kazaa’s website. This manner of electronic provision, after all, is only part of the system designed by Kazaa and that is to be considered a technical unit, which system, by means of software, has been designed in such a way that the users cannot find the files desired by them otherwise, and are ‘connected’ with the relevant user who offers the file, but by using this system designed by Kazaa. Kazaa’s objective, i.e. giving users the opportunity of downloading music files by means of its network and of reproducing the works concerned in this manner, is therefore realised by Kazaa itself.

1. Kazaa has not proved satisfactorily that it could not take measures to stop copyright infringements. It may just ‘take its website out of the air’ or make it inaccessible otherwise. Also, Kazaa’s statement that it cannot determine whether the users of its computer program infringe copyrights does not prevent upholding this claim. The mere fact that the users of the system are given the opportunity of downloading music files results in such a threat to copyright infringement that this alone must already be considered an unlawful act from the side of Kazaa that justifies the closing down of its website.

In the main action:

1. With respect to the claim of continuation of the negotiations, the following is considered. It has been established that parties have negotiated extensively and that, in view of the last draft agreement of 6 August 2001, as well as in view of the fax message of 4 October 2001, referred to in 1.j, the license agreement was almost final. For the time being, it has therefore been satisfactorily proved that parties were in a far stage of negotiations. To this one may add that, in its correspondence prior to the hearing, Buma/Stemra let it be known that it still has the intention of concluding a final licensing agreement through negotiations. The condition set by Buma/Stemra, namely that, before the conclusion of a final agreement, Kazaa should obtain approval of the neighbouring rights owners, i.e. the performing artists and phonogram producers, need not prevent a constructive continuation of the negotiations between parties. Kazaa, after all, made it known that it was willing to accept the stipulation concerned (see 1.i) without reservation. The argument of Buma/Stemra that there should be agreement with the international sister organisations, because otherwise no worldwide license may be granted, does not prevent the continuation of the negotiations between parties either. Nevertheless, for this matter, a solution should be achieved between parties in the framework of the negotiations. For the time being, Buma/Stemra has unsatisfactorily proved that the international situation is such that no agreement will be achieved at an international level. Apparently this has succeeded in another case (Napster) and, for the present, it is not seen why this could not be the case here. In view of the developments in this area, it may be expected that, within the foreseeable future, a policy will (and must) be developed internationally.

1. Finally, the argument that Buma/Stemra abuses its dominant position to refuse a licensing agreement to Kazaa does not hold in the case under consideration. In protecting and looking after the rights and interests of those that are associated with them against the users of music recordings, Buma/Stemra has a lawful aim. It would only abuse its dominant position, if it should impose unfair contractual conditions that are not negotiable. This is not the case in the matter under consideration. The circumstance that it is the only body in the Netherlands that Kazaa may conclude a licensing agreement with and that Buma/Stemra so far has refused to proceed doing so, does not mean that Buma/Stemra abuses its dominant position, the less so, now that Buma/Stemra have indicated to be prepared to continue the negotiations.

1. The above leads to the conclusion that both the claim in the main action and the claim in the counterclaim can be allowed, provided that the default fines linked to it will be moderated or maximised as follows.

As the party against whom judgment is given, Buma/Stemra will be ordered to pay the costs of the main action. As the party against whom judgment is given, Kazaa will be ordered to pay the costs of proceedings in counterclaim.

JUDGMENT:

In the main action:

1. Orders Buma/Stemra to continue the negotiations with Kazaa on the basis of the discussions and negotiations already held, with due observance of the principle of reasonableness and fairness, within two days after service of this judgment, in order to conclude the intended licensing agreement, on forfeiture of a penalty of NLG 1,000 per day with a maximum of NLG 100,000.

2. Orders Buma/Stemra to pay the costs of these proceedings severally, on the side of Kazaa estimated up to this judgment at NLG 708.06 for disbursements, including NLG 427 for court registry fee, and at NLG 1,550 for the fees of the procurator litis.

In the counterclaim:

1. Orders Kazaa to take such measures within 14 days after service of this judgment that no longer, by means of the computer program provided by it, copyright infringing publications and reproductions with respect to musical works that are part of Buma/Stemra’s repertoire can take place, on forfeiture of a penalty of NLG 100,000 per day with a maximum of NLG 2,000,000.

2. Orders Kazaa to pay the costs of these proceedings, on the side of Buma/Stemra estimated up to this judgment at NLG 427 for court registry fee and at NLG 1,550 for the fees of the procurator litis.

In the main action and in the counterclaim:

1. Denies what was otherwise requested.

2. Declares this order of the court to be provisionally enforceable.

Passed by the Vice-President Mr.R. Orobio de Castro, acting President of the District Court in Amsterdam, and pronounced in open court on 29 November 2001 in the presence of the clerk of the court.

Coll: [signatures]

ISSUED AS TRUE BAILIFF’S COPY:

The clerk of the District Court in Amsterdam:

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