FOR PUBLICATIONUNITED STATES COURT OF APPEALSFOR THE NINTH CIRCUITA&M RECORDS, INC., a corporation;GEFFEN RECORDS, INC., a corporation;INTERSCOPE RECORDS; SONY MUSICENTERTAINMENT, INC.; MCA RECORDS,INC.; ATLANTIC RECORDING CORP.;ISLAND RECORDS, INC.; MOTOWNRECORD CO.; CAPITOL RECORDS, INC.,Plaintiffs-Appellees, v.NAPSTER, INC.,Defendant-Appellant.___________________________________JERRY LEIBER, individually and doingbusiness as, JERRY LEIBER MUSIC; MIKESTOLLER and FRANK MUSIC CORP., onbehalf of themselves and all others similarlysituated, Plaintiffs-Appellees, v.NAPSTER, INC., Defendant-Appellant.No. 00-16401D.C. No. CV-99-05183-MHPNo. 00-16403D.C. No. CV-00-00074-MHPOPINION2Appeal from the United States District Courtfor the Northern District of CaliforniaMarilyn Hall Patel, Chief District Judge, PresidingArgued and Submitted October 2, 2000San Francisco, CaliforniaFiled February 12, 2001Before: SCHROEDER, Chief Judge, BEEZER and PAEZ, Circuit Judges.BEEZER, Circuit Judge:Plaintiffs are engaged in the commercial recording, distribution and sale ofcopyrighted musical compositions and sound recordings. The complaint allegesthat Napster, Inc. (“Napster”) is a contributory and vicarious copyright infringer. On July 26, 2000, the district court granted plaintiffs’ motion for a preliminaryinjunction. The injunction was slightly modified by written opinion on August 10,2000. A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000). The district court preliminarily enjoined Napster “from engaging in, or facilitatingothers in copying, downloading, uploading, transmitting, or distributing plaintiffs'copyrighted musical compositions and sound recordings, protected by either federalor state law, without express permission of the rights owner.” Id. at 927. FederalRule of Civil Procedure 65(c) requires successful plaintiffs to post a bond fordamages incurred by the enjoined party in the event that the injunction waswrongfully issued. The district court set bond in this case at $5 million.3We entered a temporary stay of the preliminary injunction pending resolutionof this appeal. We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1). We affirmin part, reverse in part and remand.IWe have examined the papers submitted in support of and in response to theinjunction application and it appears that Napster has designed and operates asystem which permits the transmission and retention of sound recordingsemploying digital technology. In 1987, the Moving Picture Experts Group set a standard file format for thestorage of audio recordings in a digital format called MPEG-3, abbreviated as“MP3.” Digital MP3 files are created through a process colloquially called“ripping.” Ripping software allows a computer owner to copy an audio compactdisk (“audio CD”) directly onto a computer’s hard drive by compressing the audioinformation on the CD into the MP3 format. The MP3's compressed format allowsfor rapid transmission of digital audio files from one computer to another byelectronic mail or any other file transfer protocol. Napster facilitates the transmission of MP3 files between and among its users. Through a process commonly called “peer-to-peer” file sharing, Napster allows itsusers to: (1) make MP3 music files stored on individual computer hard drives1 “To download means to receive information, typically a file, from anothercomputer to yours via your modem . . . . The opposite term is upload, which meansto send a file to another computer.” United States v. Mohrbacher, 182 F.3d 1041,1048 (9th Cir. 1999) (quoting Robin Williams, Jargon, An Informal Dictionary ofComputer Terms 170-71 (1993)). 4available for copying by other Napster users; (2) search for MP3 music files storedon other users’ computers; and (3) transfer exact copies of the contents of otherusers’ MP3 files from one computer to another via the Internet. These functionsare made possible by Napster’s MusicShare software, available free of charge fromNapster’s Internet site, and Napster’s network servers and server-side software. Napster provides technical support for the indexing and searching of MP3 files, aswell as for its other functions, including a “chat room,” where users can meet todiscuss music, and a directory where participating artists can provide informationabout their music.A. Accessing the SystemIn order to copy MP3 files through the Napster system, a user must firstaccess Napster’s Internet site and download1 the MusicShare software to hisindividual computer. See http://www.Napster.com. Once the software is installed,the user can access the Napster system. A first-time user is required to register withthe Napster system by creating a “user name” and password. B. Listing Available Files5If a registered user wants to list available files stored in his computer’s harddrive on Napster for others to access, he must first create a “user library” directoryon his computer’s hard drive. The user then saves his MP3 files in the librarydirectory, using self-designated file names. He next must log into the Napstersystem using his user name and password. His MusicShare software then searcheshis user library and verifies that the available files are properly formatted. If in thecorrect MP3 format, the names of the MP3 files will be uploaded from the user’scomputer to the Napster servers. The content of the MP3 files remains stored in theuser’s computer. Once uploaded to the Napster servers, the user’s MP3 file names are stored ina server-side “library” under the user’s name and become part of a “collectivedirectory” of files available for transfer during the time the user is logged onto theNapster system. The collective directory is fluid; it tracks users who are connectedin real time, displaying only file names that are immediately accessible.C. Searching For Available FilesNapster allows a user to locate other users’ MP3 files in two ways: throughNapster’s search function and through its “hotlist” function. Software located on the Napster servers maintains a “search index” ofNapster’s collective directory. To search the files available from Napster users6currently connected to the network servers, the individual user accesses a form inthe MusicShare software stored in his computer and enters either the name of asong or an artist as the object of the
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