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to check each file for some sign of copyright violation, such as the acoustic “watermarks” being developed by the industry.

A major warning in Greenstein’s memo concerned the DMCA safe harbors for service providers. Napster’s chances would rise dramatically if it could qualify for one, but it was far from clear that it could, Greenstein said. Companies that ignored obvious misuse wouldn’t make the cut. “Napster should be able to meet the test for immunity from liability, but it is not a foregone conclusion,” he wrote. “The knowledge standard required by this section is a ‘red flag’ of facts and circumstances from which it is apparent that infringing activity is occurring. In this case, the RIAA might contend that the red flag consists of thousands of MP3 files that were ripped from commercially available compact discs being made available through the Napster network. . . . This is the closest of questions presented in the memorandum.” Greenstein concluded by recommending that Napster appoint a copyright agent, post a policy to ban users who infringed, and act on that policy.

But Greenstein hadn’t been hired as a general counsel, someone who would work full-time at the company and monitor its behavior. He was hired only to provide an interpretation of the law that could allow Napster to win if sued. And while Greenstein believed in what he had written, he conceded that his counterparts in the record industry “probably see me as a wild-eyed radical.”

Grosfeld, IN THE MEANTIME, kept visiting his friend Lilienthal’s office in Washington and calling other intellectual-property lawyers. They didn’t find many that shared Greenstein’s qualified optimism. So Grosfeld and Lilienthal started kicking around new ideas for harnessing Napster’s system. The technology itself was legal and a huge advance over what had gone before. Perhaps, they thought, the company should just stick with that, and license the file-swapping technique to others. The possibilities seemed real enough, but the men decided that they couldn’t trust John Fanning to follow them down that road.

“If it was just the legal issue, that would have been okay,” Lilienthal said. But the combination of that minefield with Fanning’s behavior was