Certain of those laws are violated by loading a sound recording into a server, making a real-time transmission of sound recordings or downloading it to a listener's computer.[40] So far there are only few ways to control these actions and compensate funds to the artists and the music business.

The problematic point in the legal regulation of the Internet is its international entity, the nationally differing laws that have to be applied according to the location of the webpage. Internetsites directed to a certain country can be run on a server in a different country, and the easiest case, that a page is directed to the country and in the language of the country it is situated in, is not the rule. Providers can just move to the country with the weakest copyright restrictions and make it impossible to use legal steps against them.[41] For copyright there is an international organization that works on standards for intellectual property, the ratification in different countries and international agreement: the World Intellectual Property Organization (WIPO). But there is no "official" body to enforce intellectual property laws. The WIPO, currently having 171 members, encourages member nations to make and update their domestic laws to protect intellectual property and also encourages cooperation between member nations by centralizing the administration of such laws.

The WIPO treaties have been adopted as law in the form of the "Digital Millenium Copyright Act" in the United States in October 1998, as an amendment to title 17 of the United States Code regarding digital music technology.[42] It prohibits the "circumvention of technological measures that control access to protected works; or manufacturing or trafficking in technology designed to circumvent measures that control access to, or protect rights of copyright owners in, such works."[43]

One year earlier, the "NET Act" already adressed copyright issues on the Internet, specifically facilitating the criminal prosecution of pirate bulletin board systems and Web sites. But it only dealt with criminal liability and has no impact on civil liability (including service provider liability) for copyright infringement.[44]

Still the chaotic and global nature of the Internet makes it hard or even impossible to prosecute users who violate the law. The fact that "many individuals see nothing wrong with downloading an occasional song or even an entire CD for their personal use, despite the fact it is illegal under the recently enacted NET Act"[45], let the record companies seek for other solutions.

Another regulatory way to deal with the new development is to enforce the payment for every blank CD sold, similar to each blank tape. In Germany it is at the moment at 0,12 DM, as much for a CD as for a tape.[46] But there are efforts all around the world: "Now the record industry is experimenting on Canadians by trying to impose a $2,50 "royalty" tax on each blank CD-R disk sold."[47] And some organizations, as the German GEMA, are also striving for getting a similar kind of tax on computer hardware, like on radios and TV-sets.[48]

But there are plans for even deeper changes of the system in the circles of the music industry. Dr. Martin Schaefer, head of the "Deutscher Phonoverband", the German part of the IFPI, outlines a system that would control also private copying of music - a change in the licensing principle. He projects a structure with chipcards that can be bought and reloaded for a certain amount of copies.[49] This would require a further remodeling of the legal situation and technology.

While the American music industry reached a sufficient legal basis with the "Digital Millenium Copyright Act", the situation in Europe is still far from a unified solution. The different countries in the European Union still have different restrictions for the Internet, and although the "Conféderation Internationale des Sociètés d'Auteurs et Compositeurs" (CISAC), the European organization for all copyrightholders, and the music industry have reached an agreement, it will still take some time until specifications will put into law.[50]

An amended proposal for a "Directive on copyright and of related rights in the Information Society" was presented by the European Commission on 21 May 1999.[51] Before the first Debate by the European Parliament in February 1999, the record companies initiated an artists’ campaign to give petitions to Bruxelles, in which more than 400 artists took part.[52] The Directive would meet "the main requirements of the new international treaties on protection of authors, performers and phonogram producers agreed [...] in the framework of the World Intellectual Property Organisation (WIPO)"[53], thereby allowing the ratification of these treaties by the the member states as well as other European countries associated with the EU. The field of private copying is given to the individual member states that have traditionally different ways of dealing with it.

"The challenge is to find a method that can prevent copyright infringement online without interfering with legitimate uses of recorded music or missing the opportunities offered by digital technology and the Internet." RIAA[54]

The crucial difference to MP3 is the inability to copy a once bought music file. Leonardo Chiariglione, who was put in charge of the project in February 1999, former longtime head of the Moving Picture Experts Group, which invented the MPEG-standards, explains: "[...]when you make a copy, you disable the original. Because we want to avoid the fact that 1 million copies of a digital file can be made without any degradation of quality."[55] Future plans are to make SDMI-files available in physical form, like buying a disk in a shop or at a kiosk, or to have them for downloading on a Web site. By the end of June the specification for the first portable devices for SDMI shall be completed, and the long-term SDMI specification is scheduled to be completed by March 31, 2000.[56]

There are already formats that perform the aspect of copyright protection, like the Liquid Audio-solution. Founded in 1996, Liquid Audio provides since November of the same year the software for "digitally-delivering professional-quality music via the Internet"[57]. The open architecture of their products supports all leading digital music formats, like MP3, Windows Media, later SDMI, and their own format, the Dolby AC3-technology. Many labels make commercial use of their products, like GoodNoise.com or JimmyFun.se, the first Swedish label that provided downloadable music on the Internet in January 1999. The downloaded file can only burned once on a CD and have an identification watermark in it, that makes it possible to prosecute copies made from CD to CD. The file itself cannot be copied or sent via e-mail, only 30 second cuts from the songs are transferable.[58] Liquid Audio is the leading company in this respect, seeking market power also through cooperations as with Diamond Media, whose Rio-Player will be able to play also Dolby AC3-files in future versions.

SDMI is seen by skeptics as "a hopelessly belated response to the popular (and easily pirated) MP3"[59] that is today's de facto standard. Leonardo Chiariglione objects: "Consumers like simple things. [...] If the ease of use is high and people can have the total freedom of finding and getting the music they want, for a price [...] - well, then, I tell you: People are going to adopt SDMI."

On the SDMI-Meeting in May 1999 in London, the music industry tried to force the hardware- and software-manufacturers to exclude MP3 from their products. They should deliver a "time bomb"-program that could be started by the RIAA and block the download of MP3-files. It came to controversial debates and an open gap between the two sides: the technology- and computer-companies did not want to ban MP3 since there is a potential on the market for playing devices and software, and the music industry has to learn the lessons of the open standard principle of the Internet.[60] Samsung, which is involved in SDMI, is still holding back its portable players, because a probable scenario for the fight on the music market will also take place on the playing-device market, "Will I buy a Rio that supports MP3, or possibly a Samsung player that does not?"[61] In the press-release of the meeting is only mentioned a fairly general consensus everyone agreed on in the end.[62]

Another competitor on the market is Microsoft, that published its MS Audio 4.0 format in April 1999. It features smaller file-sizes, support with a plugin for the Microsoft Media Player and a copyright protection. The sound quality is controversially discussed but seems to have the same value like MP3. Also Reciprocal, a digital rights company owned by Microsoft, is working on a Secure Audio Streaming Format to be included in Windows 2000.[63] Microsoft's power on the hardware market makes the format to a formidable competitor.[64]

Some experts think the fight on the Internet is already won by MP3 - there are formats with the same advantages but better sound quality and less disk usage like the VQF[65]-format by Yamaha or the MPEG-2 Advanced Audio Recording (AAC) format.[66] This phenomenon is described as another "Betamax"-case, the better system for video-tapes that was not able to establish a market against the VHS-tape because of bad timing.

The next version of the MPEG Layer 1, MP4, is to released in November 1999 and will include the logarithms of these better formats - but most probably also a copyright protection.[67]

One first step on stopping the unauthorized copying of music files is a watermarking standard introduced by the "Genuine Music Coalition" (GMC)[68], a initiative started without the involvement of the majors, consisting of Liquid Audio, MP3.com, Fraunhofer IIS, Goodnoise, Tower Records, CDnow, SESAC (one of the American licensing organizations), Sub Pop, Diamond Multimedia, and around 40 other organizations including record labels, artists, mp3 vendors and producers. Through a "Genuine Music" sign the user knows if a MP3-file is authorized by the owner of copyright or a pirated copy.

The GMC does not go as far as a whole copyright protection system, it just authenticates the ownership and origin of a music file. GMC "should not be perceived as a rival or competitor of the Secure Digital Music Initiative (SDMI)"[69] , which also deals with a whole delivery standard and secure transfer to playback devices. Furthermore, the "Genuine Music" mark will be embedded into different kinds of compressed audio files in the process of encoding; at least in MP3, MPEG AAC and the Dolby AC-3 formats of the participating companies. The Genuine Music mark will have no impact on the format of the files, so that the watermarked files will stay compatible to all players. The goal is to watermark every piece of legitimately encoded content sold or freely distributed on the Internet. The RIAA, although not directly participating in this initiative, agreed that the GMC is a good move, but it can not substitute the SDMI. [70]

Liquid Audio announced that the first "stamped" files and the new Liquid Audio Player that can also play MP3 will be available by mid-year.[71]

Another RIAA-blessed project is "Madison" of the IBM company, which was presented in February 99 and started in first tests this spring in San Diego. The five major labels support an online-shopping concept, "which would allow selected consumers to buy albums, singles, and artwork online (for an unspecified amount) and burn it onto a CD."[72] In contrast to other solutions it is not working through webpages and browsers but provides the user with software for an individual shopping environment.

Other competitors for a secure music standard on the Internet are a2bmusic, owned by AT&T, the German corporation MCY that develops a complete system with watermarking, online distributing and playing devices, and the French based company Audiosoft which cooperates with the computer manufacturer Intel and provides a user friendly system that was already tested around Paris in 1998.[73] Another powerful competitor rises out of a project of the EU, Music On Demand (MODE); they cooperate with Lucent Technologies and Labelnet, an organization of independent labels in Europe and North America, and are aiming for a leading position on the European market.

Based in Seattle, RealNetworks released the first RealPlayer in 1995, and over 50 million users have been registered until 1999. 85% of all streaming media enabled Web pages use RealSystem software to deliver their content,[74] and this position makes RealAudio to another powerful competitor in the run for a definite format.

Still the SDMI-project seems far from a defined standard; many of the major labels have started their own collaborations with technology-companies to develop secure formats that could undermine the acceptance of SDMI. BMG Entertainment and the Universal Music Group are teaming up with AT&T and Matsushita on a music delivery system, while Microsoft has allied with Sony on content distribution deals.[75] Even the RIAA comments: "Every day it seems like there’s a new announcement from one or more technology companies, often joined by partners from the music industry."[76] The unified strife for the goal of keeping the market position is counterpointed by individual efforts to gain the first position in this development, and in the coming months, the SDMI equation could get even more complicated if the major labels decide to go their own way.

[part 3.2: seeing internet technology as a chance]