Napster Inc. may have to shut down its popular music-trading service in the wake of an appeals court ruling that says Napster must prevent users from trading copyrighted music, the company said.

The ruling, handed down Monday (February 12) by the Ninth U.S. Circuit Court of Appeals, upheld almost all aspects of an injunction against Napster issued by a lower court in July.

Napster said at the time that U.S. District Judge Marilyn Patel's injunction — which ordered it to remove all copyrighted material from its service — would force it to shut down while the music industry's copyright infringement lawsuit against it goes to trial. The appeals court almost immediately decided to review Patel's injunction, putting it on hold as they weighed its merits — a process they completed on Monday (see [article id="1432573"]"Napster Granted Temporary Reprieve Against Injunction"[/article]).

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"The court came back with a decision that was not good for Napster," Napster founder Shawn Fanning told MTV News on Monday. "They affirmed what the previous judge had said. ... They have changed the injunction slightly, but in the future, based on this result, the service could be shut down."

A three-judge panel from the appeals court wrote in its decision that Patel "correctly recognized that a preliminary injunction against Napster's participation in copyright infringement is not only warranted but required."

They did, however, find that Patel's injunction was "over-broad," and ordered her to immediately write a new, more narrow injunction, which would still force Napster to keep copyrighted material off its service.

Under a new injunction, record companies would have to notify Napster of specific copyrighted music available on its system before Napster is mandated to remove links to it. Under Patel's injunction, Napster would have had to keep copyrighted songs off of its system even without notification from record companies.

The new ruling also suggests that Napster could not be held liable for misnamed files — i.e., for copyrighted music that users make available under false names.

"Napster ... bears the burden of policing the system within the limits of the system," the judges wrote.

Even with those changes to Patel's injunction, Napster could be forced to shut down, company representatives said, because it has yet to come up with an effective system to remove specific songs. But it will be able to continue operating at least until Patel issues her injunction.

Until they see the revised injunction, it's uncertain whether the Napster service will have to be shut down, Fanning and other company officials said.

"We don't really know what the rules are, what the boundaries are. ... We don't have a good sense about what the court wants us to do," Fanning said. "It's still not clear what's going to happen."

Longtime Napster foes Metallica approved of the appeals court's decision.

"We are delighted that the court has upheld the rights of all artists to protect and control their creative efforts," Metallica said in a collective statement. "The Ninth Circuit Court has confirmed that musicians, songwriters, filmmakers, authors, visual artists and other members of the creative community are entitled to the same copyright protections online that they traditionally been afforded offline."

Hilary Rosen, president of the Recording Industry Association of America, hailed the decision as "a clear victory."

"The court of appeals found that the injunction is not only warranted, but required," she said in a statement. "And it ruled in our favor on every legal issue presented."

Napster lawyer David Boies said in a press conference that after Patel issues her new injunction, the company's next step will be to ask the full Ninth U.S. Circuit Court to hear arguments on it.

Fanning also urged Napster users to contact Congress in order to convince legislators to intervene in the case.

Napster and Bertelsmann AG, parent company of major label group BMG Entertainment, announced in October that Bertelsmann will drop its copyright infringement lawsuit once Napster debuts a new, copyright-friendly version of its service that will charge users a fee. Napster officials said that they will continue to develop the new service.

"I don't think this will stop the progress we're making in terms of building out the service," Fanning said. "But I think if we have to shut down the service because of litigation, it will result in a huge number of people being unhappy and dispersing to other sites."