Napster hopes to relaunch later this year
In a small victory for the company, which has been offline since July last year, US District judge Marilyn Hall Patel said more time was needed to decide who owned the rights to the music involved in the record industry's lawsuit against the company.
She also said that the potential harm to the public could be "massive" if recording companies were found to have acted in an anti-competitive manner.
"If Napster is correct, plaintiffs are attempting the near monopolisation of the digital distribution market," she said.
Settlement failure
Recording companies are seeking damages from Napster for allowing copyrighted songs by recording artists to be trafficked by users who were able to swap and download recorded material for free.
In a lawsuit filed in 1999, companies including AOL Time Warner, EMI and Bertelsmann alleged such software was cheating them out of royalties.
Bertlesmann has since joined forces with Napster and hopes to relaunch the site legally later this year.
Napster counters that music labels deliberately misused their copyrights in order to dominate the relatively unchartered world of online music distribution and wanted Napster shut down purely so their own sites would face no other competition.
Ms Patel's ruling comes a month after a hearing where she delayed any prospective decision for 30 days, in the hope that both sides would reach an amicable settlement.
However, no agreement was reached and Ms Patel has since ordered both sides to submit all relevant documents to a court appointed expert for review.
Reaction
Napster officials welcomed the ruling.
"We are pleased that the court granted Napster's request to examine two critical issues: the record companies' ownership of artists' copyrights and anti-competitive behaviour that amounts to misuse of their copyrights," said Napster general counsel Jonathan Schwartz.
However, representatives for the Recording Industry Association of America (RIAA), which is representing the recording companies involved, said that the judge's claims were baseless.
"Napster's allegations of misuse are without merit, as the discovery ordered by the court will confirm," Cary Sherman, a lawyer for the RIAA told French news agency AFP.