"If users are not themselves infringing, then we are not liable for contributory infringement," Napster lawyer Jonathan Schiller said on Friday after filing a written defence in the latest stage of the company's court battle.
Napster was granted a reprieve just hours before the injunction by the San Francisco judge last month when a US Federal Appeals Court said it could stay online for the time being.
The court said that "substantial questions" had been raised about the merits and form of the injunction.
Napster enables users to download software which allows them to search each others' hard drives for MP3 files. It is estimated to have about 20 million registered users.
Freedom to share music
The US recording industry argues that that the company is infringing copyright.
When the reprieve was granted, Napster was given until 18 August to submit its written arguments.
The Recording Industry Association of America will then have until 8 September to file their rebuttal.
"These are important issues at stake. This case will have an important effect not only on the freedom to share music but also on how people will be able to use the internet to share information," Napster's lawyer David Boies said.
The RIAA first sued Napster for copyright infringement in December.
The legal battle may have far-reaching implications.
The RIAA, which represents companies such as BMG, Sony Music, Warner Music Group and EMI, has called Napster a hijacker of intellectual property.
It claims Napster has cost the industry more than $300m in lost sales.
Napster argues that its users are not violating copyright by trading songs for free because they share files for non commercial use.
Talking about settlement
Many experts had believed that settlement talks would take place and the record industry would ultimately embrace Napster's service with a more secure format.
Napster has pursued settlement talks with the recording industry but little progress has been made.
"I don't think there's going to be any movement on settlement talks. We've tried several times, but they simply made a tactical decision that they have a chance to destroy this medium and they want to try to do that. My personal view is that that is a mistake on their part," said Mr Boies.
The Napster technology was developed by a 19-year old college student Shawn Fanning last year.
The company was founded five months later and now employs 40 people at its headquarters in Redwood City, California.