A two-judge panel has handed Napster Inc. a reprieve from the court order that the company claimed would have forced it to close down its popular file-swapping website at midnight Pacific Time on Friday (7/28). The decision will allow Napster’s controversial service to continue to operate until the company’s legal appeals are heard.

“Having raised substantial questions of first impression going to both the merits and form of the injunction, the emergency motions for stay and to expedite the appeal are granted,'' the San Francisco-based 9th U.S. Circuit Court of Appeals panel said in its decision. Signing the decision were Judges Barry Silverman--a Clinton appointee--and Alex Kozinski, who was appointed to the bench by Ronald Reagan.

The decision overrides an injunction issued Wednesday (7/26) by U.S. District Court Judge Marilyn Hall Patel, which would have forced Napster to stop facilitating the trading of songs distributed by eighteen major record label companies named in the Recording Industry Association of America’s copyright infringement lawsuit against the service.

Even if Napster's appeal of the injunction is expedited, it isn't likely to be heard before September, a court official said.

“I am happy and grateful that we do not have to turn away our 20 million users and that we can continue to help artists,” Napster founder Shawn Fanning said in a statement. “We’ll keep working and hoping for the best.”

In their appeal, Napster attorneys claimed that the company would be forced to shut down its service completely and to lay off about 40 employees to comply with the judge’s order.

Attorneys for the RIAA had countered that granting Napster’s appeal would allow “massive copyright infringement” to continue.

In a statement, RIAA President and CEO Hillary Rosen said that the court's decision was "obviously a disappointment," but she added that the RIAA is confident that Judge Patel's decision would ultimately be affirmed.

"The Court of Appeals apparently regards this case as the first of its kind, and wants to consider it before any injunction takes effect...," Rosen's statement said. "It is frustrating, of course, that the tens of millions of daily infringements occurring on Napster will be able to continue, at least temporarily. In fact, since the district court issued its order, the illegal downloading of copyrighted music openly encouraged by Napster has probably exceeded all previous records. We look forward to the day when the infringements finally cease."

The RIAA filed suit against Napster in December, alleging that the company’s music-swapping service encouraged the piracy of copyrighted material. Napster has held that the company does not store any copyrighted material on its servers, and that it therefore cannot be held responsible for the actions of its users.

Before Napster’s appeal was upheld, the company issued a press release encouraging its users to buy CDs this weekend in an effort to prove that file-sharing was actually good for the recording industry.

"We believe that file-sharing among music fans helps to create a larger community of passionate music lovers, which allows the industry to sell even more music to fans,'' Fanning said. "To prove just how much our users love music--and to show the buying power of such a large group of music fans--we are asking all of our users to join us this weekend for a 'Napster Buy-cott Weekend.' We are asking that each and every Napster user walk in -- or log in -- to their favorite record store and buy a CD by an artist they love.''

Another website was taking the opposite approach, encouraging a boycott of the RIAA. It had gathered more than 80,000 signatures by press time.

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