The emergence of Napster Inc., the San Mateo, Calif.-based company that facilitates musical piracy, highlights the Internet’s threat to copyright protections. But contrary to popular belief, it does not guarantee the music industry’s demise. The same processes of innovation that spawned this problem will also yield a solution.

Using Napster software, Internet users can locate and copy songs stored on other users’ computers as MP3 files. MP3 is a digital-music format for transmitting audio files over the Internet.

Thousands of illegal copies of songs are made each day, usually of songs uploaded from copyrighted compact discs. But law enforcers are powerless against this piracy. Millions of people are making illegal copies, rendering prosecution logistically impossible. And current law provides no clear precedent under which Napster can be punished.

Recording industry leaders fear that as consumers stop paying for songs they can download for free, profits will plummet. Bands depend on royalties for income, making them particularly vulnerable.

Hoping to protect their earnings, companies and artists alike have filed a barrage of lawsuits against Napster. But even if Napster falls, existing alternatives are better insulated against the law and its enforcers.

Freenet, for example, performs a similar function but is totally decentralized, challenging police with a perpetually moving target. Unlike Napster, Freenet allows users to trade in near-complete anonymity. The system is even programmed to take evasive action, thwarting attempts to identify individual computers.

Freenet creator Ian Clarke called his program “near perfect anarchy,” predicting copyrights would soon seem as preposterous as “witch-burning.” But this dire prediction is flawed. Clarke assumes his program is a final breakthrough, but innovation is progressing on all fronts. Neither police nor record companies will go down without a fight, and history is on their side.

For years, computer hackers have claimed an ability to anonymously launch damaging attacks. But police captured Mafiaboy, accused of directing many of February’s crippling denial-of-service attacks.

It took only days to trace the “I Love You” virus to a student in the Philippines. Despite this progress, law enforcers are not yet well equipped to handle many computer crimes. But for better or worse, courts, governments and police worldwide are expanding their power to counter the Internet’s decentralized threats.

Industry is also investing heavily in innovative responses. The Secure Digital Music Initiative is testing intriguing technologies that render it difficult to store or reproduce copyrighted songs.

While neither police nor industry has developed foolproof responses to the changing Internet landscape, they are clearly arming themselves against the most modern threats.

The impact of rogue technologies such as Freenet, therefore, will likely be less dramatic than anticipated. Even assuming intellectual property protections are significantly weakened, it’s doubtful record companies and other copyright-reliant businesses will collapse. More likely is that new business models will emerge.

Napster itself is pioneering such a model. In return for the support of rock group Limp Bizkit, the company gave $ 1 million in sponsorship of the band’s summer tour. This suggests that in the future, music companies may compete not based on their copyrighted catalogs but on how they make them available.

The music-buying public will crave online delivery services that guarantee clarity, reliability and security, something not promised by rogue programs such as Freenet.

Because new online services will only flourish if the public’s thirst for new music is quenched, companies will have an incentive to pay emerging bands like Limp Bizkit that attract site traffic.

Because they fail to recognize such promising alternatives, both MP3’s advocates and opponents are bound by an ironic similarity. Both sides forget innovative processes can create solutions to their own problems.

Almost without fail, new businesses find new ways to profit from new demand. So long as record companies spend more time testing in the laboratory than fighting in the courtroom, they will continue to flourish, come what may.

Justin Matlick is a Chicago-based senior fellow in information studies for the Pacific Research Institute in San Francisco. He can be reached via email at jmatlick@pacificresearch.org.