"Napster and its legal team are hard at work preparing their counter arguments to the Recording Industry Association of America (RIAA) brief filed a couple of weeks ago," said a spokesman for Napster, which will file its brief in U.S. District Court in San Francisco Monday.

A hearing is set for July 26.

The RIAA and the National Music Publishers Association June 12 filed a motion for a preliminary injunction against Napster, seeking to remove all the songs owned by the trade group's members from Napster's song directories.

Napster software lets users swap songs online by trading MP3 files, a compression format that turns music on compact discs into small computer files that can be downloaded.

The RIAA -- representing Seagram Co. Ltd.'s Universal Music, Bertelsmann AG BMG, Sony Corp.'s Sony Music and Time Warner Inc.'s Warner Music Group, which is merging with EMI Group Plc EMI -- first sued Napster in December, charging it was a haven for online music piracy.

The two associations cited a survey of 2,555 college students who were Internet users showing a correlation between Napster use and decreased CD sales.

A Battle Over Intellectual Property

Over the past several months, the case has drawn increasing media attention, escalating into what is seen by many as the first great battle over intellectual property on the Internet.

In May, the beleaguered San Mateo, Calif.-based Napster got a $15 million capital infusion from a well-regarded Silicon Valley firm, Hummer Winblad Venture Partners and named one of the firm's partners, Hank Barry, as interim chief executive.

Barry recently hired top gun lawyer David Boies, lead attorney for the Justice Department in the Microsoft antitrust case, to work on Napster's side.

Last week in an interview, Barry said Napster was seeking ways to coexist with its record label foes as it prepares its defense in the case.

"We're trying to find a structure that works with everybody and respects copyrights," he told Reuters. "We're eager to work with all constituencies interested in the Napster community."

While Barry said Napster was open to discussing new business models with the music industry, the two sides remained far apart on whether its software helps or hurts record sales.

Indeed, the lawsuit comes at a time when year-to-date U.S. sales of albums in compact disc and cassette form are up over 7 percent through the end of June to about 341,234 units, according to industry estimates.

While sales are brisk, industry executives still contend that Napster is threat and that buying patterns are changing.

"The growth is coming from pop stars, like Britney Spears, not from the young men with PCs, who are a significant and catalytic part of the audience," said one record executive.

In this phase of the litigation, Barry said the question becomes whether one-to-one noncommercial file sharing by Napster users is an infringement.

"If these users are not infringing, we're not liable. There's a whole lineage of cases where law is applied to new technology and this is a case like that," he said.

Reuters/Variety