Why did the recording industry argue that sharing a CD online was not fair use?

The recording industry argued that sharing CDs online was not fair use primarily because such activity directly competed with the commercial market for the copyrighted work and resulted in significant revenue loss for record labels and artists.

Under the fair use doctrine, one of the four key factors used to determine if a use is permissible is the effect of that use upon the potential market for or value of the copyrighted work. When users shared music files via peer-to-peer (P2P) networks like Napster, a single legal copy of a song could be distributed to countless individuals, effectively serving as a substitute for purchasing the original product. Because these unlicensed reproductions competed directly with the original recordings, they were viewed as infringing rather than fair use.

The Recording Industry Association of America (RIAA) maintained that this unauthorized distribution constituted digital piracy, as it undermined the ability of copyright owners to control the distribution of their work and collect reasonable profits. Consequently, the industry pursued legal action to protect its intellectual property and enforce copyright protections.