Attorney David Boies offered the system in an attempt to keep alive the wildly popular Internet music-swapping service, which is battling the recording industry in a copyright infringement suit. The system would block users from trading up to 1 million titles of pirated music.

Much of the hearing before U.S. District Judge Marilyn Hall Patel centered on how Napster would screen its system, and whether the company or the industry bears the burden ofdetermining which songs should be barred.

Russell Frackman, an attorney for the Recording Industry Association of America, said Napster should start by blocking the swapping of Billboard Top 100 singles and Top 200 albums, and by policing its system to keep those lists current.

Not immediately clear was how Napster would begin to offer a subscription-based service or what the backlash might be from millions of people used to swapping music for free.

The hearing lasted about 2 ½ hours. Patel did not say when she would issue her ruling.

Napster users downloaded with a vengeance as the hearing began Friday morning. More than 8,500 people were sharing more than 1.7 million files through just one of Napster’s more than 50 servers.

Patel last summer ordered Napster to stop allowing the swapping of copyright music. She was asked by an appeals court to rewrite the order in a way that may allow Napster to survive in amuch more limited way – and one that somehow forbids the trading of copyrighted music.

Specifically, Patel must find a way for Napster to block copyright material in real time on the constantly changing song-swapping network, without limiting the free speech rights of computer users trading non-pirated material.

To avoid such a fate, Napster last week offered to settle the lawsuit for $1 billion in exchange for a 40 percent cut of online music sales. The offer was soundly rejected by the recording industry, which is anticipating victory in the landmark case.

Napster’s popularity exploded in 1999 after founder Shawn Fanning released software making it easy for personal computer users to locate and trade songs stored as computer files in the MP3 format, which compresses digital recordings without sacrificing quality.

The five largest record labels – Sony, Warner, BMG, EMI and Universal – quickly sued, saying Napster could rob them of billions of dollars in profits. But the concept of peer-to-peer song trading proved wildly popular, as millions flocked to Napster and similar services.

Music fans downloaded 2.7 billion files in January using Napster, and research firm Webnoize said more than 96 million songs were traded on February 12 – the day the appellate court said Napster likely would lose at trial. Napster has an estimated 50 million users.

The RIAA sent out letters last month asking Internet service providers to take down OpenNap servers – homegrown personal computers set up to facilitate Napster-like activity. But OpenNap is just one of a number of networks where people can trade music without paying for it. Going after actual users could prompt a buyer backlash.

“They’ll have no choice but to sue their customers and they just can’t do that,”said Phil Leigh, an analyst with Raymond James & Associates. “It would be anarchy.”

All the major labels are now developing their own online music distribution businesses even as other ways of getting free music are sprouting up.

These difficult-to-trace peer-to-peer applications have funny names such as Gnutella, LimeWire, ToadNode and BearShare, but they’re becoming easier to use.

The BearShare program – software that scours a constantly expanding number of hard drives for text, music and movie clips – has been downloaded more than 500,000 times since it was made available Dec. 4, says its designer, Vincent Falco.

Where all of this will leave Napster, now funded primarily by German media giant Bertelsmann AG, is unknown.

Bertelsmann hopes to adapt Napster technology as part of a legitimate, copyright-protecting subscription music service. But Leigh predicts a humble future for Napster, whose reach to date has been limited by what millions of music fans have decided to share online.