In what might be a death-knell for free music on the Internet, an appeals court ruled yesterday that the popular song-swap service Napster must stop its millions of users from trading copyrighted material. The recording industry said the decision was a major victory and legal experts said the ruling by a three-judge panel on the 9th Circuit Court of Appeals could destroy Napster as a free song-swapping service. Napster said the decision, if upheld by a higher court, could shut it down, and added that it planned to appeal. The three-judge panel said Napster may be held liable for copyright infringement by its users. The appeals court also said Napster, to avoid liability, had to patrol its system for infringing material and block access to those songs in its search index.