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High Court Hears P2P Appeal

WASHINGTON -- The Supreme Court prodded and probed but rarely showed its hand today in the long-running legal battle between content owners and technology developers.

In questions from the bench, the justices pushed the entertainment industry throughout the morning about its copyright lawsuits stifling innovation while seriously questioning the business models of P2P companies such as Grokster and Morpheus.

Justice Stephen Breyer mused that under the standards being sought by Hollywood, Gutenberg and the inventors of copy machines could be held liable for massive infringement.

Justice Anthony Kennedy suggested to Grokster attorney Richard Taranto that the P2P companies are using stolen copyright material "as a kind of start-up capital. From an economic standpoint and a legal standpoint, that sounds wrong."

In MGM vs. Grokster, Hollywood hopes to extend copyright infringement liability to software developers who create products allowing individuals to violate copyright laws. Hollywood contends that more than 90 percent of all material traded on the file-swapping networks is copyrighted.

Two federal courts have already ruled in favor of the P2P companies, deciding that the software also has non-infringing uses.

"That gives them [P2Ps] a free pass as long as they can speculate that there are other uses [of their software]," MGM attorney Donald Verrilli told the justices. "They are intentionally building an infringing network."

A_Breakdown_of_P2P_in_the_Courts
Click on graphic to follow P2P's legal journey.

Verrilli also noted that in the Sony Betamax case, the 1984 landmark Supreme Court decision that Hollywood hopes to overturn in MGM v Grokster, Sony was able to prove "substantial" non-infringing uses of its video recording machines.

Justice Antonin Scalia pressed Verrilli on just where Hollywood draws the line on infringement.

"How much time do you give me to show lawful uses?" Scalia asked. "I'm a new inventor, I need to know right away."

Verrilli said it all depended on the business model being developed by the inventor.

"These companies already operate in the shadows," he said. "They are using our copyrighted material as seed capital. The legitimate use of this software is a tiny little fraction."

Grokster's Taranto contended that illegal distribution of copyrighted material is permitted under the Sony decision as long as non-infringing uses can be proven. This prompted a number of questions from the justices about the "previous bad acts" of the P2Ps.

"Isn't it odd that Napster goes one way and these others go another way?" Justice Ruth Ginsburg asked.

In the Napster case, the movie and music studios were able to shut down the operations of the first P2P network because Napster depended on a central server to index the material available to its members. Grokster and other P2Ps have refined the software to eliminate central servers.

"There is no, 'Mother, may I' system with [newer services]," Taranto said. "You don't have to have central servers."

Scalia openly speculated that de-centralized systems were developed to avoid Napster-like lawsuits, a position strongly supported by U.S. Solicitor General Paul Clement.

"P2P was out there with a centralized server and [Napster was] using the network for substantial infringing uses," he said. "Then [Grokster] came along [bypassing central servers]."

After the hearing, a number of groups, speaking for both the P2P firms and content providers, came forth with statements and comments.

"It was a spirited exchange and I thought the court's comments were encouraging," Adam Eisgrau, executive director of P2P United, a trade group that includes Grokster as member, told internetnews.com. "Whatever the result, [the justices] are knowledgeably and aggressively wrestling with the issues."

Neil Portnow, president of the National Academy of Recording Arts and Sciences, issued a statement that said the Supreme Court is taking a "fundamental step toward protecting and defending the economic health of music makers."

Portnow added, "File-sharing services that exist primarily to assist in the illegal distribution of copyrighted work shamefully impede artists' livelihoods and ability to create."

American Civil Liberties Union attorney Aden Fine said in a statement that file sharing is "one of the most innovative uses of the Internet to emerge since the advent of the Internet. This is a technology that enables a vast amount of legitimate, non-infringing speech. Technologies should not be shut down just because some people use them illegally."

The court is expected to issue an opinion in the case sometime in June.