Hollywood, Tech Still Sparring Over Grokster

WASHINGTON — Almost a month after the Supreme Court ruled that peer-to-peer (P2P) developers are liable for copyright violations if they actively induce piracy with their technology, Hollywood and the Silicon Valley continue to snipe over the meaning of the decision.

“The court said if you build a business plan based on inducement, you’re
going to be held responsible for that,” Don Verilli, who argued Hollywood’s
case before the high court, told a noon luncheon briefing today for
congressional staff members.

Verilli added, “It’s not about technology, it’s about how businesses use

The unanimous MGM v. Grokster, ruling held that technology itself was not an issue. Instead, it upheld the high court’s 20-year-old Sony Betamax ruling about video recorders that established the principle that technology is neutral, even if some use
the technology for illegal purposes.

Fred von Lohmann of the Electronic Frontier Foundation, the influential
digital rights group that supported the P2P companies, told the overflow
crowd he was glad the court upheld the Betamax case. But the justices “did
not answer many of the hard questions.”

First and foremost, von Lohmann contended, the ruling left technology
companies and their legal staffs to “pick their way” through a dangerous
legal minefield when it comes to inducement.

“If your lawyer guesses wrong, you’re finished,” von Lohmann said. “That’s
an effective ban on technology. Technology executives don’t want to make
that decision and venture capitalists don’t want to make that decision. It’s
called uncertainty.”

He also pointed out secondary liability in copyright cases can bring
“apocalyptic” results for developers through mandatory statutory damages. In
addition, content owners can pierce the corporate veil and individually sue
corporate officers, directors and investors.

“Thanks to statutory damages, a single iPod filled with infringing songs
could give rise to more than half a billion dollars in damages,” von Lohmann
said. “These risks raise the stakes for both innovators and investors in
legitimate, multi-purpose digital products.”

Verilli dryly noted that developers need to be “more careful” in drafting
business plans.

“Grokster sought to attract individuals who had previously utilized the
Napster file-sharing service,” Verilli said. “They made no efforts to
curtail the massive amount of infringing conduct occurring on its system and
they profited from the infringing use of its system.”

Or, as the Supreme Court said in its decision,” the unlawful objective was

Not surprisingly, Verilli said no further action from Congress, such as last
year’s battle over Sen. Orin Hatch’s Inducement Act, is needed. “The lower
courts can get at impermissible conduct and protect creative products. It’s
not time for intervention by Congress.”

Equally unsurprising, von Lohmann wants Congress to abolish statutory
damages for secondary copyright claims.

“This would leave copyright owners actual damages and injunctive remedies,
putting them in no worse a position than litigants in most other areas of
civil law,” he said. “Technology companies and investors, meanwhile, would
be able to make reasonable business decisions about manageable levels of
legal risk, rather than face the prospect of crushing statutory damages
based on unpredictable legal standards.”

Ultimately, through, von Lohmann said the solution for Hollywood and the
P2Ps to make peace.

“Congress needs to clear the way for collective licensing of P2P file
sharing, allowing P2P users to pay a reasonable fee to ‘get ligit,'” von
Lohmann said. “Today, one in five American Internet users are downloading
from P2P networks, despite more than 12,000 lawsuits filed by the
entertainment industry. More lawsuits will not resolve the P2P dilemma.”

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