UPDATED: Peer-to-peer (P2P) technology developers are legally responsible for the
illegal acts of their users, the U.S. Supreme Court ruled today. The
unanimous landmark ruling is a major victory for movie studios and music
publishers seeking to curb the widespread theft of copyrighted material on
the file-swapping networks.
By sending a portion of MGM v. Grokster back to a lower court, the justices
cleared the way for content providers to pursue litigation against P2P
developers Grokster and StreamCast for actively inducing copyright
infringement. Similar lawsuits against Napster drove the original P2P
developer into bankruptcy.
“We hold that one who distributes a device with the object of promoting its
use to infringe copyright, as shown by clear expression or other affirmative
steps taken to foster infringement, is liable for the resulting acts of
infringement,” Justice David Souter stated in the majority opinion.
Significantly, the court did not overturn its Sony Betamax decision of 1984, which established the principle of technology neutrality. Instead, the
justices focused on the business models and behavior of the P2P developers.
“The record is replete with evidence that from the moment Grokster and
StreamCast began to distribute their free software … each one clearly voiced
the objective that recipients use it to download copyrighted works and
each took active steps to encourage infringement,” Souter wrote.
The decision also noted the “probable scope of copyright infringement [on
P2P networks] is staggering.”
“What all nine justices said was that Sony was not a free pass,” Don
Verilli, who argued Hollywood’s case before the high court, said. “They
agreed that it can’t be right you can build a business based on taking
someone else’s property.”
Attorneys for Grokster and StreamCast predicted a flurry of litigation in
order to clarify what they called a confusing and murky decision about how
to define when a technology is inducing copyright infringement.
“What does it mean to induce someone to copyright infringement?” asked
Charles Baker, attorney for Porter & Hedges, which represented StreamCast
in the case. “If you think about it, any company would be liable. I think
this is going to hammer the technology industry going forward.”
Baker added, “We now have a blurry standard that’s going to require
litigation to clarify.”
They also said the threat of litigation arising from the decision would
have a chilling effect on the developing industry.
Matthew Neco, general counsel of StreamCast, called the decision Orwellian.
“It seems the copyright and entertainment industry have now become the
thought police,” he said, referring to the opinion that said a company that
encourages copyright infringement could be held liable.
At issue is the legal liability of P2P technology companies
that enable users to swap copyrighted material without compensation to the
artist or the publisher. Hollywood, and the high-priced content owners it
represents, argued the companies were inducing end users to commit copyright
theft.
The decision follows years of legal skirmishing between the often
conflicting interests of technology and the entertainment industry.
Hollywood claimed P2P companies should be held responsible for the illegal
distribution of copyrighted material on their file-sharing networks.
A district court and the 9th Circuit Court of Appeals rejected the
litigation, ruling that the legal principles established 20 years ago in the
landmark Sony Betamax case also apply to the file-swapping networks.
In the Betamax decision, the Supreme Court decided the use of new technology
to infringe copyrights did not justify an outright ban on that technology as
long as the technology had other, non-infringing uses.
Although the lower court decisions established widespread copyright
violations on the P2P networks, both a district court and the 9th Circuit
Court of Appeals in San Francisco ruled that the P2P technology has legal
uses.
The music industry appealed the lower court decisions to the Supreme Court.
The U.S. Solicitor General, the Progress and Freedom Foundation (PFF), the
Business Software Alliance and the Christian Coalition of America supported
the music and movie industries by filing friends of the court briefs.
“Although the [P2P] technology can be used for lawful exchanges of digital
files, that is not how Grokster and StreamCast use it,” the entertainment
industry’s Supreme Court brief states. “They run businesses that abuse the
technology. At least 90 percent of the material on their services is
infringing, and that infringement occurs millions of times each day.
“The services are breeding grounds for copyright infringement of
unprecedented magnitude — infringement that would not occur if Grokster and
StreamCast did not make it possible,” the brief continues.
 |
| Click on graphic to follow P2P’s legal journey. |
In their briefs to the Supreme Court, the P2P networks and their supporters
argued that the music studios should not be dictating the use of technology.
“This is a direct assault on the Sony Betamax decision,” Gary Shapiro,
president of the Consumers Electronics Association, said in March before the
Supreme Court hearing. “Sony has been our Magna Carta.”
Grokster attorney Michael Page told the media at the same press conference,
“For the past century, copyright litigation in this country has been an
endlessly repeating cycle. Time and again, the corporations that control
both artistic content and the current method of distributing that content
ask the courts to protect them against new and better technologies, by
banning those technologies.”
Page added, “Time and again, the courts have refused to extend the copyright
monopoly. That basic principle that copyrights, no matter how numerous,
do not give the holders a veto over technological progress is at the heart
of the Supreme Court’s 1984 Sony opinion.”
MGM vs. Grokster began more than three years ago in Los Angeles. U.S.
District Court Judge Stephen Wilson ruled in favor of Grokster, saying the
File-sharing companies cannot control how people use their software if the
product has legitimate applications.
“Grokster and StreamCast are not significantly different from companies that
sell home video recorders or copy machines, both of which can be and are,
used to infringe copyrights,” Judge Wilson wrote in his decision.
Wilson also made a distinction between the original Napster and its
successors. In Napster case, an index of material available for
file-swapping was maintained on a central server. Grokster does not use
central servers. In that situation, the court said, Grokster had no control
over the actions of its customers.
