P2Ps Face Supreme Test

The often conflicting interests of technology and the entertainment industry will be played out Tuesday when the U.S. Supreme Court hears oral arguments in MGM v Grokster.

At issue is Hollywood’s ability to sue peer-to-peer (P2P) developers for creating file-sharing technology that has led to widespread copyright theft.

In the closely watched case, Hollywood is hoping to overturn the 20-year-old Sony Betamax decision, that ruled the use of new technology to infringe copyrights did not justify an outright ban on that technology.

More than two years ago, 28 of the world’s largest entertainment companies brought suit against the makers of Grokster and Morpheus for secondary copyright infringement.

A district court and the 9th Circuit Court of Appeals have already rejected Hollywood’s litigation against P2P firms, ruling that the legal principles established 20 years ago in the landmark Betamax case also apply to the file-swapping networks. Backed by the U.S. Department of Justice, the studios appealed the lower court decisions to the Supreme Court.

Click on graphic to follow P2P’s legal journey.

In the Betamax case, the Supreme Court, on a 5-4 vote, decided that
technology that has “substantial non-infringing uses” is legal even if the
technology is primarily used for illegal purposes.”

“As the owner of a vast array of copyrighted works, Intel is acutely aware
of the importance of protecting copyrights as an incentive to creativity,”
Intel attorneys wrote in a brief supporting Grokster. However, Intel
contends, dramatically expanding secondary copyright liability would “cause
vast uncertainty, curbing investment in new technologies that might be put to infringing uses, all to the detriment of the public and the

James DeLong of the Progress and Freedom Foundation, which filed a brief in
support of MGM, contends that the 9th Circuit was in error in its
interpretation of substantial non-infringing uses.

“No one in this case argues that P2P as a technology should be banned. The
issue, rather, is the business practices which the file-sharing companies
are wrapping around this technology,” DeLong wrote. “These can and should be
the subject of judicial inquiry, and condemned when they create business
models that can fairly be classified as deliberately dependent on

DeLong added, “The 9th Circuit focused totally on the need to avoid any
inhibition on technology, and in so doing it lost sight of the equally
important consumer interest in promoting content.”

In its own brief to the Supreme Court, MGM argues: “Although the [P2P]
technology can be used for lawful exchanges of digital files, that is not
how Grokster and StreamCast use it.”

MGM claims Grokster and Morpheus “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 Consumer Electronics Association (CEA), which has sided with Grokster,
maintains the Betamax decision has driven the breakthroughs in digital

“All digital technologies operate by making copies of millions upon millions
of bits. Without Betamax, technology inventors and investors would be
subject to claims that they are liable for infringement by others and would
face potentially ruinous statutory damages,” the CEA wrote. “Copyright
owners of all types and sizes have been quick to challenge any new
technology they believe threatens existing business models.”

According to the CEA, Hollywood’s efforts to expand copyright infringement
would “chill innovation and stifle growth. Conversely, none would serve
petitioners’ purpose, for any software found to be infringing under
petitioners’ theories would remain freely available from overseas websites.”

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