RealTime IT News

High Court Rules Against P2P

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.