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Monday, June 27, 2005
Court Rules File-Sharing Networks Can Be Held Liable for Illegal Use
June 27, 2005
Court Rules File-Sharing Networks Can Be Held Liable for Illegal Use
By LORNE MANLY
The United States Supreme Court ruled unanimously today that Internet file-sharing services like Grokster and StreamCast Networks could be held responsible if they encouraged users to trade songs, movies and television shows online without paying for them.
The case, which pitted the entertainment industry against technology companies in the continuing battle over the proper balance between protecting copyrights and fostering innovation, overturns lower court decisions that found the file-sharing networks were not liable because their services allowed for substantial legitimate uses. The justices said there was enough evidence that the Web sites were seeking to profit from their customers' use of the illegally shared files for the case to go back to lower court for trial.
"We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by the clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties," Justice David H. Souter wrote for the court in Metro-Goldwyn Mayer Studios v. Grokster.
The decision was hailed by the major Hollywood studios and global music labels, which had warned that rampant online sharing of content not only harmed their bottom lines, but ultimately could inhibit the creation of new content. The recording industry has been mired in a sales slump for most of this decade, and it has blamed song-swapping over the Internet for that decline. While movies and television shows are more difficult to trade online because of their greater file sizes, technological advances are making that movement increasingly easy and threaten the cash cow that DVD sales have become for the studios.
"The Supreme Court sent a strong and clear message that businesses based on theft should not and will not be allowed to flourish," Dan Glickman, the president and chief executive of the Motion Picture Association of America, said in a statement. "This decision will be of utmost importance as we continue developing innovative and legitimate ways to marry content and technology so consumers can access entertainment on a variety of devices."
There was some relief expressed among lawyers and advocacy groups aligned with Grokster, in that the Supreme Court seemed to clearly focus its attention not on the legality of peer-to-peer technology itself, but on the behavior of players seeking to make a profit from the technology.
But there was widespread concern that the court, which provided little in the way of describing what might qualify as behavior aimed at encouraging infringement, has opened up the door to prohibitive legal battles that just might stifle future innovations.
"The court has now given as precedent to the whole world of digital technology companies a very difficult road to follow," said Richard Taranto, the lawyer who argued the case on behalf of Grokster and StreamCast before the Supreme Court.
"The immediate impact for the future of our case is not clear," he said, but the impact on future technologies "is a chilling one."
Michael Weiss, the chief executive of StreamCast, seemed to welcome the chance to prove that his company did nothing to encourage illegal behavior among its users. "We'll have another day in court," he said. "Make that several days in court."
Grokster and StreamCast had argued that there were many legitimate uses for their technology, like the transmission of material in the public domain, and had pointed to the Supreme Court's decision more than 20 years ago involving the Betamax video recorder sold by the Sony Corporation to bolster its claims that they were not responsible for any copyright violations by their customers.
The Federal District Court in Los Angeles had ruled for the defendants in the case, and the United States Court of Appeals for the Ninth Circuit in San Francisco affirmed the decision last August.
But the opinion by Justice Souter dismissed the Sony Betamax comparison. Unlike the Sony case, he argued that the Grokster and StreamCast sought to capitalize on the online trading of copyrighted material and that there was "no evidence" that either company tried very hard to block or impede that sharing. "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," he wrote.
The court decision, analysts said, provides media companies with the legal support to use lawsuits as an economic weapon against the file sharing networks, in addition to its efforts against individuals the movie and record industries accused of widespread sharing of files.
"This is significant win for the record and movie industries," said Gene Munster, a media analyst for Piper Jaffray & Company. "It means that file sharing networks - and not just end users - have to share some of the responsibility for piracy."
The ruling, according to analysts, could provide a lift for legal music online businesses like Apple's iStore, RealNetworks and Napster, and the emerging online movie services like Movielink, CinemaNow and Starz on RealNetworks. But that depends on consumer behavior.
"The question is, will the people who have been stealing music and movies now step up and pay for it?" Mr. Munster said. "That remains to be seen."
Steve Lohr and Tom Zeller Jr. contributed reporting for this article
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