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Congress: Let Grokster Play Out in Market

4 Aug, 2005 By: Erik Gruenwedel

Congress appears inclined to take a laissez-faire approach to the recent U.S. Supreme Court ruling that found peer-to-peer (P2P) companies such as Grokster and Morpheus could be held liable for illegal trafficking in copyrighted files on their networks.

In the July 28 Senate Commerce Committee hearing on the decision, co-chairmen Ted Stevens (R-Alaska) and Daniel Inouye (D-Hawaii) told a panel of record, movie and file-sharing representatives they would have to balance their competing interests to protect content providers from piracy and encourage continued innovation in the content space.

According to the committee, the entertainment industry in 2002 represented 6 percent of the United States' gross domestic product (GDP) and employed 4 percent of the nation's workforce.

“In my view, the Supreme Court struck the proper balance between protecting the rights of copyright holders and creating an environment for technological innovation, and in doing so made the American consumer the ultimate winner,” Inouye said.

He added that the ruling sent an important message that the law does not allow companies to induce others to steal. That said, the committee acknowledged that the rise in popularity of P2P services underscored a common perception that illegal file sharing is different and less objectionable than stealing a physical copy of a CD or DVD.

“Should we just accept that there will be increasing file sharing over the years?” said Stevens, who was concerned that ISP providers had little control over their users' actions.

Panelists addressing the committee included Mitch Bainwol, chairman and CEO of the Recording Industry Association of America (RIAA); Mark Heesen, president of the National Venture Capital Association; Fritz Attaway, EVP and Washington, D.C.-based general counsel for the Motion Picture Association of America; David Baker, VP of law and public policy with Earthlink; Greg Kerber, chairman and CEO of Wurld Media; and Adam Eisgrau, executive director of P2P United.

The RIAA's Bainwol countered Stevens' remarks, saying that illegal file sharing would always be a factor, but that it has remained flat at about 9 percent to 10 percent of music downloads. He said legal music downloads represent 4 percent of all recorded music sales and should increase to 25 percent over the next few years due in part to the Supreme Court decision. This year, through March, 26 million songs had been downloaded legally, said Bainwol, and 34 percent of music downloaders say they use legitimate services regularly.

“Grokster provides a societal message there is a right way and wrong way,” Bainwol said.

Fred von Lohmann, senior intellectual property attorney for the Electronic Frontier Foundation, a San Francisco-based civil rights association, said the hearing covered a relatively familiar set of talking points, including condemning piracy without overt government interference.

Von Lohmann said the EFF worked together with P2P United to argue that it is Congress' constitutional responsibility to strike a balance between copyright law and innovation with an eye toward “affirmatively protecting and promoting” technology.

“We need to be focused on exactly what this [file-sharing] technology is,” P2P United's Eisgrau told the panel. “I would hope we look at the realities of the marketplace and maximize the rights of all copyright holders; not just the institutional ones the RIAA represents.”

Von Lohmann said the Grokster decision left technological innovators such as file-sharing services in the dark about what is legal and what is not. “If you guess wrong about copyright as a technology vendor, essentially you are out of business,” von Lohmann said. “The damages are gargantuan. So where does Betamax stop and liability start? If we can't decide, maybe we can dial back the damages, and copyright holders can file injunctions to stop technology if they can prove they are unlawful. But it doesn't create a situation where a company, no matter how large, is automatically wiped out.”

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