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UPDATE: Supreme Court Sides With Studios

27 Jun, 2005 By: Holly J. Wagner

The U.S. Supreme Court today dealt a blow to peer-to-peer (P2P) file-sharing services and a victory to the music and movie industries with a ruling that P2P companies like Grokster can be held liable for illegal trafficking in copyrighted files on their networks.

Far from ending litigation over P2P uses, the ruling sends the case back to the lower courts for trial.

“They were ruling on our summary judgment motion,” said attorney Michael Page, who represented Grokster and parent company Streamcast Networks. “They found that there is enough smoke here for the court to go see if there is a fire.”

Before the court was a motion on behalf of Grokster and Streamcast, which sought an unequivocal statement that offering the service of file trading and software to facilitate it does not make them liable for users infringing.

The unanimous decision instead said the courts must look beyond the mere technology and determine the intent of those who create and offer technology in determining liability for copyright infringement.

“Here, evidence of the distributors' words and deeds going beyond distribution as such shows a purpose to cause and profit from third-party acts of copyright infringement,” Justice David Souter wrote for the majority.

Representatives of technology and consumer groups said the decision creates a new standard of copyright liability, is confusing and will have a chilling effect on new technology development.

“While the immediate impact of the decision for our case is not clear, the impact on technology as a whole will be immediate,” said attorney Richard Taranto, who argued the case for Grokster and parent company Streamcast Networks.

“To a large extent, Hollywood really has achieved part of what it wanted here,” said Ed Black, president and CEO of the Computer and Communications Industry Association. “It is time to embrace these new business models and use these technologies.”

The decision was widely expected to trigger a rush to Capitol Hill, with technology companies seeking to codify rights to develop new technologies without fear of retribution from the content industries and content providers seeking to lock down control of digital content distribution. But some hope that can still be averted.

“There is absolutely no need for Congress to act. The case has been sent back to the lower court for fact-finding. There is nothing that Hollywood should want or need from Congress,” said Gigi B. Sohn, president and co-founder of consumer group Public Knowledge. She noted the decision upholds the Betamax standard and vowed to preserve it. “To the extent that Hollywood wants to run to Congress to change the Sony doctrine, we will oppose that,” she said.

But the technology companies won't rush to the hill, either, she said.

“We need to see what the lower court says,” she said. “There is always a danger when you start a legislative process that it will be hijacked by Hollywood and we'll get something we really, really don't like.”

More likely, the ruling will trigger a new wave of litigation against file-trading services, said Cindy Cohn, legal director for the watchdog group Electronic Frontier Foundation.

“Secondary copyright liability can be claimed by anyone,” she said. “I think we are going to see plaintiffs' lawyers getting very busy.”

MGM vs. Grokster has been called the Betamax case of the 21st Century, because lower courts held that P2P services, including Grokster and Morpheus, have substantial noninfringing uses and, therefore, could not be held liable for how consumers use them.

In 1984, the Supreme Court found that VCRs, although they could be used to copy movies for sale, also had substantial non-infringing uses, such as consumer time-shifting. The decision gave hardware manufacturers the legal green light to keep producing VCRs for consumer use.

In the Grokster case, studios and TV networks argued that P2P networks have little or no saving grace, while the networks' owners have argued that the technology facilitates a variety of legitimate uses, such as sharing noncopyrighted works and tag-team projects, and should be free of liability for consumer misuse.

“Grokster has created an online environment that not only condones, but encourages, fosters and profits from rampant infringing activity. The Sony Betamax decision was not intended to protect this type of conduct or these sorts of infringement-based services,” said Motion Picture Association of America (MPAA) president Dan Glickman. “The American consumer will be the ultimate beneficiary of such a decision, as an environment which protects and promotes legitimate delivery services and respects intellectual property rights will result in a higher volume of quality content being available to the public.”

Recording Industry Association of America (RIAA) president Mitch Bainwol said the content industries are interested in working with the technology manufacturers. But Sohn said the ruling will let the content companies “dictate the terms of digital distribution.”

The Video Software Dealers Association (VSDA) hailed the decision as a boon to retailers.

“While the Supreme Court's recognition of inducement liability is a positive development that will be useful in stemming the online theft of movies, the VSDA is under no illusion that this decision alone will solve the problem of illegal online file-swapping,” said VSDA president Bo Andersen. “The real antidote lies in reducing demand for illegal copies of movies by making it easier for consumers to get legal copies of movies online. Retailers, who know their customers and their communities better than anyone else have an important future in developing hundreds, even thousands, of legal services for delivering movies.”

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