rulling against p2p

[gaynor]

Washington (DC) - As this morning's 55-page US Supreme Court decision in MGM v. Grokster has now had time to be fully disseminated and analyzed, consensus is taking shape that even peer-to-peer services not named in the lawsuit may find themselves in legal hot water very soon. By vacating a Ninth Circuit Court of Appeals ruling and remanding the case back to that circuit, legal analysts told Tom's Hardware Guide, the high court may have made fuzzy what was once a clear interpretation of fair use law: specifically, the matter of secondary copyright infringement liability.

 

As the syllabus of the Court's decision reads, "Despite offsetting considerations, the argument for imposing indirect liability here is powerful, given the number of infringing downloads that occur daily using respondents software [Grokster and Morpheus]. When a widely shared product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, so that the only practical alternative is to go against the device's distributor for secondary liability on a theory of contributory or vicarious infringement. One infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise the right to stop or limit it."

 

 

 

In short, states the syllabus, it may be impossible to sue millions of infringing downloaders, so a plaintiff's only alternative may be to argue that the software manufacturer contributed to those millions of alleged infringements by encouraging them, promoting them, or simply by doing nothing to stop them.

 

 

In its landmark 1984 ruling in Sony v. Universal Studios--known worldwide simply as "The Betamax Case"--the Supreme Court established the legal principle that the manufacturer of a recording medium (in this case, Sony) could not be held liable for uses that might infringe upon copyright (in this case, television shows produced by Universal) if that medium was not specifically designed for that purpose. The ruling was the basis for Grokster's and Streamcast's defense against MGM. This morning's ruling makes multiple references to the 1984 Sony case. But it appears to define new circumstances in which the classic "Betamax defense" may no longer apply.

 

"What's scary--and I use that word advisedly--is that we have, by virtue of this ruling, now exchanged the really pretty clear and economic beneficial certainty for innovators and developers of creative devices and software, that we've been living with under the Sony Betamax case for the last 20 years, for a new and clearly fact-intensive and ultimately litigation-intensive set of untried tests," said Adam Eisgrau, Executive Director of P2P United, a peer-to-peer industry trade group. "While the Court clearly feels that the conduct of a technologist, or the people who market a technology, should be relevant to the calculus as to whether they've culpably helped people infringe copyright, that is really going to be a nightmare as a practical matter."

 

In a twist of irony, Sony--the plaintiff defending its Betamax technology in the 1984 case--is today the parent company of MGM, the plaintiff attacking P2P technology today.

 

The issue of secondary liability

 

Secondary liability--the subject of the Betamax case--refers to the responsibility of a media manufacturer for how its media is put to use. Determining the extent of secondary liability, states today's decision, is a matter of establishing the original intent of the manufacturer--whether its employees intended or even knew that their media could be put to illegal or infringing use. "As anybody who deals with the law [knows], intent is always the squishy thing that people argue about all the time," said legal expert Richard Santalesa, former Executive Editor of NetGuide magazine. Santalesa told us his reading of the decision indicates the high court found extensive evidence that Grokster and Morpheus software were intended to be used for infringement purposes.

 

But the Court stopped short of finding Grokster and Streamcast, respectively, guilty of infringement, leaving that for the lower court to determine. "I think this puts emphasis on lower courts looking at the intent of the parties putting forth the software and the system," stated Santalesa. "If they don't put in their ads, 'Steal software! Steal music!' and they do try and make some kind of mechanisms to get rid of some copyrighted work, then I don't think they're going to be held liable for infringement based on this case." So while this decision is clearly bad news for Grokster, Santalesa believes, "in terms of the P2P market overall, I don't think this is the death knell at all."

 

Pamela Jones, a paralegal and editor of Groklaw, believes the high court made some efforts to protect the language in the 1984 Sony case. "While Grokster is squished, [the] Sony [decision] survived," Jones told Tom's Hardware Guide. "And in the big picture, that is most important. I think the justices made a real effort to protect Sony, and that is gratifying."

 

One of the most telling paragraphs in the decision, as Jones and Santalesa both cited, comes not in the body of the text, but in footnote #12: "Of course, in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses. Such a holding would tread too close to the Sony safe harbor." Jones told us MGM was attempting to attain an infringement percentage--a sort of line in the sand representing the standard plaintiffs must meet to establish intent--from the high court, which the company ultimately didn't get.

 

"Every time there is a new technology," Jones added, "you see this kind of pushing and shoving in the courts, and eventually everyone settles down and technology wins." The use of litigation as a tool in the evolution of technology, she added, "can't be stopped, only directed."

 

Can ads, promotions, and disclaimers reflect a company's intent?

 

John Barrett, Director of Research at Parks Associates, believes the Court's decision is ambiguous with regard to whether a P2P system proprietor can simply absolve itself from responsibility by posting boilerplate disclaimers. "There's a lot of grey area in my opinion," Barrett told us. "If Grokster comes out tomorrow and has a thousand warnings splashed all over it saying, 'Do not use this music illegally...' does that absolve them, then? Are they no longer liable? Somehow, I don't think that will make anybody happy, and they'll just be back in court arguing over whether or not they're 'encouraging' piracy. It's going to be a mess, that's for sure."

 

"We're disappointed in the Court's decision in Grokster," stated Jason Schultz, a staff attorney with the Electronic Frontier Foundation, "because we think it had a great opportunity to clarify clear boundaries for what constitutes legal versus illegal technologies. This is particularly important for garage innovators, startups, to know where the lines are drawn, so they know what they can do and what they can't. The Court basically issued a very vague and somewhat schizophrenic ruling about exactly what companies in the digital media space can and can't do." On the one hand, stated Schultz, the Court states that a P2P proprietor cannot encourage infringement; but on the other hand, the decision leaves it to others--perhaps the lower court--to determine what such encouragement entails.

 

"This rule is not specific to file-sharing technology," remarked Schultz. "It's to any technology. So we're talking about iPods, CD burners, Web servers, TiVo. We're talking about any technology that uses copyrighted content as its sources, because all those people have to be worried about lawsuits like this, not just P2P networks. Apple ran a 'Rip/Mix/Burn' campaign. Was that inducing people to infringe? That could be questioned; you could take them to court under this ruling." Schultz added that he believes 90% of iPod owners currently utilize unlawfully obtained music. Obviously Apple makes money from these users, Schultz claimed, so he asks, could they be sued using the Grokster case as precedent? Could TiVo be sued over the ability of its DVD burner-endowed model to make permanent copies of digital programming, based on how TiVo technology has been promoted and advertised?

 

"Sure, [plaintiffs] could try and sue these companies based on trying to show that the advertisements were promoting infringement uses," responded Santalesa, "but again, it comes back to the intent element. If those ads are fairly neutral, and aren't inducing copyright infringement, then the burden is really on the plaintiffs to show that the meaning of that ad was to induce infringement." The success rate of such lawsuits, Santalesa believes, is doubtful.

 

"The Supreme Court sort of hinted today," added Eisgrau, "that what a company names itself could conceivably illuminate what was in its head," referring to Grokster having named itself after Napster, whose original P2P network was taken off-line after the Ninth Circuit ruling against Napster in 2001. The decision states that Grokster apparently targeted Napster's former users with its choice of name, thereby perhaps indicating Grokster's intention to solicit unlicensed file-sharers.

 

Schultz also cited where the decision refers to Streamcast's having developed promotional material that alluded to copyright infringement, but never actually used it in a campaign. The material was found during the case's discovery phase, as cited in the decision's syllabus. "This has opened up a whole fishing expedition for litigious lawyers who want to go poke around in your e-mails and design documents, looking for a smoking gun document."

 

The implications for future litigation

 

"We're getting into shades of subjectivity, stated P2P United's Eisgrau, "that may well stretch the credulity [of courts] and the ability of courts to deal with. For a technology-driven economy, what you want is an environment in which innovators feel safe to innovate, and investors feel safe to invest in innovators. This opinion today, regrettably, is scary because it swapped that universe of relative certainty for a brave and alarming new world in which there is no such assurance and, in fact, quite the contrary, now I think the watchword for inventors has to be, 'Be afraid; be very afraid.'"

 

"I suspect [litigants] will spend the next five to ten years arguing over what exactly is 'intent,'" said Parks Associates' Barrett. "The issue is, is it enough if you make everybody digitally sign off on some disclaimer that says, 'I'm not going to use it to trade illegal files?'" Will networks have to actively search for and purge illegal files, or filter out files from being disseminated, or only allow certified content to be traded? Barrett asks. "It's going to be a mess, because you've got to start down that road where the P2P guys are obviously going to try to paper over something with some disclaimers and a few splashy warnings, that just get ignored by everybody.

 

"It's the same thing as when you go to the college library," added Barrett, "[and] you see this little sign by the Xerox machine saying, 'Copyright infringement in this area is a crime, etc., etc.,' and then everybody just copied the books and ignored the sign."

 

If litigation only increases as a result of this decision, as analysts are predicting, what options are available to defendants? "In the vast majority of cases," answered Eisgrau, "whether they feel they're right or wrong, the prudent answer is probably going to be, settle. And we're never going to know what kind of innovation was lost to the leverage that plaintiffs will be able to generate through the threat of litigation, especially where it's a David-and-Goliath situation. What inventions will never see the light of day because the threat of litigation killed them in your cradle?"

 

The final question of how future plaintiffs can establish intent to infringe, stated Santalesa, may be up to the Ninth Circuit to decide. "The Ninth Circuit, as a lot of people know, has the dubious distinction of being the most reversed circuit in the country," said Santalesa. A lot will depend on the mixture of judges comprising the review panel, which has recently been indeterminate. "It's really going to be interesting to see how the Ninth Circuit responds," he remarked, "[which] is what the other circuits will take away from this, in terms of, 'How much intent, how much inducement do you need?' There are still a lot of questions left unanswered. This isn't the definitive word on this topic at all."

[gaynor]

High Court sides with movie industry in huge upset for P2P services

 

By Scott Fulton

 

June 27, 2005 - 13:41 EST

 

Washington (DC) - In a stunning 9-0 unanimous decision this morning, the US Supreme Court ruled in favor of Metro-Goldwyn-Mayer Studios, Inc., on behalf of the movie industry, in its ongoing battle against Grokster and other peer-to-peer file sharing services.

 

The high court ruled that content creators have the right to sue the proprietors of P2P services, and that such services may be held liable for the transactions of their users, finding an earlier Ninth Circuit Court of Appeals decision in favor of P2P services in error, and remanding that decision back to the lower court for reconsideration. On behalf of the Court, Justice David Souter wrote, "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 by third parties."

 

 

 

The decision cites evidence that proprietors of P2P networks actively promoted their use for exchanging unauthorized material, as well as e-mails sent by proprietors giving explicit guidance to users in how to obtain certain unauthorized files.

 

 

"There are services that have been constructed--clearly, in the Court's opinion--to promote illegal copyright infringement," Russ Crupnick, analyst and president of NPD Music and Movies, told Tom's Hardware Guide. "It's had a serious impact on the industry. Clearly, the Court has given the media companies the opportunity, when they see some technology that legitimately and truly is going to have a painful result on their businesses--and not just simply 'new technologies'--[to] use legal means to go and try to stop that."

 

Greg Kerber, the CEO of Wurld Media and proprietor of the record-label-approved Peer Impact P2P network, told us his company filed an amicus brief with the high court last winter. "The big winner today is the consumer and the artist," he stated, "because I believe they can both now experience the power of peer-to-peer technology. Because we're bringing order to chaos with this ruling, consumers and artists benefit in a major way. You're going to see business models evolve that wouldn't otherwise [have come about], as we start to push the limits of peer-to-peer."

 

In February of 2001, the Ninth Circuit ruled against Napster--one of the first P2P networks--claiming that its system infringed on the rights of copyright holders. The Napster technology at that time used a centralized network topology, which became the basis of claims that the systems at the center of the network should be held responsible for the network's traffic. But later P2P networks, such as Kazaa and Grokster, utilized a decentralized system, where no single system is responsible for controlling the traffic flow or the catalog of available files. This made it less feasible for plaintiffs to establish culpability on the part of companies that simply wrote the software, if that software didn't directly maintain the network. Last year, the Ninth Circuit ruled in favor of decentralized P2P networks; the Supreme Court decision today vacates that decision.

 

So is this the beginning of the end for unlicensed P2P, at least in the US? "Some people may have said [that] during the Napster ruling," Crupnick stated, "and then you went from centralized to decentralized peer-to-peer. We're in a technological age where I think you'll see other kinds of technology cropping up. It's kinda like those 'Whack-a-Mole' games at the amusement parks. Clearly what the decision should be sending to the developers is, 'If you develop something that's primarily exclusively and that you plan on promoting for copyright infringement, that's probably a bad usage of your technological skills.'"

 

Some recording artists had filed amicus briefs with the court, siding with P2P services which gave legitimate publicity to their work that they claimed were unavailable from media companies and radio outlets. But Kerber believes the high court's ruling is a victory for those artists, who now have the opportunity to not only have their work merely transacted through P2P services, but also actively promoted using the centralized technology that the Napster ruling forced proprietors to steer clear of. For example, a search engine can match a user's prior downloads of major artists with suggested links to independent artists of the same genre. "But you can only do that with control," said Kerber. "We've got to give an opportunity for companies like us a chance to go out there and prove that to be true."

 

In the text of the ruling, Justice Souter speaks directly to this issue: "The record reveals a significant future market for noninfringing uses of Grokster-type peer-to-peer software," wrote Justice Souter. "Such software permits the exchange of any sort of digital file, whether that file does, or does not, contain copyrighted material. As more and more uncopyrighted information is stored in swappable form, it seems a likely inference that lawful peer-to-peer sharing will become increasingly prevalent.

 

"I can find nothing in the record," the ruling continues, "that suggests that this course of events will not continue to flow naturally as a consequence of the character of the software taken together with the foreseeable development of the Internet and of information technology."