[Ecommerce] Law.com on Grokster

[Manon Ress]

http://www.law.com/jsp/article.jsp?id=1111140311851

Justices to Weigh Key Copyright Case
Entertainment industry wants to curb file-sharing

Marcia Coyle
The National Law Journal
03-21-2005

The most important copyright challenge in decades will unfold in the
U.S. Supreme Court next week with potentially enormous damages and the
future of Internet innovation at stake.

Twenty-one years ago, the high court, in a closely decided ruling, held
that the maker, distributor and sellers of the Betamax videocassette
recorder were not liable if users infringed copyrights on television
broadcasts. Sony Corp. of America v. Universal City Studios, 464 U.S.
417 (1984).

The justices next week face a similar question, but the technology
involved is light years ahead of the videotape recorder.

In MGM Studios v. Grokster, No. 04-480, the entertainment industry is
asking the justices to find Grokster and StreamCast -- makers and
distributors of so-called peer-to-peer (P2P) software often used by
computer users to search and share files -- liable for "mind-boggling"
infringement by their users.

Grokster and StreamCast contend that the liability sought by the
entertainment industry runs counter to the 1984 Sony decision. They also
argue liability is inappropriate and would deter future product
innovation, not just in the P2P context, but in many other related
industries and stand-alone products, such as the iPod.

Signaling the high stakes involved, more than 50 friend-of-the-court
briefs have been filed in the case, representing a cross-section of the
entertainment industry, the technology industry, consumer groups,
property rights organizations, the Bush administration, states, and law
professors and academics from the fields of intellectual property,
media, Internet and economics.

The entertainment industry lost in the 9th U.S. Circuit Court of
Appeals. Kazaa, another P2P service network, is also a defendant in the
underlying lawsuit but is not a party to this particular appeal.

"What's notable to many of us about the Grokster case is the 9th Circuit
just interprets and applies the Sony standard in such a fashion as to
virtually immunize massive day-in and day-out regular infringement from
any meaningful limitation, particularly the companies and persons who
are essentially responsible for it," said Jon A. Baumgarten of Proskauer
Rose, who filed an amicus brief supporting MGM Studios on behalf of the
National Academy of Recording Arts & Sciences and others.

The 9th Circuit interpreted Sony correctly, countered Cindy A. Cohn of
the Electronic Frontier Foundation, counsel of record to Grokster and
StreamCast in the high court.

"As I look at history, [the entertainment industry] has always wanted to
control distribution of their work," she said. "They've sued every new
technology that's come along. They sued Sony over the VCR. They want a
paradigm shift where copyright law suddenly means all those
technologists have to come to Hollywood first and get some kind of
dispensation before they create new products. That would be a bad result
for consumers, for sure, and for the economy as well."

GOING HI-TECH

At the core of the MGM case is the concept of secondary liability in
copyright law.

When the justices took up the Sony case in 1984, copyright law lacked a
statutory provision imposing secondary liability on technology
developers for the infringing acts of their users. Secondary liability
is liability on those who create, cause or induce conditions supporting
infringements.

Secondary liability can be contributory liability, which requires
knowledge of the infringing act and inducing, causing or materially
contributing to the infringement. Or it can be vicarious liability,
where the right and ability to supervise coincide with a direct
financial benefit in the infringement.

In Sony, Justice John Paul Stevens looked to patent law for guidance and
crafted a copyright standard: If the technology -- here the VCR -- is
"capable of substantial non-infringing uses" that are commercially
significant, there is no liability for contributory infringement.

Stevens found two substantial noninfringing uses of the VCR and a 5-4
court subsequently held that Sony was not secondarily liable.

The parties in the MGM challenge have drawn battle lines over whether
the Sony standard creates a safe harbor or a bright-line rule immunizing
technology developers from secondary liability if any substantial
noninfringing use is found, or whether the standard is more of a
balancing test.

The software in the high court case is called peer-to-peer because it
enables computer users to communicate directly with each other, search
files on other personal computers and download files of other users.

Most of the major motion picture studios and recording companies and a
certified class of more than 27,000 songwriters and music publishers
sued Grokster, StreamCast, Kazaa and others, charging that more than 90
percent of the files that are actually shared using the P2P software
consist of copyrighted material that the file-sharer -- who makes files
available for download to the swapper's computer -- has no legal right
to distribute.

These copyright violations, they charged, have cost the copyright owners
millions and millions of dollars. They sought to hold the software
distributors both contributorily and vicariously liable for the
infringements.

Applying Sony, the 9th Circuit held that the P2P networks were not
contributorily liable because they were "capable of substantial
non-infringing uses." Those uses included evidence that new artists had
willingly distributed their works on the Internet for free, and that
organizations had made available public-domain literary works and
historic films. Even if only 10 percent of the uses were legitimate, the
court said, that was enough to defeat liability.

On vicarious liability, the appellate court held that Grokster and
StreamCast did not have the practical ability to cut off infringing
users, and that they had no affirmative duty to alter their software to
prevent copyright infringement.

In the high court, Donald P. Verrilli of Jenner & Block, counsel to MGM,
argues that the 9th Circuit "broke faith" with Sony.

The Sony ruling requires "balance" between copyright protection and
innovation protection, he told the justices in his brief, and is "not a
free pass for 'market abuses.'"

Grokster and StreamCast are liable as contributory infringers, he
argues, because they "know full well that their services are rife with
infringing activity." And they materially contributed to that
infringement, he said, "by creating, maintaining, and expanding their
services, which make possible the infringement that could not otherwise
occur."

They are also vicariously liable, he contends, because they benefit from
the exploitation of copyrighted materials.

"It is equally clear that Grokster and StreamCast have the right and
ability to supervise or control infringement on their services, but have
deliberately tried to shed all legal and practical means of doing so,"
he said.

REPLACING A 'CLEAR RULE?'

But Richard G. Taranto of Washington's Farr & Taranto, who will argue
for Grokster and StreamCast, accuses MGM of trying to replace Sony's
"clear rule" with an "uncertain multifactor standard."

Their software "indisputably has significant noninfringing uses as an
article of commerce, and the Sony rule therefore prevents
contributory-infringement liability based on respondents' general
provision of their software," said Taranto.

The vicarious liability standard, he added, does not extend to providers
of a product that gives the provider no control -- as here -- over its
customers' individual uses of the product.

Cohn of the Electronic Freedom Foundation noted that the Bush
administration, which has filed an amicus brief supporting MGM, does not
agree with MGM on vicarious liability.

"The entertainment industry says technology companies should have
liability if they could have developed the technology differently in
order to prevent infringements. The government says that would be
disastrous, and I think that's right," she said. "It would threaten
innovation."

But Proskauer's Baumgarten said if MGM wins, "Lower courts will be able
to fashion relief that doesn't inhibit the use of P2P technology where
substantial infringement is not the hallmark of the activity. It will
hopefully have an impact on those users where substantial infringement
is the hallmark."

Technology companies call the Sony decision the "Magna Carta" of the
technology industry, said Cohn.

"It's a pretty big shelter," she said. "Many of the industry amicus
briefs that support us point out how important that rule has been and
how the kinds of changes in the rule that the entertainment industry is
calling for are really just a recipe for endless litigation. Their
approach has no clear edges and raises so many questions right out the
gate."

'SONY'S' FUTURE

The Sony decision has done well over time, said copyright scholar James
Gibson of the University of Richmond School of Law, who filed an amicus
brief supporting MGM on behalf of a number of law professors.

"I certainly don't think Sony was wrong, but it operated under the
assumption that the technology itself was relatively unsophisticated so
the court had to come up with a bright-line rule -- prohibit the
technology or allow it," said Gibson. "We have now technology capable of
being smarter. So I think the lines we can draw are more fine than we
could 20 years ago."

It is not inconceivable, he said, that companies could design a software
program and build in some copyright protection. While still developing,
that factor is something courts need to take into account, he added.

"The high court should ensure when there is a relatively simple way to
curtail the infringement through technological design, the technologist
at least has incentive to explore that alternative," he said. "By
allowing them to get off the hook if they can simply point out a few
legitimate uses of their product, the law sets up the wrong incentive.
It allows them to purposely ignore copyright interest."

Sony has kept courts out of the kind of second-guessing of the
technology industry sought by MGM, said Dierdre K. Mulligan of the
University of California, Berkeley, Boalt Hall School of Law. And Sony
itself, she added, rejected many of the tests proposed by MGM and its amici.

"I do think at this point the Sony doctrine has provided a lot of
stability," said Mulligan. "It has allowed the technology industry and
the content-owning industry to really flourish. It's not like we have
had a dry spell in either."

There are many ideas being floated today on how to ensure that copyright
owners get paid for use of their works on the Internet, said Cohn.

"There's a fundamental problem that simply attacking P2P networks isn't
going to fix," she said.

"The technology to make copies of digital works is here to stay, easy to
use and everybody is going to have it," she added. "We need to find a
different way to ensure artists get paid instead of trying to control
copies."


--
Manon Anne Ress
manon.ress@cptech.org,
www.cptech.org

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