HITS Daily Double


Appeals Court Decision Affirming File-Sharing Companies’ Right to Exist Gets ’Em Talking
It’s a long way from over, but yesterday’s U.S. Ninth Circuit Court of Appeals decision upholding a lower court’s ruling that file-sharing software companies Grokster and Streamcast (maker of Morpheus) are not guilty of vicarious or contributory copyright infringement for enabling millions to download copyrighted works is being viewed as a major victory for Internet companies.

The RIAA, MPAA and National Music Publishers’ Association filed suit against Grokster and StreamCast in 2001.

The reasoning behind the decision had to do with Grokster and StreamCast’s software not involving centralized indexing servers the way Napster did, meaning the P2P companies have less ability to know about and prevent copyright infringement from taking place. Also, the fact that P2P software has “substantial non-infringing uses” (the Betamax theory), such as students sharing class notes (yeah, right) impacted the court’s opinion.

Appeals Court judge Sidney R. Thomas wrote, “The introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through well- established distribution mechanisms. History has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke machine or an MP3 player.”

Sharman Networks CEO Nikki Hemming told the Associated Press, “This is a fantastic result for the peer-to-peer community. This ruling reinforces similar decisions in other courts around the world that P2P is legal.” Australia-based Sharman, which makes Kazaa P2P software, was added as a defendant in the U.S. case and also faces similar litigation in Australia.

RIAA Chief Executive Mitch Bainwol said of the ruling, "This decision does nothing to absolve these businesses from their responsibility as corporate citizens to address the rampant illegal use of their networks.” Bainwol told the Los Angeles Times that the RIAA would continue to press Congress for new laws to crack down on P2P use.

Said MPAA President Jack Valenti, “Today's decision should not be viewed as a green light for companies or individuals seeking to build businesses that prey on copyright holders' intellectual property. We will continue to pursue all avenues in our power to fight those who illicitly profit from our members' valuable property.”

“I'd say this is Christmas in August for Internet companies,” attorney Christopher S. Ruhland, who previously worked for Grokster/Streamcast plaintiff Walt Disney Co., told the Wall Street Journal. “Basically, the court has given them a road map that says how to steer around the Copyright Act.”

Observers say the record labels, music publishers and movie companies are now likely to increase their emphasis on suing individuals who share copyrighted material online and lobbying lawmakers to legislate a solution as the plaintiffs continue to wage their war against file sharing. While it hasn’t started yet, pressure is said to be increasing on the MPAA to join the RIAA in filing lawsuits against individual users.

The Orrin Hatch-sponsored INDUCE act is also already being considered in Congress. If passed, the bill would make it possible to sue any company that “induces” consumers to break the law by downloading copyrighted material, view pornography or other nefarious activities.

Sharman’s Hemming told AP that now is the time for the entertainment companies to “stop litigating and start partnering with us. Legislation is not the answer, commercialization of P2P is.”

In the meantime, the court battle isn’t necessarily over: The plaintiffs are now considering whether to appeal the case to the U.S. Supreme Court.