The Grokster Aftermath: A Special Report - ResidentialSystems.com

The Grokster Aftermath: A Special Report

U.S. Surpreme Court rules that file-sharing services that facilitate unauthorized copies of music and movies can be sued for copyright infringement.
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New York, NY--Content owners were dealt a decisive victory by the U.S. Supreme Court, which unanimously ruled 9-0 on June 27, 2005, that file-sharing services that facilitate unauthorized copies of music and movies can be sued for copyright infringement.

Regarded as a landmark decision, the High Court showed no sympathy for the libertarian approach to the case taken earlier by the U.S. District Court and U.S. Court of Appeals, both of which sided with the defendants Grokster and Streamcast.

Essentially, the Supreme Court decided the case based on how the defendants marketed themselves as fulfilling the illicit void that Napster left.

"The record is replete with evidence that when they began to distribute their free software, each of them clearly voiced the objective that recipients use the software to download copyrighted works and took active steps to encourage infringement," the Court wrote.

Looking for a positive spin (where there was little to be found), the Home Recording Rights Coalition (HRRC), which was founded by the Consumer Electronics Association, said it was "encouraged" that the opinion "preserved the Betamax doctrine with respect to both the introduction of new technologies and the legality of ordinary consumer practices."

HRRC expressed the hope that the decision "will be interpreted in the lower courts as reaching only specific acts of marketing as were at issue in this case, rather than as going more generally to services and options offered interactively to consumers."

The Electronic Frontier Foundation (EFF), which headed the defendants' legal team, was far more sober regarding the decision's effect.

"The Supreme Court has unleashed a new era of legal uncertainty on America's innovators," said Fred von Lohmann, EFF's senior intellectual property attorney. "The newly announced inducement theory of copyright liability will fuel a new generation of entertainment industry lawsuits against technology companies. Perhaps more important, the threat of legal costs may lead technology companies to modify their products to please Hollywood instead of consumers."

The debate is certain to be continued at CMP's Entertainment Media Expo (EMX) on August 30, at the Renaissance Hollywood Hotel in Los Angeles, which kicks off with a keynote presentation from legal scholar Lawrence Lessig. The Stanford University Law School professor, who supported EFF's position in the case, told Business Week that the court's decision sees the case delivering "10 years of chilled innovation."

He called the opinion "a pretty significant defeat here. Certainly the result is better than what the MGM companies wanted--because they wanted the Sony case modified--and [Justice David Souter, who wrote the decision, isn't] modifying Sony. But still, this intent standard...will invite all sorts of strategic behavior that will dramatically increase the cost of innovating around these technologies."

Lessig also thinks it's unlikely now that the issue will be addressed legislatively. "All the pressure for Congress to pass a statute now has been removed because the Supreme Court has given the industry what it wanted."

Entertainment lawyer George Borkowski, who worked on the Grokster case at all levels, will respond to Lessig's comments at EMX.

Borkowski, who heads the IP and technology practice at the Los Angeles law firm, Mitchell Silberberg and Knupp, told Residential Systems sister publication, Medialine magazine, that he wasn't at all surprised by the court's ruling. "During questioning by the justices, they made it clear that they did not like the defendants," said Borkowski, who was somewhat surprised that the court did not address the status of the 1984 Sony Betamax case, in the digital age. On the other hand, the High Court did not allow the defendants a Betamax defense because their actions induced copyright infringement, Borkowski noted.

Sony BMG Music Entertainment announced two days after the court decision that it finalized a licensing agreement with Mashboxx.com, a service that will allow music to be legally traded and purchased via searches performed on major existing file sharing networks. The deal marks the first time a desktop file-sharing application has been authorized by a major content owner.

Sony BMG music will be available on Mashboxx, which will soon begin testing, at 99 cents per track. Users will have the opportunity to preview the entire track, for a limited number of plays, before deciding to purchase.

While content owners may feel emboldened by the Supreme Court action, the reality is that millions of people will still be thumbing their noses at the labels and studios, taking whatever they want for free from cyberspace. Granted, parental scrutiny may scare their kids to not even think about downloading from a P2P website, and lawsuits targeting consumers who download large amounts of unauthorized content will continue to be sued by the RIAA and MPAA. File-sharing services whose business models weren't much different from Grokster's may shut down their servers in light of the Supreme Court decision, although decentralized BitTorrent websites will be nearly impossible to prosecute.

Additionally, the Grokster ruling may provide a framework for future growth of legitimate P2P services, according to research firm Parks Associates.

"This ruling is favorable to the content industry in the near term but neutral in the long run," said Harry Wang, research analyst at Parks Associates and author of Parks Associates' recently-released report Digital Rights: Content Ownership and Distribution. "P2P technologies have been very adaptive in response to legal attacks, and this recent decision will drive P2P networks to adjust their business models to avoid lawsuits."

Former RIAA head Hilary Rosen commented on her Huffington Post blog, "Knowing we were right legally, really still isn't the same thing as being right in the real world...So why won't this case matter now in the marketplace? Because by now SEVERAL HUNDRED MILLION copies of this software that the entertainment industry would like to vanquish have been downloaded to individual computers around the world...There is no court ruling whose enforcement can keep up with this."

If P2P was really peer to peer, and not millions of your faceless "friends" who you will never meet, what you would have is the ethos of the "mix tape," which has musically fueled romances since the 1970s. This phenomenon has been captured in a new book, mix tape: the art of cassette culture (Rizzoli/Universe) compiled by Thurston Moore, best known as leader of the alternative band Sonic Youth. As Moore notes, "it is just recently mix CDs have become a new cultural love letter/trading post...Trying to control sharing through music is like trying to control an affair of the heart--nothing will stop it."

Larry Jaffee is editor of Medialine magazine in New York City.

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