File-swapping tools are legal

[Henk Elegeert]

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http://news.com.com/2100-1027-998363.html

"
Judge: File-swapping tools are legal
By John Borland

Staff Writer, CNET News.com
April 25, 2003, 12:46 PM PT

http://news.com.com/2100-1027-998363.html

A federal judge in Los Angeles has handed a stunning court victory to
file-swapping services Streamcast Networks and Grokster, dismissing much
of the record industry and movie studios' lawsuit against the two
companies.

In an almost complete reversal of previous victories for the record
labels and movie studios, federal court Judge Stephen Wilson ruled that
Streamcast--parent of the Morpheus software--and Grokster were not
liable for
copyright infringements that took place using their software. The ruling
does not directly affect Kazaa, software distributed by Sharman
Networks, which has also been targeted by the entertainment industry.

"Defendants distribute and support software, the users of which can and
do choose to employ it for both lawful and unlawful ends," Wilson wrote
in his opinion, released Friday. "Grokster and StreamCast are not
significantly different from companies that sell home video recorders or
copy machines, both of which can be and are used to infringe
copyrights."

The ruling is the second major setback to date to the entertainment
industry's efforts to keep a tight rein on online file-swapping,
following a similiar decision in the Netherlands last year that found
that Kazaa was not liable for its users' copyright infringements. If
upheld, the decision could lead artists, record labels and movie studios
to cast new legal strategies that they have until now been reluctant to
try, including bringing lawsuits against individuals who copy
unauthorized works over Napster-like networks.

According to the major record labels, file-swapping is a major
contributor to declines in music sales over the past few years, a trend
that has thrown the industry into disarray. Debt-ridden media
conglomerates are now considering sales of their music divisions even as
they begin to test paid online music services intended to compete with
free file-swapping networks and turn the tide.

Attorneys called the ruling a blow for entertainment and record
companies trying to stop the networks used to swap unauthorized copies
of their works.

"This is a very serious setback for the record industry and other
content industries, because they've uniformly won these cases in the
U.S.," Mark Radcliffe, an intellectual property attorney at Gray Cary
Ware & Freidenrich said.

While the ruling in no way validates the legality of downloading
copyrighted music online, it would shield companies providing
decentralized file-swapping software such as Gnutella from liability for
the actions of people using their products.

As such, it could provide new leverage for file-swapping companies such
as Grokster, Streamcast and Sharman in negotiations with record
companies and other copyright holders to license works legitimately.
Since Napster's $1 billion settlement offer with the record industry in
2001, file-swapping companies have repeatedly sought an amicable
settlement with copyright holders but have been almost universally
rebuffed.

The court's ruling applies only to existing versions of the Morpheus and
Grokster software. Earlier versions of the software, which functioned
slightly differently, could potentially leave the companies open to
liability.

A spokeswoman for the Motion Picture Association of America (MPAA) said
the copyright holders were deeply disappointed in the decision and would
certainly appeal.

"We feel strongly that those who encourage, facilitate and profit from
piracy should be held accountable for actions," MPAA spokeswoman Marta
Grutka said. "We're hoping that people aren't taking this as an
invitation to continue along the path of what is clearly illegal
activity."

Recording industry officials said they saw some good in the ruling, but
that they too would immediately appeal to the 9th Circuit Court of
Appeals.

"We are pleased with the Court's affirmation that individual users are
accountable for illegally uploading and downloading copyrighted works
off of publicly accessible peer-to-peer networks," said Recording
Industry Association of America (RIAA) chief executive officer Hilary
Rosen in a statement. "(But) businesses that intentionally facilitate
massive piracy should not be able to evade responsibility for their
actions."

Wilson's decision comes in the most closely watched Net copyright case
since Napster's demise.

The two pieces of file-swapping software affected by Friday's ruling
remain among the most popular downloads on the Net, although they
operate deep in the shadow of market leader Kazaa. Morpheus--once the
undisputed leader--has fallen to about 120,000 downloads per week,
according to Download.com, a software aggregation site operated by
News.com publisher CNET Networks. Kazaa, by contrast, was downloaded
more than 2.7 million
times during the past week.

The RIAA and the MPAA sued Streamcast, Grokster, and the original parent
company of Kazaa's software in October 2001, and the case has been
making its way slowly through court since that time.

In late 2002, both sides asked the judge for summary judgment, or a
quick ruling in their favor before going to a full trial. Wilson's
decision in favor of the file-swapping companies Friday was tied to that
months-old series of requests.

The decision does not directly affect Kazaa, at least not immediately.
At the time that Grokster and Streamcast were arguing for summary
judgment, Wilson had not yet ruled that the Australia-based Sharman
Networks could be sued in the United States.

Sharman is scheduled to meet with RIAA and MPAA attorneys in court on
Monday, to argue over whether its counterclaim against the record labels
and movie studios should be dismissed. Friday's ruling, however, could
change the direction of that hearing.

The judge's surprise ruling marked the first validation of an argument
that file-swapping supporters have been making since Napster's first
controversial arrival. Peer-to-peer file-trading is a technology that
can be used for activities well beyond copyright infringement, and the
technology should not be blocked altogether to stop solely its illegal
uses, these backers have said.

In making that argument, the judge looked back to the landmark 1984
Supreme Court ruling that upheld the legality of Sony's Betamax
videocassette recorder (VCR). That decision helped establish the
doctrine of "substantial noninfringing use," which protects technology
providers that distribute products--like the VCR or photocopier--that
can be used for both legal and illegal purposes.

"We are absolutely very proud of this judge for having the unusual
capacity to be able to grasp the technology and its future benefit to
taxpayers and shareholders around the world," said Wayne Rosso,
president of Grokster. "Technology is usually way ahead of courts and
legislature. The fact that judge was able to acutely comprehend (this
technology) is a credit to the legal system."

Not like Napster
Much of Wilson's ruling hung on the technological differences between
Napster and the newer, decentralized file-swapping services.

Napster's service opened itself to liability for its users' actions by
actively playing a role in connecting people who were downloading and
uploading songs--a little like a physical swap meet provides the
facilities for people exchanging illegal material, the judge said. By
contrast, Grokster and Streamcast distributed software to people and had
no control over what their users did afterwards, Wilson said.

When users search for and initiate transfers of files using the Grokster
client, they do so without any information being transmitted to or
through any computers owned or controlled by Grokster," Wilson wrote.
"Neither Grokster nor StreamCast provides the site and facilities" for
direct infringement. "If either defendant closed their doors and
deactivated all computers within their control, users of their products
could continue sharing files with little or no interruption."

It didn't matter that the companies were aware generally of copyright
infringement happening using their software, Wilson added--they would
have to know of specific instances of infringement and be able to do
something about it, to be liable for those users' actions.

That stands in stark contrast to an earlier ruling against file-swapping
company Aimster, in which the judge explicitly said the file-trading
company did not need to know about individual acts of copyright
infringement as they were happening to be held liable for the illegal
activity.

Friday's decision is likely to send shock waves throughout the copyright
and technology communities, which have adjusted slowly over the last
year to the notion that file-trading services such as these were mostly
likely illegal. Technology companies have complained that the repeated
lawsuits have stifled innovation, but many also have begun to move
forward in alliances with authorized music--and film-distribution
services.

The case will certainly be appealed. Because different courts have come
to very different conclusions about the law, the issue could go as high
as the U.S. Supreme Court, a process that would likely take years.

"This is far from over," said Fred von Lohmann, an Electronic Frontier
Foundation attorney who has represented Streamcast in the case. "This is
not the end, but it sends a very strong message to the technology
community that the court understands the risk to innovation."

In the interim, the ruling is likely to produce another round of
interest in legislation affecting copyright issue on the Net--an outcome
that Wilson himself foresaw.

Policy, "as well as history, supports our consistent deference to
Congress when major technological innovations alter the market for
copyrighted materials," Wilson wrote. "Congress has the constitutional
authority and the institutional ability to accommodate fully the raised
permutations of competing interests that are inevitably implicated by
such new technology...Additional legislative guidance may be
well-counseled."

News.com's Lisa Bowman contributed to this report.
"

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