T Nation

USSC on File-Sharing, Cable


#1

Bad news for you guys who like to download songs, movies, etc, without paying.

Also a separate ruling that buttresses cable monopolies....


High Court Sides With
Studios in Grokster Case

By AMY SCHATZ and SARAH MCBRIDE
Staff Reporters of THE WALL STREET JOURNAL
June 27, 2005 3:06 p.m.

WASHINGTON -- The Supreme Court ruled unanimously today that Grokster can be sued if consumers use its file-sharing software to illegally swap songs and movies while also deciding in favor of cable companies seeking to deny rivals access to broadband lines.

The two rulings will help determine not just how consumers will access high-speed Internet from their homes in the future, but how they'll be able to share information. While the Grokster decision reopens the battle between technology and entertainment companies over who is liable for illegal file-sharing, the Brand X internet decision helps set the rules under which the Federal Communications Commission will decide how companies will compete to offer broadband Internet services.

In the Grokster case, the court unanimously found that file-sharing companies may be liable if their products encourage consumers to illegally share copyright protected material such as songs, movies or television shows. A case against Grokster will return to a lower court after the justices found there was enough evidence of unlawful intent for the case to go to trial. The case was brought by 28 entertainment companies, including giants like Metro-Goldwyn-Mayer Inc., Walt Disney Co. and Time Warner Inc.

"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," Justice David Souter said in the court's opinion. (Read the full text of the court's opinion.)

In Grokster, the heart of the case involved whether companies which offer online file-sharing services can be held responsible for copyright infringements by consumers using their software.

With the ruling, the court was trying to clear up the legality of file sharing over the Internet, which had turned into a classic Hollywood versus Silicon Valley standoff. The movie industry, increasingly reliant on DVD sales to boost profits, worries movies traded over the Internet will cut into the bottom line. The music industry has already seen stark declines in sales over the past few years, which it blames on Internet piracy. But consumer electronics companies worry that banning new technologies will hurt sales of the products that use them, such as digital music players.

The justices reviewed an August ruling by the U.S. Ninth Circuit Court of Appeals that file-sharing companies aren't liable for copyright infringement that takes place within their networks. Three appellate judges found that file-sharing software has some legal uses, and the file-sharing companies can't control whether consumers are using it for legal or illegal uses.

Defendants Grokster Ltd. and StreamCast Networks Inc. "have built their businesses to capitalize on this infringement," the entertainment companies argued in their appeal." They profit handsomely from it, and they designed their services to disable mechanisms that would prevent the very infringement that sustains their businesses."

The entertainment industry believes file sharing costs it millions of dollars each year, as potential paying customers instead find songs and movies free of charge on the Internet. They have launched massive public education campaigns about the wrongs of downloading copyrighted material for free, and sued thousands of violators.

The Ninth Circuit drew on a 1984 Supreme Court decision involving Betamax, a video recorder sold by Sony Corp. In that case, the justices ruled that Sony couldn't be held liable for copyright infringement by Betamax customers, because Betamax had legal uses as well as illegal ones.

The entertainment companies argued that the Betamax rule should be revisited in an age when a movie file can be zapped around the world in a few minutes over a high-speed Internet connection?a technology that wasn't conceived of back then. They said it was unfair to back services whose primary uses are illegal, although they said they weren't against the technology itself. In fact, they have lavished praise on paid downloading sites such as Napster, a reborn version of an earlier freebie site. Movie studios even backed a movie download site called Movielink.

Still, file-sharing shows few signs of abating. An average of six million Americans have file shared each month this year, estimates data service BigChampagne LLC, compared to an average of 4.5 million each month last year. Most illegal file-sharing is for songs, though as more people get high-speed Internet connections, movie file-sharing is growing in popularity. The NPD Group estimates that in March this year, some 243 million songs were downloaded for free from file-sharing networks. Just 26 million songs were purchased from legal sites during that same time.

High Court Backs FCC in Brand X Case

In Brand X, the court backed an FCC decision that cable companies are not required to share their lines with independent Internet providers on a 6-3 vote, essentially deferring to the agency's expertise to make such policy decisions. It's an important win for the cable industry and for phone companies, which would also like to see the rules changed so they don't have to share their broadband Internet lines. It's a major disappointment for independent Internet providers like AOL and Earthlink Inc., which depend upon affordable access to competitors' lines to provide service.

The case was brought by Brand X Internet LLC, a tiny California Internet provider, after the FCC ruled in 2002 that cable companies weren't required to share their lines with competing Internet providers like Brand X because high-speed cable Internet is an "information service" and not a "telecommunications service" and thus not subject to heavier FCC regulation, including some taxes and ? more importantly ? line sharing. The Ninth Circuit Court of Appeals said the FCC's decision conflicted with the 1996 Telecom Act's deregulatory intent and essentially ruled that cable companies should be required to share their lines to promote competition. The FCC appealed that decision to the Supreme Court.

Dozens of companies offer dial-up and, to a lesser extent, broadband Internet service over phone lines because phone companies are required to share their lines, while cable companies are not.

The Supreme Court's decision to allow cable companies to retain exclusive access over their lines will likely prompt the Bells, who filed briefs supporting the cable industry's position with the court, to demand similar exclusivity from the FCC and Congress for their DSL broadband lines.

The decision also provides an important organizing principle for the FCC under chairman Kevin Martin. The agency has put on hold several decisions that will set rules for the converging phone and cable industries which will ultimately decide how consumers receive television, phone and Internet services in the future. Like his predecessor Michael Powell, Mr. Martin argues broadband will spread across the U.S. faster if cable and phone companies are allowed to build out their fiber networks without concern that competitors will be allowed to piggy-back on their lines. Competition would intensify as new technologies such as wireless broadband Internet or broadband over power-lines become available.

The decision also lessens pressure on Congress to undertake a major overhaul of the 1996 Telecom Act since the cable companies now have less of a reason to seek such a rewrite. Phone companies have been clamoring for a rewrite for months because of a desire to see new rules to govern broadband services, such as Internet television, which don't fall neatly into the nearly decade old law.

-- Mark Anderson contributed to this article.

Write to Amy Schatz at Amy.Schatz@wsj.com and Sarah McBride at sarah.mcbride@wsj.com


#2

And, a take from a law professor who says the Grokster case isn't as bad as it seems at first glance:

http://www.volokh.com/archives/archive_2005_06_26-2005_07_02.shtml#1119891303

[David Post, June 27, 2005 at 12:55pm] 8 Trackbacks / Possibly More Trackbacks

Grokster Decision:
It's a unanimous victory for the entertainment industry plaintiffs ( http://a257.g.akamaitech.net/7/257/2422/27jun20051200/www.supremecourtus.gov/opinions/04pdf/04-480.pdf ) -- but actually not quite as one-sided as all that. The full court says: even if you meet the Sony standard (i.e., even if you have "substantial noninfringing uses"), you can still be liable for inducing copyright infringement, if there's evidence that you actively encouraged or promoted infringing conduct. And there is such evidence in this case.

More interestingly, though, the Court is split on the question: Caqn you be liable for distributing file-sharing software if you are NOT actively inducing/encouraging/promoting its use for infringing purposes. Three Justices (Ginsburg, Rehnquist, Kennedy) say: Yes, you can, if the product is primarily used for infringement. three of the Justices (Breyer, Stevens, O'Connor) say: No, you can't, as long as there's evidence that the product is capable of being used in a noninfringing way.

So it's a 3-3 split on that question. The other 3 Justices (Scalia, Souter, Thomas) take no position on this (on the grounds that it's not necessary to decide this case, where there is such evidence of inducement/encouragement. Though there is a footnote in which they seem to suggest that they're on the Breyer side of the line. Footnote 12 (thanks to Michael Froomkin for pointing this out to me):

"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."


#3

More analysis on Grokster:

http://volokh.com/archives/archive_2005_06_26-2005_07_02.shtml#1119975283

[David Post, June 28, 2005 at 12:14pm] 0 Trackbacks / Possibly More Trackbacks

Grokster Decision, Second Thoughts:

The unanimous Supreme Court decision holding Grokster & StreamCast liable ( http://a257.g.akamaitech.net/7/257/2422/27jun20051200/www.supremecourtus.gov/opinions/04pdf/04-480.pdf ) as contributory copyright infringers for distributing peer-to-peer file-sharing software turns out, on close examination, to be not nearly the victory for the entertainment industry it might have seemed at first glance ( http://volokh.com/archives/archive_2005_06_26-2005_07_02.shtml#1119891303 ). [This, interestingly, repeats a pattern in these cases ? Sony v. Universal Studios (the Betamax case) was not (nearly) as big a loss for Hollywood as it appeared, nor, as I have argued elsewhere, was the Napster case as big a win http://www.temple.edu/lawschool/dpost/HisNapstersVoice.PDF ).

The Court?s holding has two parts. First, on the law: You are liable for the copyright infringements of others if you "intentionally induce or encourage" that infringing behavior. The Betamax case stands only for the proposition that if you "distribute an article [that] is good for nothing else but infringement," we will presume that you have such an intent, or impute it to you. If, on the other hand, you are selling a "staple article of commerce" ? "an item with substantial lawful as well as unlawful uses" (like the VCRs in the Betamax case) ? we won't make that presumption; plaintiffs can prevail in that case, but only if they prove, with direct evidence of your "statements or actions directed to promoting infringement," that you had the requisite intent to encourage others to infringe.

So far, so good. Not much new here, actually; we kind of knew all that last week. Had I shown the preceding paragraph to someone on either side of the case a week ago, I don?t think they would have batted an eye.

On, then, to the second part of the holding, the application of that law to these facts. No need to decide whether the Grokster or StreamCast systems were in fact "staple articles of commerce," because here the "record is replete with . . . evidence that Grokster and StreamCast, unlike the manufacturer and distributor in Sony, acted with a purpose to cause copyright violations." In other words: we don?t have to see whether a presumption of intent is or is not warranted; here?s there was actual proof of such an unlawful intent ? "words and deeds [that] show [defendants'] purpose to cause and profit from third-party acts of copyright infringement." These included:

1) each company showed itself "to be aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users," including "beam[ing] onto the computer screens of users of Napster-compatible programs ads urging the adoption of [defendants?] OpenNap program, which was designed, as its name implied, to invite the custom of patrons of Napster, then under attack in the courts for facilitating massive infringement";

2) each of the defendants "communicated a clear message [of encouragement] by responding affirmatively to requests for help in locating and playing copyrighted materials";

3) there were "unequivocal indications of unlawful purpose in the internal communications and advertising designs aimed at Napster users"

Here?s where things get weird: the defendants didn?t really dispute this either. [No wonder the decision was unanimous!]. As I tried to explain a couple of months ago ( http://volokh.com/archives/archive_2005_02_06-2005_02_12.shtml#1107794379 ), Grokster and StreamCast didn?t argue that they hadn?t "intentionally induced" infringement; they argued instead that the question of whether they had or had not induced infringement wasn't properly before the Court, that none of the evidence on which a finding of inducement could be based was properly presented to the Court on appeal.

This was always going to be a tricky procedural argument to make, and, obviously, the Court didn't buy it, dismissing the argument in a footnote:

"Grokster and StreamCast contend that any theory of liability based on their conduct is not properly before this Court because the rulings in the trial and appellate courts dealt only with the present versions of their software, not ?past acts . . . that allegedly encouraged infringement or assisted . . . known acts of infringement.? This contention misapprehends the basis for their potential liability. It is not only that encouraging a particular consumer to infringe a copyright can give rise to secondary liability for the infringement that results. Inducement liability goes beyond that, and the distribution of a product can itself give rise to liability where evidence shows that the distributor intended and encouraged the product to be used to infringe. In such a case, the culpable act is not merely the encouragement of infringement but also the distribution of the tool intended for infringing use."

[Incidentally, there?s almost always some odd procedural glitch like this whenever a unanimous Supreme Court decision overturns a lower court ruling. Appellate judges are not, generally speaking, stupid; it's not that likely that they'll get a judgment so wrong that all nine Justices will see things the other way]

What does this all mean for the future of copyright law and peer-to-peer file-sharing? On the one hand, a "work-around" here seems pretty straightforward: If you are developing and distributing file-sharing or file-copying or file-distributing software, avoid "words and deeds going beyond distribution as such [that] show a purpose to cause and profit from third-party acts of copyright infringement." I doubt that will prove an insurmountable hurdle for the software and systems developers of the world. Shut up about infringing uses.

The more interesting, and more difficult, question is the one the Court didn?t answer here: what happens if you do shut up? If there is no proof of bad intent? What if you?re just distributing software, with no evidence that you "actively encourage" your users to infringe you (though many do so); what happens then? We know that the requisite bad intent can be imputed to you if your software has "no substantial non-infringing uses"; but how can we tell whether that is or is not the case? If Grokster/StreamCast had not been so overt in their encouragement of infringement (as the next generation of developers will, surely, not be) could an intent to infringe been imputed to them based on the fact that most of what their users were doing was infringing? What constitutes "substantial non-infringing uses," anyway?

There's a real split on this one. The opinion for the Court is silent on the question; there's no need, it says, to resolve this question now, given that there was evidence of bad intent in this case.

But three Justices (Ginsburg, Rehnquist, and Kennedy), concurring, do take a position: the Grokster/StreamCast software was not a "staple article of commerce" having "substantial non-infringing uses," and it would therefore have been appropriate to presume an unlawful purpose even had there been no evidence of such. Their software was "overwhelmingly used to infringe," "infringement was the overwhelming source of revenue from the products," and there was no "reasonable prospect that substantial or commercially significant noninfringing uses were likely to develop over time."

Three Justices disagreed (Breyer, Stevens (author of the Sony opinion), and O?Connor). "The evidence now before us shows that Grokster passes Sony?s test" ? it is "capable of substantial or commercially significant non-infringing uses." The evidence showed that 10 percent or so of the files shared over these networks were non-infringing; this figure, "if fixed for all time, might well prove insufficient," but here there was a "reasonable prospect of expanded legitimate uses over time, . . . a significant future market for noninfringing uses of Grokster-type peer-to-peer software": "swapping research information (the initial purpose of many peer-to-peer networks); public domain films; historical recordings and digital educational materials; digital photos; shareware and freeware; secure licensed music and movie files; news broadcasts past and present; user-created audio and video files; and all manner of free open content. works collected by Creative Commons." Even without considering the "now-unforeseen noninfringing uses that develop for peer-to-peer software . . . the foreseeable development of such uses, when taken together with an estimated 10 percent noninfringing material, is sufficient to meet Sony?s standard."

So it?s 3-3, with 3 abstentions, on that question ? the question we all thought was at the heart of the case and which we expected the Court to resolve here.