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