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P2P Takes a Licking but Keeps on Ticking

On 27-Jun-05, the Supreme Court of the United States handed down a unanimous decision in the MGM v. Grokster case that dealt a blow to proponents of peer-to-peer (P2P) file sharing technologies and gave free rein to the lawyers of the large media companies. Or did it?

The Case — The case was relatively simple. MGM and 27 other large media companies filed suit against the P2P companies Grokster, StreamCast Networks (makers of the Morpheus program), and Sharman Networks (makers of the Kazaa software), alleging that the three were responsible for copyright infringements that occurred as a result of the use of the free Grokster, Morpheus, and Kazaa software (hereafter, I’ll refer to the three as "Grokster" for simplicity; in fact, Sharman’s part of the case wasn’t even included what went before the Supreme Court). The Supreme Court heard the case on appeal after two lower courts had ruled in favor of the P2P companies.

Those rulings were based on the well-known Sony Corporation of America v. Universal City Studios case from 1984 that revolved around whether or not Sony was liable for copyright infringement because the Betamax video recorder could be used to infringe upon copyrighted works without the permission of the copyright holder. In that case, Sony was held to be free of liability because the Betamax recorder was "dual-use" in that it could be used for both infringing and noninfringing purposes. The court’s particular wording was that the Betamax was "capable of substantial noninfringing uses." In the Sony case, the Supreme Court held that although Sony knew the Betamax could be used for infringing purposes, time-shifting (recording a program for later viewing) was a substantial noninfringing use.

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The fact that Grokster and Morpheus could be used for substantial noninfringing uses formed the core of the defense case, and the lower courts interpreted the Sony case fairly literally in agreeing. In disagreeing with the lower courts, the Supreme Court found that Grokster and StreamCast were potentially liable for copyright infringement because they actively promoted the fact that their software could be used to download copyrighted works without permission. In other words, intent is important, and the companies intended to create software that would enable users to infringe copyrights – they were inducing users to infringe copyright law. The Supreme Court based this decision on internal documents showing, for instance, that the companies created advertising aimed at picking up users from the original Napster service after it was shut down and that they planned to flaunt illegal uses of their software for PR purposes. More telling was the advertising-based business model used by each, since success in such a business model requires increasing the number of users and amount of usage, and both companies promoted the capability of their software to provide popular copyrighted works as a way of increasing usage. It’s worth reading the full text of the decision to understand the full reasoning:

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With this decision, the lawsuit returns to lower courts, where the question of whether or not these P2P companies were in fact responsible for contributory copyright infringement will be examined. Given that Grokster and StreamCast did not dispute the fact that their programs were heavily used for downloading copyrighted works (between 75 percent and 90 percent of the total works available, according to an MGM survey given as evidence in the case), it seems unlikely to me that either will survive these subsequent cases unless they can somehow show that the Supreme Court’s finding of inducement to infringe was incorrect. Sharman Networks claims in a press release that they never encouraged or assisted Kazaa users to download copyrighted works; we’ll see what the court finds.

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The Subtext — As with many cases that reach the Supreme Court, this one isn’t really about the specific fate of a few rather unappealing companies. The bigger picture is the battle between the rights of copyright holders as set down in the Constitution and radically extended by Congress many times under lobbying, and the chilling effect on technological innovation that the protection of copyright could engender. Put another way, if a potential technology could be used to infringe copyright, will technologists still invest the time and money into development given the likelihood of facing expensive lawsuits?

On the face of it, of course, it looks bad for technologists. But the Supreme Court was fairly careful not to reinterpret or modify the decision of the Sony case, thus failing to clarify the situation further. Justice Ruth Bader Ginsburg touched on the topic slightly, by arguing in a concurring opinion that the P2P software made by the defendants was used overwhelmingly to download copyrighted works, thus implying that the Sony decision might not apply if the technology in question were overwhelmingly used to infringe, even if substantial noninfringing uses were possible. But Justice Stephen Breyer, in an opinion that concurred with the overall decision, disagreed with Justice Ginsburg, arguing that the noninfringing uses in the Grokster case were equivalent to those in the Sony case. He also pointed out that a key phrase in the Sony case was "capable of substantial noninfringing uses," and that the "capable of" part of that phrase was intentionally forward-looking, allowing for the possibility that there might be other noninfringing uses that would appear over time. That’s tremendously important, because it underscores the entire argument – that the freedom to innovate must be protected because of future capabilities that are as yet unrealized. He summed up:

"Of course, Grokster itself may not want to develop these other noninfringing uses. But Sony’s standard seeks to protect not the Groksters of this world (which in any event may well be liable under today’s holding), but the development of technology more generally."

Again, I encourage anyone interested in this topic to read the full decision, which apart from some bits referencing prior cases in an abbreviated fashion, is in fact highly readable and truly fascinating.

Where to Go from Here — Although I’m pleased to see the Supreme Court upholding the Sony decision even while ruling against Grokster, I remain troubled about the entire situation. My fear is that the Content Cartel – the large media companies that collectively control a vast quantity of our society’s cultural products – will see this victory as license to file ever more lawsuits against any company or individual seen as infringing copyrights. We are talking about a particularly litigious industry: according to Cary Sherman, president of the RIAA, his organization has already filed about 10,000 lawsuits against individuals, with the average settlement being about $3,000. (If you were wondering, no, none of the settlement money ever goes to the artists who were in theory harmed. Cary Sherman told me that the RIAA applies all the money to legal fees, given that it loses a lot of money on every lawsuit.)

On the other side of the fence, I expect we’ll see many providers of file sharing programs removing their products from distribution, and those that remain being more careful about how they promote and target their products so as not to run afoul of this recent Supreme Court decision. We’ll also undoubtedly see many more such products go completely anonymous. Given that the existing P2P networks can be used, totally legitimately, to distribute new software, there’s no reason developers need identify themselves in any way if they’re not interested in earning money from their work. In other words, I think we’ll see an escalation in the arms race between file sharing proponents and the Content Cartel.

In the long run, I like the EFF’s suggestion of a voluntary collective licensing scheme. You can read the full details at the page linked below, but in essence, everyone would voluntarily pay (or have it bundled in ISP or other charges) some small fee, say $5 per month. A non-profit, transparent collecting agency roughly along the lines of ASCAP and BMI would then collect the money, determine how to distribute it, and send it to the artists. I say "roughly" modeled on ASCAP and BMI, which perform the collection and distribution function for songs played on the radio and in public venues, because there are plenty of criticisms leveled against them, including the fact that it’s not unheard-of for artists whose work is played on air never to receive a dime. But voluntary collective licensing would generate significant revenue for artists while allowing individuals to listen to or view whatever they wanted, all while participating in the distribution of their favorite works via P2P networks.


More generally, I remain troubled that an act as simple and basic as sharing is slowly but surely being turned into a bad thing. The 1980s may have started it all with the "Me Generation," but I think we’re seeing the 21st century starting off with far too much power in the hands of corporate behemoths driven only by quarterly revenues. The news we read, the entertainment we enjoy, the food we eat, the clothes we wear… for many of us, it all comes from companies for whom we’re nothing more than easily manipulated, salary-earning lemmings. The Internet is the greatest opportunity we’ve seen for diversity to flourish, whether it be in providing alternative news from abroad, music and video from independent artists, access to a vast collection of gourmet foods, or just the opportunity to find unusual clothes to wear. The Internet will never be a utopia where goodness and light are all that one experiences, but it’s our last best hope to escape a future where our culture is spoon-fed to us by Sales & Marketing. Culture, by definition, is shared, and we should be investigating every imaginable possibility to help people come together around commonalities without everything devolving to a commercial transaction.

I may not agree with them on every point, but I think the Electronic Frontier Foundation is doing some of the best work in protecting our ability to create technological innovations, and I encourage you to support them as I’ve done in the past and will continue to do.


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