Ninth News: Nifty Non-Napster Networks Not Nixed Articles / CyberEASL Posted by ellislaw on Aug 24, 2004 - 08:26 AM By David R. Ellis, Attorney at Law Largo, Florida In the latest in the online file-swapping wars, the federal Ninth Circuit Court of Appeals has affirmed the opinion of the U.S. District Court in Los Angeles upholding the legality of two file-sharing services, Grokster and StreamCast Networks, in a lawsuit brought against them by the record industry and major movie studios. MGM Studios v. Grokster, Ltd. [1] (9th Cir. Aug. 19, 2004), affirming 259 F.Supp. 2d 1029 (C.D. Cal. 2003). The appeals court's opinion is in stark contrast to its February 2001 decision in the Napster case which effectively shut down Napster’s file-sharing website by holding that it had committed contributory infringement in operating a somewhat similar, but materially different, network. For a discussion of that case, A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001), see my article "Ninth Nixes Napster's Nifty Network" [2]. In this case, the court affirmed the ruling of the district court that the record companies and movie studios could not hold the two file-swapping services liable for copyright infringements that occurred using their software. The court relied to a large degree on the landmark 1984 Sony Betamax decision, Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984), in which the U.S. Supreme Court ruled that manufacturers of video cassette recorders were not liable for their customers’ taping of television programs, based on the "fair use" doctrine of the Copyright Act, 17 U.S.C. §107. In his ruling, the district court judge had noted that “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 Defendants, Grokster and StreamCast Networks, along with another company, Kazaa, distributed software that enabled users to exchange digital media such as music and videos by means of a peer-to-peer transfer network. The software could be downloaded free of charge, and since all three systems initially were powered by the same FastTrack networking technology, users of these software platforms essentially were connected to the same peer-to-peer network and were able to exchange files seamlessly. (Kazaa did not defend the case and a default was entered against it, leaving Grokster and StreamCast as the defendants). StreamCast later stopped using the FastTrack technology and switched to an "open" (i.e., not proprietary) Gnutella technology, distributing its own software, called Morpheus, instead of a version of the FastTrack software. Grokster, however, continued to distribute a version of the FastTrack software. In their suit, the Plaintiffs contended that the Defendants were liable for both contributory and vicarious infringement of their copyrighted works. According to the Napster decision, in order to find a defendant either contributorily or vicariously liable for copyright infringement, the defendant’s end-users must themselves be engaged in direct copyright infringement. The district judge had found that, as in Napster, many of the users of the Defendants’ software used it to download copyrighted media files, including those owned by the Plaintiffs, and thereby infringed the Plaintiffs' exclusive rights of reproduction and distribution granted by the Copyright Act, 17 U.S.C. §106. As to the issue of contributory infringement, the appeals court referred to the Sony Betamax case, in which the Supreme Court had ruled that the VCR manufacturers were not liable for contributory infringement because the VCRs were not only capable of infringing uses but also "substantial noninfringing uses.” This meant that users could legitimately use the devices to record non-copyrighted material or simply to "time-shift" a program by recording it at one time, viewing it later, and then erasing it. In this case, the court said that it was undisputed that the software distributed by each Defendant was capable of substantial noninfringing uses. According to the district court, these could include such uses as distributing movie trailers, free songs or other non-copyrighted works, using the software in countries where it is legal, or sharing public domains works like Shakespeare's plays. Other permissible uses include searching and copying public domain materials, government documents, and media content for which distribution is authorized or to which the owners do not object to its distribution. The appeals court then considered whether the Defendants were liable for vicarious infringement, in which liability for copyright infringement may be extended to cases in which a defendant has a right and ability to supervise the infringing activity and also has a direct financial interest in such activities. According to the court, citing Napster, there are three elements required for vicarious infringement: (1) direct infringement by a primary party; (2) a direct financial benefit to the defendant; and (3) the right and ability to supervise the infringers. As opposed to contributory infringement, one can be liable for vicarious infringement without knowledge of the infringement In Napster, the court had found that Napster had the right and ability to supervise its users' conduct, including the central indices of files being shared and exchanged. Napster users were required to register with Napster, and access to the file-sharing system depended upon a user's valid registration. As a result, Napster possessed, and frequently exercised, the power to terminate access for users who violated company policies or applicable law. Here, however, the technology used by Grokster and StreamCast did not give them the ability to supervise or control the file-sharing networks, or to restrict access to them, and thus they could not police what was being traded as Napster could. The district judge had identified a critical distinction between Napster’s system and the software distributed by the Defendants. The infringement in Napster took place across an "integrated service" designed and operated by Napster, in which Napster possessed the ability to monitor and control its network, and routinely exercised its ability to exclude particular users from it. By contrast, neither of the Defendants had the ability to block access to individual users. Since there was no evidence that the Defendants had the ability to supervise and control the infringing conduct, all of which occurred after the product had passed to end-users, the Defendants could not be held liable for vicarious infringement, or for contributory infringement. The court rejected the Plaintiff’s arguments that the law should be re-examined in the light of what they believed was the proper public policy. Instead, the court said: "We live in a quicksilver technological environment with courts ill-suited to fix the flow of Internet innovation. The introduction of new technology is always disruptive of old markets, and particularly to those copyright owners whose works are sold through well-established distribution mechanisms. Yet, history has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke machine or an MP3 player." The court thus affirmed the lower court decision granting summary judgment to the Defendants and denying the Plaintiff’s a preliminary injunction. Copyright (c) 2004 David R. Ellis All rights reserved David Ellis is a Largo, Florida attorney practicing computer and cyberspace law; copyrights, trademarks, trade secrets, patents, and intellectual property law; business, entertainment and arts law; and franchise, licensing and contract law. A graduate of M.I.T. and Harvard Law School, he is a registered patent attorney and the author of the book, A Computer Law Primer. He has taught Intellectual Property and Computer Law as an Adjunct Professor at the Law Schools of the University of Florida and Stetson University. Please direct comments to ellislaw@alum.mit.edu www.lawyers.com/davidrellis David R. Ellis, Attorney at Law 3233 East Bay Drive Suite 101 Largo, Florida 33771 Tel: 727-531-1111 Fax: 727-531-5088 This article is from EASL   http://easl.info/ The URL for this story is:   http://easl.info/modules.php?op=modload&name=News&file=article&sid=6 Links in this article   [1] http://easl.info/ http://easl.info/modules/Static_Docs/data/20040819_mgm_v_grokster_decision.pdf   [2] http://easl.info/modules/Static_Docs/data/20040101%20David%20Ellis%20Grokster%20Article.htm