Court backs P2P systems Grokster, Morpheus

P2P is A-OK.

A federal appeals court dealt a major blow to the film and music industries Thursday, ruling that operating a peer-to-peer file sharing network that’s used primarily for illegal piracy does not make a company liable for copyright infringement.

Decision affirmed a district court ruling that plaintiffs — members of the MPAA, RIAA and National Music Publishers Assn. — had appealed.

Court drew heavily on the Sony Betamax case of 1984, in which the Supreme Court ruled VCR production is legal despite the machines’ frequent use for copyright infringement.

Since then, homevideo has become a bigger portion of studios’ business than ticket sales. The three-judge panel of the 9th U.S. Circuit Court of Appeals specifically cited Hollywood’s historical antipathy to new technology and its later profitable rapprochement.

“The introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through well-established distribution mechanisms,” Judge Sidney R. Thomas wrote in the unanimous decision. “Yet history has shown that time and market forces often provide equilibrium in balancing interests. … Thus, it is prudent for courts to exercise caution before restructuring liability theories for the purpose of addressing specific market abuses.”

Defendants were Grokster, which operates an eponymous P2P network; Streamcast Networks, operator of the Morpheus network; and Sharman Networks, operator of Kazaa. The court said they can’t be held liable for illegal file-swapping done with their software because they don’t control the ability to index or download copyright material.

Contrast with Napster

That’s in contrast to P2P pioneer Napster, which was ruled illegal in 2000 because its own servers were used to enable downloads.

In other words, the Internet equivalent of Xerox can’t be held responsible for what’s being copied, while a digital Kinko’s can.

Court also noted that while most material on P2P networks is illegal — plaintiffs claimed it was 90%, a figure that was not disputed — a number of bands such as Wilco use it to distribute their songs. In addition, nonprofit groups are using P2P to distribute public-domain works.

The MPAA responded by noting the ruling does not condone illegal file-swapping. “Today’s decision should not be viewed as a greenlight for companies or individuals seeking to build businesses that prey on copyright holders’ intellectual property,” said org’s topper Jack Valenti.

The Recording Industry Assn. of America echoed that sentiment. “This decision does nothing to absolve those businesses from their responsibility as corporate citizens to address the rampant illegal use of their networks,” said CEO Mitch Bainwol. “We will continue to pursue legislative solutions and legal actions to address the ongoing illegal activity facilitated by Grokster and other P2P services.”

But technology advocates cheered the ruling and its potentially broad implications.

“This is a ruling not just in favor of P2P but technological innovation in general,” said Fred Von Lohman, an attorney for cyberliberties group the Electronic Frontier Foundation. “The message is that where a company develops technology over which it has no control, it can’t be held liable for how it’s used.”

Defendants expressed hope that the ruling will spur labels and studios to negotiate deals with P2P networks.

“I hope that with today’s decision, the entertainment industry will seize the opportunity to embrace innovative technologies, like Morpheus, and begin to view us as the primary channel for the distribution of digital media to reach the masses,” said Streamcast CEO Michael Weiss.

Plaintiffs would not comment on whether they plan to appeal, either to a larger panel of judges from the Court of Appeals or to the U.S. Supreme Court.

Bill would outlaw P2P

But Hollywood’s battling piracy in Congress, where the Induce Act introduced by Sens. Orrin Hatch (R-Utah) and Patrick Leahy (D-Vt.) would essentially outlaw P2P networks.

In a recent letter sent to Register of Copyrights Marybeth Peters though, Hatch, Leahy and the Senate majority and minority leaders asked Peters to hold high-level meetings with media and technology execs in an attempt to revise the bill so that all sides can support it.

The Induce Act has thus far drawn harsh criticism from P2P companies and their supporters, who claim it’s unfair to blame technology for the way people use it.

Senators indicated they’re open to revisions of the bill, but it remains to be seen whether the studios and labels would settle for anything less than the end of unregulated P2P.

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