High noon for digital players

Arguments in P2P case start Tuesday

Call it “High Noon” for the digital world: On Tuesday, the entertainment industry will have its long-sought showdown with peer-to-peer online networks in the U.S. Supreme Court, where attorneys for both sides will argue the most important copyright infringement case since the Sony Betamax decision of 1984.

The industry maintains that P2P networks such as defendants Grokster and StreamCast are essentially criminal enterprises, designed to promote massive unauthorized trading and sharing of copyrighted songs, movies and other protected works that can be digitized and put on the Internet. Grokster, StreamCast and their supporters claim their P2P technology and software are perfectly legal within the law, the Sony Betamax decision included.

Betamax ruling

Indeed, at the heart of the case lies the applicability of Sony Betamax, which held that since video recorders had “substantially non-infringing uses,” such as taping a show or movie to view at a later time, they could not be barred or restricted despite the threat they posed in unauthorized copying.

P2P makers and their supporters claim that their technology is in principle the same because it, too, has non-infringing uses. Thus, they argue, P2P makers should not be held liable, as the industry would like, for any infringement committed by users of the software.

Movie and music studios, which claim billions in lost revenue due to illegal online file-sharing, insist that video recording technology and file-sharing software are vastly different. According to briefs filed by studios and their supporters, the almost exclusive use of Grokster and StreamCast is for illegal file-sharing; their makers designed and marketed their product expressly for this purpose; and their actions constitute inducing copyright infringement, a somewhat novel theory of violation.

Hollywood and recording labels vehemently deny that this is a case pitting big media vs. technological innovation, but that’s exactly how the defendants frame it. The Consumer Electronics Assn., the biggest group to file an amicus brief on behalf of Grokster, argues that the case boils down to Hollywood seeking to control the technologies that threaten its business model.

Technology argument

If the plaintiffs are successful, CEA topper Gary Shapiro said when the brief was filed, “They will extend copyright monopoly to include control over technology, impose unsustainable obligations to restrict designs, chill the development of new technologies and slow the progress of science and the useful arts.”

“No one is saying this technology should be banned,” countered David M. Israelite, formerly of the Justice Dept.’s intellectual property section and now prexy-CEO of the National Music Publishers’ Assn., which is among the plaintiffs in the case. “Only the illegal use of it.”

But another key question the court will address is whether the illegal use can be banned without effectively shutting down all P2P networks.

Online piracy first became a widespread problem in the 1990s, primarily for the music industry. Easily compressed into manageable digital files, songs flew around the Internet for free. Napster, a P2P pioneer using its own servers to enable downloads of songs, essentially created an online warehouse of unauthorized content. That allowed the music industry to successfully sue the company for copyright violation. Napster is now a network that honors copyright owners.

However, Grokster and other later P2P networks have no online warehouse of goods; the software merely connects users, who, numbering in the millions, can share files with each other as often and in as much quantity as they like.

The music industry tried suing individual users, but that strategy has yet to prove effective. Record labels then decided to go after the P2P software makers, alleging they knowingly facilitate copyright violation. Concerned that movies were increasingly turning up in pirated versions online and traded on P2P networks, Hollywood joined the fight.

However, two lower courts ruled against the entertainment industry, holding that P2P was not substantially different from video recorders and therefore could not be considered an accessory to infringement.

As Judge Sidney R. Thomas wrote in the unanimous decision of the Ninth U.S. Circuit Court of Appeals, “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. 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.”

The Supreme Court agreed to hear the industry’s appeal last fall.

Hollow victory at best?

Even if the studios win, most observers question exactly what the ruling will mean besides a moral victory. New P2P applications like BitTorrent are so decentralized that no company even exists to be held liable for how they’re used. And while U.S. law extends only to the borders, software can be distributed online from anywhere.

“A decision for the plaintiffs may deter existing distributors of P2P software from distributing current products,” noted Jeff Sanders, a partner at law firm Seyfarth Shaw, specializing in media law. “But it leaves the door open for P2P software to be distributed offshore. That could wreak havoc in international copyright law.”

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