- The Washington Times - Thursday, August 19, 2004

SAN FRANCISCO (AP) — The makers of two leading file-sharing programs are not legally liable for the songs, movies and other copyrighted works swapped online by their users, a federal appeals court ruled yesterday in a stinging blow to the entertainment industry.

Among other reasons, the 9th U.S. Circuit Court of Appeals said Grokster Ltd. and StreamCast Networks Inc., unlike the original Napster, were not liable because they don’t have central servers pointing users to copyrighted material.

“In the context of this case, the software design is of great import,” Judge Sidney R. Thomas wrote for the unanimous three-judge panel, which upheld a lower court ruling that dismissed the bulk of the lawsuit brought by movie studios and music labels.

The panel noted that the software firms simply provide software that lets individual users share information over the Internet, regardless of whether that shared information is copyrighted.

“The technology has numerous other uses, significantly reducing the distribution costs of public domain and permissively shared art and speech, as well as reducing the centralized control of that distribution,” Judge Thomas wrote.

There was no immediate word on whether the entertainment industry would appeal to the U.S. Supreme Court.

A ruling against the file-sharing services could have made them unavailable for legitimate uses, analogous to banning VCRs to watch a school play because they could also record and play copyright TV shows.

Civil libertarians had also warned that a defeat for Grokster and StreamCast could have forced technology companies such as Microsoft Corp. to delay or kill innovative products that give consumers more control.

Yesterday’s ruling puts additional pressure on the entertainment industry to take the more costly and less popular route of going directly after online file swappers. Recording companies already have sued more than 3,400 such users; at least 600 of the cases were eventually settled for about $3,000 each.

Napster was shut down after the 9th Circuit ruled that its centralized servers, which contained directories to thousands of copyright songs, made it legally liable for contributing to copyright infringement.

But in the wake of that ruling, peer-to-peer technology developed that avoided the need for a central hub, arguably limiting the liability of the companies involved.

Laurence Pulgram, an intellectual-property lawyer, called it “a big win not just for peer-to-peer companies but for technology companies that push the envelope and make available copyrighted information.”

Fred von Lohmann, who represented Los Angeles-based StreamCast, said the ruling follows “the same principle that people who make crowbars are not responsible for the robberies that may be committed with those crowbars.”

In a different case, the maker of iMesh file-sharing software recently agreed to pay $4.1 million to the recording industry for copyright infringement and to change its Internet service later this year to prevent consumers from illegally distributing music or downloading songs.

The ruling makes it less likely another company would similarly settle.

Yesterday’s ruling could influence a separate ongoing entertainment industry case against Sharman Networks Ltd., makers of the Kazaa file-swapping program, which averages more users than any other file-sharing software.

The lower court ruling upheld yesterday had cited the U.S. Supreme Court’s 1984 decision in the Sony Betamax case. The court said then that Sony wasn’t liable when people used its Betamax videocassette recorder to copy movies illegally because the technology had significant uses that did not violate copyrights.

The studios and labels argued that while Sony could not control how consumers used their VCRs, Grokster and StreamCast could filter the copyrighted content from their systems, like they do with computer viruses, but refuse to do so, because the free songs and movies are what draw their users and ultimately generate ad profits. StreamCast and Grokster make money via advertising that pops up on users’ screens.

Judge Thomas, of the appeals court, said agreeing with the entertainment industry’s demands would be “unwise” and “would conflict with binding precedent.”

“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,” Judge Thomas wrote. “Thus, it is prudent for courts to exercise caution before restructuring liability theories.”

Michael Page, the attorney for Grokster, based in Nevis in the Caribbean, said the 9th Circuit’s ruling clearly followed the Supreme Court precedent.

“The biggest thing about this is the court recognized that changing copyright law to whatever new technology comes along is a bad idea,” Mr. Page said.

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