- The Washington Times - Wednesday, June 29, 2005

In a victory for intellectual property rights, the Supreme Court ruled this week that companies that create piracy-enabling computer programs can be held liable for the resulting copyright infringement. The court’s unanimous decision in MGM Studios vs. Grokster reestablishes the boundaries between technological innovation on the Internet and the theft upon which some Internet business models had come to be premised.

The court found that the record was “replete with evidence” that Grokster and StreamCast Networks, makers of “peer-to-peer” data-sharing programs, “acted with a purpose to cause copyright violations by use of software suitable for illegal use.” An estimated 90 percent of file-sharing traffic on Grokster was pirated music and video, one of the facts that led the court to conclude that “the probable scope of copyright infringement is staggering.” An estimated 2.6 billion songs and 12 million movies are downloaded around the world each month, much of it pirated and much of it the source of sluggish video and music sales in recent years, to judge by arguments advanced by the entertainment industry recently.

Defenders of Grokster had argued that the standard the court set in its 1984 Betamax ruling should apply to peer-to-peer networks. In that case, the court ruled that Sony’s Betamax video-recording technology, which Disney and Universal contended would cause copyright infringement, was permissible because Betamax had “substantial” non-infringement uses.

The court declined to apply the Betamax standard to Grokster, however, observing that unlike Betamax, peer-to-peer technology’s primary reason for existence was infringement.” The court held that in cases like Grokster, companies would be held liable if their business models intended “to cause and profit from third-party acts of copyright infringement.

In the cases of Grokster and StreamCast, “Each company showed itself to be aiming to satisfy a known source of demand for copyright infringement,” Justice David H. Souter wrote. Companies that discover illegitimate uses of their product after it is launched should not be held responsible, the court ruled, allowing at least some room for makers of legitimate products to continue to operate (though the years of explosive growth for Grokster and similar programs are now clearly over).

The ruling is hardly a panacea for the problem of piracy, since not all copyright-infringing downloads happen through peer-to-peer networks. But it has relieved the entertainment industry of the costly and embarrassing strategy of suing individual offenders and appearing to drag college students from dorms for illegally downloading music and videos. It is also a welcome defense of intellectual property.

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