August 23, 2004
Volume 5, Issue 11
Appeals Court Sides with Grokster
By Drew Clark in National Journal Technology Daily
Companies that make music- and video-swapping software are not responsible for copyright infringement by their users if they do not engage in direct piracy and if the software enables other legal uses, an appeals court said Thursday.
The unanimous decision by a three-judge panel on the 9th US Circuit Court of Appeals is a significant but not unexpected victory for Grokster and Streamcast, the two software companies sued by a collection of major recording and movie companies. It affirmed a 2003 ruling.
Together with Sharman Networks and its Kazaa program, the two software companies are among the leading companies that permit Internet users to share digital music and video files through peer-to-peer (P2P) connections on the Internet.
The judges relied heavily on the Supreme Court's precedent in Sony Corporation Vs. Universal City Studios, the 1984 case declaring that manufacturers of videocassette recorders were not guilty of contributing to copyright infringement. "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 Thomas concluded for the court.
Hollywood and the music industry instead had highlighted the 9th circuit's decision in 2001 against the Napster file-sharing service. The court then held that Napster had contributed to copyright violations. The company eventually went bankrupt, and a licensed online music service subsequently bought the Napster trademark.
But on Thursday, the appeals court said the technical distinction between Napster's centralized index system and the systems of Grokster and Streamcast is crucial.
Under both Streamcast's decentralized network and Grokster's quasi-decentralized network, Thomas wrote, "no central index is maintained." He cited the decision of District Judge Stephen Wilson that even if the software companies "closed their doors and deactivated all computers within their control, users of their products could continue sharing files."
"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," Thomas wrote.
The setback for the recording and movie industries is likely to heighten the pressure on Congress for legislation like an existing Senate bill that would expand copyright liability to companies that "induce" infringement, perhaps covering P2P software companies.
"The court today affirmed the central importance of the Sony Betamax doctrine as the Magna Carta of technology innovators," said Fred von Lohmann, senior attorney at the Electronic Frontier Foundation and counsel for Streamcast. "Just as the Supreme Court did in the Betamax case, I think the 9th circuit today may have saved Hollywood and the music industry from their own shortsightedness."
"We hope that this decision signals an increased focus on business and technical solutions among all parties," said Marty Lafferty, CEO of the Distributed Computing Industry Association, which represents P2P firms. "It is time for litigation and legislative upheaval to be supplanted by commerce."
Report from CEO Marty Lafferty
Does the primary outcome of the Appeals Court finding last week have to be a redoubling of divisive efforts to coerce Congress into instigating even more lawsuits, through reckless enactment of new legislation that will bring risks of far-reaching harmful consequences?
Why can't it instead mark a turning point from solely pursuing such futile and destructive activities to also working constructively on promising business and technical solutions?
The DCIA is prepared to pour all of our energies into engaging with those who, up until now, have been the fiercest opponents of our nascent industry. Specifically, we are ready, in good-faith, to commence proof-of-concept testing and market trials of the well-conceived and capably supported P2P Revenue Engine (P2PRE).
For those who aren't familiar with this effort, P2PRE is a project led by Les Ottolenghi, the President of DCIA Member INTENT MediaWorks (IMW), which addresses consumer-entered P2P content, and compliments the market-proven solutions of other DCIA Members, led by Altnet and Trymedia Systems, in protecting and monetizing rights-holder entered content. Altnet has signed 80 independent music labels; Trymedia, 10 top games publishers.
P2PRE integrates nine other companies with IMW, representing state-of-the art P2P digital rights management (DRM) solutions, advanced P2P payment processing and tracking services, acoustical fingerprinting, rights-holder content database management, and P2P software development and distribution.
Beyond merely exploiting P2P as a promotional channel, P2PRE presents major copyrighted works aggregators with the opportunities to harness P2P for a la carte sales and virtual streaming subscriptions.
Just last month, P2PRE participant Shared Media Licensing (SML) scored a well-documented win with several other participants, deploying SML's Weed technology to sell HEART's highly-acclaimed new release "Jupiters Darling." They outsold the leading online centralized download store purely through file sharing.
Why shouldn't this success be built-upon, instead of buried as though it never happened?
This does not seem to be the course that the entertainment industries wish to pursue. Instead, interested parties, other than P2P software providers whom the Senate has been asked to exclude from participation, have been requested to provide input on S 2560 IICA (aka the INDUCE Act) to Register of Copyright Marybeth Peters.
She has been assigned the unenviable task of trying to define "bad actors" in the current crisis. Who induces infringement in the digital realm? Who is to blame and who should be punished?
Any honest attempt to assign culpability has to seek-out the root causes for today's predicament. We went to college upperclassmen, prime examples of what BSA now characterizes as the "infringement generation," for their answer.
We asked if they blamed current P2P software programs like Kazaa and Grokster. They said, no, it started much earlier. We asked, did they mean with Napster? Again they said no, even earlier. We asked when, then?
They said the truth of the matter is that they were induced to digitally infringe before there was a consumer Internet. Before CompuServ and Prodigy were even available. It was back when they were in grade school.
It started with the confluence of home PCs, bulletin board systems (BBS), modems, and CDs.
They said back then, they would copy floppy disks of games and new music CDs onto their 486 hard drives, list them on their bulletin boards, and set their dial-up modems to allow others to download these files in exchange for reciprocal access. In those days it took six hours to download a song.
So who was it then that induced them to infringe?
They said, unequivocally, it was whoever authorized the digital recording of music. The change to CDs from vinyl LPs and audio-cassettes constituted the primal act of inducement. It was clearly a failure to understand and respond to the implications of this that led to all that has followed.
Since the invention of the CD-ROM in 1984, not to minimize the many innovations that have occurred in hardware, software, and telecommunications, the only relevant change has been a series of steady improvements in efficiency of what began almost immediately with the conversion from analog to digital content.
Instead of perpetuating the "blame game," why not solve the problem?
P2P PATROL Combats Child Pornography
The DCIA is expanding our initiative to combat child pornography through law enforcement support, deterrence, and user education programs.
We are announcing the launch of the DCIA's deterrence program under a new service-marked umbrella organization for all of our anti-child-pornography efforts: P2P PATROL – Peer-To-Peer Parents And Teens React On Line. These are in addition to our initial ongoing program in support of law enforcement agencies, which began in October 2003.
Eradication of child pornography should be the goal of every participant at every level in the distributed computing industry. We applaud our P2P software providing Members for taking a zero tolerance stance and backing it up in word and deed.
The first new P2P PATROL program, focused on deterrence, will commence with a series of pop-up warning messages, shaped like a red stop sign, that will appear when a user of a participating P2P software program enters a search term known to be associated with child pornography. The target for these escalating messages will be users who appear to be on the threshold of involvement with child pornography.
The initial message will read, "WARNING – The search term you entered has been associated with child pornography. Any person who receives, reproduces, or redistributes a visual depiction of a minor engaged in sexually explicit conduct shall be subject to severe fines and imprisonment. P2P PATROL reports suspected violations of Title 18, USC 2252 to the FBI. – PEER-TO-PEER PARENTS AND TEENS REACT ON LINE."
The warning messages will be served by DCIA member Altnet and be field-tested with DCIA member Grokster, before being offered – without cost – to other file-sharing software suppliers. The initial keywords will be seeded by international law enforcement agencies, and ultimately will be updated for participating P2P PATROL file-sharing software programs by the users themselves.
This real-time warning, which begins field-testing immediately, will be an effective weapon in P2P PATROL's arsenal for combating child pornography.
The P2P PATROL deterrence program will launch additional components as the program develops and rolls out. These additional elements will include notifications of suspected trafficking in child pornography to Internet service providers (ISPs), and state, federal, and international law enforcement agencies for investigation.
The third P2P PATROL program, focused on education, will be presented to appropriate officials in September for implementation by November 2004. The education program will be aimed at empowering general users, who inadvertently encounter undesirable material online, with the tools they need to recognize, report, and remove (i.e., hard-drive wipe) any criminally obscene content. P2P PATROL seeks to utilize advanced collaborative-filtering techniques to purge such files from redistribution. The DCIA is working with the National Center for Missing and Exploited Children (NCMEC) on the education program of the P2P PATROL initiative.
Last week's announcement comes just three months after the first law enforcement actions against those trafficking in child pornography by means of P2P software were announced in May 2004. DCIA Members supported the covert operations that led to the arrests.
The DCIA and our Members have unanimously praised the enforcement actions of the Cyber Division of the FBI and the coordinated law enforcement efforts of the Department of Justice and Homeland Security. No amount of child pornography is acceptable, and we are committed to doing all we can to eliminate this illicit content from peer-to-peer file-sharing environments.
The DCIA is also working with state police Internet Crimes Against Children (ICAC) Task Force units to enhance the effectiveness of regional enforcement in combating child pornography by tapping P2P technology to prosecute suspected traffickers.
P2P PATROL is accepting financial contributions to help defray the expenses of implementing its programs and expanding their reach. Any party interested in supporting P2P PATROL's mission and its broad adoption should contact sari@dcia.info or call 888-864-DCIA.
DCIA Members participating in the September education presentations include Chip Venters, CEO, Digital Containers; Les Ottolenghi, President, INTENT MediaWorks; Marc Freedman, CEO, RazorPop; and Chris Haigh, CEO, SVC Financial.
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