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Supreme Court Rules Against P2P Companies!

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Supreme Court Rules Against P2P Companies!

Postby SlyckTom » Mon Jun 27, 2005 10:37 am

The United States Supreme Court, in a unanimous ruling, disagreed with two lower court rulings. Today’s opinion agrees with the MPAA and RIAA contention that P2P developers are responsible for the infringing activities of its users. The decision is a serious setback for commercial file-sharing companies, who were hoping a favorable Supreme Court decision would give the necessary leverage to negotiate a distribution agreement with the RIAA and MPAA.

With today's ruling reaffirming the rights of the RIAA and MPAA, these two organizations are now more secure then ever before in their distribution methods. This also leaves StreamCast and Grokster wide open for additional copyright infringement lawsuits.

StreamCast and Grokster, the two defendants named in the MGM lawsuit, have been fighting the movie and music industry for nearly 3 years.

At issue is whether StreamCast and Grokster, two distributors of P2P software, are guilty of contributory copyright infringement and vicarious copyright infringement.

In order to be liable for contributory copyright infringement, three criteria have to be met: (1) direct infringement by a primary infringer, (2) knowledge of the infringement, and (3) material contribution to the infringement.

Similarly, in order to be held liable for vicarious copyright infringement, a complainant must show that a violator met the following three criteria: (1) direct infringement by a primary party, (2) a direct financial benefit to the defendant, and (3) the right and ability to supervise the infringers.

The situation began in October of 2001 when the RIAA and MPAA filed suit against Grokster and StreamCast (then MusicCity.) Both organizations had been successful in shutting down centralized networks such as Napaster and Scour. However, this round of lawsuits would prove more challenging as the fundamental difference in network architecture would prove to be the turning point for StreamCast and Grokster.

Unlike Napster or Scour, which used centralized indexing servers to catalog files on their networks, StreamCast and Grokster are considered “decentralized.” Decentralized networks do not have direct control of their network’s indexing responsibilities. Instead, this responsibility is distributed throughout the clients residing on the network.

After churning slowly through the courts, in April of 2003, Justice Steven Wilcox <a href= target=_blank>ruled</a> in favor of StreamCast and Grokster. His ruling, based on the 1983 Sony vs. Universal decision (AKA the BetaMax case), stated that SreamCast and Grokster were not responsible for the content of their networks.

"Defendants distribute and support software, the users of which can and do choose to employ it for both lawful and unlawful ends," Wilson wrote in his opinion, released Friday. "Grokster and StreamCast are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights."

The MPAA and RIAA immediately appealed to the United States Federal Court of Appeals in California. Arguments were heard in February of 2004, in which the defense made a brilliant argument against the copyright industry. To no one's surprise, the court <a href= target=_blank>ruled</a> in April 2004 that StreamCast and Grokster were not guilty of copyright infringement.

"This appeal presents the question of whether distributors of peer-to-peer file-sharing computer networking software may be held contributory or vicariously liable for copyright infringements by users," Justice Sidney R. Thomas wrote. "Under the circumstances presented by this case, we conclude that the defendants are not liable for contributory and vicarious copyright infringement and affirm the district court’s partial grant of summary judgment."

Today's decision virtually eliminates all momentum both StreamCast and Grokster had been gathering. From the SCOTUS blog:

"The Supreme Court ruled unanimously that developers of software violate federal copyright law when they provide computer users with the means to share music and movie files downloaded from the Internet."

"In a decision announced by Justice David H. Souter, the Court said: "We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties" -- that is, computer users using free downloading software."

"A sweeping victory for music recording companies and movie studios, the ruling set the stage for a major legal assault on rampant file-sharing of copyrighted works by attacking the software designers -- a much more promising legal avenue than suing infringing users directly."

The unanimous decision means the case will be sent back to the lower courts, where StreamCast and Grokster can be sued for copyright infringement.

With a solid victory in place for the MPAA and RIAA, the future of commercial P2P enterprise, at least in the United States, is in serious question. With StreamCast and Grokster both liable for contributory and vicarious copyright infringement, the online community awaits the next round of lawsuits from the copyright industry juggernaut - a round of lawsuits that may annihilate StreamCast and Grokster.
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Postby LxBeast » Mon Jun 27, 2005 10:41 am

:shock: WTF?!

That's the verdict I wasn't hoping for, ouch.

<This is gonna be one very popular topic....>

Postby DepecheNode » Mon Jun 27, 2005 10:45 am

By a unanimous decision, it just remands the case back to the 9th circuit for trial.

Not a big deal.

Grokster will loose at trial though.

While my forecast was technically correct, I gotta' give credit to my buddy downtown... he called it correctly from the outset.
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Postby Skel » Mon Jun 27, 2005 10:46 am

Bah bet they slipped the judges a few bills under the table to win this case.. wouldnt suprise me... :evil:
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Postby SlyckTom » Mon Jun 27, 2005 10:53 am

By a unanimous decision, it just remands the case back to the 9th circuit for trial.

Not a big deal.

I think its a bit more serious than that.
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Postby pcve » Mon Jun 27, 2005 10:56 am

So.. next, the internet as a whole will be terminated because you can share files on it?
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Postby cjules13 » Mon Jun 27, 2005 10:57 am

So now what? Now all Grokster and Kazaa software is illegal? Or what?
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Postby DepecheNode » Mon Jun 27, 2005 10:58 am

Nah, it just pulled Sony out from under Grokster. They both can now plead their case to a jury. Who knows...? Any thing can come out of a jury box.

I don't think they'll have the financial wherewithall to withstand a trial though. This will simply force P2P in the open-source arena.

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Postby notbob » Mon Jun 27, 2005 11:00 am

SlyckTom wrote:
By a unanimous decision, it just remands the case back to the 9th circuit for trial.

Not a big deal.

I think its a bit more serious than that.

only if your business plan involves making a buck off of someone else's IP

get rid of the sleazy for profit p2ps and move the infringing p2p back underground where it belongs, leaving above ground p2p with a free legal smiley face on it
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Postby FireInTheSky » Mon Jun 27, 2005 11:13 am

ugh, well this wasn't what I wanted, but I should have known better.

It doesn't matter for me, but this ruling will spread widespread phobia. The Supreme Court needs achangin'
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Postby scubascythan » Mon Jun 27, 2005 11:14 am

This just means businesses that distribute or make p2p programs in the US can be in trouble. However aren't programs that are freeware fine, or are people like Bram Cohen gonna get sued now? Also would newsgroup servers be able to be sued, because their servers do distribute illegal content..
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Postby slacker6 » Mon Jun 27, 2005 11:15 am

I'm not terribly suprised. The industry's goal here is simple: to reduce the ease of file sharing that these applications allow and remove the from the mainstream. That was the entire problem with Napster: it was too damn easy and everyone was on it. It the 80/20 rule- by doing this they can stop the majority of the casual file-sharing.

No biggie. It will never completely stop and truthfully, that is not the goal of RIAA/MPAA anyway.
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Postby nohead » Mon Jun 27, 2005 11:17 am

Go open source or register your company out of US.
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Postby gggie » Mon Jun 27, 2005 11:17 am

While certainly not as protective of p2p as the lower court rulings, I'm not so sure this is the "sweeping victory" for mpaa/riaa people are saying it is.

I haven't read the entire opinion, and my view may change after doing so, but the holding quoted by most news outlets limits liability to p2p companies who distribute software "with the object of promoting its use to infringe copyright".

In other words, I read this to mean it's not enough to release an app capable of violating copyright, but instead to be liable the company releasing the app would have to essentially advertise its capability of infringing copyright ("as shown by clear expression"), or tailor the app in a way that would make it useful for infringement but not legal uses ("as shown by ... other affirmative steps taken to foster infringement").

So again I'd have to read the opinion to be sure, but this doesn't look like a stunning defeat for p2p companies to me, and the holding seems to offer suggestions about how p2p companies can avoid liablity.
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Postby mxpw » Mon Jun 27, 2005 11:22 am

From a legal stand point, the MPAA and RIAA will sue Streamcast and Grokster for copyright infringement.

The first motion they will make is to effectively ask the courts to shut down the companies which is the same tactic used against scour and napster. The judge will decide to either shut down Streamcast and Grokster right away or in an extremly rare move allow them to keep operating while the case is being ajudicated. I give it 75/25 that they shut them down very soon.

The second tactic will be to ask for an excessive amount of time and continuances in order to run up Streamcast and Grokster's legal defense bills or as Mike Weiss told me "spend us into submission".

As Tom wrote the law is pretty clear about this and the chances of the p2p groups winnign this case are very slim. The main reason they will lose is the second clause of the contributary copyright infringement statute which refers toi the defendent making a profit off the actions fo its users.

Basicly the P2P companies will most likely lose their case because of adware and spywear that they use to make their money.
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Postby ABEND954 » Mon Jun 27, 2005 11:23 am

From an article posted on Beta News ( ... 1119884733 )

"The ruling means that the case against Grokster is sent back to the lower court, which had previously ruled that file sharing companies could not be held liable for copyright infringement. According to the Supreme Court, there is enough evidence for the case to go to trial."

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Postby gregorio » Mon Jun 27, 2005 11:25 am

This is going to be interesting. I never expected that!

I'm so f'ing thrilled, I'm getting all twitchy.
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Postby Chiastic » Mon Jun 27, 2005 11:34 am

So open commercial p2p is probably dead. I have to say that I actually consider that a good thing given my firmly held belief that all software must migrate to open source, a movement which will do ten times more to destroy copyright law than any Supreme Court decision ever could, no matter how favorable to p2p it may be.

EDIT: After reading the decision though, SCOTUS's finding of unlawful intent on the part of Grokster and Streamcast relies very heavily on their being marketed as replacements for Napster, which isn't exactly a method of determination with much application beyond this particular case.

The Court also relied heavily on the fact that neither company opted to even attempt to do any sort of filtering of protected content.

Being that direct association with Napster is a useless criteria beyond this case and that filtering is equally useless for all practical purposes (TorrentSpy and SW3, for example), the standard for determining vicarious infringement still seems to me to be extremely difficult to meet.

Personally, I think that SCOTUS simply opted to dodge the real issue of p2p at Grokster's and Streamcast's expense (since there's no way that they'll survive the inevitable avalanche of lawsuits even if by some miracle they win every one).

Which is probably good news for us in the end.
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Postby hawkeye » Mon Jun 27, 2005 11:35 am

So we're all waiting for a knock at the door
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Postby OmegaGreg » Mon Jun 27, 2005 11:35 am

NOOOO, When i read this i almost droped my oatmeal. Now p2p applications will not be produced commercially. :evil:
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Postby JaKo30 » Mon Jun 27, 2005 11:37 am

:shock: wow . Personally I was truly shocked, as I truly thought Grokster had a better chance of not losing than the MPAAS/RIAA winning. I didnt think that Grokster was gonna win hands down, but felt the odds were a bit more in their favor! Theres obvioulsy gonna be endless questions and mayham over the next few days and months, but the question I have (which may have been answered), is due to this, can something like WinMx software be disabled, shutdown or what not? Iknow the companies behind the software may get crippled, but what happens to the existing software?

Also, if oversees, are they affected by this?
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Postby marksman » Mon Jun 27, 2005 11:40 am

notbob wrote:
SlyckTom wrote:
By a unanimous decision, it just remands the case back to the 9th circuit for trial.

Not a big deal.

I think its a bit more serious than that.

only if your business plan involves making a buck off of someone else's IP

get rid of the sleazy for profit p2ps and move the infringing p2p back underground where it belongs, leaving above ground p2p with a free legal smiley face on it

I think they will have the grounds and the means to go after anyone making P2P software. While it is nice and all to think this might just be limited to commercial ventures, I think the real prospects of all P2P software coming under any fire these clowns can muster is a potential reality.

Heck on the back of this it wouldn't be far-fetched for them to go to the legislature and make using P2P software in the United States illegal.

We shall see what happens, but it is not a very encouraging sign. I think this could be a decision of monumental proportions in terms of it stifling technology.

Although I do hope that Grokster and Streamcast are up for a court case, because I think an actual trial is where the MPAA is going to be at the absolute weakest. It would be nice if it were a clear division of commercial applications and everything else.. but given an inch, they will grab for a mile.
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Postby locotus » Mon Jun 27, 2005 11:42 am

According to CNN the ruling only affects companies that "sell" file sharing programs, then this case should'nt affect open source or non profitable file sharing progams.
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Postby Ooble » Mon Jun 27, 2005 11:44 am

I'm shocked. Where, on Grokster's website, does it promote the sharing of copyrighted products? Basically, the courts just ruled that you are responsible for your software's users, even when your end-user licence agreement specifically states you will not take responsibility for their actions. I don't condone the usage of Grokster - it's a piece of shit, IMO - but I really thought it had a chance to win.

Of course, it's not all bad. Companies such as Sharman Networks, who we can thank for millions of people being infected by some of the worst spyware around, will probably be shut down. As long as open-source P2P isn't affected, I'm happy.
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Postby tm, » Mon Jun 27, 2005 11:48 am

Good writeup, SlyckTom, but I really think that you might want to consider changing the story's title. The Supreme Court did not exactly "Rule Against Grokster!" as the title states.

The ruling did state, though, that:
"One who distributes a device with the object of promoting its use to infringe copyright ... is liable for the resulting acts of infringement by third parties using the device, regardless of the device's lawful uses,"

It was a foregone conclusion that the court would agree that P2P companies that conduct a campaign of promotion of copyright infringement can be held liable. However, the question of whether Grokster et al. actually promoted copyright infringement is still to be decided. Unless perhaps internal company documents turn up showing that they not only knew about, but actively planned and encouraged copyright infringement, I can't see how Grokster could lose the case and be held liable for something that they had no direct control over or probably even any knowledge about or planning for.

Morpheus's Michael Weiss recently said that the legal bills so far have cost Streamcast $4 million already. Can they afford to spend $millions more - now that their revenue has diminished since dropping spyware from Morpheus - in what is almost certainly going to continue to be a formidable legal battle, or might they be forced to cave in and negotiate some kind of settlement with the RIAA, purely out of financial expediency?
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