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Appeals Court Rules in Favor of P2P Developers
August 20, 2004
Thomas Mennecke
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In April of 2003, Judge Steven Wilson was presiding over the first round between the copyright industry (plaintiffs) and Grokster/Streamcast (defendants.) In the initial decision, Judge Wilson based much of his logic on the Universal vs. Sony Betamax Supreme Court ruling. Simplistically, considering the P2P developers did not have any direct involvement with any alleged infringement, they were not held liable.

The copyright industry, headed by members of both the MPAA and RIAA, almost immediately appealed to the United States Court of Appeals in California. Arguments were heard in February 2004 by Circuit Judges Robert Boochever, John T. Noonan, and Sidney R. Thomas. If you happened to listen to the appeal, Fred Von Lohmann of the EFF (Electronic Frontier Foundation) gave a compelling and near flawless argument for the defense. The judge’s agreeability with the defense left little in the way of surprise when the decision was released.

In today's court decision, written by Judge Thomas, it immediately summarized the ruling by stating, "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. 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."

In order to be guilty of secondary copyright infringement, an alleged infringer has to be found liable of contributory copyright infringement and vicarious copyright infringement.

Now, here is where it gets interesting. In order to be liable for contributory copyright infringement, three more criteria have to be met: (1) direct infringement by a primary infringer, (2) knowledge of the infringement, and (3) material contribution to the infringement. Direct infringement was not disputed in this case.

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. Direct infringement and a direct financial benefit were not disputed in this case.

The Court of Appeals agreed with the district court, and stated that the defendants do not qualify for infringement under either theory.

Under "contributory" copyright infringement, the defense was protected under the Sony Betamax case. Under the Sony Betamax case, a defendant is not guilty of contributory infringement if the product has “capable of substantial” or “commercially significant non-infringing uses.”

StreamCast and Grokster were able to prove this was the case for their software. Here is an example Judge Thomas cites:

"One striking example provided by the Software Distributors is the popular band Wilco, whose record company had declined to release one of its albums on the basis that it had no commercial potential. Wilcore purchased the work from the record company and made the album available for free downloading, both from its own website and through the software user networks. The result sparked widespread interest and, as a result, Wilco received another recording contract."

While StreamCast and Grokster may know of possible infringement as Sony may have with the VCR, this does not add to contributory copyright infringement due to its high commercial potential.

In addition, StreamCast and Grokster were not found to materially contribute to copyright infringement because of their decentralized nature. Conversely, Napster was found guilty under this subsection, because it had the infrastructure (centralized indexing servers) to facilitate copyright infringement.

Going back to vicarious copyright infringement, the copyright industry only had to show that StreamCast and Grokster met the "right and ability to supervise the infringers" criteria.

However, the court again cited that little or no communication exists between the P2P companies and the network population. Again, the court brings up the differences between Napster, whose central servers did communicate with the users, and decentralized networks, which require no communication on the part of the developers.

In addition, the copyright industry stated that StreamCast and Grokster should not escape liability by turning a "blind eye" to infringement. The court disagreed however, and stated that no such "blind eye" statute exists in current copyright law.

Interestingly, the court concluded its apparently glowing victory for P2P with a silver lining for the copyright industry.

"Resolution of these issues does not end the case. As the district court clearly stated, its decision was limited to the specific software in use at the time of the district court decision. The Copyright Owners have also sought relief based on previous versions of the software, which contain significant—and perhaps crucial—differences from the software at issue. We express no opinion as to those issues."

Considering that StreamCast's Morpheus software once ran centralized OpenNap indexing servers, which are virtually identical to Napster's, we can rest assured this just another battle in the greater online copyright war.

This story is filed in these Slyck News categories
Legal/Courtroom :: Developer Lawsuits
Legal/Courtroom :: Court Rulings/Decisions

You can download the ruling here.

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