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Supreme Court Rules Against P2P Companies!
June 27, 2005
Thomas Mennecke
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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 ruled 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 ruled 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.


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

SCOTUS blog.

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