LA court decision is huge victory for P2P sites

A federal judge in Los Angeles has issued a ruling that, if upheld by an appeals court, could offer far reaching legal protections for embattled file trading sites. On April 25 Judge Stephen Wilson found that Grokster and StreamCast should not be held liable for copyright infringement which users of their P2P software might engage in.

This is a tremendous legal victory for P2P sites, and an affirmation of the view that highly useful technology, such as P2P networking, should not be outlawed simply because some people use it to trade copyrighted material.

Both Grokster and StreamCast, creator of the software that runs the Morpheus file trading site, both acknowledged that yes, some of their users do trade copyrighted works. But Judge Wilson, of the U.S. District Court in Los Angeles, decided that the two companies did not have direct control over the files traded on networks that use their software, and thus did not substantially contribute to infringement.

Major music labels, which together with a group of Hollywood movie studios filed the lawsuits that prompted the case, have said they plan to appeal the ruling to the Ninth U.S. Circuit Court of Appeals. The Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) sued StreamCast, Grokster, and the original parent company of Kazaa’s software, in October 2001. Judge Wilson’s decision was the result of a request by both sides for a summary judgment in the case.

In his ruling Judge Wilson cited the famous lawsuit filed against Sony in which the movie industry attempted to argue that the sale of the then emerging VCRs constituted contributory copyright liability. The Supreme Court settled the issue in 1984 ruling that Sony’s Betamax VCR had “substantial noninfringing use.” That ruling is key to helping shield distributors of new technologies that can be used for legal and illegal activities. The judge in the Betamax case understood that VCRs also had many noninfringing uses, and that Sony was not liable if some customers also used them to made copies of copyrighted movies. VCRs did not, of course, destroy the movie industry but rather opened up an entirely new market of home video rentals.

In his P2P ruling, Wilson also took the side of emerging technology, deciding that just because P2P networks challenged the existing system of content distribution, he would not permit the entertainment industry to dismantle them. “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,” wrote Wilson in his summary judgement. “It is undisputed that there are substantial noninfringing uses for (the) Defendants’ software.”

Wayne Rosso, president of Grokster, noted that technology is generally way ahead of the courts and legislatures. He applauded the fact that Judge Wilson was able to grasp the legal and beneficial uses of P2P systems. “It makes clear that innovators will not be held liable for creating or investing in new technologies,”  Rosso said in a statement. “This ruling also means that the labels and studios cannot ban 21st-century technology in defense of their inefficient and outmoded 20th-century distribution models.”

Judge Wilson did point out that the defendants in the case “may have intentionally structured their businesses to avoid secondary liability for copyright infringement, while benefiting financially from the illicit draw of their wares.”

Indeed it was the decentralized structure of Grokster and StreamCast that saved them from an unfavorable ruling. A federal appeals court found two years ago that Napster was liable for contributory infringement because it maintained a central index of files and the power to purge users who were using the company’s machines to locate each other and swap music.

But Wilson noted in is ruling that neither Grokster nor StreamCast maintained a central list of music files available for download, or allowed users of their software to use their computing resources. “If either defendant closed their doors and deactivated all computers within their control, users of their products could continue sharing files with little or no interruption,” Judge Wilson wrote.

Grokster licenses the FastTrack P2P platform used by the Kazaa file trading system. StreamCast technology supports the Morpheus site, which uses the Gnutella application to create a distributed search network on users machines. In essence, both companies simply distribute their software and have no control over how it’s used.

A Dutch court ruled last year that the leading Kazaa file-trading site was also not liable for its users’ copyright infringements. But Wilson ruled that Sharman Networks of Australia, which runs the Kazaa network, could be sued in the U.S. Sharman has filed a countersuit against the record labels and movie studios.

The initial favorable ruling for the StreamCast and Grokster decisions will have repercussions for the entire P2P industry. If the decision is upheld by the appellate court, record companies might be more willing to license their works to file trading sites, some of which have sought settlements with copyright holders. But the more likely outcome is more proposed copyright legislation, and a refocusing of the entertainment industry on prosecuting individual file traders. This strategy of targeting P2P users has already begun.