http://www.law.com/jsp/article.jsp?id=1103549722976

Son of Napster: The Inevitable Sequel

Michael Bobelian
New York Law Journal
12-21-2004


The U.S. Supreme Court has agreed to hear a case pitting the recording and film industries and thousands of individual artists against online companies offering software often used to trade copyrighted material.

Plaintiffs groups say that the companies, Grokster and Streamcast Networks, are no different from Napster and should be shut down.

Napster was once the leading destination for Internet users to trade songs, videos and software. A lawsuit filed by many of the same plaintiffs succeeded in showing that Napster was helping users to infringe on copyrights. Eventually, Napster was shut down.

But Grokster and Streamcast won the first two rounds of litigation in district court in San Francisco and before the 9th U.S. Circuit Court of Appeals. Differences in the technology used tilted the case in their favor.

The difference is that these companies operate a decentralized system matching users rather than controlling centralized servers. Those copying music and movies do not get it directly from the Web sites but are put in touch with other individuals willing to share.

Now, plaintiffs have asked the Court to reject the 9th Circuit decision, Metro-Goldwyn-Mayer v. Grokster, 380 F.3d 1154. The distinction in technology, they argue, does not inoculate defendants from the fact that their software allows users to regularly trade copyrighted information.

The defendants counter that the technology serves a valuable purpose and that the copyright holders should target individual infringers rather than attacking an entire system of exchange developed on the Internet.

DISTINGUISHING NAPSTER

The key difference between Grokster and Streamcast and their predecessor, Napster, is the technology. The panel of appellate judges at the 9th Circuit pointed out that Napster used a "centralized indexing" system holding a list of available files.

Grokster and Streamcast applied what the panel called a "decentralized index peer-to-peer file-sharing model." Under this model, each user makes data available to others on the system through an individual computer.

The defendants provide the software that lets users catalogue and trade their files, but the items traded by the users do not rest in a centralized storage area controlled by Grokster or Streamcast. Without central control, even if the plaintiffs shut down their Web sites, the court wrote, they could not stop users from trading copyrighted material.

Someone wanting to use Grokster or Streamcast visits the Web site and downloads the software, which is free. The companies make money by selling advertising on their sites.

Through the site, a user can get referrals to the computers of other individuals who are using the same software. Material is transferred from one computer to the other and does not go through the Grokster or Streamcast server.

Although taking material under copyright like this is clearly an infringement, Grokster and Streamcast say they are not responsible. They note that uncopyrighted material is often transferred as well.

DIFFERENCE DENIED

Napster, in contrast, kept the files on computers that it controlled.

This distinction matters little to the 27,000 copyright holders who are co-plaintiffs in the case. They claim that 90 percent of the items exchanged through the software provided by the defendants is copyrighted information.

"It may be technologically true but substantively irrelevant," said Jon Baumgarten, a lawyer at Proskauer Rose who works out of the firm's New York and Washington, D.C., offices. Baumgarten co-authored two amicus briefs on behalf of copyright holders.

The 9th Circuit's ruling forces copyright holders to pursue individual infringers rather than the enablers. While the recording industry has launched well-publicized suits against individuals, the strategy has been costly and largely ineffectual.

Lacking the resources of large corporations, individual copyright holders face even larger roadblocks in pursuing violators, according to an amicus brief co-authored by Michael Salzman of Hughes Hubbard & Reed and I. Fred Koenigsberg of White & Case on behalf of individual copyright holders and related trade groups.

"The defendants in these actions are responsible for the aggregate activity of hundreds of thousands of users," Baumgarten said in an interview. "We're suing the instigators." Suing individuals, he said, is burdensome and expensive.

The strategy of targeting those who enable infringement has been used with some success by trademark holders.

Lou Ederer, a trademark lawyer at Torys, represented several fashion companies including Tommy Hilfiger in suits against discount chain stores accused of selling counterfeit goods.

Pursuing street peddlers selling fake goods serves little economic purpose, said Ederer, but large discount chains present perfect targets. Enforcement of a court victory is feasible, and the amount of goods involved make it worthwhile to spend significant dollars on legal fees.

"That's where you really find your big scores," said Ederer.

SUING EBAY

Likewise, Tiffany's, represented by James Swire of Dorsey & Whitney, sued online auctioneer eBay for trademark infringement early this year. Tiffany's claimed that eBay facilitated the sale of thousands of pieces of fake jewelry marked with its label.

EBay, represented by R. Bruce Rich of Weil, Gotshal & Manges, responded that it acts as an open market and is not in the business of authenticating products sold through its Web site. It offers a service to trademark owners allowing them to remove counterfeit sellers from the auction site, it said.

The Grokster plaintiffs have sued under the doctrines of contributory and vicarious copyright infringement. This allows them to target the alleged enablers rather than the individual copyright violators.

The 9th Circuit rejected the vicarious infringement claim because defendants lack the power to block individual users. It rejected the contributory infringement claim saying the defendants showed that the peer-to-peer software had many uses that did not involve copyright infringement. Users trade non-copyrighted material, and a growing list of musicians distribute their music through this alternative avenue, hoping to find listeners and build a fan base.

The beneficial uses seen of this technology raises a thorny issue for plaintiffs and those interested in intellectual property rights.

IMAGE AND REALITY

The popular image of the battle pits rebellious teenagers against mammoth companies. The reality is that plaintiffs include thousands of individual musicians and artists who lose out on royalties when their copyrights are infringed.

On the other end of the spectrum, the Computer and Communications Industry Association, which includes corporate giants like Verizon and Yahoo, has filed a brief on behalf of Grokster and Streamcast. Their brief highlights fears that a reversal of the appellate decision will curtail technological growth.

Baumgarten responded that plaintiffs intend "to prevent unauthorized file sharing ... not to disable a technological tool."

A similar battle took place this spring when Congress mulled over legislation to curb spyware. Downloaded by Internet users when they click on certain advertisements or sites, the software produces pop-up ads based on the Web sites visited by the user or searches run on search engines. While some companies like Wells Fargo and 1-800 Contacts have sued spyware providers, others, including AOL, Amazon.com, and IBM have cautioned lawmakers to avoid overly prohibitive legislation. They too seek to use this tracking technology and want to curb illegal behavior rather than the technology involved.

The same dilemma will be before the Supreme Court: In a world where litigation moves at a cumbersome pace, can copyright holders effectively pinpoint infringers or should the wholesale approach they are promoting be embraced by the courts?

Plaintiffs face the additional problem that future technological advancement will likely bring them to the same position. Just as they shut down Napster in 2000, they are now seeking to close down its mutated progeny. Should the plaintiffs win, it seems inevitable that a new generation of technology will bring copyright holders back to the courts seeking a legal cure for a new technological malady.

APOCALYPSE YET?

Copyright holders have warned of the coming of the apocalypse for the entertainment industry should infringement continue unabated.

Advocates for peer-to-peer software respond by citing a 1984 Supreme Court decision, Sony Corp. v. Universal City Studios, between movie makers and VCR producers. The decision protected the manufacturers from copyright liability and, despite calls that the VCR would destroy the movie industry, turned into a profitable technology for film makers.

The 9th Circuit sang the same tune in its decision. "[W]e live in a quicksilver technological environment with courts ill-suited to fix the flow of internet innovation," the panel held. "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. Yet, history has shown that time and market forces often provide equilibrium in balancing interests. ... Thus, it is prudent for courts to exercise caution before restructuring liability theories for the purpose of addressing specific market abuses, despite their apparent present magnitude."

perhaps the reason the supreme court is hearing this case is that they may want to clarify the Betamax decision as to how it applies in the digital world. I'm willing to bet that the justices have been following this behind the scenes ever since Napster was shut down and now want to help define the issue, in either direction, to stem further lawsuits. Who knows what they're thinking but it could be a good thing.

"This distinction matters little to the 27,000 copyright holders who are co-plaintiffs in the case."

If I am a co-plaintiff in this case due to ASCAP membership, this is fraud.

This will certinly establish a clear ruleing. Not nessicarily a ruleing in our favour, but at least the legal ambiguity will end.

I doupt the RIAA would go that easily through - they would probably try to find a new aspect of p2p to target. Link sites are a popular target right now, with the MPAA campaign.

George, I was a bit hasty with my comment that ASCAP is the entity behind the 27,000 class members. It is deliberately vague and still I haven't been able to run down the facts.

I suggest you use your own Power Finger on search capabilities and see if you can clue us in.

Here's what I can tell so far.

I *think* the 27,000 member class of the so-called aggrieved songwriters, artists and publishers is from Harry Fox. (And similar to the phony public outrage to the FCC being only three form letters sent in from Brent Bozell's PTC group) this is apparently the never-ending relentless work of Leiber and Stoller. (I was at the original court hearings of Grokster and Russ Frackman begged Hon. Stephen Wilson's indulgence to single out Mr. Stoller in the audience for some appropriate applause and approbation and obviously to invite him to the witness stand to testify---which didn't happen. Someone watches too much Perry Mason)

I do indeed understand that Dean Kay is logging in with numerous screen names and attacking us here in Dmusic Forum, so all I can say is, Dean, I've had your name filtered to trash for at least a year, so stop emailing me.

Here's the rest of it. It's understandable if I or anyone else can't find out the facts, because Harry Fox is a incompetent monopoly that is long past the point of being hit with a consent decree. If Leiber and Stoller, or anyone else, seems to use Harry Fox as a personal country club so be it.

Harry Fox is a wholy owned subsidiary of the National Music Publishers Assoc. Please note that in modern times, songwriters and actual authors ("circle c persons") have had their eyes opened to the concept that the publisher members of ASCAP do not place the interests of songwriters first.

In negotiating license terms, it would be a natural competition for someone to act as an agent and get the songwriter the best price it could from publishers and record labels. But this doesn't happen if they are all one and the same mail drop. Witness the recent publicity that EMI Music and Sony/BMG Rceords announce a one-stop licensing agreement.

ASCAP's long advocacy and deep pockets have funded the 1000-year extension of copyright sought by clueless restaurant cashier Mary Bono.

Look at the Board of Directors of ASCAP. Several of the members are also corporate vice-presidents of record labels. And sitting in the same seats of Harry Fox/NMPA. And they don't even see the conflict-of-interests that we so plainly see.

Harry Fox needs to be modernized. It needs independent board members.

Harry Fox needs Congressional and Consent Decree oversight. It abuses its privileges of licensing. In recent Congressional testimony, it was revealed that 35% of license requests are turned down. In real world terms, this means that its decisions are based on whether *you* are affilated with one of the four corporations that hold a strangleghold on recorded music.

Now THAT'S monopoly power!

It's almost a thing of beauty.

"I do indeed understand that Dean Kay is logging in with numerous screen names"

I can think of 100 reasons for that, most of them being liquid.

As we wait for the Supreme Court decision and the recently promised April month-long boycott by p2p, it also becomes apparent that it really doesn't matter anyway.

Grokster has already fallen to the Dark Side.

http://www.washingtonpost.com/wp-dyn/articles/A18568-2004Dec22.html

very funny comment, liquid. heh.

I'll post that Wash post article. Now that you're back in harness fulltime, GZ, you should post it yerself.

Dadgum, two days in the row you've beaten me to the punch with Wash Post articles, and I actually go down an buy the thing at the coffeehouse.

Don't get yer panties in a bunch about Wayne Grosso, he left Grokster over a year ago. He's a repulsive character. The labels will never let him get in the door, legit or not.

Along those lines, all those services will fail. They are not designed to succeed, Pressplay and MusicPlay and that ilk only exist to the extent of avoiding a restraint-of-trade investigation by the DOJ. Dodging a bullet.

One thing has become clear. By their own admission, the original wet dream of Michael Roberston and Shawn Napster was to become a record label A&R executive. One honcho got it right by saying, "What--? Did they think they'd get in the door and getting our attention by stealing our product?"

What's depressing is to see Travis Kalanick (of Scour)--falling in that trap also. Houseboy (or worse)--It's what we call musicians who crawl in the back door of the plantation house whimpering and seeking warmth of the kitchen stove---.

But I'm glad to see Phil Corwin getting called by journalists when they need a pungent quote.

"he popular image of the battle pits rebellious teenagers against mammoth companies. The reality is that plaintiffs include thousands of individual musicians and artists who lose out on royalties when their copyrights are infringed."

BULLSHIT!
THE REALITY IS THAT IT IS TEENS AND MUSICIANS ON ONE SIDE, AND CORPORATIONS AND THEIR LAP DOGS ON THE OTHER.

Yeah, and if there are "thousands" of lap dog musicians, it pales in comparisons to our 1.2 million or so "illegitimate" artists.

I believe that this is a conservative estimate, based on 300,000 acts with an average of four musicians per act.

How and who the hell will they sue with people moving to softwear like Bit-torrent ?

If the evidence down at the kazaa trial is anything to go by then a properly run case iun the US wilol expose the p2p sham as nothing but an alibi, rahter than description of technology!

"a properly run case iun the US wilol expose the p2p sham"

Yeah. Why don't you write it up for us. Have another drink first.

I use software to legally copy my legally bought and owned Cds to my harddrive. Winamp is the best stereo Ive owned yet and my PC is plugged into an old stage PA. This is legal as it should be. I may use the same software to copy my friend's CDs to my harddrive. Becuase I do not own these CDs its illegal for me to do so (is it the same $150,000 fine?). Should this software be illegal? I don't think so.
I once used a truck to purposely run over a guy, should trucks be registered the same as firearms?
Guns don't kill people, I kill people. Programs don't commit crimes, Users do.
I do believe that the filesharing of copyrighted matrials should be illegal, but that a $150,000 fine per song shows that the riaa has too much power. When artists are getting less then $1 per CD while we pay +$10 the riaa has too much control. Filesharing is nothing more then the Digital Boston Tea Party.

Wayne... I think your truck IS registered.

I think may people seem to forget that America is *supposed* to be a Democracy.majority rule.Napster showed many of us that the majority wants free music.The court system has destroyed napster and democracy with it.It is no longer majority rule,it has become the one with the most money and best lawyer rule.Might makes right.
But, we forget one last final point:You can never stop all of us,when one goes down another pops up,and with faster computers ,on the fly encryption and decryption on sub-military spec levels becomes a reality.The harder you push the deeper we go.Most of us will gladly pay the fair share to the creator ofsuch copyrighted works,provided it is a fair price and most of that goes to the creator of the work.
Corporate american music moguls are fighting for thier cushey jobs,not the rights of the artists they represent.
The lawyers are trying to get a peice of the pie while it's hot.
Musicians will continue to make thier money where most have made teh bulk of thier money,concerts and merchandise sold at concerts.This can never be stolen or shared as a unique experience.
i agree with wayne,this is a Digital Boston Tea Party,except we aren't dealing with the king of england on the other side of the ocean we can just flip off and create a new country,the enemy is right here in our own back yard.Better dig in deep or find yourself on the wrong end of the gavel.

Hey gdZiemann, sorry to offend your ever so sensitive self by not editiing a couple of spellers...I was at the time distracted however sorry to hear you assume intoxication in anyone without your high standards in grammar and spelling.

BTW BrockSamson, these people decided some time ago that the US is not a democracy, so I guess you are in the wrong place.

ddr 9 jf'aw idda= hcjl

I just got the joke George, you were reinforcing your need for spell check, thank you.