P2P Firms Didn’t Violate Copyright Laws, U.S. Court Says

Rhett Pardon
SAN FRANCISCO — In a major blow to copyright holders, Grokster Ltd. and StreamCast Networks Inc. have been ruled not legally responsible for the swapping of content through their file-sharing software.

The 9th U.S. Circuit Court of Appeals said Thursday that the two suppliers of the free peer-to-peer software were not liable for illegally swapped music and movies online because they don't have central servers where computer users can access the material.

With the ruling, which could be appealed to the U.S. Supreme Court, the court effectively turned down the music and film industries contention that copyright law should change whenever new technology comes along.

"History has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke machine, or an MP3 player," Judge Sidney R. Thomas wrote. "Thus, it is prudent for courts to exercise caution before restructuring liability theories."

The case is a big win for all tech companies because it means that they can make available copyright data.

But it doesn’t mirror the Napster case several years ago when it was shut down after the 9th Circuit ruled that its centralized servers, which contained thousands of copyrighted songs, made it legally liable for contributing to copyright infringement.

After that ruling, peer-to-peer technology developed that avoided the need for a central hub, thus limiting the liability of Grokster of Nevis in the Caribbean and Los Angeles-based StreamCast, which both make revenue through pop-ups.

The San Francisco-based 9th Circuit noted that the software firms simply provided software for individual users to share information over the Internet, regardless of whether that shared information was copyrighted.

Thomas, who wrote for the unanimous three-judge panel, said peer-to-peers are worthy distribution systems.

"The technology has numerous other uses, significantly reducing the distribution costs of public domain and permissively shared art and speech, as well as reducing the centralized control of that distribution," he said.

The ruling doesn’t let individuals who download media off the hook. Music and film companies are free to continue suing downloaders who unlawfully appropriate copyrighted movies and music.

Tech defenders hailed the unanimous decision.

“The entertainment industry has been fighting new technologies for a century, only to learn again and again that these new technologies create new markets and opportunities," Fred von Lohmann, a senior intellectual property attorney for San Francisco's Electronic Frontier Foundation, told XBiz. "There is no reason to think that file sharing will be any different."

The case is Metro-Goldwyn-Mayer vs. Grokster, 03-55894.