A battle royale between Hollywood and file-sharing companies is taking center stage today as the Supreme Court hears arguments from the entertainment industry, which contends two file-sharing program companies should be held liable for illegal file swaps that take place on their networks.
The case could have major implications for peer-to-peer technology, copyright holders and file-sharing practices that spread far beyond just the two companies targeted in the case, StreamCast Networks Inc. and Grokster Ltd. The court's ruling could also have a sweeping impact on how consumers listen to and watch digital media products. For the recording industry, it's the latest stop on the fast train ride it has been taking to blast file-swapping companies and to try to stop digital piracy in its tracks. File-sharing supporters, however, say they aren't liable for any illegal trades of copyrighted songs and movies by users of their software and worry that technology innovation will be stifled by a ruling against the networks and continued legal volleys by Hollywood.
The case "is the culmination of five years of legal battles against the peer-to-peer networks that entertainment companies believe are undermining the viability of copyrights," CNET's News.com declared. "Two federal courts have already ruled in favor of the file-swapping companies, saying that the software should be compared to a photocopying machine or a VCR -- that it has enough legal uses to protect the file-swapping companies. Record labels and movie studios dispute that idea, saying that Grokster and StreamCast, the parent of the Morpheus service, have deliberately built their business on the existence of widespread copyright infringement. They're asking the Supreme Court to rule that any company whose business is predominantly supported by piracy should be liable for that infringement."
But despite what the Supreme Court decides, the case will be far from over, with Congress and state lawmakers expected to continue to weigh in on the issue well into the future. Meantime, a number of rock stars and other notable musicians are latching onto the case to fight against illegal downloads of their music, while some independent musicians and smaller-scale performers often depend on the "viral marketing" they get from free music downloads of their work.
The Case for Innovation
While the case focuses on copyright law on the surface, it touches mightily on the use and development of technology. "The entertainment industry's argument has sent ripples of anxiety through Silicon Valley. Technology companies are leery of being held responsible for unforeseen or unauthorized uses of their software, and many are deeply concerned that the entertainment industry's proposal would force a potentially crippling legal review of virtually every product before its release. Intel, the Consumer Electronics Association, and other technology and venture capital groups have appealed to the court to avoid placing new liability on technology manufacturers, rather than on individuals who are infringing copyrights. As influential as the case is likely to be, few believe the issue will end with the Supreme Court, whose decision is expected in June. Many observers expect the losing side to take its case to Congress after the court rules," CNET said.
Picking up on the tech innovation threat theme, Art Brodsky of Internet civil liberties group Public Knowledge – a supporter of Grokster and StreamCast -- told The Boston Globe a fallout from a ruling in Hollywood's favor could be: "If I build the next digital gadget, like an iPod, am I going to get sued?" More on this note, from an intellectual property and computer professor, James Gibson of the University of Richmond: "It's a collision of two of our biggest and fastest-growing industries in this country," Gibson told Bloomberg. "If the Supreme Court gets it wrong, innovation in one or the other industry is unduly hindered."
But the entertainment industry has said hogwash to this type of argument. "The Groksters of the world are not innovators. Far from it. They are parasites who hide behind technology as they steal from the artists that create entertainment,” said Mitch Bainwol, head of the Recording Industry Association of America, as quoted by Red Herring. “They jeopardize the incentives to create new artistic works for society to enjoy.”
The future of tech development appeared to be an issue that deeply concerned the High Court today, with concerns that legal maneuvering could stymie innovation on the Web. "During a lively argument, justices wondered aloud whether such lawsuits might have discouraged past inventions like copy machines, videocassette recorders and iPod portable music players -- all of which can be used to make illegal duplications of copyrighted documents, movies and songs. Justice Stephen G. Breyer said the same software that can be used to steal copyrighted materials offered at least conceptually 'some really excellent uses' that are legal. Justice Antonin Scalia maintained that a ruling for entertainment companies could mean that if I'm a new inventor, I'm going to get sued right away.' While seeming leery of allowing lawsuits, the court also appeared deeply troubled by efforts of the companies that manufacture so-called file-sharing software to encourage Internet piracy and profit from it," The Associated Press reported.
Despite the back-and-forth in court, a final decision is months away. "The Supreme Court has in the past protected technologies with substantial non-infringing uses, such as the VCR and MP3 players. However, surveys show that over 90 percent of P2P users are swapping copyrighted content. Based on these numbers, entertainment firms plan to attack the networks in court, rather than the technology itself," BetaNews noted. "Nonetheless, technology companies are worried that a decision against file sharing could upset the Betamax precedent, which sanctioned the sale of videocassette recorders even though they could be used to copy television shows. Grokster and StreamCast will be facing an uphill battle against 38 entertainment companies and over 27,000 music publishers and artists. P2P has found some major supporters, however; Broadcast.com billionaire Mark Cuban says he will finance Grokster's legal fight against MGM."
Jon Healey of The Los Angeles Times provided one of the more accurate analogies and cut to the chase in his preview coverage yesterday about the crux of the case: "The entertainment and technology industries' most important legal dispute in two decades hinges on a question Hollywood confronts every day: What makes a bad actor? ... Seven major studios, four major record companies and 25,000 music publishers claim that StreamCast Networks Inc. and Grokster Ltd. are 'bad actors' in the high-tech world that built businesses around people making illegal copies of movies and music," Healey wrote. "'Grokster and StreamCast cannot escape the reality that copyright infringement is their business,' lawyers for the movie and music companies contended in court papers, adding that a company should be liable whenever the "principal or primary use" of its product is piracy. The case has triggered a fierce response from the high-tech and consumer electronics industries, which argue that the entertainment conglomerates are trying to blur the line between good technology and bad behavior. They want the high court to reaffirm its landmark 1984 ruling in the Sony Betamax case, which protected companies whose products were capable of substantial legitimate uses as well as illegitimate ones."
Why It's Not Like Napster
Newsday pointed out in its coverage how this case is different than the legal wrangling that helped shut down Napster (Napster, of course, has reemerged as a pay-for-play music service): "The services - Grokster and Streamcast's Morpheus - will counter that their software programs are legal because, like VCRs, they can be used for legal purposes," the paper said. "If the entertainment companies lose, they have at least two options: Work with the services to get a cut from the file sharing, or reignite their legal fight against users of the software. The studios hope a win will boost slumping sales by eliminating free access to music and movies online. Every day, people illegally receive tens of millions of songs and hundreds of thousands of movies online, according to industry estimates. The case is reaching the top court six years after a court ruling shut down file-sharing network Napster, which was revived two years ago as a legitimate, fee-based service. But Napster centrally stored the copyrighted material. Grokster and Morpheus, in contrast, operate like electronic trading posts, allowing users to share songs and movies stored on their own computers."
Cliff Sloan, vice president of business development and general counsel at Washingtonpost.Newsweek Interactive, referred in an online column on Newsweek.com to the MGM v. Grokster case as the "Son of Napster" case. "For the lower courts that heard Grokster, the lack of a centralized index distinguished Grokster and StreamCast from Napster and protected them from legal liability. The courts also emphasized that the file-sharing can be used for legitimate purposes as well as unauthorized copying. For example, some creators willingly release their content through the services, and non-copyrighted content is available as well," wrote Sloan, a former Supreme Court law clerk. "In the end, the key to this case -- and what distinguishes it from the Sony case—may well be the alleged efforts by the file-sharing services to encourage copyright violations. In part because it was not at issue in the Sony case, this feature of the case received surprisingly little attention in the lower courts’ decisions. The current Supreme Court often wants to understand the underlying reality in a case -- what is really going on, and what is at stake? The movie and music industries point to evidence of Grokster and StreamCast marketing themselves as 'the No. 1 Alternative to Napster' and making pitches to Napster’s users to continue their activities on the new file-sharing services. This case should turn on whether the file-sharing services actively encouraged unlawful conduct -- a legal doctrine that is technically known as 'inducement.'"
The Peanut Gallery Weighs In
Here's the type of rationale that is being used to counter the argument from file-sharing companies that their services have legal uses too: "William Hart, an attorney who represents the National Academy of Recording Arts & Sciences, best known for its Grammy Awards, said the vast majority of people who use file-sharing sites are coming to 'lift a copy of a commercial recording and make a copy for (themselves). If that's really the use to (which) the device is put, and that's really why it's attracting people and that's why it's attracting the advertisers, then that has to be factored in to the analysis of whether the device is really an item that is infringement-neutral,'" Wired News reported. (A Forrester Researcher analyst on CNBC today, however, gave the alternative view, saying the entertainment industry's fight is a bit like people going after a maker of a hammer if the hammer is used to whack somebody upside the head. Then again, people do build lawsuits like that all the time, going after the maker of products used to commit crimes).
Linda P. Campbell of the Detroit Free Press said the case has a lot to do with money, not just technology, writing that "it boils down to this: Will companies that facilitate free downloading of copyrighted movies, music, sports highlights, books, photos and other materials over the Internet be able to continue distributing their software -- or will cyberspace free-riders and their enablers have to pay up? It's notable that the legal precedent at issue, the 1984 Supreme Court ruling in Sony Corp. of America v. Universal City Studios, also known as the Betamax case, represents a telling example of the entertainment industry proving wildly incorrect in its doomsday predictions about the impact of technical innovation on copyright holders. Video recorders didn't doom cinema, after all. Still, the entertainment behemoths insist that they're losing multi-hundreds of millions of dollars because Internet users illegally share their products for free online. The studios, record companies and songwriters want Grokster and StreamCast Networks, companies that make the exchanges possible, to be stopped."
One peer-to-peer veteran is taking a doomsday approach, whatever the Supreme Court's ruling may be: "Wayne Rosso, former president of Grokster, is now chief executive of Mashboxx, a new company that plans to offer a file-sharing system that doesn't violate copyright laws. Rosso predicted the court will try to find a compromise. 'You can't expect the court to simply overrule Betamax,' Rosso said. 'I think it's going be one of these opinions that will be -- how should I say -- eclectic, and it'll take about a month to figure it out.' Whatever the outcome, Rosso predicted a bleak future for makers of file-swapping software. Even if Grokster and StreamCast win, he said, the movie and music companies will pressure Congress to pass tough new legislation to restrict file-swapping. 'The free lunch is over. Close the buffet,' he said. 'To be honest, even when I was at Grokster, we knew it couldn't go on,''" he told the Globe.
Verizon Snares MCI
Expect champagne corks to be popping at Verizon Communications Inc. today. The company is the victor after all in its bid to acquire MCI Inc., despite pressing (and more lucrative) overtures from Qwest Communications International. Verizon will pony up $7.64 billion to bring MCI into its fray. Bloomberg and The Washington Post have more details.
Carly's Successor
It didn't take long for Hewlett-Packard to find a replacement for ousted chief executive Carly Fiorina. Mark Hurd, the chief executive of NCR Corp., will head the computer firm, The Wall Street Journal reported today in advance of an official announcement or acknowledgement from H-P, citing sources. The paper said an announcement was expected later today, though NCR beat HP to the punch, releasing a statement today saying Hurd "has resigned from NCR, effective immediately, to accept a position with a large global technology company."
Pop-Ups On TV
TiVo is testing out pop-up ads on its service, CNET's News.com reported. The move is one way TiVo is considering to "appease companies wary of users' ability to skip over ads. The company confirmed late Monday that it released the first in a series of advertising features to a random and limited number of subscribers to the digital-video recorder service. The first test feature--a tag--pops up on the screen when a viewer is fast-forwarding through an advertisement." Oh no. What's next? Spam on TV?
Brazil's Free Software Love Fest
The New York Times has an interesting article today on Brazil's embrace of the free software movement, much to the chagrin of software powerhouse Microsoft. An excerpt from the article: ""For this program to be viable, it has to be with free software,' said Sérgio Amadeu, president of Brazil's National Institute of Information Technology, the agency that oversees the government's technology initiatives. 'We're not going to spend taxpayers' money on a program so that Microsoft can further consolidate its monopoly. It's the government's responsibility to ensure that there is competition, and that means giving alternative software platforms a chance to prosper.'"
Speaking of Microsoft, the company is following orders from the European Union and will " implement all of the major changes to its new stripped-down version of Windows requested by the European Commission, the software giant said on Tuesday. The European Union's executive had ordered Microsoft to sell a version of the world's dominant computer operating system without its Windows Media Player program after ruling that the company had abused Windows' near-monopoly to crush competition and fining it nearly 500 million euros ($650 million)," Reuters reported.
Google's Sea Urchin Moment
Google is boosting its arsenal of services with a fresh acquisition. Google Inc. has acquired a small software firm called Urchin Software Corp. The buy is "a move to bolster the software tools it provides to its advertisers. Terms of the deal weren't disclosed. Urchin, San Diego, sells 'Web analytics' -- software and services that help companies track the effectiveness of their Web sites and online advertising. The acquisition comes as Google seeks to improve its offerings for advertisers on its own site and other sites where Google sells ads," The Wall Street Journal said.
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