June 27, 2005

File-trading networks can be liable-court

WASHINGTON (Reuters) - A unanimous U.S. Supreme Court ruledon Monday that Internet file-trading networks can be heldliable when their users copy music, movies and other protectedworks without permission.

The justices set aside a U.S. appeals court ruling that thepeer-to-peer networks cannot be held liable for copyrightinfringement because they can be used for legitimate purposesas well.

"We hold that one who distributes a device with the objectof promoting its use to infringe copyright ... is liable forthe resulting acts of infringement by third parties," JusticeDavid Souter wrote for the court.

The case had been closely watched by the entertainment andtechnology industries as a test of copyright law in thecomputer era. It was considered the most important copyrightcase to reach the Supreme Court in more than two decades.

Online networks like Grokster and Morpheus allow millionsof computer users to copy music and movies for free from eachothers' hard drives.

Recording labels and movie studios said the copying hashurt their sales. Revenues in the recording industry haveplunged by about 25 percent since file-sharing networks emergedin 1999, though the industry posted a slight sales increaselast year.

The appeals court cited a landmark 1984 Supreme Courtruling that Sony Corp. could not be held liable if users of itsBetamax VCR copied television shows without permission becauseit also could be used for legitimate purposes such as taping ashow to watch later.

The entertainment industry appealed to the Supreme Courtafter the appeals court ruling in the file-sharing case, andthe U.S. Justice Department supported the appeal. The rulingwas a victory for them.

Technology companies argued that holding the networksliable would stifle creativity and deter inventors fromdeveloping new products.

The entertainment industry managed to shut down the firstfile-trading network, Napster. But the appeals court found thatGrokster differed significantly from Napster because itssoftware permits users to share files with one another directlyrather than going through a central computer server.