June 28, 2005

Court rules against file-trading networks

By Deborah Charles

WASHINGTON (Reuters) - A unanimous U.S. Supreme Court ruledon Monday that Internet file-trading networks like Grokster andMorpheus can be held liable when their users copy music, moviesand other protected works without permission.

In a decision hailed by the recording and movie industries,the justices set aside a U.S. appeals court ruling that thepeer-to-peer networks cannot be held liable for copyrightinfringement because the networks can be used for legitimatepurposes as well.

The case, a suit by major film and music companies againstGrokster and Morpheus parent StreamCast, will now go back tothe district court for trial.

"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.

Online networks like Grokster and Morpheus allow millionsof computer users to copy music and movies for free from eachothers' hard drives. Entertainment firms, led by studioMetro-Goldwyn-Mayer, sued to hold the networks accountable forthe trading in copyrighted files.

Souter said Grokster and StreamCast never blocked anyonefrom using their software to share copyrighted files.

"The argument for imposing indirect liability in this caseis ... a powerful one, given the number of infringing downloadsthat occur every day using StreamCast's and Grokster'ssoftware," Souter wrote.

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.


"Today's unanimous ruling is an historic victory forintellectual property in the digital age, and is good news forconsumers, artists, innovation and lawful Internet businesses,"said Dan Glickman, president of the Motion Picture Associationof America.

Recording labels and movie studios said copying has hurttheir sales. Revenues in the recording industry have plunged byabout 25 percent since file-sharing networks emerged in 1999,though the industry posted a slight sales increase last year.

Lawyers representing Grokster and StreamCast said they weredisappointed in the ruling and said the decision would justspark a series of lawsuits.

"I think today's Supreme Court decision is going to unleasha new era of legal uncertainty on America's innovators," saidFred von Lohmann of the Electronic Frontier Foundation.

StreamCast chief executive Michael Weiss said the companywould fight at the district court level. "We are confident itwill be proven that Morpheus does not promote or encouragecopyright infringement."

The appeals court ruling that was set aside had cited alandmark 1984 Supreme Court decision involving Sony Corp'sBetamax videocassette recorder.

That ruling found Sony could not be held liable if Betamaxusers copied television shows without permission, because thedevice also could be used for legitimate purposes such astaping a show to watch later.

The Supreme Court said the appeals court had interpretedthe Sony decision too broadly in the Grokster case.

The entertainment industry managed to shut down the firstfile-trading network, Napster. The appeals court said Groksterdiffered from Napster because its software permits users toshare files with one another directly rather than going througha central computer server.

Industry experts said the decision could have broaderimplications in the technology industry and technologycompanies may appeal to Capitol Hill for more clarification.

Sen. Arlen Specter, the Republican leader of the SenateJudiciary Committee, said the committee would examine theruling and its impact on copyright law and innovation.

(additional reporting by James Vicini)