Internet file-sharing takes a hit

Distributors of peer-to-peer software that enables Internet users to download music, movies, and other retail products free of charge can be held liable for helping others violate US copyright law.

In an important ruling shoring up digital-age protections for the entertainment, music, and publishing industries, the US Supreme Court Monday embraced a more aggressive enforcement of copyright laws threatened by new technologies on the Internet.

More specifically, the court ruled 9 to 0 that technology companies distributing products with intent to cause copyright infringement can be held responsible. "One who distributes a device with the object of promoting its use to infringe copyright ... is liable for the resulting acts of infringement by third parties using the device," writes Justice David Souter for the court.

The case has been portrayed as a potential turning point in the application of law to the Internet, with the court seeking to balance the interests of copyright owners such as the entertainment industry against a broad public interest in continued robust technological innovation.

The ruling marks a setback for technology advocates who had warned that too rigid a focus on copyright enforcement could smother innovation. They say Congress - not judges - should carefully examine the problem and adopt regulations.

The entire court disagreed. It found that copyright infringement in the case was taking place "on a gigantic scale" and that there was "unmistakable" evidence that the parties were acting with unlawful intent. "Evidence of active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use, shows an affirmative intent that the product be used to infringe," Justice Souter writes.

He notes that, despite offsetting considerations about creativity and technological innovation, when there was such widespread infringement "it may be impossible to enforce rights in the protected work effectively against all direct infringers." He says the only practical alternative is to hold the device's distributor responsible under a theory of secondary liability.

The case revolves around software applications for file-sharing distributed via the Internet by two companies, Grokster and StreamCast Networks. The companies facilitate the transfer of digital data - including perfect copies of music, movies, and other copyright-protected material - from one computer to another.

MGM, the recording industry, and other copyright holders filed suit against Grokster and StreamCast, charging that they were helping Web surfers bypass copyright laws and retail prices to directly download music and movies without paying for them.

Industry officials estimate that 2.6 billion illegal downloads occur per month. The recording industry says it has lost 25 percent of its revenue since file-sharing began.

Grokster's lawyers counter that there are a number of legitimate uses for its software - including accessing thousands of free songs posted by rock bands seeking to use the Internet to build exposure.

The case is an offshoot of an earlier showdown over a company called Napster, which was offering free downloads of music. The Ninth US Circuit Court of Appeals ruled in 2001 that Napster could be held partly liable for copyright violations by those using its file-sharing program. The court ruled that Napster officials could have policed the illegal downloading activities through the company's centralized servers, but instead ignored the lawbreaking.

To bypass such legal liability, Grokster and StreamCast decentralized their servers, making it impossible for them to monitor how their file-sharing programs were being used.

Grokster's lawyers based their defense on a 1984 US Supreme Court decision involving the copyright implications of the Sony Betamax videocassette-recorder system. In that case, the entertainment industry had complained that VCRs would facilitate massive copyright infringement by allowing home viewers to record movies directly from their television sets. They asked the high court to ban the sale of VCRs or at least require that they not be equipped to make recordings.

The majority justices declined to sanction such a drastic move. Instead, the court used the Sony case to announce a broad rule: If the technology is capable of substantial noninfringing uses that are commercially significant, the provider of that technology cannot be held liable for contributing to whatever infringement may take place by others using that technology.

The justices said much of the home taping was time shifting - recording a show for more convenient viewing later. But the justices also recognized that some other taping would clearly violate copyright laws. This was the price of fostering continuing and robust technological innovation, the court reasoned.

The significance of Monday's Grokster decision is that the court went one step further in clarifying the reach of the Sony case.

"Nothing in Sony requires courts to ignore evidence of intent to promote infringement if such evidence exists," Souter writes.

• Linda Feldmann contributed to this report.