Morpheus Maker Upping the Ante

As entertainment-industry lawyers urged a federal appeals court Tuesday to rein in the Morpheus and Grokster online file-sharing networks, the company behind Morpheus released a new version of its software that makes it easier for people to copy music and movies.

The move by StreamCast Networks Inc. illustrates what is at stake at the 9th Circuit Court of Appeals: how much control copyright holders will have over the distribution of their works.

The appeals court is considering the case as intense competition among file-sharing networks is producing ever more powerful tools for copying and distributing songs, films, games and other digital goods.

If the court sides with StreamCast and Grokster -- and there were hints at Tuesday’s hearing that it would -- movie studios and record labels won’t be able to force file-sharing firms to curb the rampant piracy on their networks. Entertainment companies would have to continue suing individual file-sharers or find a way to make money in a file-sharing world.

Some copyright experts said a key factor for the three judges on the appeals panel would be whether they thought file-sharing networks were about piracy and little else.

“As a practical matter, federal judges don’t like people they think are thieves,” said Mark Radcliffe, a copyright attorney with Gray Cary Ware & Freidenrich in Palo Alto, who is not involved in the case.

In April, U.S. District Judge Stephen V. Wilson held that StreamCast and Grokster could not monitor or control what people did with their software, which enables users to find and download digital goods from one another’s computers.

Because the networks are capable of substantial legitimate uses in addition to enabling widespread piracy, Wilson ruled, they are protected by the Supreme Court’s 20-year-old decision in the Sony Betamax case.

The 9th Circuit panel is hearing the entertainment companies’ appeal of Wilson’s ruling.

The ruling applied only to the version of Morpheus deployed at the time, which wasn’t drawing nearly as many users and advertising dollars as the most popular file-sharing network, Kazaa. StreamCast released the significantly more powerful version of Morpheus on Tuesday in a bid for a larger audience. StreamCast said it was a coincidence that the new version came out the same day as the appeals court hearing.

The new version connects to all the major file-sharing networks, expanding the number of files that users can search and copy. It also provides new tools to hide users’ identities and what they’re sharing.

“We’re not telling [users] to go steal stuff,” said StreamCast CEO Michael Weiss.

“But we’re certainly not going to stand by and let people snoop on them.”

Although he couldn’t cite instances of snooping other than by copyright holders trying to stop piracy, he said, “There’s nothing wrong with protecting users’ privacy.”

At Tuesday’s hearing in Pasadena, lawyers for the music and movie industries argued that StreamCast and Grokster should be compelled to use technology to block copyrighted files from being copied without permission.

The “single, overriding question,” said Russell Frackman, an attorney for the record companies, is whether StreamCast and Grokster “can be permitted to knowingly build and operate and profit from a business that is built on preventable -- and I underscore preventable -- massive copyright infringement. A business that could be operated lawfully if the defendants chose to, but they chose not to.”

Judge John T. Noonan Jr. told Frackman the same arguments applied to Sony Corp. and its Betamax video tape recorder, which Hollywood studios tried to block in the late 1970s. The Supreme Court ruled that technologies that enabled piracy could be legal if they were capable of substantial legitimate uses.

Fred von Lohmann, an Electronic Frontier Foundation attorney representing StreamCast, argued that under the Sony ruling, it was up to Congress, not the courts, to decide how to adapt copyright law to new technologies.

The entertainment companies’ attorneys argued that the Betamax case didn’t protect StreamCast because of several key differences between the file-sharing companies and Sony. Two more relevant precedents, they said, were the 9th Circuit’s rulings against the Napster file-sharing network in 2001.

In those pretrial rulings, the 9th Circuit ruled against Napster because the company knew its users were committing piracy but didn’t do everything it could to stop it.

The courts also required Napster to add new technology to stop users from sharing copyrighted works.

That’s just the sort of requirement the music and movie industries want the court to impose on StreamCast and Grokster, Frackman said.

Both Noonan and the presiding judge on the panel, Sidney R. Thomas, seemed troubled by the apparent conflict between the Betamax and Napster rulings. But Grokster attorney Michael Page said Napster wasn’t required to change its technology until after the courts were convinced of the company’s liability for copyright infringement.

And unlike Napster, Page argued, the new networks are built in a way that doesn’t control what users do. If they were liable because they could protect copyrights by changing their technology, he said, the same argument could be used to hold Microsoft liable for its e-mail software, Internet service companies for providing Web access, and electronics firms for making CD burners.