Supreme Court to Hear File-Sharing Dispute

WASHINGTON — The Supreme Court, heeding the pleas of the entertainment industry, agreed Friday to consider calling a halt to Internet file sharing that allows millions of computer users to obtain free copies of music and movies.

Legal experts said the case, due to be decided in the spring, could be the most important test of copyright law in the computer era. If the court imposes new rules on computer and consumer-electronics companies, it could threaten the innovation that has expanded the public’s control over songs, movies and other forms of entertainment with devices such as the TiVo video recorder and the iPod music player.

Lawyers for Hollywood studios and record companies argue that they aren’t trying to crimp technology: They just want to stop companies that seek to profit from piracy, which they say “is inflicting catastrophic, million-dollar harm” on their businesses. Estimates of lost music sales range from $700 million to several billion dollars a year, they said.

At issue is whether owners of copyrighted works can bar software makers from giving computer users the means to copy those works freely from one another’s computers. If the answer is no, then “copyright soon will mean nothing on the Internet,” lawyers for the entertainment industry told the high court.

The owners of the Grokster and Morpheus file-sharing networks counter that they are not making illegal copies themselves. Instead, millions of individuals are copying movies and music from one another with the help of their technology.

Just as the maker of a photocopier is not liable if a user illegally runs off thousands of copies of a copyrighted book, the file-sharing companies say they are not liable for the actions of those who use their software for illicit downloading — and they shouldn’t be forced to pay billions of dollars in damages.

That argument prevailed before a federal judge in Los Angeles and the U.S. 9th Circuit Court of Appeals after seven major Hollywood studios and four major record companies sued Grokster Ltd. and Morpheus owner StreamCast Networks Inc., alleging they contributed to copyright infringement on a massive scale.

The 9th Circuit acknowledged that “the vast majority of the files are exchanged illegally.” But the judges said the makers and distributors of the software could not be held liable for “contributory” or “vicarious” infringements. That’s because the companies did not know that its users were making illegal copies until after they had done so and because their software was not built to detect or prevent piracy.

Federal courts in California shut down Napster, the pioneering file-sharing network, because it maintained an index to help users find and download songs stored by other people’s computers. By contrast, the StreamCast and Grokster programs enable users to find song files on their own with no help from their companies, and this distinction made all the difference for the 9th Circuit Court.

The appeals court relied heavily on a 1984 Supreme Court ruling that shielded Sony Corp. from copyright infringement charges stemming from one of its most famous inventions: the VCR. Sony’s Betamax recorder allowed TV viewers to tape their favorite programs and watch them at their convenience. Hollywood studios sued, alleging that the machines encouraged the making of illegal copies. By a vote of 5 of 4, the high court ruled that VCRs were legal, even if they could be used in illegal ways.

The “time shifting” of programs for later viewing was a fair use of copyrighted programs, Justice John Paul Stevens wrote for the court in Sony Corp. vs. Universal City Studios. In light of the new technology, Congress was free to pass a law forbidding that sort of activity if it chose to do so, said Stevens, now the senior associate justice.

The 9th Circuit echoed those themes in its file-sharing decision in August.

“We live in a quicksilver technological environment with courts ill-suited to fix the flow of Internet innovation,” the appeals court judges said. They urged the entertainment industry to take their complaints to Congress and seek a change in copyright law.

Instead, the industry went to the Supreme Court.

By agreeing to take the case, the justices effectively agreed to clarify what the landmark Betamax decision means today.

Some observers surmised that some justices wanted to modify the Betamax ruling. One of the dissenters in that case was William H. Rehnquist, now the chief justice.

Legal experts say there are two main questions for the court to answer.

The first is whether the primary use of a technology has to be legitimate in order for it to be protected from lawsuits. The 9th Circuit said no, but the entertainment industry argues that the answer should be yes.

“Companies such as Grokster and StreamCast that openly profit from the misuse of copyrighted materials while attempting to avoid legal liability should not be protected by the courts,” said Dan Glickman, chief executive of the Motion Picture Assn. of America.

Technology companies contend that the market determines how new products will be used, and it’s impossible to predict what uses might emerge over time as people adapt to technological innovations.

The second key question is whether companies have a responsibility to build copyright protection into products that have the potential to fuel piracy.

The entertainment industry believes they do, particularly if they are file-sharing companies. It may be technically feasible — several start-ups, including Snocap and Wurld Media, offer tools to deter people on file-sharing networks from making unauthorized copies. But those technologies haven’t been shown to work on a network as large as Grokster or Morpheus.

“There is a right way and a wrong way to distribute music online,” said Mitch Bainwol, chief executive of the Recording Industry Assn. of America.

StreamCast Chief Executive Michael Weiss said the dispute boiled down to whether the entertainment industry and other “special interest groups” had the right to control technological innovation.

“This case is about getting software developers out of the way, stifling innovation, so big entertainment companies can control this distribution channel the way they see fit,” he said.

This is the issue that has the computer and consumer-electronics industries most on edge. If the Betamax doctrine is narrowed, companies fear, they will have to clear new products and features with Hollywood to avoid being sued for the actions of their customers.

Alternatively, they could play it safe by shelving any innovation that might land them in court. Had that mind-set prevailed for the past 20 years, consumers today might not be recording TV shows with TiVo, listening to music on iPods or staying in touch with friends via e-mail programs, industry executives say.

“If technology companies feel that if there’s a potential for an unlawful use … that could affect the way technology develops,” said Cydney Tune, a copyright law expert in San Francisco.

Tune said the high court could well decide that the Betamax doctrine is due for an overhaul. The entertainment industry has a much bigger problem today than the one Hollywood faced with the VCR, she said.

“We’re basically living in a world where you can make unlimited copies of excellent quality very quickly and distribute them to literally millions of people very quickly, and there are no territorial limits,” she said. “It’s not like when you had to put a tape in your car and drive it to somebody, or mail it.”

The Senate Judiciary Committee tried this year to develop a bill that would rein in file-sharing profiteers without chilling technological innovation, but several months of work yielded no consensus on how to do it. Key sponsors of the bill, including Sen. Orrin G. Hatch (R-Utah) and Sen. Patrick J. Leahy (D-Vt.), said they would try again in the new Congress that convenes in January.

The major record companies and movie studios also are suing individual users of file-sharing networks. The record companies have targeted more than 6,000 people since September 2003, and more than 1,200 have settled, typically for $3,000 each. The studios brought their first lawsuits against more than 200 people last month.

It would be much more efficient, however, for the entertainment industry to sue the companies behind the networks rather than the tens of millions of people who use them.

Still, file sharing is so prevalent that the entertainment industry cannot hope to stop it completely. For instance, the popular Gnutella file-sharing network was developed by volunteers instead of a company, so there is no single entity to sue.

Briefs on both sides of Metro-Goldwyn-Mayer Studio vs. Grokster will be filed in the next few months, and oral arguments are likely to be in late March.