Add Grooveshark to the list of online music sharing platforms that ran afoul of the courts not because its users were infringing songs, but because its employees were.
U.S. District Judge Thomas P. Griesa in New York ruled this week that the company operating the Florida-based streaming music service and its two co-founders were liable for infringing nine large record labels' copyrights. The liability arose, Griesa wrote Monday, because the co-founders and their employees had uploaded more than 150,000 tracks to the service themselves as they were trying to attract an audience for it.
Notably, the ruling doesn't alter the balance Congress struck in the 1998 Digital Millennium Copyright Act. Under the DMCA, companies that host material uploaded by their users aren't liable for those users' piracy, provided that the companies take down the infringing material upon request. The Supreme Court's ruling in MGM v. Grokster added one other requirement, that companies don't induce their users to infringe.
Many entertainment companies have tried to persuade Congress or the courts to strike a new balance, arguing that the DMCA hasn't been effective in stopping piracy online. Meanwhile, targets of infringement lawsuits frequently argue that they're protected by the DMCA because they're just neutral online platforms.
That's been a consistent refrain from Grooveshark, which has operated a streaming service akin to Spotify or Rhapsody for six years despite the major record companies' lawsuits. Like several of its competitors, Grooveshark lets users stream music on demand to a computer for free (with advertising) or to any device for a monthly fee (without advertising).
The main difference is that many of the tracks in Grooveshark's library were uploaded by users from their collections of MP3s, not supplied by the major labels. The service tried to strike revenue-sharing deals with the record companies, but Grooveshark's executives also maintained that they didn't really need to license the tracks because it was a platform for other people's content. Its only obligation under copyright law, they maintained, was to remove infringing files at the copyright owners' request.
This sort of legal "safe harbor" protected YouTube from liability for the enormous amount of infringing material that users had posted to its site. But Griesa didn't address Grooveshark's liability as a platform; instead, he focused on the actions of the company's founders and employees in the months after it was established in 2006.
Griesa held that Grooveshark didn't simply provide an open platform for people to play whatever music other users happened to upload. Instead, he said, the company supplied many of the tracks in its online jukebox by having employees upload as much music as they could. The company's top officials also uploaded songs to fill the gaps caused when Grooveshark removed an infringing file at a label's request, Griesa wrote. The point of all this uploading was to make sure the service had the songs needed to attract an audience.
Of course, the other way to build up a library is to license songs from the labels and music publishers. That's expensive, and the music industry has often demanded such high fees that services have floundered or never gotten off the ground. Yet there's no entitlement to launch a successful business of any kind, nor does copyright law require rights holders to be reasonable, forward-looking or innovative.
Grooveshark's employees and interns uploaded nearly 6,000 songs without the permission of the nine labels that held their copyrights, by Griesa's reckoning. But he ruled that the company and its co-founders weren't liable for 377 of these because they had been uploaded by people before they joined or after they left the Grooveshark roster.
In other words, he found the company had no liability for songs not uploaded by actual employees. Had Grooveshark's executives resisted the impulse to fill their online library with tracks themselves, it's conceivable that they could have defended themselves successfully against the labels' claims (although the courts have held that even companies complying with the DMCA may still be liable for infringing songs recorded before 1972, when federal copyrights on sound recordings replaced state ones). As it is, the company and its co-founders are facing roughly $4 million to $840 million in statutory damages.
That's going to hurt. But from the standpoint of other tech companies, at least the pain is going to be confined to Grooveshark and its founders, not to other companies that operate online platforms. Griesa's ruling is just the latest reminder that such companies can't hope to be protected by the DMCA if their own staff infringes.