File-Sharing Networks Relying on VCR Ruling

As entertainment companies struggle in court to defend their music and movies against a new generation of digital pirates, one of their biggest challenges is an 18-year-old Supreme Court ruling on a defunct technology.

The major record companies and Hollywood studios have sued a series of online file-sharing companies, accusing them of fueling rampant piracy of songs and videos on the Internet. In response, the file-sharing networks have relied on the Supreme Court’s 1984 ruling in the Sony Betamax case, which held that Sony Corp. wasn’t liable for copyright infringement because its videocassette recorders had “substantial” legitimate uses as well as illegal ones.

Two file-sharing networks--Napster Inc. and Aimster (later renamed Madster)--sought refuge in the Betamax case with no great success. Now, three popular successors--Morpheus, Kazaa and Grokster--are relying on Betamax in a critical pretrial skirmish.

If the file-sharing companies win, the music and movie companies would be forced to turn their legal guns directly onto consumers who make pirate copies. That’s a step the entertainment industry has been loath to take because it’s expensive and might alienate customers. But if the file-sharing companies lose, some advocates say, the shrinking scope of the Betamax ruling could put a damper on new technology.

“If the Betamax doctrine is eroded, you end up in a situation where innovation generally suffers, and you’re limited to whatever technology Hollywood thinks we deserve,” said Fred von Lohmann of the Electronic Frontier Foundation, which is helping to defend Morpheus. “It’s just an untenable situation if in fact copyright law makes it impossible for innovators to do what they do.”

Matthew J. Oppenheim, senior vice president of business and legal affairs at the Recording Industry Assn. of America, agreed that the file-sharing cases are refining the scope of Betamax. But as the judge in the Madster case ruled, there’s a fundamental difference between a VCR that works in a consumer’s home and an online network that distributes files around the globe.

“There’s nothing in the Sony decision that says it extends to distribution,” Oppenheim said.

The lawsuit against Morpheus, Kazaa and Grokster is being heard by U.S. District Judge Stephen V. Wilson in Los Angeles. Lawyers for the entertainment companies, Morpheus and Grokster filed briefs Monday urging Wilson to decide the case without a trial, but no ruling is expected for several months.

Napster and Madster went into bankruptcy before the copyright infringement lawsuits against them were decided. Still, the record companies and music publishers won pretrial injunctions against both companies, and those rulings could prove influential in the Morpheus case.

In particular, the U.S. 9th Circuit Court of Appeals, which considered the injunction against Napster, and U.S. District Judge Marvin E. Aspen, who heard the case against Madster, declared that consumers don’t have the right to copy music from strangers over the Internet, even when no money changes hands.

Based on that reasoning, copyright lawyers say, an online file-sharing company could be liable for “contributory” infringement if it knew of the copying but still assisted it, or “vicarious” infringement if it benefited financially from the copying and could have stopped it.

The 9th Circuit held that Napster couldn’t be held liable simply because its technology enabled people to pirate music, but it also ruled that the company wasn’t protected by Betamax because it knew what its users were doing.

The record companies and music publishers alerted Napster to more than 12,000 infringing song files available on its network, and the company failed to purge those files from its system, the court held.

The main difference between Napster and the three file-sharing networks now being sued is that Napster kept central directories of the files on users’ computers. Like most of the file-sharing companies that emerged in Napster’s wake, Morpheus, Kazaa and Grokster don’t have central directories. And as a consequence, their lawyers say, they have no way to monitor or control what their users do.

The courts are trying to determine how much a file-sharing company must know about and participate in its users’ piracy to be held liable, said attorney Neil J. Rosini, a copyright expert at Franklin Weinrib Rudell & Vassallo in New York.

“Grokster and the like take the position that ‘It’s not us. We’re just dumb pipes through which other people act.’ And copyright owners are attempting to take the position that they’re more than dumb pipes, that they’re encouraging members to infringe ... and they’re doing that for the purpose of making money,” Rosini said.

In his ruling against Madster, Aspen held that the Betamax decision wouldn’t apply unless Madster demonstrated that its primary use was legitimate. But the 9th Circuit appears to disagree, saying the issue is simply whether a file-sharing network is capable of substantial legitimate uses.

That means the courts must weigh not only the current uses of a network but also the potential future benefits of the technology, said Charles S. Baker, an attorney for StreamCast Networks Inc., the company that distributes Morpheus’ software.

Michael Page, an attorney for Grokster, agreed, saying one of the issues is “how significant do [the legitimate uses] have to be.”

Said Von Lohmann of the Electronic Frontier Foundation, “The Supreme Court got the answer right in the Betamax case. You don’t measure [the amount of legitimate use] at all. So long as it is capable of a legitimate use, you let it go.”

With this thinking in mind, the companies behind Morpheus, Kazaa and Grokster have tried to encourage copyright owners to use file-sharing as a legitimate promotional or distribution tool. Examples include offering independent musicians and game developers tools to disperse sample songs or copy-protected versions of games.

Oppenheim of the RIAA said the rulings in the Napster and Madster cases make clear why Betamax doesn’t apply to file-sharing networks, even if the decisions don’t necessarily bind Wilson in the Morpheus, Kazaa and Grokster case. For example, he said, Aspen held that the Betamax ruling applies only to discrete products, such as a VCR, that are used by customers as they see fit, and Madster doesn’t fit that definition.

Aspen also pointed out the many ways Madster knew or should have known about the piracy enabled by its software. Although some of his arguments applied only to Madster, others also could apply to Morpheus, Kazaa and Grokster.

In a joint brief filed Monday, the major record companies, music publishers and movie studios argued that the three file-sharing companies are well aware of the piracy on their networks, and that they could prevent it. They also argue that unlike Sony, the companies do more than just distribute a product--they also actively sustain the file-sharing networks.

To Rosini, it’s just too great a stretch to think the Betamax decision extends to online file-sharing networks that consumers use to copy billions of songs, videos and other files from one another’s computers free.

“The Supreme Court in deciding the Sony case couldn’t have intended to permit a massive system of infringement to be called exempt from the copyright law,” Rosini said.

“It just defies reason to think otherwise.”