File-Sharing Firms Can Be Held Liable
Tuesday, June 28, 2005
The nation's largest media, entertainment and communications companies, often under siege by Internet-based upstarts, won a measure of relief yesterday in two Supreme Court rulings that will help define how people can go online and what they can do once they get there.
In a unanimous ruling, the court found that distributors of popular software for sharing of music and videos online can be held responsible for theft if they encourage or induce their users to illegally swap copyrighted works.
The decision hands movie and recording studios a sharper legal weapon in their campaign to try to shut down file-sharing systems that enable hundreds of millions of consumers around the world to bypass retail outlets by electronically swapping music, videos and software programs.
In a separate decision yesterday, the court ruled 6 to 3 that cable-television operators do not have to open their high-speed Internet lines to rival providers of online access. The decision affirms the Federal Communications Commission's largely hands-off strategy for managing the growth of the Internet as it becomes the backbone of the U.S. economy.
In both cases, the court effectively reinforced private or corporate ownership in the face of technologies that relentlessly challenge those boundaries. To the digital age's often-heard cry that information wants to be free -- or at least more democratically provided -- the court offered a resolute no.
"At some level, the court in these cases came down on the side of property over others who wanted to use it," said Paul Gallant, a policy analyst with investment broker Stanford Washington Research Group who served as a legal adviser to then-FCC Chairman Michael K. Powell.
In the cable-access case, the court affirmed FCC policy that companies that own the pipes that feed high-speed Internet access into homes should not be forced to share them with rivals. The FCC is examining similar rules for telephone companies for their high-speed digital subscriber line, or DSL, service, sparking fear among consumer groups and small Internet providers that online access will soon be limited to a duopoly of cable and telephone providers in most communities.
But no technology has been as potent in threatening established interests as peer-to-peer software. Nor has an Internet case attracted as much attention from across the corporate world as the case decided yesterday, MGM Studios Inc. v. Grokster Ltd.
In recent years, the major movie studios, music labels and software companies say they have lost billions of dollars in sales to illegal swappers using software distributed by Grokster, Kazaa, Morpheus, LimeWire and others.
While the entertainment industry successfully sued thousands of individual file-traders, it largely failed in efforts to punish file-sharing providers for the actions of their users.
Lower courts had ruled that under a landmark Supreme Court decision in 1984, distributors of technologies could not be held liable for illegal acts by customers if the technology has "substantial" legal uses. That case involved Sony Corp.'s Betamax video recording machine.
Moreover, the file-sharing providers argued they could not exercise control over their users, since the software connects them directly to one another.