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The U.S. Supreme Court has agreed to hear a case pitting the recording and film industries and thousands of individual artists against online companies offering software often used to trade copyrighted material. Plaintiffs groups say that the companies, Grokster and StreamCast Networks, are no different from Napster and should be shut down. Napster was once the leading destination for Internet users to trade songs, videos, and software. A lawsuit filed by many of the same plaintiffs succeeded in showing that Napster was helping users to infringe on copyrights. Eventually, Napster was shut down. But Grokster and StreamCast won the first two rounds of litigation in District Court in San Francisco and before the U.S. Court of Appeals for the 9th Circuit. Differences in the technology used tilted the case in their favor. The difference is that these companies operate a decentralized system matching users rather than controlling centralized servers. Those copying music and movies do not get it directly from the Web sites but are put in touch with other individuals willing to share. Now, plaintiffs have asked the Court to reject the 9th Circuit decision, Metro-Goldwyn-Mayer v. Grokster, 380 F.3d 1154. The distinction in technology, they argue, does not inoculate defendants from the fact that their software allows users to regularly trade copyrighted information. The defendants counter that the technology serves a valuable purpose and that the copyright holders should target individual infringers rather than attacking an entire system of exchange developed on the Internet. DISTINGUISHING NAPSTER The key difference between Grokster and StreamCast and their predecessor, Napster, is the technology. The panel of appellate judges at the 9th Circuit pointed out that Napster used a “centralized indexing” system holding a list of available files. Grokster and StreamCast applied what the panel called a “decentralized index peer-to-peer file-sharing model.” Under this model, each user makes data available to others on the system through an individual computer. The defendants provide the software that lets users catalog and trade their files, but the items traded by the users do not rest in a centralized storage area controlled by Grokster or StreamCast. Without central control, even if the plaintiffs shut down their Web sites, the court wrote, they could not stop users from trading copyrighted material. Someone wanting to use Grokster or StreamCast visits the Web site and downloads the software, which is free. The companies make money by selling advertising on their sites. Through the site, a user can get referrals to the computers of other individuals who are using the same software. Material is transferred from one computer to the other and does not go through the Grokster or StreamCast server. Although taking material under copyright like this is clearly an infringement, Grokster and StreamCast say they are not responsible. They note that uncopyrighted material is often transferred as well. DIFFERENCE DENIED Napster, in contrast, kept the files on computers that it controlled. This distinction matters little to the 27,000 copyright holders who are co-plaintiffs in the case. They claim that 90 percent of the items exchanged through the software provided by the defendants is copyrighted information. “It may be technologically true but substantively irrelevant,” said Jon Baumgarten, a lawyer at Proskauer Rose who works out of the firm’s New York and D.C. offices. Baumgarten co-authored two amicus briefs on behalf of copyright holders. The 9th Circuit’s ruling forces copyright holders to pursue individual infringers rather than the enablers. While the recording industry has launched well-publicized suits against individuals, the strategy has been costly and largely ineffectual. Lacking the resources of large corporations, individual copyright holders face even larger roadblocks in pursuing violators, according to an amicus brief that was co-written on behalf of individual copyright holders and related trade groups by New York lawyers Michael Salzman of Hughes Hubbard & Reed and I. Fred Koenigsberg of White & Case. “The defendants in these actions are responsible for the aggregate activity of hundreds of thousands of users,” Baumgarten says in an interview. “We’re suing the instigators.” Suing individuals, he says, is burdensome and expensive. The strategy of targeting those who enable infringement has been used with some success by trademark holders. Lou Ederer, a trademark lawyer at the New York office of Torys, represented several fashion companies, including Tommy Hilfiger, in suits against discount chain stores accused of selling counterfeit goods. Pursuing street peddlers selling fake goods serves little economic purpose, says Ederer, but large discount chains present perfect targets. Enforcement of a court victory is feasible, and the amount of goods involved make it worthwhile to spend significant dollars on legal fees. “That’s where you really find your big scores,” says Ederer. SUING eBAY Likewise, Tiffany’s, represented by James Swire of the New York office of Dorsey & Whitney, sued online auctioneer eBay for trademark infringement early this year. Tiffany’s claimed that eBay facilitated the sale of thousands of pieces of fake jewelry marked with its label. Represented by R. Bruce Rich of the New York office of Weil, Gotshal & Manges, eBay responded that it acts as an open market and is not in the business of authenticating products sold through its Web site. It offers a service to trademark owners allowing them to remove counterfeit sellers from the auction site, it said. The Grokster plaintiffs have sued under the doctrines of contributory and vicarious copyright infringement. This allows them to target the alleged enablers rather than the individual copyright violators. The 9th Circuit rejected the vicarious infringement claim because defendants lack the power to block individual users. It rejected the contributory infringement claim saying the defendants showed that the peer-to-peer software had many uses that did not involve copyright infringement. Users trade noncopyrighted material, and a growing list of musicians distribute their music through this alternative avenue, hoping to find listeners and build a fan base. The beneficial uses seen of this technology raises a thorny issue for plaintiffs and those interested in intellectual property rights. The popular image of the battle pits rebellious teenagers against mammoth companies. The reality is that plaintiffs include thousands of individual musicians and artists who lose out on royalties when their copyrights are infringed. On the other end of the spectrum, the Computer and Communications Industry Association, which includes corporate giants like Verizon and Yahoo, has filed a brief on behalf of Grokster and StreamCast. Their brief highlights fears that a reversal of the appellate decision will curtail technological growth. Baumgarten responded that plaintiffs intend “to prevent unauthorized file sharing . . . not to disable a technological tool.” A similar battle took place this spring when Congress mulled over legislation to curb spyware. Downloaded by Internet users when they click on certain advertisements or sites, the software produces pop-up ads based on the Web sites visited by the user or searches run on search engines. While some companies like Wells Fargo and 1-800 Contacts have sued spyware providers, others, including AOL, Amazon.com, and IBM have cautioned lawmakers to avoid overly prohibitive legislation. They too seek to use this tracking technology and want to curb illegal behavior rather than the technology involved. The same dilemma will be before the Supreme Court: In a world where litigation moves at a cumbersome pace, can copyright holders effectively pinpoint infringers or should the wholesale approach they are promoting be embraced by the courts? Plaintiffs face the additional problem that future technological advancement will likely bring them to the same position. Just as they shut down Napster in 2000, they are now seeking to close down its mutated progeny. Should the plaintiffs win, it seems inevitable that a new generation of technology will bring copyright holders back to the courts seeking a legal cure for a new technological malady. APOCALYPSE YET? Copyright holders have warned of the coming of the apocalypse for the entertainment industry should infringement continue unabated. Advocates for peer-to-peer software respond by citing a 1984 Supreme Court decision, Sony Corp. v. Universal City Studios, between filmmakers and VCR producers. The decision protected the manufacturers from copyright liability and, despite calls that the VCR would destroy the movie industry, turned into a profitable technology for filmmakers. The 9th Circuit sang the same tune in its decision. “[W]e live in a quicksilver technological environment with courts ill-suited to fix the flow of internet innovation,” the panel held. “The introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through well-established distribution mechanisms. Yet, history has shown that time and market forces often provide equilibrium in balancing interests. . . . Thus, it is prudent for courts to exercise caution before restructuring liability theories for the purpose of addressing specific market abuses, despite their apparent present magnitude.” Michael Bobelian is a reporter at the ALM newspaper New York Law Journal, where this article first appeared. His e-mail address is [email protected].

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