Appeals Court Upholds Ruling Against Rights Owners Fighting P2P

The decision “should not be viewed as a green light for companies or individuals seeking to build businesses that prey on copyright holders’ intellectual property,” said MPAA Pres. Jack Valenti. He said copyright theft remains illegal for users, and the studios are “carefully reviewing our next steps.” RIAA hadn’t responded by our deadline.

Judge Sidney Thomas wrote the opinion released Thurs. by the 9th U.S. Appeals Court, San Francisco. The other judges were Robert Boochever and John Noonan. Thomas upheld the dist. court ruling holding that Grokster and Morpheus can’t be “contributorily or vicariously liable for copyright infringements by users.” The decision’s 2nd paragraph spelled bad news for the studio and record label plaintiffs, as it raised an argument oft-repeated by fair use advocates: “From the advent of the player piano, every new means of reproducing sound has struck a dissonant chord with musical copyright owners, often resulting in federal litigation.”

Thomas noted that P2P operators don’t contest the plaintiffs’ assertion that most of the files traded on P2P networks are copyrighted. But he cited the 1984 Sony Betamax fair use decision that even if “the defendant knew the machines were being used to commit infringement,” that didn’t mean the manufacturer was liable. He said that doctrine was applied in the Napster ruling. P2P can have noninfringing uses, Thomas wrote, noting the many examples the defendants had submitted. The copyright owners “submitted no evidence that could contradict these declarations,” Thomas wrote, instead repeating that most of P2P’s use was infringing. “This argument misapprehends the Sony standard as construed in Napster I, which emphasized that in order for limitations imposed by Sony to apply, a product need only be capable of substantial noninfringing uses.”

“The appeals court was basically telling the entertainment industry to chill,” said Morrison & Foerster’s Jonathan Band: “It said the sky is not falling. That’s an interesting argument for an appeals court to make.” He said the ruling also seemed to make an effort to avoid consideration by the Supreme Court. A footnote in the decision said the court was “mindful that the Seventh Circuit has read Sony’s substantial noninfringing use standard differently,” but then said the Aimster ruling in that circuit didn’t support the copyright industries’ case in Grokster. “They seem to want to downplay a possible circuit split,” Band said.

While the movie studios and record labels had hoped for Grokster to be reversed on appeal, they also have wholeheartedly supported a bill (S-2560) by Senate Judiciary Committee Chmn. Hatch (R-Utah) and ranking Democrat Leahy (Vt.) that aims to hold P2P providers liable for secondary infringement. Among the bill’s cosponsors are Senate Majority Leader Frist (R-Tenn.) and Minority Leader Daschle (S.D.). Hatch and Leahy both vowed at a hearing last month (WID July 23 p1) to move the bill when the Senate returns in Sept. At that hearing, several witnesses expressed concern that the bill would extend liability far beyond P2P providers, and Hatch and Leahy have asked for parties to propose legislative language that would ensure it targeted widespread infringement but didn’t deter technology development.

The 3-judge decision “is going to renew attention to S- 2560,” said Public Knowledge Legal Dir. Mike Godwin. “There’s no disputing [in the decision] that infringement is going on,” he said, but the question before Congress is “whether [S-2560] is the right approach or even a necessary approach.” As for the decision itself, Godwin said “the court got it right.” But Band said Hatch and Leahy likely wouldn’t have introduced the bill if they hadn’t suspected the appeals court would uphold the Grokster decision.

The decentralized nature of P2P again played in its favor in a court decision. Napster was essentially shut down because it had centralized servers under the company’s control, Thomas wrote. But no central index is maintained by Morpheus’ Gnutella-type network or Grokster’s Kazaa-type network. “As the district court observed,” Thomas wrote, “even if the software distributors ‘closed their doors and deactivated all computers within their control, users of the products could continue sharing files with little or no interruption.'” The court found that it didn’t appear “either of the defendants has the ability to block access to individual users.” P2P “is not simply a tool engineered to get around” the Napster rulings, he wrote. “The technology has numerous other uses, significantly reducing the distribution costs of public domain and permissively shared art and speech, as well as reducing the centralized control of that distribution.”

The appeals court seemed to be even tougher than the dist. court on the content industries, Band said. “It went out of its way to talk about the noninfringing uses of this software,” he said. While the dist. court ruling “seemed to suggest that these guys [P2P providers] were trying to use a loophole” to get around the Napster rulings, the appeals court explicitly said that wasn’t the case.

Copyright holders argued that P2P operators shouldn’t be allowed to turn a “blind eye” to infringement by users, but Thomas said that while “that rhetoric has occasionally been employed in describing vicarious copyright infringement, there is no separate ‘blind eye’ theory or element of vicarious liability that exists independently of the traditional elements of liability.”

Siding with the plaintiffs would mean “expanding exponentially” the reach of contributory and vicarious copyright infringement, Thomas wrote. “Not only would such a renovation conflict with binding precedent, it would be unwise,” he wrote: “Doubtless, taking that step would satisfy the copyright owners’ immediate economic aims. However, it would also alter copyright law in profound ways with unknown ultimate consequences outside the present context.” He also wrote that in a “quicksilver” age, courts are “ill-suited to fix the flow of Internet innovation… Indeed, the Supreme Court [in Sony] has admonished us to leave such matters to Congress.” Hatch cited a similar statement in the dist. court ruling when he introduced S- 2560. But Band questioned the appeals court on that point. “Congress is equally ill-suited” to react quickly to Internet developments, he said.