U.S. File-Sharing Case Could Have International Impact

Washington, D.C.–The biggest copyright case in the United States in decades will be felt around the world and have an impact on the future of the Internet regardless of the outcome, both sides of the case say.

The case, MGM v. Grokster, goes before the U.S. Supreme Court for oral arguments on March 29. Entertainment company MGM Studios brought the case in hopes of showing that Grokster and Streamcast, which make and distribute peer-to-peer software for sharing electronic files, are liable for infringing uses of its copyrights by their consumers.

While both sides agree the outcome will have an international impact, they disagree on whether it violates any international agreements to which the United States is a party, and whether the legal principle of secondary liability comes into play in this case.

The entertainment industry argues that the U.S. Ninth Circuit Court of Appeals was wrong to conclude that Grokster and Streamcast are not liable for what they termed “millions of daily acts of copyright infringement” that constitute at least 90 percent of the total use of their services and have caused significant harm to their industry. They said the decision runs contrary to “long-established” principles of secondary liability in copyright law.

The technology industry counters that the entertainment industry argument is not consistent with a landmark 1984 Supreme Court decision known as Sony Corp. of America v. Universal City Studios. The decision found that manufacturers or distributors of Sony Betamax videocassette recorders (VCRs) were not liable if users infringed on television broadcast copyrights. A key element of the ruling was that the VCR was an instrument that had potentially infringing and non-infringing uses, and it was the infringers who would be held responsible.

The Sony Betamax case “really has been a leading precedent internationally,” said Fred Lohman, an attorney with the Electronic Frontier Foundation, which is representing Grokster in the case. The number of historic cases dealing with these issues is in the single digits, he added.

Sides Eye Legislative Remedies After Ruling?

In any event, the impact of the Grokster decision could be delayed, as many observers predict that the ruling will be tested in the U.S. Congress and elsewhere.

“A victory by the entertainment industries in Grokster will chill a variety of major technology companies in the computer and consumer electronics sectors. Those industries would then have to look to legislative measures to ease the burden,” Lohman said. “As a result, some may opt to press for collective licensing solutions.”

“In Europe, in particular, where private copying levies are a familiar part of the copyright landscape, the technology sector might well press for a blanket levy that would legalize a wide variety of legitimate digital consumer practices,” he said. “In the U.S., in contrast, I expect a legislative push to restore the Betamax rule in its entirety.”

The current case crosses political ideologies and pits some of the world’s largest industries against each other, but is ultimately about consumers. Both sides acknowledge that consumers increasingly want new and better ways to move and download movies, music and other information. And both sides, perhaps especially stressed by the technology industry, think that their approach will lead to the most innovation and consumer use. Furthermore, the case comes at a time when many in the United States are raising concern that the nation is losing its competitive edge on innovation.

In addition, both sides say that the outcome will impact laws and consumers worldwide but disagree on how.

“Deleterious” International Effect?

“It is significant in that the rest of the world has always looked to the United States as kind of the first mover to set an example on how to address these new technology issues,” said Lohman.

A group of international rights owners agreed. “The Ninth Circuit’s decision will have a deleterious ripple effect on similar cases involving so-called ‘decentralised’ peer-to-peer file transmissions and copying services in other countries,” the group said in an amicus brief in the case.

The international group includes: the Bureau International des Sociétés Gérant les Droits d’Enregistrement et de Reproduction Mécanique and the International Confederation of Societies of Authors and Composers, both based in France, International Confederation of Music Publishers based in Switzerland, International Federation of Actors, registered in the United Kingdom, International Federation of the Phonographic Industry, registered in Switzerland, International Federation of Film Producers, based in France, International Publishers Association, based in Switzerland, and the International Video Federation, based in Belgium.

The group argued that the Ninth Circuit decision denies international rights holders effective means of enforcing their rights against “massive” infringements on P2P services, and that doing so violates numerous international agreements to which the United States belongs. The agreements protect their right to authorise or prohibit reproduction, distribution or Internet transmission of their works, they said.

“If United States law is now perceived to allow businesses like defendants’ to function without restraint, or is perceived as inconsistent or unreliable, this spill-over problem [to enforcement of U.S. copyrights outside the United States] will be global, massive and impossible to reverse,” they argued. Rights holders are going after the technology providers because it is unrealistic to try to thwart the individual infringers, they added. The industry has sued thousands of individual users in the United States.

Agreements cited include the Berne Convention for the Protection of Literary and Artistic Works (protecting authors), World Trade Organisation Agreement on Trade-Related Aspects of Intellectual Property Rights, World Intellectual Property Organisation “Internet treaties” (protecting authors, producers and performers on the Internet), Universal Copyright Convention (protecting authors in parallel with the Berne Convention), and the Geneva Phonograms Convention (protecting producers against unauthorised reproduction of their works).

But in an amicus brief filed in support of Grokster, Sharman Networks countered these claims. Sharman, which operates KaZaA, the most downloaded P2P service ever, is registered in Vanuatu with management services in Australia and Europe. The company is a defendant in the case but not a party to the appeal.

“Uncharted Territory” In International Law

Sharman argued that there are no provisions in international treaties or law that deal directly or indirectly with secondary liability for copyright infringement. In addition, there is “no pattern or consistency as to how secondary copyright liability is treated in national laws” even in major U.S. trading partners like Australia, Canada and the European Union, it said.

“Internationally, secondary liability for technology providers is completely uncharted territory,” Lohman said in an interview. Around the world, “there is certainly nothing approaching consensus on how this should be addressed.”

Furthermore, Sharman argued, current U.S. law on secondary copyright liability is more favourable to foreign copyright holders than foreign laws. It pointed to a case that rights holders won against Napster, a former free music downloading service, which was found to be an active contributor to music copyright infringement.

Sharman also argued that foreign rights owners have access to enforcement mechanisms in U.S. courts, and can challenge U.S. law through international treaties. Finally, it said the court is being asked to overturn the Sony case and usurp the role of the U.S. Congress and the executive branch.

Gary Shapiro, president and chief executive officer of the Consumer Electronics Association, said at a recent conference that innovation is now focused on moving content around. Innovation is being “choked” by legal wrangling, Shapiro said, and small companies are worried about “getting sued out of existence by the content industry.”

“As the tools of reproduction migrate into the hands of consumers, you have a situation where copyright holders feel the need to control and regulate that,” Lohman said. He likened the Grokster case to going after photocopier manufacturers for illegal copying by users.

“It is unusual to try to hold a technology company liable,” said Lohman. “We have not traditionally extended copyright liability that far,” Lohman said, adding, “In most countries, no one has tried to hold technology companies responsible.”