Legal Victory for File Sharing

The decision by a three-judge panel of the 9th Circuit Court of Appeals was a defeat for major record labels and Hollywood studios, which fear that runaway online piracy of songs and movies could destroy their businesses.

And it was a victory for developers of rapidly evolving technologies that are changing how people get their entertainment.

The battle over file sharing is now likely to shift to Washington. Congress is considering a bill that would crack down on the companies making the software used by millions to copy music, movies and games over the Internet.

What's more, if the entertainment industry appeals the decision, the U.S. Supreme Court could revisit its landmark Sony Betamax ruling, which protects from copyright lawsuits products that have substantial legitimate uses.

The 9th Circuit panel relied on that 1984 ruling in unanimously affirming a lower-court decision issued last year that the companies behind the Grokster and Morpheus networks don't violate copyright law, even though many of the people who use the networks do.

The same appeals court came to a different conclusion about Napster in 2001, holding the pioneering file-sharing service responsible for its users' illegal activity because its central computers tracked all the songs available for downloading.

But today's file-sharing networks have no central computers. The companies behind such "peer to peer" systems cannot even monitor users, let alone rein them in, Judge Sidney R. Thomas noted in his opinion for the appeals panel.

Thomas suggested that the entertainment industry would adapt to file sharing in the way movie studios did after losing the Betamax case, which established the right of television viewers to record shows at home. In fact, home-video sales and rentals now generate more revenue than cinema box-office receipts.

"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," Thomas wrote. "History has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke machine or an MP3 player."