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Firms Can Be Held Liable for Net Piracy

High court sides with the entertainment industry in the fight against illegal file sharing.

June 28, 2005|Jon Healey and David G. Savage | Times Staff Writers

WASHINGTON — The Supreme Court gave the entertainment industry a new legal weapon against Internet piracy Monday, ruling that companies that actively encourage people to download free copies of music or movies can be held liable for their users' illegal acts.

The unanimous ruling sets a new standard for distinguishing legitimate innovators from those who deliberately profit from online bootlegging. This guideline is a landmark for copyrights in the Internet era. But its practical effect on Internet piracy is likely to be limited because large online sources of illegal music and movies remain unscathed.

Central to the case was how to balance the interests of two of California's signature industries: entertainment and technology. The studios and major record companies that brought the case against two file-sharing networks had asked for a list of changes to copyright law that could have altered how consumer electronics, computer and high-tech companies develop and market their products.

Although some companies and consumer advocates said Monday's decision gave Hollywood too much power, others praised the court for protecting copyrights without stifling technological innovation.

"The green light to develop cool and new technologies is still there," said Markham Erickson, executive director of a high-tech trade group.

The justices did not actually decide the entertainment industry's claims against two file-sharing companies, StreamCast Networks Inc. of Woodland Hills and Grokster Ltd. of the Caribbean island of Nevis. Instead, they sent the case back to U.S. District Court in Los Angeles.

Still, by declaring that unauthorized downloading is illegal, the court buttressed the entertainment industry's campaign to stop people from bootlegging music and movies online. That campaign has included educational programs and advertisements about the illegality of piracy as well as more than 11,000 copyright infringement lawsuits against individual users of file-sharing software.

"This decision [Monday] was meant to underscore ... what is right and what is wrong, what is legal and what is illegal by all of society's basic norms. And the court did that today," said Andrew Lack, chief executive of Sony BMG Music Entertainment.

Added former Grokster President Wayne Rosso: "This is a huge PR win for the record industry in the fight for hearts and minds. If I'm running the [Recording Industry Assn. of America], I'm filing a huge number of consumer lawsuits this week just to drive that point home."

Rosso now runs Mashboxx, an industry-authorized file-sharing service.

Technology advocates aligned with StreamCast and Grokster argued that the ruling only muddied the legal waters for innovators. They complained that the decision would discourage small companies from developing new digital products that might be used for piracy as well as legitimate purposes, mainly because they couldn't afford to defend their intentions in court.

"With this decision, the legal clarity has decreased, and the risk of litigation has increased," said Michael Petricone, a top lobbyist for the Consumer Electronics Assn. "From a competitive standpoint, that's not a good thing."

The battle over file sharing began in 1999, when the original Napster network made it simple for people to copy songs for free from each other's computers. The major record companies and music publishers sued Napster for copyright infringement within months of its debut, and the U.S. 9th Circuit Court of Appeals in San Francisco held in early 2001 that the company was liable for its users' piracy.

After Napster's demise, millions of users flocked to a new generation of file-sharing programs distributed by Grokster, StreamCast and numerous other companies. Unlike Napster, these companies did not maintain the indexes needed to find files on users' computers; instead, they designed their software to form self-sustaining file-swapping networks.

The new file-sharing programs generated revenue by pumping advertisements and intrusive software onto users' computers. To the major music companies and Hollywood studios, this was doubly offensive -- not only were the companies helping people copy songs and movies for free, but they also were milking advertisers for access to a huge audience of infringers.

With Metro-Goldwyn-Mayer Studios Inc. as the lead plaintiff, the major record labels, movie studios and music publishers sued StreamCast and Grokster for copyright infringement in October 2001. But U.S. District Judge Stephen V. Wilson dismissed most of their claims in April 2003, and the 9th Circuit upheld his ruling a year later.

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