The Supreme Court yesterday took a hard line against companies that encourage people to share copyright music and video without paying for...

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The Supreme Court yesterday took a hard line against companies that encourage people to share copyright music and video without paying for them, but it did not condemn the technology that makes such file sharing possible.

The unanimous decision in the MGM vs. Grokster case was hailed as a clear victory for the entertainment industry, one that helps “to power the digital future for legitimate online businesses,’ said Mitch Bainwol, chairman and chief executive of the Recording Industry Association of America.

The Supreme Court sent the case back to a lower court for trial, rejecting arguments that software distributors Grokster and StreamCast were protected from liability.

Yet technology providers who had worried over a potentially sweeping ruling that might dampen innovation had some cause for relief.

“Technology developers are free to develop innovative technologies under this standard,” said Mark Wittow, partner in the intellectual-property group at Preston Gates Ellis.

Gigi Sohn, president of Public Knowledge, an advocacy group, agreed that the decision was more about behavior and business models than about the so-called peer-to-peer technology at the heart of file-sharing sites.

“Even if StreamCast and Grokster went away tomorrow,” she said, “there’s still going to be peer-to-peer, and Hollywood and the recording industry are still going to have to deal with it.”

Ruling excerpts

Here are excerpts from the Supreme Court ruling yesterday written by Justice David Souter.

MGM’s evidence gives reason to think that the vast majority of users’ downloads are acts of infringement, and because well over 100 million copies of the software in question are known to have been downloaded, and billions of files are shared across the FastTrack and Gnutella networks each month, the probable scope of copyright infringement is staggering.

The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement.

Digital distribution of copyrighted material threatens copyright holders as never before, because every copy is identical to the original, copying is easy, and many people (especially the young) use file sharing software to download copyrighted works.

As the account of the facts indicates, there is evidence of infringement on a gigantic scale.

The Associated Press

The court focused its criticism on actions the companies took to actively encourage music piracy.

StreamCast and Grokster advertised themselves as alternatives to Napster after a court forced that service to close. Their promotional materials showed copyright songs as examples of available files. And they made no attempt to filter copyright material or block people from sharing those files on their networks, the court noted.

Richard Taranto, who argued before the Supreme Court on behalf of Grokster, said he would continue to fight the case in trial and believed he could muster the evidence to prevail.

But he complained that the decision failed to provide clarity for the future.

“The court has now given as precedent a very difficult road map to follow,” he said. “You can’t be terribly sure how it will apply to you. The immediate impact to the industry will be a chilling one.”

Lower courts had relied on a 1984 Supreme Court decision involving Sony Betamax VCRs. Because the Betamax technology had substantial legitimate uses, Sony could not be sued even if people used its VCRs to copy movies illegally. (Sony, as a giant media company today, opposed the file-sharing companies.)

While it upheld the Sony standard, the high court yesterday said the Grokster case had important differences. Sony never actively promoted the use of its technology for illegal copying.

Legitimate uses of Grokster’s technology were overshadowed by the vast majority of illegal downloads.

“The probable scope of copyright infringement is staggering,” Justice David Souter wrote in the opinion of the court.

“Users seeking Top 40 songs or the latest release by Modest Mouse are certain to be far more numerous than those seeking a free Decameron,” Souter wrote, “and Grokster and StreamCast translated that demand into dollars.”

Based on those findings, the court introduced a new standard for liability.

“One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement,” Souter wrote, “is liable for the resulting acts of infringement by third parties.”

Mere knowledge that the technology is used for copyright infringement would not make a company liable, the court ruled.

While the fate of Grokster and StreamCast’s Morpheus will be determined in trial, some observers predicted other peer-to-peer services could survive if they are careful.

“Quite possibly, eDonkey and some of the other newer networks will be in the clear if they have been meticulous in their representations,” said John Beezer, president of Seattle-based Shared Media Licensing. But, he added, “they will almost certainly have to prove themselves in court … and at great expense.”

Many agreed yesterday’s decision could lead to a flurry of litigation.

The Supreme Court left open the question of how much illegal use is too much, said former Federal Communications Commission Chairman Michael Powell, an antitrust lawyer.

“How much effort are they saying the company has to make?” he asked. “How much does a service like Grokster have to do to appease the court?”

The ruling could give Web sites that sell licensed music and movies a boost, including Napster, which after being shut down returned as a site that sells music.

RealNetworks is using the event as a marketing opportunity, launching a national ad campaign today to celebrate the decision and promote its Rhapsody service.

“Hopefully we will see a nice boost,” said Jeff Schrock, vice president of business development at the Seattle company. “Distributors are going to cease to be in business, so there will be fewer illegal choices.”

It could also mean that lawsuits targeting individual file sharers become less of a focus, since media companies now have legal ammunition to use against distributors.

“Going after individuals is painful and not very customer-friendly,” said Preston Gates’ Wittow. “It’s much more efficient to go after companies promoting infringement rather than the individual infringer.”

Media giants may have won the case, but technology has forever changed the way consumers listen to music and watch videos. Media companies still have to adapt the technology to their business models.

“You still better figure out a way to provide services like iTunes to consumers,” said Powell. “You won’t litigate your way to safety here; you’re just buying time.”

Seattle Times Washington reporter Alicia Mundy contributed to this report. Kristi Heim: 206-464-2718 or