December 10, 2004 3:34 PM PST

Supreme Court to hear P2P case

The U.S. Supreme Court on Friday said it would hear a controversial case on whether file-sharing software companies could be held legally responsible for copyright infringement on their networks.

The court's action is good news for big record labels and Hollywood studios, which have lost successive rulings on the issue in lower courts. They want software companies like Morpheus parent StreamCast Networks and Grokster to be held legally responsible when copyrighted material is swapped using their software.

"There are seminal issues before the court--the future of the creative industries and legitimate Internet commerce," Mitch Bainwol, chief executive officer of the Recording Industry Association of America, said in a statement. "These are questions not about a particular technology, but the abuse of that technology by practitioners of a parasitical business model."

The court's decision could also be a sobering sign for technology companies well outside the world of file-swapping. At the core of the case is an interpretation of a 20-year-old decision that made VCRs legal despite their ability to copy TV shows and movies, which ultimately helped pave the way for a host of technologies ranging from CD burners to Apple Computer's iPod.

That case, known as the Sony-Betamax decision, set out rough guidelines under which technology used to make illegal copies of copyrighted material could be distributed without the manufacturer being responsible for the resulting piracy, as long as the product was also capable of "substantial noninfringing uses."

That's been enormously influential for computer and consumer electronics makers over the past few years, particularly as music and movies have been turned into easily copied digital formats. Indeed, all MP3 player makers, including Apple, owe their recent history to a 1999 decision in which a judge said MP3 players were capable of playing legally purchased music, and were therefore legal.

"I don't think anybody had a clue how significant that decision was when it came out," said Jim Brelsford, an attorney at Jones Day. "So many things turned out to be built on that."

Some in Silicon Valley fear that a Supreme Court ruling aimed at reining in file-swapping could have unintended impacts on future product development.

"There's a lot more at stake here for the technology industry than for the copyright industry," said Fred von Lohmann, an Electronic Frontier Foundation attorney who has represented StreamCast Networks on the issue. "This case will not be determinant of the future of peer to peer around the world, but it will be determinant of the future of a whole host of future digital products."

The case itself focuses on Morpheus and Grokster, each of which are popular file-swapping applications that are widely used to trade movies, music and software.

Studios and labels sued the companies in 2001, following successful legal campaigns against peer-to-peer trailblazer Napster. Attorneys for the entertainment conglomerates said the newer file-swapping services were, like Napster, building businesses based on copyright infringement.

But Grokster and StreamCast were built around a different technology than Napster. Their services involved a highly decentralized network of individual computers trading files among themselves, rather than a network controlled from a central location.

Lower court judges ultimately said that the companies did not directly control what happens on their networks, and that their software could be used for legal purposes. That shields the companies themselves from legal responsibility for the actions of their users, the lower courts said.

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