The same court that once helped shutdown Napster delivered a punishing blow today to the record labels, confirming an earlier decision that P2P networks are legal. The court then went one step further to say it's unwise to alter copyright law in a way that could stifle innovation just to suit well-established players in a market, given the ways in which technology often changes the market for the better in the long run.
In total, the Ninth Circuit Court of Appeals based in San Francisco ruled that makers of decentralized P2P software should not be held responsible for their users' actions. While sometimes used to download copyrighted material, P2P software is also used in a number of non-infringing ways. In addition, the software makers cannot control the behavior of their users.
With these factors in mind, the court rejected the record labels' appeal against an earlier ruling by a Los Angeles judge that allowed companies such as Grokster and StreamCast to continue distributing their software without legal repercussions.
"Under the circumstances presented by this case, we conclude that the defendants are not liable for contributory and vicarious copyright infringement and affirm the district court's partial grant of summary judgment," the Ninth Circuit wrote in its decision (PDF). "In this case, the Software Distributors have not only shown that their products are capable of substantial noninfringing uses, but that the uses have commercial viability."
Even more striking was the court's warning to the record companies around the issue of changing copyright laws. The RIAA (Recording Industry Association of America) and MPAA (Motion Picture Association of America) are currently working with Senator Orrin Hatch on something called the Induce Act, which would tighten laws around copyright infringement. The act has met with a great deal of criticism as it threatens to make devices such as the iPod illegal. However, bowing to the economic needs of the RIAA - which argues that it has lost billions through file trading even though a Harvard study found no evidence of these losses - would be short sighted, according to the Ninth Circuit.
"The Copyright Owners urge a re-examination of the law in the light of what they believe to be proper public policy, expanding exponentially the reach of the doctrines of contributory and vicarious copyright infringement," the court wrote. "Not only would such a renovation conflict with binding precedent, it would be unwise. Doubtless, taking that step would satisfy the Copyright Owners' immediate economic aims. However, it would also alter general copyright law in profound ways with unknown ultimate consequences outside the present context."
"Further, as we have observed, we live in a quicksilver technological environment with courts ill-suited to fix the flow of internet innovation. 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. Yet, 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. Thus, it is prudent for courts to exercise caution before restructuring liability theories for the purpose of addressing specific market abuses, despite their apparent present magnitude."
The court, as in the past, pointed to the old Sony Betamax decision in which the Supreme Court said the video copying device had enough non-infringing uses to warrant its existence as a legal product. Similarly, P2P software can be used to send all types of files between users.
"One striking example provided by the Software Distributors is the popular band Wilco, whose record company had declined to release one of its albums on the basis that it had no commercial potential," the court wrote. "Wilco repurchased the work from the record company and made the album available for free downloading, both from its own website and through the software user networks. The result sparked widespread interest and, as a result, Wilco received another recording contract."
P2P software can also help reduce distribution costs and provides a new mechanism for distributing music, photos and documents.
"The technology has numerous other uses, significantly reducing the distribution costs of public domain and permissively shared art and speech, as well as reducing the centralized control of that distribution," the court wrote.
Unfortunately for consumers, this decision will likely lead to more lawsuits from the RIAA against individuals. The record labels argue that making P2P services legal has forced it to attack the direct infringers - i.e., you, me and grandma.
If current P2P software worked like Napster I in a centralized way, then the courts would likely have shut down the likes of Grokster and StreamCast. Instead, the Ninth Circuit found there is no centralized control of this current software, meaning the software makers cannot boot users even if they wanted to. In addition, even if the software making entities disappeared completely, their code would live on. ®
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