File-sharing in the limelight


During the 1980s, the VCR challenged US copyright law with its infringing capability. The questions answered then have produced new ones for file-sharing technology to answer today.

Copyright law has been under scrutiny for years, as new technologies emerge that change the way in which copyrighted works are consumed by audiences, affecting the way in which copyright stakeholders need to be compensated.

Peer-to-peer (P2P) file-sharing technology, which allows users to ‘share’ many types of files seamlessly over a decentralised network that is keyword-searchable, has been seen as a major source of music piracy since the late 1990s, and in recent years, that reach has extended to film and television too.

Wide-scale copyright infringement on file-sharing networks began with Napster. Similar versions established themselves as the opportunity to download copyrighted works for free in electronic format became widely known. Many file-sharing services operated similar business models, until LimeWire offered its paidfor version. As the alternatives closed after court defeats or in the face of legal action, LimeWire profited, acquiring millions of migrating users for its Gnutella network.

In 2006, LimeWire faced the litigating might of the Recording Industry Association of America (RIAA), which represented EMI Group, Sony Music Entertainment, Universal Music Group and Warner Music Group. It was accused of being secondarily liable for the copyright infringement of its users.

In May, Judge Kimba Wood of the US District Court for the Southern District of New York awarded a summary judgment on active inducement against LimeWire LLC, as the distributor of the file-sharing software; Lime Group LLC, as the corporate owner of the software; and Mike Gorton, as the principle of Lime Group.

Judge Wood found that LimeWire induces its users so it can directly benefit from the piracy committed on its network. She explains: “LimeWire intended to encourage infringement by distributing LimeWire [software because of] its awareness of substantial infringement by users; its efforts to attract infringing users; its efforts to enable and assist users to commit infringement; its dependence on infringing use for the success of its business; and its failure to mitigate infringing activities.”

Judge Wood must now decide on a motion to freeze LimeWire’s assets and a motion for a permanent injunction. The latter of the two motions, which were presented by the RIAA, would force LimeWire to filter copyrighted content from its network and provide present users with the option to refuse to share files. These would effectively shut the service down. Napster suffered a similar fate in its case against the music labels in 2001.

LimeWire disagrees with the effects that the motions will have on the company. A spokesperson said: “Neither of these moves will shut our company down. We have no plans to close our doors or reduce our staff at this time. Our team will continue to develop a new music service that will be released in late 2010.” LimeWire may also be liable for up to $150,000 in statutory damages for each instance of copyright infringement committed by its users.

Compensating the artists responsible for the creation of copyrighted content available through file-sharing services is long overdue, according to Mitch Bainwol, chairman and chief executive officer of the RIAA: “The court’s decision is an important milestone in the creative community’s fight to reclaim the Internet as a platform for legitimate commerce.”

To a degree, we’ve been here before. In 1976, Universal Studios and others sued Sony Corporation of America over Sony’s Betamax recorder, which enabled copyright infringement. The Supreme Court ruled in favour of Sony, holding that Betamax’s ability to record over-the-air broadcasts in a person’s home was a fair use and the fact that the technology could be used for infringing purposes was not enough to make Sony liable.

Andrew Bridges, a partner in the San Francisco office of Winston & Strawn LLP, who has defended P2P file-sharing services in the past, says: “The Supreme Court’s ruling in the Sony case was really to say a company cannot be charged with knowledge of the infringement unless the product is capable of nothing but infringement.”

The Sony-Betamax test, as it is now known, allowed the technology to flourish, enabling movie rental to become an important source of income for the movie industry. But it also meant that other new technologies would have a certain amount of legal protection from copyright infringement, making it harder for copyright owners to challenge file-sharing services in court.

Corynne McSherry, senior staff attorney at the Electronic Frontier Foundation, a non-profit organisation and a campaigner for digital rights, says: “As long as technology is capable of substantial non-infringing uses, a person should not be held secondarily liable for infringing uses of that technology. If it was not for that rule, we would not have all kinds of technologies. To throw the Sony-Betamax test out is to potentially allow a world of greater legal uncertainty where people will hesitate to invest in new technologies.”

“As long as technology is capable of substantial non-infringing uses, a person should not be held secondarily liable for infringing uses of that technology. If it was not for that rule, we would not have all kinds of technologies. To throw the Sony-Betamax test out is to potentially allow a world of greater legal uncertainty where people will hesitate to invest in new technologies.”

Thomas Sydnor, senior fellow and director of the Centre for the Study of Digital Property at the Progress & Freedom Foundation, a technology think-tank based in Washington, DC, cautions that others interpret the Sony-Betamax test more narrowly. He says: “Some would say that even if the device is used almost exclusively for infringement, if someday perhaps as much as 10 percent of its use might be non-infringing, and if you can speculate that as a realistic possibility, then that device is capable of substantial noninfringing use. Others disagree, and argue that the Sony-Betamax test protects only devices used mostly for non-infringing purposes.”

A second Supreme Court decision may have shown the movie industry a way around the protection that the Sony-Betamax test seemingly afforded to file-sharing services. In 2005, the movie industry, led by Metro Goldwyn Mayer Studios, met Grokster and Morpheus in the Supreme Court. The defendants were accused of copyright infringement, but the case was dismissed at both the district and appeal court levels because the file-sharing services passed the Sony-Betamax test.

The Supreme Court overturned the appeal court decision, finding in favour of the movie industry. The Inducing Infringement Copyrights Act of 2004 may have helped the Supreme Court to bypass the Sony-Betamax test in the Grokster case.

Bridges says: “The standard for contributory infringement used to be that the defendant had knowledge of the infringement and materially contributed to or induced the infringement, so it was knowledge plus contribution. The Supreme Court in the Grokster case actually changed it to bad intent plus contribution.”

Grokster and Morpheus were deemed to have induced users to commit copyright infringement. According to the plaintiffs in the case, Grokster and Morpheus had done next to nothing to prevent the copyright infringement committed by their users. Yet the Supreme Court was careful not to compromise the Sony-Betamax test.

The opinion stated: “In the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial non-infringing uses. Such a holding would tread too close to the Sony safe harbour.”

An exception needed to be made for the instances when a file-sharing service aimed to actively benefit from copyright infringement, despite the non-infringing capabilities the technology might possess.

The presence of intent-based liability in a copyright infringement case may mean that the Sony-Betamax test does not offer protection to a file-sharing service. Sydnor says: “Whatever the Sony-Betamax test means, it certainly was never intended to apply when there’s intentional wrongdoing. The Sony-Betamax test is indirectly derived from a similar doctrine that emerged under US patent law. There’s also an exception for inducement or intent-based liability.”

Like Sony, file-sharing services would be protected by the Sony-Betamax test if they do not display negative intentions. Charles Baker, a partner at Texas-based Fulbright & Jaworski LLP, which represented LimeWire, says: “The language the courts have used over the years includes the term ‘inducement’, but contributory infringement has elements distinctive from inducement.

"Inducement is more of an intentional-type act, whereas contributory focuses on the level of knowledge plus whether there has been material contribution to the underlying infringement. In the latter case, a person may be liable, unless of course, for example, the Sony-Betamax test offers protection.”

Copyright infringement occurs on LimeWire’s Gnutella file-sharing network on such a vast scale that it appears to do little else. In her opinion, Judge Wood states: “[An expert] estimated that 98.8 percent of the files requested for download through LimeWire are copyright-protected and not authorised for free distribution.”

The legal weight of this number is debatable given that it does not show specific instances of direct infringement that are necessary to prove a case of secondary liability.

Baker says: “There’s no doubt that as a general rule, people can and are probably using the software for infringing purposes, but that’s insufficient to hold LimeWire liable as a matter of law. Simply showing that a LimeWire user is making music available through LimeWire is insufficient to prove direct infringement by that user, because ‘making available’ itself is not a violation of copyright law.

"They have to prove that an individual downloaded that song via LimeWire and that it is unauthorised. The judge just presumed infringement.”

The status of the ‘making-available right’ is a cause for debate. The US courts, and international treaties to which the US is signatory, agree that it provides legitimate protection for copyright owners under existing law. To date, there has been no definitive Supreme Court ruling on the matter.

LimeWire induces copyright infringement, according to Judge Wood, if it “engages in purposeful conduct that encourages copyright infringement, with the intent to encourage such infringement”. The inducement theory is difficult to prove because it requires hard facts about the origins of the content.

“These law suits are basically finding that by the preponderance of the evidence standard that we use in civil law suits, the distributors of these programmes are engaging in conduct that would be criminal if it could be proved beyond a reasonable doubt under existing law. Every time one of the inducement rulings comes down, the day when the US Department of Justice actually be gins to bring its own moral authority to bear on this problem gets a little bit closer.”

Baker says: “The main thrust of LimeWire’s defence is that there are insufficient facts [to prove an inducement claim]. Active inducement is a very fact-intensive type of claim. The court is charged with going back and looking at evidence of a company or a person’s intent. It’s difficult to make a black and white determination about intent. The mere distribution of the software by itself is not active inducement— there has to be more outward expressions and conduct showing evidence of an intention to foster infringement.” Some have gone as far as to suggest that courts are inherently biased against this type of conduct. Bridges says: “We have entered an era of what I would call moralising decisions, where judges make a broad-brush assessment of whether a defendant in these cases is a good guy or a bad guy, and that colours the overall case. It’s clear that Judge Wood has determined that LimeWire is a bad guy.”

Sydnor believes Charles Dickens’ Oliver Twist supplies a useful example of what is meant by inducement.

He says: “Bill Sykes wants to sell stolen goods for a profit, but the penalties for stealing in Victorian England are very severe. He collects children, who in turn steal the goods that Sykes then sells. Both types of inducement that the law recognises can be seen. It’s possible to encourage them to do it knowingly or intentionally, or to dupe or trick them into doing it unintentionally. The Artful Dodger knows he’s engaging in theft, but Oliver at one point does not.”

Some of the content available through the Gnutella network is often private, so its presence on a file-sharing network is difficult to explain, unless it was uploaded accidentally.

Sydnor says: “If someone is sharing audio files, maybe they intended to do that or maybe they didn’t. If they’re sharing a tax return on a network that’s known to be patrolled by identity thieves, they’re clearly not doing that on purpose. These are cases in which it’s very clear that, somehow, people are making mistakes that are causing them to share lots of things that they really don’t intend to share.”

Certain technological features have existed in previous versions of LimeWire that may cause users to share files that they might not wish to. An old version of the LimeWire software had an interface that would allow users to designate a folder on their computer for storing downloaded files. This had a catch.

Sydnor says: “That interface did not tell users that the folder they picked would also be shared. This means that all the existing files in that folder, not just files they had downloaded, but all the existing files in that folder, as well as all the existing files stored in all of the subfolders of that folder, would be shared over the Gnutella network.”

The court did not rely on this as evidence that LimeWire was actively encouraging, or possibly even making its users infringe, but Sydnor believes that such evidence shows that it will be difficult or impossible to design around an inducement test.

LimeWire does not appear to be appealing against Judge Wood’s decision. A LimeWire spokesperson said: “At this point in the case, the announcement of new developments should not be expected.”

With the decision standing, McSherry believes that an eventual injunction would still not affect file-sharing as much as copyright owners might want it to. She says: “All kinds of P2P file-sharing is still going on, even now, authorised and unauthorised.

Also, look at what the last 10 years has shown—Napster was sued and Napster went down. But a bunch of other companies sprang up instead. I guess history does not suggest that suing one company out of existence really makes much of a dent on other companies developing, and it certainly doesn’t make a dent in filesharing itself.”

However, it may be that the penalties become more severe. According to Sydnor, the LimeWire decision may lay the ground for a future in which inducement judgments are a matter for the criminal courts, rather than the civil ones.

He says: “These lawsuits are basically finding that by the preponderance of the evidence standard that we use in civil lawsuits, the distributors of these programmes are engaging in conduct that would be criminal if it could be proved beyond a reasonable doubt under existing law. Every time one of the inducement rulings comes down, the day when the US Department of Justice actually begins to bring its own moral authority to bear on this problem gets a little bit closer.”

Copyright law has been slow to react to the rapid advancement of media consumption, but the LimeWire decision does at least one thing. It reaffirms the Grokster decision, which in turn clarified the Sony-Betamax test. Capability for non-infringing use is no longer the solid defence against secondary liability that it once was.

Clear potential must be paired with a fair and legitimate business model that, at the very least, compensates copyright owners for the consumption of their content. Copyright owners are protected from inducers like LimeWire, while innovative technologies have the room to manoeuvre, so long as the intentions of their providers are clear.

This article was first published on 01 August 2010 in World IP Review

File-sharing, copyright law, P2P

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