Supreme Court Hears Grokster Case; Pundits Predict Narrow Decision

Justices questioned whether legal battles drummed up by groups like the RIAA and MPAA could have thwarted previous discoveries -- like copy machines, VCRs, MP3 players and even the Gutenberg printing press -- and wondered how an inventor “sitting in a garage” could predict how a device would be used legally and illegally. The court looked beyond the P2P companies named in this lawsuit, and several turned their attention to alternatives that might create liability for inducement of copyright infringement while safeguarding innovation. A handful also expressed concern over new companies touting stockpiles of misappropriated works as the seed corn for their businesses. Justice Anthony Kennedy said hungry P2P networks are using this strategy as “start up capital” and it “sounds wrong to me.”

During the court’s debate over the question of whether P2P companies should be liable for inducing unauthorized copies, Grokster attorney Richard Taranto said his company should be viewed by its present business model and not by its actions several years ago when it was trying to attract users by advertising free music downloads. Justice David Souter called that argument “ridiculous,” noting that product sales on Fri. “are a result of inducing acts on Monday through Thursday.” Public Knowledge Pres. Gigi Sohn told us the justices “clearly didn’t buy the notion that you can separate the past, present and future.” Electronic Frontier Foundation (EFF) Senior Attorney Fred von Lohmann said it’s too soon for the content industry to push for collecting on damages caused by actions in the era of open Napster and Kazaa. He said those issues are still being considered by the 9th Circuit Court so there’s no need for the Supreme Court to remand it.

“Many justices today clearly understood the high stakes for those who create valuable new consumer products,” said the Center for Technology & Democracy’s Michael Steffen: “At least some Justices raised hard questions about creating liability for those who develop a technology that could later be misused.” CDT wants the court to send the case back to the lower courts for an exploration of bad actors -- independent of technology - that might give rise to liability. Two lower courts have backed Grokster and StreamCast Networks.

Recording industry attorney Donald Verrilli told the Court the respondents’ business was built on networks of infringing users and it intentionally and directly promotes illegal file swapping. Until now, the services have gotten “a perpetual free pass so long as they can speculate that there are non-infringing uses out there.” Justices John Paul Stevens and Kennedy wondered aloud how to test this argument. Verrilli pointed to studies that indicated that 90% of the material on the P2P networks was copyright infringing.

Justice Antonin Scalia asked how much time content providers thought was acceptable for a company to increase its lawful use percentage before the number of legitimate users outweighed the unlawful ones. Verrilli said there was “no absolute certainty” on the issue. But Acting Solicitor Gen. Paul Clement, in support of the petitioners, told the justices that 50% infringement in the short run sounded about right to relinquish P2P liability. In Grokster’s case, however, promoting downloads that infringe upon creators’ copyright has been their business plan “from day one,” Clement said.

The justices were dissatisfied with the implications of the extreme positions each side presented and will likely try to develop a way to send the case back to trial on a narrower theory of infringement, Legg Mason analysts said. Such an outcome would be a better result for the content industry than a 9th Circuit ruling, but offers less protection than they're seeking at the Supreme Court. Analysts said it would also represent “a more livable outcome” for the technology and network companies than the test advocated by the content industry and the govt.

The Supreme Court lobbed a series of curve balls at all the attorneys, “not to mention sliders and a knuckler or two,” added Progress & Freedom Foundation (PFF) Senior Fellow James DeLong. Speculating on the case, DeLong guessed that neither side will have its prayers fully answered. Grokster’s supporters want companies to be liable only if a business engages in blatant inducement of infringement, he said. DeLong said the court will reject this idea, ruling instead that dependence on infringement combined with willful blindness is sufficient. He noted that both those principles will need substantial interpretation in the lower courts.

Meanwhile, movie studios and record labels are pushing for liability to attach if a P2P program is used primarily for infringement. DeLong said the court will reject this too, holding that more active involvement is required. EFF’s von Lohmann wasn’t so quick to predict an outcome: “There are 9 of them and obviously they're going to have to come to a decision amongst themselves. I think it’s far too soon to tell which way it will come out [but] I am encouraged. They understood that innovation is on the line here.” CEA Pres. Gary Shapiro, who also attended the hearing, said the justices seemed to be “looking for a way out of deciding the biggest question.” The Court is reluctant to do anything which would restrict the flow of new technology and they almost made that decision in 1984’s Sony case, he said: “They realized they made the right decision in that case” and in the 21 years since, technology developers, the motion picture industry and record companies have all succeeded.

This debate boils down to a business problem, not a “more laws” problem, von Lohmann said, noting that Congress will probably bear the next wave of debates after the Justices’ announce their opinions. The overarching goal should be to help the right business solutions emerge. “We need more iTunes music stores, more willingness by the entertainment industry to make a market out of peer-to-peer, and that’s the only solution,” he said: “File sharing is here to stay. There are really no American laws that are somehow going to magically make this technology disappear. Even if all these technologies we know today were to suddenly disappear tomorrow, you'd have new technologies and new software designed over seas.” RIAA CEO Mitch Bainwol told us that his industry “has never suggested there will be a perfect solution.” “Will there be digital piracy if the petition goes our way? Sure, but the question is to what degree?”

Meanwhile on Tues., a new study by the Competitive Enterprise Institute (CEI) argued that the legal tactics used by the content industry to stop copyright infringement have been costly and ineffective and a new business model is a better solution. The model, advocated by CEI analyst James Plummer, uses new technologies, marketing strategies and pricing models so that entertainment companies could better police the market and internalize copyright protection costs.

The report outlines how the surge of Internet-related technologies and shifting attitudes of consumers have made traditional pricing and rights enforcement models obsolete. Plummer argues that putting the cost of copyright protection solely on law enforcement agencies unfairly burdens taxpayers. “Content producers can use new technologies to offer differentiated products at differentiated prices to consumers showing different levels of interest in the work of particular artists,” the report said. Plummer said one-size-fits-all mandates on this kind of technology will stifle the growth of the intellectual property industry.”

Considerable fanfare preceded the oral argument. For weeks, public interest groups, consumer advocates and entertainment industry officials hosted press briefings and roundtables and released reports on all sides of the P2P debate. Mon. afternoon, dedicated followers on both sides of the issue arrived at the Supreme Court to camp overnight in hopes of entering the chamber Tues. As the justices heard the case, file sharing advocates -- who donned black T-shirts that read “Save Betamax” and others toting signs that read “Don’t Put Home Recording on Pause” and “Hands Off My iPod” -- wandered the plaza in front of the Court. A flock of singer-songwriters from Nashville carried signs: “Feed a Musician: Download Legally.” Rick Carnes, pres. of the Songwriters Guild of America, said what P2P networks do isn’t innovation, it’s exploitation. He said the line between legally accessing music and copyright infringement is simple: Gaining permission from the copyright holder.