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The Grokster Decision: Should Hardware Companies Worry?
[June 28, 2005]

The Grokster Decision: Should Hardware Companies Worry?


High court’s decision has some distributors nervous over whether they will be sued for copyright infringement for their products’ use.

By TED GLANZER
TMCnet Communications and Broadband Columnist

Technology companies that distribute products that can be used for copyright infringement by consumers are nervously consulting their attorneys in light of the Supreme Court’s Grokster decision that was handed down Monday.

In its holding, the high court distinguished Grokster from the 1984 landmark Sony Corp. v. Universal City Studios, in which the Court held that a company has a safe harbor from copyright infringement if it distributes a product “that is capable of commercially significant non-infringing uses” even if the company knows that the product is also being used for other unlawful purposes.



In Grokster, the Court departed from the Sony decision by borrowing from patent law with the recognition of the “induced infringement rule” in copyright cases.

Taking as much legalese out of equation as possible, the rule provides that companies (such as Grokster and StreamCast) that distribute products (in this case, file sharing software) that are intended to promote copyright infringement (e.g. advertising a site as an alternative to Napster), are liable for their users’ copyright infringements (e.g. a pimply faced 13-year-old who had to have a free copy of Green Day’s “American Idiot” album).


Avast, Yer Promotin’ Piracy

The Court cited the following as evidence that the original defendants, Grokster and StreamCast, actively promoted their software as means for promoting copyright infringement:

• Grokster and StreamCast not only provided users with file sharing software free of charge, they also touted their sites as free alternatives to Napster, which began charging for downloads a few years ago after a well-known legal spat of its own.

• Neither Grokster nor StreamCast attempted to install filters on their sites to prevent illegal downloads. According to the Court, this evidence “underscores their intentional facilitation of their users’ infringement.”

• The companies made money not from the software, but from advertising on their sites. “The more their software is used, the more ads are sent out and the greater the advertising revenue,” the Court’s decision states.

Was There Actual Infringement? Uh, Yeah.

In addition to promoting their products’ unlawful use, the Court noted that there must also be evidence of actual infringement, which was no problem as there was evidence of infringement on a “gigantic scale.”

Such evidence included that the number of copyrighted files available on the sites was in the 100 million range and the total downloads were in the billions. It didn’t take much for the Court to conclude that copyrighted material was downloaded.

Additionally, the record contained evidence of e-mail messages from Grokster and StreamCast in which they provided guidance to its users on how to view downloaded movies.

A Huge Win for the Music and Film Industries?

The Grokster decision is a huge victory for the entertainment industry in its fight against piracy, right?

Well, yeah, but…

The entertainment industry’s crying foul over the billions of dollars in lost profits due to piracy has been covered ad nauseum.

Grokster certainly provides additional ammunition for music and film companies to file suit against other peer-to-peer file-sharing ventures.

Internet file sharing companies generating profits from advertising likely will find themselves out of the piracy business, according to a report issued by Deutsche Bank yesterday.

Indeed, a vast reduction in the number of eyeballs glued to Grokster’s and StreamCast’s sites will result in the ad revenue stream drying up. Welcome to Extinction City, come on in and meet the Apple II plus and Billy Ray Cyrus’ career.

But, as the Deutsche Bank report notes, there are other file sharing entities that will fill the vacuum, including some that present challenging legal issues should entertainment companies choose to pursue redress.

The Deutsche Bank report cites BitTorrent as an example, as it is not managed or owned by any company.

As an attorney, I can tell you that entities that aren’t owned or managed by anyone are pretty difficult to sue.

“Thus, those interested in stealing films and TV shows will still have a way to do it, there will just not be any companies making money on the back of piracy (except perhaps broadband data providers),” the Deutsche Bank report states.

Bottom Line for the Tech Industry

Technology companies probably shouldn’t be quaking in their boots just yet.

Grokster, after all, presents extreme examples of blatant infringement involving two Internet file-sharing companies that went out of their way to promote piracy through the use of their software.

While there are many products on the market that can be used for piracy purposes (such as several listed by the Associated Press, including Intel microprocessors and Microsoft’s Windows operating systems), they almost certainly would be provided safe harbor under Sony rather than subject to lawsuits for copyright infringement under Grokster.

The AP did list one product, CD burners, which present a more compelling case for infringement under Grokster for obvious reasons. Still, call me crazy, but I’m assuming that the companies that distribute burners aren’t cavalierly advocating the use of their products to pirate copyrighted material.

In any event, TMCnet.com will continue to monitor and report on any developments that shake out from this decision.

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Ted Glanzer is assistant editor for TMCnet. For more articles by Ted Glanzer, please visit:

http://www.tmcnet.com/tmcnet/columnists/columnist.aspx?id=100033&nm=Ted%20Gl
anzer

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