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Tuesday, June 28, 2005
Supreme Court Rules Against P2P Networks

A unanimous U.S. Supreme Court ruled on Monday that Internet file-trading networks like Grokster and Morpheus can be held liable when their users copy music, movies and other protected works without permission.

In a decision hailed by the recording and movie industries, the justices set aside a U.S. appeals court ruling that the peer-to-peer networks cannot be held liable for copyright infringement because the networks can be used for legitimate purposes as well.

The case, a suit by major film and music companies against Grokster and Morpheus parent StreamCast, will now go back to the district court for trial.

"We hold that one who distributes a device with the object of promoting its use to infringe copyright ... is liable for the resulting acts of infringement by third parties," Justice David Souter wrote for the court.

Online networks like Grokster and Morpheus allow millions of computer users to copy music and movies for free from each others' hard drives. Entertainment firms, led by studio Metro-Goldwyn-Mayer, sued to hold the networks accountable for the trading in copyrighted files.

Souter said Grokster and StreamCast never blocked anyone from using their software to share copyrighted files.

"The argument for imposing indirect liability in this case is ... a powerful one, given the number of infringing downloads that occur every day using StreamCast's and Grokster's software," Souter wrote.

The case had been closely watched by the entertainment and technology industries as a test of copyright law in the computer era. It was considered the most important copyright case to reach the Supreme Court in more than two decades.

"Today's unanimous ruling is an historic victory for intellectual property in the digital age, and is good news for consumers, artists, innovation and lawful Internet businesses," said Dan Glickman, president of the Motion Picture Association of America.

"With this unanimous decision, the Supreme Court has addressed a significant threat to the U.S. economy and moved to protect the livelihoods of the more than 11 million Americans employed by the copyright industries. The Supreme Court has helped to power the digital future for legitimate online businesses ? including legal file sharing networks ? by holding accountable those who promote and profit from theft. This decision lays the groundwork for the dawn of a new day ? an opportunity that will bring the entertainment and technology communities even closer together, with music fans reaping the rewards," said Mitch Bainwol, Chairman and CEO of RIAA.

Recording labels and movie studios said copying has hurt their sales. Revenues in the recording industry have plunged by about 25 percent since file-sharing networks emerged in 1999, though the industry posted a slight sales increase last year.

Lawyers representing Grokster and StreamCast said they were disappointed in the ruling and said the decision would just spark a series of lawsuits.

"I think today's Supreme Court decision is going to unleash a new era of legal uncertainty on America's innovators," said Fred von Lohmann of the Electronic Frontier Foundation.

StreamCast chief executive Michael Weiss said the company would fight at the district court level. "We are confident it will be proven that Morpheus does not promote or encourage copyright infringement."

The entertainment industry managed to shut down the first file-trading network, Napster. The appeals court said Grokster differed from Napster because its software permits users to share files with one another directly rather than going through a central computer server.

Industry experts said the decision could have broader implications in the technology industry and technology companies may appeal to Capitol Hill for more clarification.

Sen. Arlen Specter, the Republican leader of the Senate Judiciary Committee, said the committee would examine the ruling and its impact on copyright law and innovation.

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