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A. Blair Hughes Quoted in IP Law Bulletin

A. Blair HughesJune 27, 2005

A. Blair Hughes Quoted in IP Law Bulletin
Supreme Court Rules For Entertainment Industry In Grokster Case
IP Law Bulletin (Monday, June 27, 2005)–In a monumental victory for the entertainment industry, the U.S. Supreme Court ruled Monday that Grokster Ltd. and other internet file-sharing networks may bear responsibility when users illegally download music and films.

The unanimous ruling reverses a lower court ruling that threw out most of the industry’s copyright suit against Grokster and StreamCast Networks Inc.

In its opinion, the nation’s highest court said “substantial evidence” supported the industry’s case.

“We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by the clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties,” Justice David H. Souter wrote for the court.

Souter said lower courts could find the file-sharing services responsible by examining factors such as how companies marketed the product or whether they took easily available steps to reduce infringing uses.

There is substantial evidence in MGM’s favor on all elements of inducement, Souter wrote.

At issue was whether the file-sharing services should be held liable even if they have no direct control over what millions of online users are doing with the software they provide for free.

Two lower courts previously sided with Grokster without holding a trial. They each based their decisions on the 1984 Supreme Court ruling that Sony Corp. could not be sued over consumers who used its VCRs to make illegal copies of movies.

Some of the world’s biggest entertainment companies — 29 movie studios and record labels — filed a lawsuit in October 2001 in California against Grokster and two more companies that give away file-sharing software over the internet.

The entertainment companies claim Grokster is enabling users to infringe copyrights on a massive scale and should be held liable for that theft and punished accordingly. The movie studios and recording companies are seeking compensation from Grokster for every instance of copyright infringement.

In its defense, Grokster said its software has many legal uses besides copyright infringement. The file-sharing network cites the a 1984 Supreme Court decision, in which the high court ruled 5-4 that Sony and other makers of VCRs and video tapes couldn’t be held liable for illegal copying of movies, television shows and other programming.

Joseph V. Norvell, who heads Brinks, Hofer, Gilson & Liones copyright department, said the decision marked a more narrow reading of the Sony Betamax case.

This is a tightening of the 1984 Sony Betamax case, where the Supreme Court held that sellers of VCRs were not liable for users’ copyright infringement. Proponents of technology will see this as a potential stifling of the innovation permitted by the Sony Betamax decision, Norvell said.

However, lawyers said the Supreme Courts decision didnt mean its landmark Sony-Betamax decision had been overturned.

Were talking about two very different technologies here, said Ian DiBernardo, a Partner in Stroock & Stroock & Lavan LLP’s Intellectual Property practice group in New York. The manufacturers cant really control copyright infringement on a videocassette. Its a different story with file sharing networks.

He said the decision would likely force file sharing networks to rethink their business model.

Its possible well see a return to centralized networks like the former Napster, so that the networks can start controlling the content that is shared, DiBernardo said.

Jeffrey D. Neuburger, a partner at Brown Raysman Millstein Felder & Steiner in New York, said the decision marked a major victory for copyright holders.

This is a major victory for those who hold legitimate rights in content, software, video games. The opinion, in its unanimity, clarifies the Court’s view that one cannot promote a device for its infringing purposes, and then try to deny the implications of that strategy Neuburger said.

Manny Pokotilow, managing partner at Caesar, Rivise, Bernstein, Cohen & Pokotilow, Ltd., suggested the case would make it much more difficult for file sharing companies to take on the entertainment industry in the future.

Copyright owners have won a substantial victory. It means that unless a start up company that is producing file sharing software or P2P software has a large war chest, the music industry can stop its sale of such software in its infancy merely by filing a lawsuit for vicarious copyright infringement, Pokotilow said.

However, A. Blair Hughes, an attorney with McDonnell Boehnen Hulbert & Berghoff LLP, said the next hurdle the entertainment industry faces in view of the Grokster decision may be insurmountable.

In order to prevail in a suit against file sharers, movie and recording industry companies must prove – as the Supreme Court decision requires – that a file sharing company offers its file sharing product because they intend their customers to use the software to illegally swap songs and movies, Hughes said.

Since the software has legal purposes, it seems that all that file sharing companies need to do is have users agree not to use the software in an illegal manner. Once that happens, the only recourse left to the big movie studios and recording companies will be to sue individuals who are using the file sharing software illegally – an immense and costly undertaking, Hughes added.

The case was appealed from the U.S. 9th Circuit Court of Appeals, which heard an appeal from the U.S. District Court for the Central District of California.

At the 9th circuit, attorneys for Mitchell Silberberg, et al. LLP; Williams & Connolly; OMelveny & Myers; and Davis, Wright, Tremaine; argued for the entertainment industry. Attorneys for Keker & Van Nest and the Electronic Frontier Foundation argued for the software companies.

The case is Metro-Golwyn-Mayer Studios, et. Al., Vs. Grokster, Ltd., et. Al., case no. 04-480, U.S. Supreme Court.

Courtesy of IPLawBulletin.com

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