Mathew Ingram: Entertainment industry victory may be hollow

With the ruling last week by the US Supreme Court in the MGM versus Grokster case, the entertainment industry got what it clearly felt was a victory in its fight against illegal downloading of music and movies.

But was it really a victory? It certainly was in legal terms - the highest court in the United States ruled unanimously in favour of the movie studios and record companies, who had argued that the companies behind Grokster and other file-swapping software contributed to copyright infringement by giving users the tools to get music and movies without paying for them.

The Supreme Court had been asked to rule on an appeal by the US record and motion picture industries after Grokster and StreamCast (the company behind Morpheus, another file-swapping network) won a lower court decision. The lawsuit continued a largely successful legal campaign the US record industry has waged over the past few years against "peer-to-peer" (P2P) file-sharing firms such as Napster and against users of those networks, thousands of whom have been sued by the industry in the past couple of years.

In the latest case, the P2P companies argued that they should be protected by the same defence Sony successfully used in the landmark Betamax case in 1984. In that case, Sony had been sued by the motion picture industry for contributing to copyright infringement by making and selling the first videocassette recorders, but the court found the company not guilty because its devices had "substantial non-infringing uses". Grokster and StreamCast said their software could also be used for other purposes, and thus they should be acquitted too.

This argument worked with a lower court, but not the Supreme Court. The court ruled that the two companies deliberately marketed their software as a way to download music and movies without paying for them, and advertised themselves as replacements for Napster, which had also been found guilty of copyright infringement.

In its decision, the US court wrote that "anyone 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 using the device, regardless of the device's lawful uses."

What the Supreme Court ruling means is the US entertainment industry can go after the P2P companies for copyright infringement. But it isn't quite the magic bullet the industry might have wished for. For one thing, the court said that anyone trying to pin a charge of contributory infringement on a P2P company would have to do more than just show that their software was used for downloading copyrighted material and that they knew about it.

According to the ruling, someone would have to prove that they promoted it "by clear expression or other affirmative steps taken to foster infringement, going beyond mere distribution with knowledge of third-party action".

Does that mean Apple could be sued for its popular "Rip, Mix, Burn" campaign, which it launched along with its original iPod digital music player? No one is quite sure. Would a piece of software such as Bit Torrent be immune from prosecution so long as it wasn't specifically marketed as a way of finding copyrighted music or movies? To many observers, that kind of uncertainty looks like a recipe for more lawsuits.
If the industry had spent less time suing people and a little more time trying to work out ways of making the peer-to-peer revolution work for them rather than against them, the record and movie companies might be a lot better off by now.

It's true that for-pay downloading services such as Apple's iTunes - expected to be available in New Zealand soon - and the newly revived Napster have become popular, as have similar subscription services such as Puretracks in Canada and Digirama in New Zealand. But downloading from peer-to-peer sources such as Grokster and Limewire is still more popular by an order of magnitude. Not only is it free, but in many cases the selection of music or movies is far wider than that at for-pay services. And many users have become so used to downloading from P2P networks that they don't even consider using subscription services. Is suing them going to change their minds? That seems unlikely. If anything, it will probably make them even less inclined to rush out and buy the industry's copyrighted products.

So far, the major record labels haven't sued much in Canada or New Zealand, but only because copyright laws are different in Canada - which charges a private copying levy on blank CDs to compensate artists - and downloading isn't yet a major problem in New Zealand, thanks to its relatively small population and a fairly low penetration rate for high-speed internet service.

The music industry's hands-off approach could change, however, if the record companies start to feel empowered by their US Supreme Court victory and start to flex their newly acquired legal muscle.

And that wouldn't really be a victory for anyone but the lawyers.

* Mathew Ingram is a business columnist for the Globe and Mail in Canada. His column, commenting on international business technology issues, will appear every two weeks.