Focus: Technology – July 2005
US court rules in latest copyright battle
In brief: Movie studios and record labels had a major victory in their continuing war against unauthorised use of their materials, following a recent US Supreme Court decision. Partner Michael Pattison(view CV) and Lawyer Jesse Gleeson report.
Background
The US Supreme Court handed down a decision last week that has important implications for developers and distributors of products that can be used to infringe copyright. The court held that a distributor could be liable for copyright infringement if it distributed products with the intention of promoting their use to infringe copyright.
The defendants had argued successfully in lower courts that they could not be held liable if their product could be used for non-infringing uses as well as infringing uses. The court's rejection of that argument on the facts of this case represent a major victory for movie studios and record labels in their ongoing war against unauthorised use of their materials.
Introduction
The unanimous decision of the US Supreme Court in MGM v Grokster concerned the copyright infringement liability for providers of peer-to-peer (P2P) file-sharing software. P2P software allows users to make files available for download on the Internet by anyone else who has a copy of the same P2P program. The software can be used to distribute any sort of material that is in digital form, including material that is not protected by copyright or is distributed with permission. However, there was evidence before the court that 90 per cent of the files distributed using one of these programs was protected by copyright and distributed without permission.
The decision was an appeal from an earlier US Federal Court decision, which held, applying the 1984 decision in Universal Studios v Sony (the BetaMax case), that Grokster and StreamCast would not be liable for copyright infringements committed by their users as their software had substantial non-infringing uses. In particular, the Federal Court had relied on the fact that numerous independent bands voluntarily distributed their music for free using the services, so as to gain exposure and attract new listeners.
That decision represented a major setback for the movie studios and record labels, who had had an earlier victory with a court ruling that Napster (another P2P program) was liable for fostering copyright infringement because it maintained and managed a centralised database of available files for its users, which meant that it had direct knowledge (and potentially control) of specific instances of infringement. The absence of that centralised database was one of the primary reasons that Grokster and Streamcast initially escaped liability, given that their networks operated without the need for centralised servers.
The US Supreme Court reversed the US Federal Court decision, holding that Grokster and Streamcast could be held liable for contributing to and promoting the widespread copyright infringement committed by their users.
The decision
The US Supreme Court stated that it believed that the BetaMax case was misapplied by the US Federal Court. The court noted that the BetaMax 'substantial non-infringing use' defence would not protect defendants who had the demonstrable intention of encouraging, and profiting from, illegal use of their products, even where substantial non-infringing uses could be found.
In finding that Grokster and StreamCast had such an intention, the court primarily relied on evidence that Grokster and StreamCast had:
- actively promoted the ability for users to locate and download copyrighted materials in their advertisements;
- provided advice to their users in relation to downloading and viewing copyrighted materials; and
- actively promoted their software as an alternative to Napster, which was engaged in litigation with the recording industry at the time, and which was used extensively to distribute copyright materials without permission.
The court's conclusion was reinforced by the fact that Grokster and StreamCast did not attempt to take steps to minimise piracy using their products, and the fact that their respective business models were predicated on high volumes of traffic from persons seeking to distribute copyrighted material, so as to generate increased advertising revenue.
Comment
The decision does not prohibit people from designing and offering products that could be used to infringe copyright, provided that they do not actively promote and encourage such use, and the products do have substantial non-infringing applications as well. Notwithstanding that, this decision may pave the way for increased litigation in this area. Copyright owners are also likely now to seek access to developers' internal documents and marketing materials when litigation is commenced, so as to assess the company's intentions.
Australian law in this area is not the same as US law. In particular, Australian law rests upon the concept of 'authorisation', which was not a feature of the court's decision in Grokster. Despite these differences, the Grokster decision will certainly be of relevance to Australian courts that are determining cases against developers and distributors of products that can be used both for infringing and non-infringing purposes. The first opportunity Australian courts will have to apply this decision is likely to come in the KaZaA case that is currently before the Federal Court.
For further information, please contact:
- Michael PattisonPartner,
Melbourne
Ph: +61 3 9613 8839
Michael.Pattison@allens.com.au - Andrew WisemanPartner,
Sydney
Ph: +61 2 9230 4701
Andrew.Wiseman@allens.com.au