[opendtv] News: The Post-Grokster Era Begins

http://www.forbes.com/2005/06/27/grokster-copyright-file-sharing-cx_ah_0627grokster2.html

The Post-Grokster Era Begins
Arik Hesseldahl, 06.27.05, 3:00 PM ET

NEW YORK - When all nine justices of the U.S. Supreme Court speak 
with one voice, the very legal firmament trembles.

So will the knees of tech companies looking to build the next great 
digital entertainment gadget or service, in the wake of today's 
ruling against file-sharing companies Grokster and StreamCast. The 
ruling, among other things, will have a chilling effect on companies 
developing digital media products, since they will now have to make 
sure they can't be sued for contributing or inadvertently encouraging 
copyright infringement. Their legal bills can't help but increase, 
and their product and marketing plans are likely to get some 
alteration.

Welcome to the life in the post-Grokster age of digital media, 
wrought by today's 9-to-0 decision by the U.S. Supreme Court in the 
Metro-Goldwin-Mayer versus Grokster case. If there's a chance that 
their customers could misuse their product in a way that infringes on 
copyrights held by media companies, manufacturers and service 
providers will have to show they're making a concerted effort to stop 
the infringement once it's discovered, and to prevent it from 
happening in the first place.

The court said it's not what a product or service can do or how it 
may be used that makes the company behind it liable under copyright 
infringement law, but how the company promotes and markets that 
product or service.

"The record is replete with evidence that from the moment Grokster 
and StreamCast began to distribute their free software, each one 
clearly voiced the objective that recipients use it to download 
copyrighted works, and each took active steps to encourage 
infringement," Justice David Souter wrote in the court's opinion.

Souter noted that both companies sought to market their software to 
users of the defunct Napster music file-sharing service. The opinion 
even cited an internal e-mail describing how Grokster executives 
sought to use marketing campaigns to position its service in such a 
way as to attract Napster users once Napster ceased to operate as a 
file-sharing service. In its new incarnation, Napster is a legitimate 
media-streaming service.

Lawyers and executives of Grokster and StreamCast both pledged to 
continue the fight in a U.S. District Court in California.  Michael 
Weiss, chief executive of StreamCast, said his company is "in the 
fight for the long haul."

But lawyers and independent experts on the case painted a picture in 
which companies will have to carefully monitor their internal 
communications, their marketing messages and possibly even the notes 
they take in meetings, as they develop new products and services.

Matthew A. Neco, StreamCast's general counsel, called the Supreme 
Court's decision "Orwellian" and described lawyers for media 
companies as "the new thought police."

"The guy in the garage and the guys in the executive suite had better 
be smart about what they say and do, because every thought and action 
they take will be subject to discovery by a lawyer," Neco said. 
"Lawyers are going to get pulled into every aspect of the technology 
business."

Indeed, last week a Hewlett-Packard executive worried about the 
impact of a ruling against Grokster.

"If a ruling came down that said that the standard set in the Betamax 
case isn't good enough and imposed a lot of new legal tests that a 
device would have to meet in order to not be infringing, that would 
add a lot of friction and cost to the development process," said Adam 
Petruszka, director of strategic business development

  Bill Rosenblatt, a consultant on digital-media law and author of a 
book on the subject, Digital Rights Management: Business and 
Technology (Wiley, 2001), agreed. He said the marketing departments 
of technology companies in particular will have the most to worry 
about.

"The chilling effect will be on tech companies' marketing departments 
rather than on their research and development people," he said. "Drug 
companies are barred from claiming that a drug cures a disease. What 
they say is strictly regulated by the Food and Drug Administration. 
This ruling creates a similar situation for technology companies. 
What you claim is now subject to liability."

Curiously, however, the justices chose not to meddle with the court's 
previous ruling in the 1984 Betamax case, which has for years been 
one of the guiding precedents balancing consumer rights against the 
rights of copyright holders. In that case, the court found that Sony 
could continue selling its Betamax videocassette recorders so long as 
there were "substantial non-infringing uses" of the device.

Lawyers for the file-sharing companies argued that the Betamax 
standard applied to them, and that they weren't liable for the 
illegal actions of their customers. Lower courts agreed with that 
interpretation of the Betamax decision. That changed today when 
Justice David Souter wrote simply that such a view "was error."

The court further declined to reexamine the Betamax case, as MGM 
requested, saying, "It is enough to note that the 9th Circuit's 
[Court's] judgment rested on erroneous understanding" of the Betamax 
case, and said it would leave further consideration of precedents 
established by that case to "a day when that may be required."

But by not further clarifying how the Betamax case should be applied 
in the 21st century, the court is likely opening the door to a 
torrent of new copyright infringement lawsuits, said Fred von Lohmann 
of the Electronic Frontier Foundation, which lobbies for tech 
companies.

"America's entire innovating sector will face a new theory of 
copyright liability," he said. "The justices didn't clarify the 
Betamax test. They created a new theory, one that I am afraid will 
tie up courts for a long time."
 
 
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