File Sharing Companies Ruled Not Liable

A federal appeals court yesterday ruled that two developers of file-sharing programs are not legally liable for the copyrighted content their users swap online.

The 9th U.S. Circuit Court of Appeals yesterday ruled in favor of Grokster Ltd. and StreamCast Networks Inc., stating that the companies are not liable for the sharing of copyrighted works by users of their software.

The three-judge panel unanimously upheld a lower court ruling that dismissed much of the lawsuit brought forth by music labels and movie studios because Grokster and StreamCast’s programs do not utilize centralized servers that point users to copyrighted materials, as the original Napster did.

Jack Valenti, president of the Motion Picture Association of America Inc., said his group is reviewing its next step following Thursday’s ruling, but experts agree the decision is likely to force the industry to take more costly and less popular measures such as going directly after file-swappers. To date, recording companies have sued more than 3,400 file-swappers, with many of the cases being settled for near $3,000 each.

“In the context of this case, the software design is of great import,” Judge Sidney R. Thomas wrote.

The panel concluded that the software firms simply provide software that lets users share information over the Internet.

In reaction to the ruling, P2PUnited, the Washington-based trade association for the peer-to-peer software companies issued the following statement:

“The Ninth Circuit’s complete and utter rejection today of the entertainment industries’ attempts to warp long-standing, pro-innovation copyright law into a weapon against peer-to-peer technology and its developers is a profound and major victory for the American consumer and our economy. Critically, the court cut through and rejected Hollywood’s and ‘Big Music’s’ propaganda about peer-to-peer software and the P2P United member companies sued in this case (Grokster and Streamcast) to find the truth.”

“History has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke machine, or an MP3 player,” Thomas wrote. “Thus, it is prudent for courts to exercise caution before restructuring liability theories.”