P2P Networks Score Legal Victory Against Studios

File-sharing applications Morpheus and Grokster were claiming legal victory after a U.S. court said it was not responsible for protecting the copyrights of material swapped on its person-to-person network.

The ruling deals a blow to some 28 entertainment companies, including giants such as Disney, MGM and Time Warner, that had filed copyright infringement lawsuits against companies such as Morpheus and its parent company, StreamCast.

But the court ruled, in a unanimous decision, that because file-swapping software is capable of “substantial non-infringing uses” and because the network cannot control what its users do with its software, Morpheus cannot be held responsible for any copyright violations.

The ruling echoes an historical decision by the U.S. Supreme Court that cleared the way for legal use of VCRs to private record programs in the 1980s.

“The introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through well established distribution mechanisms” the decision reads. “Yet history has shown that time and market forces often provide equilibrium in balancing interests.”

Everybody Wins?

Some advocates involved in the case were arguing that even though their legal argument may fail, the entertainment industry will actually win in the long run, as P2P networks will evolve, as have earlier cutting-edge technologies, to become more effective delivery platforms for the studios.

“The entertainment industry has always fought new technologies, only to see them create new markets and open up new opportunities,” Electronic Frontier Foundation (EFF) staff attorney Fred von Lohmann told the E-Commerce Times.

Von Lohmann said the entertainment industry faced an uphill battle since the 1984 Sony Betamax ruling essentially laid the legal groundwork for the new ruling. That decision said that Sony could not be held responsible if users copied programs without authorization. He noted that the entertainment industry has since made billions of dollars selling videotapes to consumers.

Doing Enough?

The recording and movie industries argued that unlike in the early days of VCRs, the P2P networks have the technology to halt piracy and copyright infringement if they wanted to.

“They maintain regular systematic control of the system and their business,” the plaintiffs argued in a brief filed in the case earlier this year. “Instead of employing their filtering to stop piracy, they turned a blind eye to detectable acts of infringement for the sake of profit.”

Michael Weiss, the CEO of StreamCast Networks, which distributes Morpheus, said the decision emphasizes the legitimate uses of P2P software.

“We have always known that, like the VCR or the photocopier, there are a wide range of legitimate uses for our software, and the legal precedents, as well as history itself, have always been in our favor,” he said in a statement.

Weiss also called for the entertainment industry to reach out to file-sharing networks and “seize the opportunity to embrace innovative technologies, like Morpheus, and begin to view us as the primary channel for the distribution of digital media to reach the masses.”

Most analysts say that scenario is highly unlikely, at least not until the industry has exhausted all legal options. Appealing to the U.S. Supreme Court is likely to take a year or more.

More to Come

The studios and record labels have the option of appealing the ruling to the U.S. Supreme Court, something von Lohmann said is highly likely.

Whether their foes pursue that appeal or not, P2P networks still face other legal hurdles. Some 45 state attorneys general recently warned the industry that it needs to clean up its act or face tough enforcement action. The AGs are concerned not only about copyright violations but also about the use of the P2P platforms to distribute pornography.

Yankee Group senior analyst Mike Goodman said regulating P2P networks is also going to prove difficult, because most operate freely across international borders.

“This isn’t a state or even a national issue,” Goodman told the E-Commerce Times. “It’s much bigger.”