In an enormous blow to the music and motion picture industries, a Los Angeles federal judge dismissed a lawsuit against file-sharing services Grokster Ltd. and StreamCast Networks Inc. Friday, saying that they can not be held culpable for illegal file trading done over their networks.
The ruling, made by U.S. District Court Judge Stephen Wilson, represents an almost complete turnaround from previous victories the record and motion picture industries have had in cases involving illegal peer-to-peer (P-to-P) file trading. The Recording Industry Association of America Inc. (RIAA) said it would appeal the ruling immediately.
In his opinion, Wilson ruled that the P-to-P networks have substantial noninfringing uses in addition to infringing uses that cannot be dismissed.
"It is undisputed that there are substantial noninfringing uses for defendants' software," Wilson wrote, such as distributing movie trailers, free songs and other noncopyright works.
Furthermore, he ruled that the P-to-P network operators do not have any direct knowledge of when illegal trading is happening on their systems, said Grokster spokesman Wayne Rosso.
While Wilson wrote that "it is undisputed that defendants are generally aware that many of their users employ defendants' software to infringe copyrighted works" he said that direct knowledge of users' infringement could not be proven.
The judge compared the case to the ruling in Universal City Studios Inc.'s lawsuit against Sony Corp., in which the court said that the sale of video recorders did not subject Sony to contributory copyright liability.
"This is a huge victory for us," Rosso said. "And one of the remarkable things is that this judge showed a rare comprehension of both the technical and legal matters."
In a statement Friday, the RIAA said it disagreed with the court's decision that the file-swapping services are not liable for the "massive illegal piracy that their systems encourage" and that it would appeal the ruling immediately.
Businesses that intentionally facilitate piracy should not be able to evade responsibility for their actions, the RIAA said.
Still, the RIAA said it was not entirely displeased with the ruling. The court affirmed that individual users are accountable for sharing copyright protected material, the RIAA said.
The ruling is certainly a blow to the entertainment industry but is only a first-round victory, said Mike McGuire, research director at GartnerG2, the business strategy research arm of Gartner Inc.
"It is almost certain there is going to be a lengthy appeals process, so nobody is out of the woods yet and nobody is home free and can start popping champagne corks," he said.
In another case Thursday, a U.S. federal judge upheld a law that requires Internet service providers (ISPs) to turn over names of alleged copyright infringers, in this case to the RIAA.
The entertainment industries sued Grokster, StreamCast Networks, which runs the Morpheus file swapping system, and Kazaa distributor Sharman Networks Ltd., accusing them of assisting copyright infringement on a massive scale and asked the court for a summary judgment that would shut down their file-trading services.
Friday's ruling does not directly apply to Kazaa, however, which has been arguing that it cannot be held to U.S. law because it is incorporated in the South Pacific island nation of Vanuatu and has no ties here.
Furthermore, the ruling only pertains to the current versions of Grokster and StreamCast's products and services and does not apply to past versions of their software or other past activities.
The ruling could lead to a change in the mindset of executives at recording companies, GartnerG2's McGuire said.
"There are some people in the entertainment industry who are not afraid of P-to-P technology and are looking at ways to use it as a cool distribution model. They might now see their stock rise within their companies and will increasingly now be looked at to come up with ways to create legitimate music services using P-to-P," he said.
In the short term, however, record companies will likely accelerate the introduction of copyright-protected CDs in an effort to prevent songs from being shared online, McGuire said.