Source: http://www.techlawjournal.com/alert/2003/04/28.asp
Timestamp: 2019-04-23 09:51:23+00:00

Document:
TLJ Daily E-Mail Alert No. 650, April 28, 2003.
April 28, 2003, 9:00 AM ET, Alert No. 650.
4/25. The U.S. District Court (CDCal) issued its opinion in MGM v. Grokster, holding that Grokster's and Streamcast's peer to peer file copying networks do not contributorily or vacariously infringe the copyrights of the holders of music and movie copyrights. The holding of the District Court is arguably inconsistent with the opinion of the Court of Appeals in the case A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (2001), which held that Napster contributorily and vicariously infringed copyrights.
Background. Metro Goldwyn Meyer, and other movie companies, and various record companies, filed a complaint in the District Court against Grokster, Streamcast and Kazaa alleging copyright infringement, in violation of 17 U.S.C. § 501. Specifically, the plaintiffs allege contributory and vicarious infringement. The direct infringers, the users of the peer to peer networks, were not named as defendants.
In addition, professional songwriters and music publishers filed a class action complaint against the same defendants alleging contributory and vicarious infringement. The two actions were consolidated. The present opinion concerns cross motions for summary judgment involving the current versions of software provided by Grokster and Streamcast, but not by Kazaa.
Judge Stephen Wilson is presiding.
Direct Infringement. The District Court began its analysis by stating that "As a threshold matter, in order to find either contributory or vicarious infringement liability, Plaintiffs must demonstrate that Defendants' end-users are themselves engaged in direct copyright infringement." And, the District Court found, as did the Appeals Court in the Napster case, that the plaintiffs "have established direct infringement of their copyrighted works by some end-users".
However, neither the plaintiff in the present case, nor the plaintiffs in the Napster case, have pursued claims against any direct infringers.
Contributory Infringement. The District Court next analyzed the plaintiffs' claims of contributory infringement. The Court wrote that "There are two factors that come into play in determining liability for contributory infringement: (1) knowledge, and (2) material contribution." The District Court, unlike the Appeals Court in the Napster case, found that the defendants do not possess "knowledge" that their networks or being used to infringe copyrights.
The District Court found that the element of "knowledge" is lacking in this case. Citing Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984), the Court wrote that the "sale of video cassette recorders (``VCR´´s) did not subject Sony to contributory copyright liability, even though Sony knew as a general matter that the machines could be used, and were being used, to infringe the plaintiffs' copyrighted works. Because video tape recorders were capable of both infringing and ``substantial noninfringing uses,´´ generic or ``constructive´´ knowledge of infringing activity was insufficient to warrant liability based on the mere retail of Sony’s products."
The Court continued that "there are substantial noninfringing uses for Defendants’ software", such as "sharing the works of Shakespeare".
The Court wrote that "liability for contributory infringement accrues where a defendant has actual -- not merely constructive -- knowledge of the infringement at a time during which the defendant materially contributes to that infringement". Moreover, "defendants are liable for contributory infringement only if they (1) have specific knowledge of infringement at a time at which they contribute to the infringement, and (2) fail to act upon that information."
In the present case, the Court found that the defendants have knowledge that their software will be used by others to directly infringe plaintiffs' copyrights. But, this is not enough, because the software can also be used for non-infringing purposes. Moreover, the defendants have knowledge that their software is being used to infringe. And, the Court found the plaintiffs have notified defendants of specific instances of copying specific copyrighted items. But, the Court concluded, this does not constitute "knowledge" of infringement sufficient for a finding of contributory infringment.
And, since there is not actual knowledge, of specific infringement, at the time that it accrues, there is not "knowledge".
The Court of Appeals applied a less constraining interpretation of the word "knowledge" in the Napster case. It held that there is knowledge where the defendants "know or have reason to know".
Second, the District Court found that the element of "material contribution" is lacking. Here again, the District Court reached a different result from the Appeals Court in the Napster case. However, here the different outcome was based on a recitation of differing underlying facts. In the Napster case, Napster not only provided the peer-to-peer software, it controlled the software, provided support to users, and ran centralized servers.
In contrast, the Court noted that Grokster does not have access to the source code for the application, and employs a series of "supernodes" on users' computers, rather than a single "supernode" on Napsters' servers.
The District Court also noted that while Streamcast has access to its source code, it is a far more decentralized system than that of Grokster. "Instead of using supernodes, search requests ... are passed from user to user until a match is found or the search request expires." The Court called this a "true" peer to peer network.
And finally, the District Court concluded that these differences in the structure of the networks warrant the conclusion that neither Grokster and Streamcast "materially contribute" to the direct infringement by their users.
The District Court offered this concluding statement on the issue of contributory infringement. "Defendants distribute and support software, the users of which can and do choose to employ it for both lawful and unlawful ends. Grokster and StreamCast are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights. While Defendants, like Sony or Xerox, may know that their products will be used illegally by some (or even many) users, and may provide support services and refinements that indirectly support such use, liability for contributory infringement does not lie ``merely because peer-to-peer file-sharing technology may be used to infringe plaintiffs’ copyrights.´´ Napster, 239 F.3d at 1020-21 (citation omitted). Absent evidence of active and substantial contribution to the infringement itself, Defendants cannot be liable."
Vicarious Infringement. The District Court then rejected the plaintiffs' claim that Grokster and Streamcast engage in vicarious infringement. It first stated the standard: "There are two elements required for vicarious infringement: (1) financial benefit, and (2) the defendant’s right and ability to supervise the infringing conduct."
There Court first concluded that the defendants meet the first part of the test, "financial benefit". It wrote that "The more individuals who download the software, the more advertising revenue Defendants collect. And because a substantial number of users download the software to acquire copyrighted material, a significant proportion of Defendants’ advertising revenue depends upon the infringement. Defendants thus derive a financial benefit from the infringement."
However, the Court concluded that the defendants do not meet the second part of the test, "right and ability to supervise the infringing conduct". The Court held that in this case, unlike the Napster case, the differences in the technologies warrant the conclusion that the defendants have no control over the end users of their software.
On the other hand, the plaintiffs might argue on appeal, that the defendants have no control, to the extent that, anticipating litigation, they constructed their product in a manner that would allow them to raise the legal argument that they lack control.
Deference to Congress. The District Court also stated that the "Plaintiffs invite this Court to expand existing copyright law beyond its well-drawn boundaries." It added that "courts must tread lightly in circumstances such as these".
The District Court also quoted from the Sony case. "The judiciary’s reluctance to expand the protections afforded by the copyright without explicit legislative guidance is a recurring theme. ... Sound policy, as well as history, supports our consistent deference to Congress when major technological innovations alter the market for copyrighted materials. Congress has the constitutional authority and the institutional ability to accommodate fully the raised permutations of competing interests that are inevitably implicated by such new technology."
The reference to deference to Congress on this issue is noteworthy because the Congress, which has long codified copyright law and remedies, and continually revised its codification, has not provided for either contributory or vicarious infringement. These are judicial inventions. If the Courts were to defer to the Congress on copyright law, they would not recognize either contributory or vicarious infringement.
Also, this is noteworthy because the Courts' record of deference to the Congress on intellectual property law is spotty. For example, while the Supreme Court demonstrated tremendous deference to the Congress in upholding the Copyright Term Extension Act in the Eldred case earlier this year, it demonstrated a complete lack of deference to the Congress in the Eleventh Amendment immunity cases.
See, the January 15, 2003, opinion [89 pages in PDF] in Eldred v. Ashcroft, and TLJ story titled "Supreme Court Upholds CTEA in Eldred v. Ashcroft," January 15, 2003. See also, the opinions of the Supreme Court in Seminole Tribe of Florida v. Florida, holding that the Congress lacks authority under Article I of the Constitution to abrogate the States' 11th Amendment immunity from suit in federal courts, Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, invalidating the Patent and Plant Variety Protection Remedy Clarification Act, and College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, invalidating the Trademark Remedy Clarification Act.
Reaction. Hilary Rosen, the outgoing Ch/CEO of the Recording Industry Association of America (RIAA), stated in a release that "Businesses that intentionally facilitate massive piracy should not be able to evade responsibility for their actions. We disagree with the District Court's decision that these services are not liable for the massive illegal piracy that their systems encourage and we will immediately appeal to the 9th Circuit Court of Appeals."
Options Available to Copyright Holders. Several options are now available to the plaintiffs. First, as Rosen stated, they can appeal to the Court of Appeals. Since the District Court in this case lies in the Ninth Circuit, the appeal would be heard by the Ninth Circuit, and the law of the Ninth Circuit (including the Naptster case) would control. And, given the District Court's interpretation of precedent on the issue of contributory infringement, the prospects for reversal are good. On the other hand, it should be noted that some other federal circuits are less receptive to the claims of the copyright industries, and the Ninth Circuit has a higher rate of reversal by the Supreme Court than any of the other circuits.
Second, the plaintiffs may still pursue Kazaa, which was not covered by this opinion. It may also pursue both Grokster and Streamcast for earlier versions of their software.
Third, the District Court did offer the copyright holders one consolation. It wrote that "The Court is not blind to the possibility that Defendants may have intentionally structured their businesses to avoid secondary liability for copyright infringement, while benefitting financially from the illicit draw of their wares." Hence, while this District Court is not receptive to claims of contributory or vicarious copyright infringement, it may be more receptive to various commercial tort claims.
Finally, the plaintiffs may sue the users of peer to peer networks for direct infringement. Moreover, the rulings in January and last week by the District Court (DC) in RIAA v. Verizon increase the likelihood that copyright holders will be able to use subpoenas pursuant to Section 512(h) of the Digital Millenium Copyright Act (DMCA) to obtain information from internet service providers (ISPs). This would enable copyright holders to obtain the identities of individuals who commit direct infringement, thereby enabling them to file lawsuits against them.
See, April 24, 2003, order [3 pages in PDF] and opinion [58 pages in PDF] in RIAA v. Verizon, and TLJ story titled "District Court Rules that a DMCA § 512(h) Subpoena for the Identity of an P2P Infringer Does not Violate the Constitution", April 24, 2003. See also, January 21, 2003, opinion of the District Court, and TLJ story titled "District Court Rules DMCA Subpoenas Available for P2P Infringers", January 21, 2003.
The ISP in that case, Verizon, has stated that it too will appeal. Consumer Electronics Association (CEA) P/CEO Gary Shapiro stated in a release after the most recent ruling that "No American should live in fear that their ISP will be required to turn over their identity to any self-asserted copyright holder simply because someone claims you are doing something illegal." The CEA also called for new legislation.
4/24. Secretary of Commerce Donald Evans wrote a letter to Federal Communications Commission (FCC) Chairman Michael Powell regarding the FCC's pending review of media ownership rules. He wrote, "I further commend you, Mr. Chairman, for recognizing the need to resolve the uncertainty surrounding the potential rule changes and setting June 2, 2003, as the target date for a decision in this proceeding. On behalf of the Bush Administration, I urge the Commission to adhere to the schedule you have outlined."
4/23. The Federal Communications Commission (FCC) adopted, but did not release, a Memorandum Opinion and Order and Third Report and Order establishing licensing and service rules for 4940-4990 MHz band. The FCC issued a short press release [PDF] in which it stated that the adopted rules "are intended to promote spectrum access for a variety of new broadband applications such as high-speed digital technologies and wireless local area networks for incident scene management, dispatch operations and vehicular operations. This action also promotes interoperability by providing a regulatory framework in which traditional public safety entities can pursue strategic partnerships with both traditional public safety entities, such as the Federal Government, and non-traditional public safety entities, such as utilities and commercial entities, in support of their missions regarding homeland security and protection of life and property." See also, separate statement [PDF] by Chairman Michael Powell, separate statement by Commissioner Michael Copps, and separate statement [PDF] by Commissioner Kevin Martin. This is WT Docket No. 00-32. For more information, contact Genevieve Augustin at 202 418-1305 or gaugusti@fcc.gov or Tim Maguire at 202 418-2155 or tmaguire@fcc.gov.
4/25. The Federal Communications Commission's (FCC) Consumer Advisory Committee (CAC) held a meeting. See, speech [2 pages in PDF] by FCC Commissioner Kathleen Abernathy.
4/23. The Federal Communications Commission (FCC) released a Memorandum Opinion and Order (MOO) in which it granted in substantial part a complaint brought by Core Communications, Inc. against Verizon Maryland Inc. alleging that Verizon had violated 47 U.S.C. § 251(c)(2)(D) and FCC rules by failing to interconnect with Core on reasonable terms. The FCC concluded that "Verizon acted unreasonably by taking too long to complete interconnection with Core and by failing to promptly notify Core of the likelihood and extent of the interconnection delay." This is the proceeding titled "In the Matter of Core Communications, Inc. v. Verizon Maryland Inc." and numbered EB-01-MD-007. See also, FCC release.
4/25. President Bush announced his intent to nominate Christopher Wray to be the Assistant Attorney General in charge of the Criminal Division. He is currently the Principal Associate Deputy Attorney General. The Criminal Division includes the Computer Crimes and Intellectual Property Section (CCIPS). Wray was previously an Assistant U.S. Attorney in the Northern District of Georgia, and an attorney at the law firm of King & Spalding. If confirmed by the Senate, he will replace Michael Chertoff, who President Bush has nominated to be a Judge of the U.S. Court of Appeals for the Third Circuit. See, White House release.
4/25. President Bush announced his intent to nominate Jack Goldsmith to be the Assistant Attorney General in charge of the Office of Legal Counsel (OLC). He is currently Special Counsel to the General Counsel of the Department of Defense. He is also a professor (on leave) at the University of Chicago Law School. He previously clerked for Supreme Court Justice Anthony Kennedy. Justices Rehnquist and Scalia are also former heads of the OLC. See, White House release.
4/23. Chris Sprigman was named a partner in the antitrust section in the Washington DC office of the law firm of King & Spalding. He focuses on focuses on the intersection of antitrust law, intellectual property and competition policy. He previously worked for the Antitrust Division of the Department of Justice. See, release.
The House is in recess until April 29. The Senate will return from its two week recess at 12:00 NOON. At 1:00 PM the Senate will consider the nomination of Jeffrey Sutton to be a Judge of the U.S. Court of Appeals for the 6th Ciruit.
8:00 AM. There will be an event titled "Homeland Security Financing Briefing". For more information, contact Lana Corrigan at 202 756-2244. Location: Holeman Lounge, National Press Club, 529 14th St. NW, 13th Floor.
9:15 AM. Rod Paige (Secretary of Education) and John Bailey (Director of the Office of Educational Technology at the Department of Education) will speak at a Washington DC charter school with a technology oriented curriculum. Press contact: David Thomas at 202 401-1576. Location: The Arts and Technology Academy, 5300 Blaine St., NE.
1:00 PM. The U.S. District Court (DC) will hold a pre-trial conference in SEC v. Internet Telecommunications Albany System, D.C. No. 1:99CV00539 (CKK). Location: Courtroom 11, 333 Constitution Ave., NW.
4:00 PM ET. Rep. Zoe Lofgren (D-CA) and Lawrence Lessig (Stanford Law School) will hold a press conference to announce Rep. Lofgren's forthcoming introduction of HR __, the "Restrict and Eliminate Delivery of Unsolicited Commercial E-mail (REDUCE) Spam Act". Rep. Lofgren's notice also states that "reporters on the east coast or outside of Northern California" may participate by calling 800-261-3225, passcode 537986#. Press contact: Steve Adamske at 202 225-1943 or Steve.Adamske @mail.house.gov. Location: Room 290, Stanford Law School, Crown Quadrangle, 559 Nathan Abbott Way.
Day one of a two day convention hosted by the National Association of Regulatory Utility Commissioners (NARUC) and the National Exchange Carriers Association (NECA) titled "Second NARUC/NECA National Summit on Broadband Deployment: Accelerating the Transition". At 8:30 AM, Assistant Secretary of Commerce for Technology Policy Bruce Mehlman is scheduled to speak on "Broadband Deployment and Technology Trends". At 12:15 PM, FCC Chairman Michael Powell is scheduled to deliver the luncheon keynote address. At 5:00 PM, Sen. Conrad Burns (R-MT) is scheduled to speak. See, agenda [PDF]. The price to attend ranges from $495 to $795. Location: Hyatt Regency Crystal City, 2729 Jefferson Davis Highway, Arlington, VA.
The House will return from its two week recess at 2:00 PM.
10:00 AM. The House Government Reform Committee's Subcommittee on Technology, Information Policy, Intergovernmental Relations and the Census will hold a hearing on federal grants management, including the E-Grants and E-Government initiatives. Press contact: Bob Dix at 202 225-6751. Location: Room 2203, Rayburn Building.
6:30 PM. Tom Ridge, Secretary of the Homeland Security will speak at the Northern Virginia Technology Council's (NVTC) Spring Banquet. Press contact: 703-946-0318. Location: McLean Hilton, 7920 Jones Branch Drive, McLean, VA.
Day two of a two day convention hosted by the National Association of Regulatory Utility Commissioners (NARUC) and the National Exchange Carriers Association (NECA) titled "Second NARUC/NECA National Summit on Broadband Deployment: Accelerating the Transition". At 12:15 PM Nancy Victory will speak on "Accelerating the Transition to Broadband". At 3:30 - 5:00 PM, FCC Commissioners Kathleen Abernathy, Jonathan Adelstein, Michael Copps, and Kevin Martin are scheduled to participate in a roundtable discussion. See, agenda [PDF]. The price to attend ranges from $495 to $795. Location: Hyatt Regency Crystal City, 2729 Jefferson Davis Highway, Arlington, VA.
10:00 AM. The House Commerce Committee will meet to mark up several bills, including HR 1320, the Commercial Spectrum Enhancement Act. The hearing will be webcast. Location: Room 2123, Rayburn Building.

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