Editorial: File Sharing and Downstream Liability


On June 27, 2005 the Supreme Court ruled that the lower court could proceed with the trial. The Court held that a software company or service provider could be held liable for copyright infringement or for other torts commited by customers if the company intentionally promoted infringement or illegal practices as an essential part of its business strategy. The Court believes that there is evidence that these companies may have promoted customer infringement in order to increase advertising revenue, but as a matter of fact that would have to be determined by a lower court. The decision would possibly leave software developers or service providers concerned about knowing where they cross the line in “promoting infringement” or it they need to develop affirmative security steps to prevent gross infringements in order to avoid downstream liability. A good name for the legal problem presented is “indirect copyright infringement inducement.”


On March 29, 2005 the Supreme Court will hear oral arguments in the case MGM Studios Inc., et al v. Grokster Ltd., et al.


The core issue is the potential downstream liability of a product or service for illegal use or misuse of that product or service by customers. We have seen this legal issue with very different products, like guns, and in at least one case, a book (Paladin).


The Ninth Circuit had ruled in August 2004 that, unlike Napster, the newer peer-to-peer services Grokster, Inc. and StreamCast Networks, Inc.[1] did not have secondary liability because they did not have central servers that pointed to copyrighted material. With the original Napster (developed by a teenage Shawn Fanning), the problem had supposedly been that the service provider, with a central server, was in a position to know about copyright infringements by customers. With the newer decentralized technologies that is no longer true.  A file-sharing service company using a decentralized system or product could wash its hands of any “brother’s keeper” responsibility, although it may have expected prospectively that infringement would attract ethically naïve (often teenage) customers. One might accuse the defendants in this case of what most higher education (especially military) honor codes call “quibbling” (or “blind ignorance” or “willful blindness”[2]).  But their newer services have important other credible (and trend-setting) legal uses, as when a filmmaker chooses to share his film (that is, his own content, however inexpensively developed[3] and even distributed outside the usual mechanisms of the entertainment industry) with others voluntarily through decentralized file sharing.


The record and entertainment industry claims that the file-sharing companies are intentionally encouraging piracy with their advertising schemes, and that they could prevent piracy. 


As with the COPA litigation to which I have been party, there are genuine questions about the technical feasibility of preventing unwanted use. But to a systems analyst like myself, the issue would seem to lend itself to careful design and analysis through the kind of project management that software giants are very good at (much better than government, anyway). Any audio or video file could be tagged with a header that told the file-sharing software that it could not be shared for free, or that told other copy software that it could not be copied. Obviously this would require many changes to browsers, office products, video and audio playback programs, as well as DVD devices, and even operating systems on various platforms (starting with Microsoft), and even on cable networks.  It would require careful beta testing and staged implementation by many companies. But, over time and with good management, I would think it could be done, and it could put a lot of I.T. professionals back to work for a while (maybe even me).[4]


I feel two ways about this. As a self-published author trying to network with the movies, I can see, on the one hand, how the ability to attract investor money for a project of mine could be undermined by the threat of piracy. But I also see a deeper threat that, were the entertainment industry to get its way (and were there not a long-term technical compromise available), my own freedom to even put out my work could be undermined by fears of downstream liability in other areas. For openers, the ability of artists to distribute freely their own work through networks or even make DVDs of their own work might be compromised.  (Artists often face bandwidth constraints with traditional websites that file-sharing paradigms, using innovations like Bit Torrent, would be able to overcome.)  After sliding down the long legal slope, ISP’s might ultimately no longer be able to allow the tremendous about of self-publishing that I do if they could be liable for any of my future torts.[5] Similarly, cooperative publishing print-on-demand operations could be undermined.[6] One question that comes to mind is turf protection: many people employed in traditional entertainment and publishing businesses (including agents) may feel that the new freedoms of  (legal, non-infringing)“self-promotion” (of one’s own work) through the Internet threaten to make their work redundant and eventually threaten their livelihoods. Of course, entertainment companies are going to deny this claim as a red herring.


There is certainly a deeper and more subtle point. All the different machinations of the Internet allow entrepreneurs to experiment in unsupervised fashion. Many persons have used the Internet paradigm in bad faith for get-rich-quick schemes (spam and so on). But even content providers like myself could represent a potential threat to livelihoods of persons working “the old fashioned way” in protective bureaucracies in industries driven increasingly by short-term bottom-line thinking. So downstream liability might become an excuse for turf protection. Ultimately, anyone using newfound freedoms has to wonder how he will be held accountable for the example he sets.


Ideas about personal accountability in an ongoing historical context probably have little substance legally, as they are still nebulous and subjective. Law, however, does consider intent in weighing the just outcome of a particular situation. According to some legal commentators, the Supreme Court could hold that the vendors of many file-sharing services are predicated on a business model that needs copyright infringement to survive, that these companies deployed their services intending many customers to infringe. This could be called “bad faith.” On the other hand, so such an argument might go, other kinds of services (such as those offered by shared hosting ISPs) and products (most home recording and playback devices) intend that the customers behave legally and can enjoy the services or products at reasonable cost while staying within the law. The risk, of course, is the proverbial slippery slope. Many other services have been exploited when customers are unsupervised (spam, scams, viruses, the sales of illegal services) and it is difficult to decide when a vendor of some product or service expects to profit from illegal behavior by its customers when it knows it cannot stop that behavior.  Downstream liability is well known in copyright law: in print, printers and retail vendors can share in liability for infringement, although that is rarely invoked, and downstream liability exists in many other areas (such as serving alcoholic drinks) where society expects some responsibility for others. Hopefully the earlier cases like Betamax still provide a good precedent to keep downstream liability from interfering with innovation and personal productivity.


©Copyright 2005 by Bill Boushka, subject to fair use.

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Jonathan Krim provides The Washington Post, March 1, 2005 with an important article, “Artists Break With Industry on File Sharing: Some Musicians Say Web Services Can Be Valuable Means of Distribution.”  Krim writes, “Before online file sharing, ‘distribution of recordings to retailers was controlled largely by a few large national record companies and ny several ‘independent’ labels,’ they argue. ‘Young people aspiring to be musicians faces daunting odds of ever being signed by a record label.’.. The Distributed Computing Industry Association, which represents file-sharing and other technology firms, said the entertainment industry’s real agenda is to protect its monopoly.”  Again, an important point is the ability of new artists to find channels with which to be noticed; it is a “publicity” issue; new technologies do offer “artists” like me the chance to get our stuff seen and add new voices, even if the unsupervised nature of our distribution poses some potential ethical or abuse problems. Generally, in my experience, established artists (actors, screenwriters, etc.) are not personally interested in keeping newbies out of the business, but large companies and bean-counters may fear loss of revenue to new channels of distribution which tend to divert customers to new artists. The same thing happens with publishing and movies (which is why the movie business already has intricate schemes for funding unconventional films). 


Another story by Grant Gross, PCWorld.com and IDG News Service, March 2, 2005, is “Showdown Looms for P2P Networks,” at http://story.news.yahoo.com/news?tmpl=story&cid=1093&ncid=1093&e=6&u=/pcworld/20050302/tc_pcworld/119858


On March 15, 2005 The Washington Times provided an editorial, “The Grokster dilemma,” in which the paper argues that “Grokster is distinct from Sony’s Betmax, in that its business plan is fundamentally oriented around infringement.”  Later it argues “Holding Grokster liable does not need to entail a closing down of its peer-to-peer network,” and that Grokster could be required to install filters. The problem is that hooks for these filters to work would have to be developed by other software vendors.


Electronic Frontier Foundation provides a tutorial: “A Betamax-protected device every day (weekday) until March 29, 2005



On March 29, 2005 Krysten Crawford, CNN/Money staff writer provided a writeup, “The War over Downloading,” at http://money.cnn.com/2005/03/28/technology/grokster/index.htm


Here is a CNN account of the oral arguments on March 29, 2005: http://money.cnn.com/2005/03/29/technology/grokster.reut/index.htm?cnn=yes

Generally, the court was concerned that the defendants could have been intentionally “inducing” or encouraging infringing behaviors, but they were sympathetic to the idea that often innovators do not know how customers will use their products in actual practice later. Grokster attorney Taranto pointed out that Altnet had been a successful non-infringing use, and game manufacturers often use file sharing to distribute their software legally. There was some suggestion (by Justice Ginsberg, Breyer and O’Connor) that, just as with COPA, a lower court may have to hold a full trial on whether Grokster and some other potential defendants intentionally induced customers to infringe in order to have a viable business.  (5/11/2005) Were the Court to buy the “based on infringement business model” argument, questions can occur about downstream liability for customers in other situations: the whole Internet is very loose and predicated on a permissive environment that allows spam, unsupervised transactions, loose security, exposure to identity theft from sites that keep customer data (even the small “background investigation” sites). 


Jonathan Krim provides a similar story, “Court Weighs File Sharing: Technology Advances v. Copyrights in Grokster Case,” The Washington Post, Mar. 30, 2005. At one point Justice Scalia suggested that (following MGM’s logic) any inventor could assume that he or she will be sued after deploying an innovation.


Linda Greenhouse covers the issue with “Lively Debate As Justices Take On File Sharing,” The New York Times, Mar. 30, 2005, p. C1.


The file-sharing debate certainly may be exacerbated by the mass piracy of the 2005 Star Wars movies (Episode III: Revenge of the Sith) on opening day.


Jeffrey Rosen, “Supreme Futurology, Roberts v. the Future,” The New York Times Magazine, Aug. 28, 2005, discusses a number of liberty interests that make come up this century on the Supreme Court (in the light of the John G. Roberts, Jr. appointment by President Bush).  Rosen provides an overview of the attempts of the movie and music industries to engineer copy protections into computers and other hardware and software that would interfere not only with the usual concept of “fair use” but also with the ability of persons to “tinker” and experiment on their own. Again, these devices could interfere with the ability of new artists to make their own DVDs or share their own work for free, although they could protect artists already minimally established. There is always a philosophical debate about “barrier to entry” between those who make a living from intellectual property and those who want to enter the market by offering essentially free or below-market cost products, with the help of low-cost new technologies. Lawrence Lessig added a lot of substance to this article.


A related issue may concern the fact that some jobs do not allow new jobholders any outside income, including the sale of their own intellectual property. This practice happens with life insurance agents. But Grokster could reinforce copyright and the concept of intellectual property control to the point that this practice is seen as counter to public policy.


Note: On 11/7/2005 Grokster agreed to stop giving away its software as part of a settlement of the lawsuit. Its parent company plans to introduce a for-fee service for legal downloads only.


Mark Cuban (Dallas Mavericks owner and a principal player in Magnolia Pictures and some independent film ventures) suggests that major news sites pay for links to their stories when advertising revenue results for the original content owner. This is a “win-win” that would discourage print content infringement, at least, and pay for links, which have themselves been controversial. Go to http://www.blogmaverick.com/entry/1234000550066876/


BitTorrent has struck a deal with Hollywood to reduce illegal downloads while reducing downstream liability to software vendors. The AP story (11/23/2005) by Gary Gentile, “Hollywood Hopes to Reduce Movie Downloads”  is at http://hosted.ap.org/dynamic/stories/D/DOWNLOADING_MOVIES?SITE=FLTAM&SECTION=HOME&TEMPLATE=DEFAULT


There is an interesting interview with BitTorrent founder Bram Cohen at http://www.wrongplanet.net/asperger.html?name=Articles&pa=showpage&pid=98


An Internet-illiterate mother has been sued for downloads supposedly down by friends of her children without her knowledge, AP story by Jim FitzGerald, “Mom Fights Downloading Suit on her Own,” http://hosted.ap.org/dynamic/stories/M/MUSIC_DOWNLOAD_SUIT?SITE=NYTRO&SECTION=HOME&TEMPLATE=DEFAULT


Also, Jan. 3, 2006, Alex Veiga, “File-Sharing Barons Face Day of Reckoning”, http://hosted.ap.org/dynamic/stories/L/LORDS_OF_FILE_SHARING?SITE=ORROS&SECTION=HOME&TEMPLATE=DEFAULT


Website: http://www.grokster.com



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[1] Which offers the Morpheus file-sharing service.

[2] Drew Clark, “The Battle Between Tinseltown and Techville,” The Washington Post, April 10, 2005, p. B4.

[3] Check the comments by Dallas Mavericks owner Mark Cuban at http://www.blogmaverick.com – including his mention of his Magnolia Pictures. “Software doesn’t infringe; people do.”

[4] Saul Hansell, Jeff Leeds, “A Supreme Court Showdown on File Sharing,” The New York Times, March 28, 2005, mentions at least two attempts at technical solutions. One is Shawn Fanning’s Snocap, which would invite copyright owners to register their works on a network and make them traceable by “acoustic fingerprinting” to see when files are downloaded. Another is Altnet and Intent Media Works, with the idea being to cause a file to display an ad the first time it is opened.

See Brian Garrity, “P2P Sites Prepare Legit Bows” at Reuters, at http://go.reuters.com/newsArticle.jhtml;jsessionid=UDHFIWBEIBNKMCRBAEZSFFA?type=topNews&storyID=8828083 June 17, 2005. Snocap will have as a major client a service caked Mashboxx, from former Grokster guru Wayne Russo. Snocap is reportedly heavily negotiating with smaller distributors and labels.

[5] Right now, according to Electronic Frontier Foundation, Section 230 of the infamous Communications Decency Act of 1996 (a provision not struck down in 1997 on free speech grounds) provides some protection. Section 230 says “"No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider." This would mitigate against downstream liability unless challenged. The Supreme Court, in its ruling on Grokster, will surely have to consider whether its ruling sets a precedent in areas like this, since defendants are claiming a slippery slope affecting speakers’ free expression (and are claiming that the music and movie industries want a lot of turf protection and “barriers to entry”). Would an ISP conceivably be liable for a publisher with an illegitimate “business model”? Would downstream liability increase if the ISP monitors content, even indirectly through an abuse department to field complaints from the public? All of these should be carefully weighed. The EFF reference came up with respect to blogging. It is at http://www.eff.org/bloggers/lg/faq-230.php

Also, would section 230 protect an ISP for downstream liability if a customer kept personal information (social security numbers or credit card numbers) and the customer’s site was hacked?  I don’t know if this has been addressed, but Grokster could conceivably have implications for this.

[6] Understand, however, that file-sharing systems and the World Wide Web are very distinct applications on the Internet, each with their own protocols.