The National Pulse

The Net Effect

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The U.S. Supreme Court will log on this month as it double clicks a pair of cases that will likely determine the future of the burgeoning Internet. In both cases, lawyers are arguing that regulatory law needs to catch up to changes in technology.

In one case, the high court will decide whether musicians and moviemakers can stop the free copying of their works on the Internet. If the answer is no, “Copyright will soon mean nothing on the Internet, and the incentives on which our copyright system rests will be imperiled,” the movie and record producers told the court in Metro Goldwyn Mayer Studios v. Grokster, No. 04-480.

In the other, the court will decide whether consumers can have choice of providers when they connect to the Internet via a cable or phone line. The Federal Communications Commission says it favors deregulation, but consumer activists say the government’s hands off policy means homeowners will be left with a choice between a pair of unregulated monopolies. Both cases are scheduled for argument on March 29. Many legal analysts portray the Grokster file sharing dispute as the biggest copyright case before the Supreme Court since 1984. Then, in a case involving the Sony Betamax, the justices shielded the first generation of video recorders from copyright liability. Sony Corp. of America v. Universal City Studios, 464 U.S. 417.

“I think this case will define the borders between copyright owners and technology innovators for several decades,” says Cindy Cohn, a lawyer for the Electronic Frontier Foundation in San Francisco, which defended Grokster.

Electronic Enabler

The Internet permits computer users instantly and freely to transfer files of information from one computer to another, but the entertainment industry says this free flowing network permits piracy on a grand scale. More than 40 million computer users tap into peer to peer networks, including Grokster and co-appellee StreamCast, mostly to exchange and download free copies of music and movies. These peer to peer networks “brazenly encourage and profit from infringement” on these copyrights, and their business “is inflicting catastrophic, multimillion dollar harm” on the artists and producers who created the original works, the entertainment industry lawyers said in urging the high court to take up the issue.

So far, however, finding a legal and effective way to halt the practice has proven to be elusive.

The federal courts in California stopped Napster, the pioneer in the mass file sharing of music, but only because it allowed users to tap into its “centralized indexing software” of music files, as the 9th U.S. Circuit Court of Appeals described it. A&M Records v. Nap ster, 284 F.3d 1091 (2002) (“Napster II”); and 239 F.3d 1004 (2001) (“Napster I”). By contrast, StreamCast and Grokster permit their users to tap into music files stored by others.

“No one computer contains all of [the files] that are available to all of the users. Rather, each computer makes information available to every other computer in the peer to peer network,” the 9th Circuit said in Grokster last August. 380 F.3d 1154. True, the “vast majority of the files are exchanged illegally in violation of copyright law,” the appeals court said, but the owners of Grokster and StreamCast cannot be held liable for this mass copyright infringement because they are simply allowing others to exchange pirated works, the appeals court ruled.

“History has shown that time and market forces” find a solution to copyright dilemmas posed by new technology, whether the player piano, copier, tape recorder or MP3 player, the 9th Circuit added. “Thus, it is prudent for the courts to exercise caution,” the court concluded.

Grokster’s supporters, including the Electronic Frontier Foundation, urged the justices to stand back and let Congress seek a fair solution to problems posed by computer file sharing. In December, however, the justices voted to hear the entertainment industry’s appeal, suggesting that at least four of them are inclined to declare a solution this year.

“I think they recognize it is time to set a new rule for a new digital age,” says Washington, D.C., attorney Jay Rosenthal, who filed an amicus brief on behalf of dozens of recording artists, including Jimmy Buffett, Bonnie Raitt, Sheryl Crow, Don Henley, Stevie Nicks and the Dixie Chicks. He adds that the 9th Circuit’s siding with Grokster undercut the new media companies that offered legal downloading of music and movies for a fee. “It’s hard to compete with free,” he says.

Fair Use

Copyright law has long distinguished between those who copy protected works and devices that permit copying by others. For example, early Xerox machines permitted free and easy copying; a determined copier could run off hundreds of copies of new books. That possibility did not subject Xerox to charges of copyright infringement.

In Sony, the court said the makers of the Betamax could not be held liable for copyright infringement simply because they had constructive knowledge that many users would tape copyrighted television shows. That 5 4 ruling was written by Justice John Paul Stevens. The dissenters included then Justice William H. Rehnquist.

In their briefs to the court, the MGM lawyers argue that Grokster’s system for downloading copyrighted music differs dramatically from the Sony videocassette recorder of the early 1980s. “The predominant use of the Betamax machine [was] onetime later viewing of free programs without any distribution to others. [This] was fair use,” they said.

By contrast, the “primary use” of the Grokster network is the mass distribution of copyrighted music and films, they said. A “user seeking recordings by Bruce Springsteen or the motion picture Spider Man simply types the artist’s name or the film title in a search window” to download a digital copy, they said. Moreover, Grokster and StreamCast “designed their services to disable mechanisms” that would have prevented copying of protected works, MGM lawyers said. If this is deemed legal, then copyright in the digital era will have little value, they concluded.

Meanwhile, the Internet access case will decide what regulations, if any, apply to the high speed lines that bring the Web to homes and offices. It concerns only cable, but FCC officials say they plan to extend the same regulatory standard to phone lines.

Open Access at Issue

When Internet service took off in the early 1990s, most users connected to the Web by dialing a phone line. As common carriers, the telephone companies were obliged to let others use their lines; America Online and EarthLink could compete for customers on the same basis as the phone company.

However, when cable television companies moved into the broadband business, they insisted their lines were off limits to government regulation and outside competitors. Subscribers to AT&T, Cox and Comcast cable systems can buy broadband Internet access, but only through AT&T, Cox and Comcast.

Three years ago, the FCC adopted the cable industry’s position. It stated that cable modems were a type of “information service” that should be free from regulation.

Consumer activists and some small Internet providers sued, arguing that the FCC’s approach would “gut any potential competition in the market” for high speed access by allowing cable–and possibly phone companies–to close their lines to competitors. The 9th Circuit sided with the consumer advocates and held that broadband service is akin to a telecommunication service, subject to regulation and outside competition. It reasoned that Congress sought free and open competition, not closed networks, when it passed the 1996 Telecommunications Act.

The FCC and the National Cable Television Association appealed to the Supreme Court, and the justices agreed to hear the cases as one. FCC v. Brand X Internet Services, No. 04 281, and NCTA v. Brand X, No. 04 277.

Meanwhile, Verizon and other phone companies filed briefs in support of the cable industry and argued that high speed DSL service should be similarly shielded from regulation. EarthLink joined the case on the side of the consumer activists, fearing that a victory for the cable companies could eventually close the market.

“The outcome of this case will, quite literally, determine the future of the Internet as we know it,” says Andrew Jay Schwartzman, president of the D.C. based nonprofit Media Access Project, which supports Brand X. “If the Supreme Court rules against Internet open access, cable companies will be able to block content at will for political or financial reasons and deny the public the ability to choose among competing Internet providers.”

David G. Savage covers the U.S. Supreme Court for the Los Angeles Times and writes regularly for the ABA Journal.

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