Sunday, October 28, 2007

More thoughts on Grokster

Jason Shultz shares his thoughts on the latest decision in the Grokster case.

"Over two years after the Supreme Court's decision in MGM v. Grokster, the trial court has issued its ruling on remand concerning whether and what type of permanent injunction should issue against Streamcast, the lone remaining defendant/manufacturer of the P2P file-sharing software at issue. (Grokster previously settled out of the case).

The order is quite lengthy -- 83 pages -- and contains a wealth of analysis. Of particular interest is the court's analysis of whether or not there should be a presumption of "irreparable harm" in favor of an injunction. Traditionally, many courts had presumed when intellectual property rights were involved that such presumptions were proper in order to preserve the IP owner's exclusive right to control their copyrighted or patented material. However, after the Supreme Court's recent eBay v. MercExchange decision, courts have been questioning this presumption, asserting that IP case are like any other civil case and IP owners should not receive special favors toward meeting their burden of proof.

However, despite finding there is no presumption, the court goes on to find irreparable harm to copyright owners from the P2P software provider for two reasons:

  1. Streamcast's inability to pay statutory damages for all the files it induced infringement of, and
  2. The ongoing viral nature of infringements empowered by the P2P architecture that Streamcast helped to create.

On this second point, the court emphatically states that StreamCast is responsible for irreparably harming copyright owners because Morpheus end-users "obtain 'perfect copies' of Plaintiffs' work that can be inexpensively reproduced and distributed ad nauseam."

It also found that StreamCast's inducement has "eviscerated Plaintiffs' ability to protect and enforce their statutorily-created property rights" because "Plaintiffs' power to control their rights has been so compromised by the means through which StreamCast encouraged end-users to infringe (digital files plus the internet) that the inducement amounts to irreparable harm."

So, if one follows this logic, a viral distribution system on the internet could well lead to a presumption of irreparable harm for any infringements it induces. Given that the power of the Internet is based on such dynamics and efficiencies, this could be a dangerous rule for future distribution technologies."


"So what's a court to do? Well, instead of simply mandating that StreamCast stop all infringement, it sorts through the various options and settles on filtering. While the court justifies filtering on the premise that it is an option that will not shut down the Morpheus system (an overboard approach) but still addresses the issue of infringement, I also think the court found it to be the most flexible option, leaving it with a feeling that it could easily revisit the issue by raising or lowering the sensitivity and burden of the filtering requirements as needed.

In discussing the scope of the filter, the court quickly dismisses any requirement that it be "perfect" as that would effectively shut down StreamCast and ban distribution of the Morpheus software. Instead, the court required StreamCast "to reduce Morpheus's infringing capabilities, while preserving its core noninfringing functionality, as effectively as possible." This boils down to two things:

  1. Installing a filter as part of future Morpheus software distributed to the public; and
  2. Taking steps to encourage legacy users of the old Morpheus software to upgrade to the new filtered versions.

Of course, phrases like "effectively as possible" are bound to be the subject of dispute, but the court did make it clear that it is not expecting StreamCast to go bankrupt trying to filter out every possible work. It also required the Plaintiffs to submit information about each copyrighted work to be filtered so that StreamCast couldn't be held in contempt for innocently leaving out a song or movie from its list. Finally, the court ordered the appointment of a special master to help evaluate the "highly technical" aspects of StreamCast's implementation of the filtering program and how effective it should and can be.

One other interesting aspect of the court's decision was its discussion of whether a company distributing a P2P system found to be inducing infringement could ever be free of its intent to induce. In this decision, the court found that no, it could not. Once an inducer, always an inducer, or as the court said, "The bell simply cannot be unrung." This means that tech companies must be extremely careful never to be found to be inducing, else they forever bear that mark in litigation."

It all sounds very much like the decision in the Australian Universal v Sharman (Kazaa) case and sure enough teh parties got into a legal tit for tat last year with the music companies accusing Sharman of not doing enough to follow the judge's order and Sharman responding in kind ending with complicated contempt of court proceedings. Ed Felten says of the latest Grokster decision:

"The judge first rejected the plaintiff’s proposal that StreamCast be required to stop all infringement using its software. He recognized, correctly, that that would be impossible, so that such an injunction would be a death sentence for StreamCast.

Instead, the judge will require StreamCast to set up a filtering system that reasonably balances effectiveness and cost, with the strong emphasis on effectiveness. The precise details will be worked out with the help of a special master: an independent technical expert to be appointed by the judge. Which means yet more legal process to choose the special master, wait for the special master’s advice, and then order specific action from StreamCast.

All of this may be proper from a legal standpoint, but it seems unlikely to matter in practice. It’s hard to see how StreamCast can sustain a business given the legal and financial strain they must be under, and the likely ruinous monetary damages they’re still facing. I can understand why the plaintiffs might want to keep StreamCast on life support, in the hope of getting legal rulings that prove helpful elsewhere. But why does StreamCast keep fighting?"

Any guesses on how long it will be until first lot of contempt of court proceedings?

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