The ninth US circuit court of appeals ruled that StreamCast Networks Inc. and Gorkster Inc., two leading developers of file sharing programs, were not liable for copyrighted works that their users swap online.
The federal court dismissed the collective lawsuit by movie studios and music labels on a technicality, quite literally, because neither StreamCast nor Grokster had its central servers direct users directly to copyrighted material.
In 2000 the highly popular peer-to-peer (P2P) music swapping Napster site was shut down precisely for its centralized server approach. But advancements in P2P technology means that the new generation of file sharing program can effectively side-step the restrictive central hub architecture.
Rather, the court determined that both StreamCast and Grokster are set up to provide software that allows users to share legitimate information over the Internet and thus take no responsibility for copyright and that the technology had other legitimate uses.
The court cited a 1984 landmark court decision in favor of VCR maker Sony. At the time Sony was deemed not liable for users of its Betamax VCR illegally copying movies. The ruling said that Sony’s technology was originally designed for other significant uses that did not violate copyright.
The decision, which seems to be based on architectural software design rather than user practice, will be hard to swallow for the recording companies. They will now be forced to go after individual users with suits, making them very unpopular with young online users who are also their best customers.
According to figures released by the recording industry association of America, over 3,400 music file swappers have been sued by recording companies for copyright infringements. It is thought that around 600 of the suits were settled out of court for approximately $3,000 each.
Significantly, the ruling could also impact future settlements between the recording industry and file sharing programs. The ruling however came too late for Israeli-based file-sharing firm iMesh.com Ltd (now called Bridgemar Services Ltd) which last month reached a $4.1 million settlement with the recording industry over copyright infringement, promising to implement filters to prevent illegal distribution of music or song downloads.
The recording industry similarly claims that Grokster and StreamCast could easily implement similar controls measures for filtering out copyrighted content from their programs, adding that they are reluctant to do so because it would reduce the stickiness of their sites.
The impact of the latest ruling in the current case against Sharman Networks Ltd., the original makers of the highly-popular Kazaa file-swapping program, remains to be seen.
