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Technology: File-Sharing Technology - Down But Not Out

What's New in Technology

August 2005

Technology: File-Sharing Technology - Down But Not Out

The defeat of the file-sharing companies, Grokster and StreamCast Networks in the Supreme Court was undoubtedly good news for the music and movie industries, but many believe there’s more copyright uncertainty ahead. The unanimous ruling, which overturned lower court decisions that had favored the two peer-to-peer software makers, stated: "one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties." However, the ruling provides little guidance on how to determine whether a company was purposefully encouraging its users to break the law (i.e. foster infringement). Some technology gurus found some grains of hope in this, but the ambiguity distressed many advocates on both sides of the issue.

Although the spoils of victory may appear to belong to the entertainment industry, film and record companies still have a long road ahead of them as they attempt to wean consumers from their file-sharing habits. They are expected to launch a new round of warnings to colleges and business owners regarding restrictions on file sharing on computer networks, and to directly target various companies who distribute peer-to-peer software. The music industry had blamed poor sales on piracy, but it is expected that a financial turnaround will take some time.

Digital Rights Advocates Remain Leery
For their part, although some advocates of file-sharing felt the decision left room for future technological breakthroughs, many industry commentators were dismayed by what they interpreted as further copyright uncertainty. Spokespersons on behalf of digital rights groups foresaw a situation where the entertainment industry could sue without restraint, creating situations that would tie up the courts for a long time. They believe entertainment industry leaders might use the Supreme Court decision to argue "intent" to block future technological innovations it dislikes or fears. Advocates also feel that the industry will be mired in a litigious limbo, and that a high price will be paid if lawyers are required to review every move entrepreneurs try to make.

The more upbeat file-sharing supporters were encouraged to see that the Supreme Court left the so-called Sony doctrine (a 1984 Supreme Court ruling) intact. The 1984 ruling provides umbrella protection for innovators from complaints that they contribute to copyright infringement.

They are optimistic that the core argument in the Sony case was reaffirmed and that peer-to-peer technology can continue to be used in situations where infringement of copyright is not at issue. In addition, they note that the Supreme Court said that "a purpose to cause, and profit from, third-party acts of copyright infringement" would have to be demonstrated in order to hold an organization responsible for users making illegal use of its software. Dismissing the most extreme "doom and gloom" scenarios, many commentators believe innovators will keep on inventing and that - Supreme Court or no - in today’s world where ideas and information flow across international boundaries and time zones, new ideas will continue to emerge. Others point out that the industry giants - especially record label companies - might win a legal battle but lose the war by alienating their younger audiences who view this as a "David and Goliath" conflict, with popular sympathy going to the file-sharing innovators.

Wherever their sympathies lie, industry commentators believe that the file-sharing culture is unlikely to die, and that trying to legislate around emerging technology will continue to be a challenge.
 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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