P2P Services Are Legal: Federal Judge

File-swapping software companies StreamCast Networks and Grokster are not liable for copyright infringements, a federal judge here ruled Friday morning - a ruling CNET.com described as "a stunning court victory" for the two file-swap services.

The Electronic Frontier Foundation had sided with StreamCast and Grokster in the case, arguing that the case was less about stopping music or film pirates than about controlling new technologies. "This is far from over," said EFF senior staff attorney Fred von Lohmann, who represented StreamCast and argued before Fisher in December. "This is not the end, but it sends a very strong message to the technology community that the court understands the risk to innovation."

The ruling by Judge Stephen Wilson throws out most of the record industry and movie studios' lawsuit against StreamCast and its Morpheus software and Grokster. However, the Wilson ruling doesn't affect KaZaa, the brand name under which Sharman's distributes their proprietary FastTrack software that's at the center of an earlier federal court order that Verizon Online give up the name of a KaZaa user to the Recording Industry Association of America.

While both Streamcast Networks, best known for its Morpheus brand of p2p software, and Grokster were at one time utilizing FastTrack software, only Grokster still uses it. Morpheus now operates as a gnutella clone, an open-source p2p system. However, both operate without a central server, connecting users instead through "supernodes". Each time a user logs on to the p2p system, they could become supernodes, the computer that routes searches to appropriate files.

In his decision, Wilson noted that the fact Napster relied on a central server whereas StreamCast and Grokster do not was key to his decision to side with the tech companies.

Utilizing a central server gave Napster the ability to block what was being traded or to shut the service down. If Grokster or Morpheus were forced out of business, their software would still operate, and users would still be able to connect to each other.

"If either defendant closed their doors and deactivated all computers within their control, users of their products could continue sharing files with little or no interruption," wrote Wilson in the decision.

The fact that Napster could shut down and regulate to some extent the files traded through their system was proof of their negligence. P2p systems without a central server, lacking the ability to control what goes on through their systems, can not be considered negligent on that account.

StreamCast and Grokster "distribute and support software, the users of which can and do choose to employ it for both lawful and unlawful ends," Wilson wrote in his April 25 opinion. "Grokster and Streamcast are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights."

In other words, the programs themselves are legal to own and operate, regardless of how their users choose to use them - which could well enough throw copyright infringement liability back to the users themselves, rather than the software makers.

The two companies "correctly point out that in order to be liable under a theory of contributory infringement," Wilson ruled, "they must have actual knowledge of infringement at a time when they can use that knowledge to stop the particular infringement."

Or, the music and movie companies' complaints are "irrelevant" if StreamCast and Grokster can't stop such infringement, the judge wrote.

Wilson also cited the example of the VCR, which Sony knew was used to engage in piracy but were able to prove had legitimate non-infringing uses. Lawyers for the defense provided documentation of several non-infringing uses of their software, especially in the academic world - something Napster tried, but was unable, to establish.

Kazaa has been deemed legal in the Netherlands, complicating the MPAA & RIAA's case against p2p systems. Wilson noted that the legality of the software in another country was favorable towards the defense's arguments.

Last November, Grokster made a deal with music stars Insane Clown Posse to sell some of the band's promotional merchandise as well as allow the group's then-current single, "Homies," to be swapped on its network, in a push to help sell the group's The Wraith: Shangri-La album. Grokster's push included banners on its site and software programming advising Grokster users to "Support the Artist. Buy the Record!" These arrangements have become more frequent in the last few years as the file swap controversy heated up seriously.