Surprise—this column is not about 2257! But it does concern a June 2005 Court decision that could have an impact on adult businesses. In a unanimous decision that surprised most pundits, the United States Supreme Court approved of holding authors of peer-to-peer software liable for copyright infringement.
Is this significant for the adult industry? You bet!
Why? The main reason is that adult content is thought to be the type of file most commonly swapped. And why would people plop down their Visa cards to pay for something they can get for free?
Before we tackle that, here's a little background: Most everyone knows about Napster's fiery demise when the recording industry went after it. But Napster was, relatively speaking, a piece of cake, litigationwise. Napster was a central computer through which files were swapped, hence Napster was an indispensable element in the file swapping. Napster's functionality involved logging onto the Napster Web page, looking through the index of available files found there, choosing a file and, through Napster, arranging to download it. That made a fairly straightforward case of liability against Napster for both what is called "contributory copyright infringement" (knowingly inducing or encouraging others to infringe a copyright), and what is called "vicarious copyright infringement" (knowingly profiting from direct infringement while declining to exercise the ability to stop it).
The second generation of peer-to-peer systems introduced a significantly different functionality. Downloading the software facilitated searching the Internet for P2P postings on the individual computers of others with the same software who had files available for download. This second-generation file-swapping software did not require a Napster-style centralized index. Thus, for example, even if the companies issuing the software totally went out of business and closed down their websites, those with the software on their computers could continue searching for files posted on the computers of others and could continue to swap the files.
Why would that make any difference? Well, the theory was that this software was sort of a 21st century Betamax. For those of you too young to remember, the Sony Betamax was the first home VCR, which used the Betamax tape format that eventually was beat out by the VHS format with which we now all are familiar. But Beta was so good that even today, many adult videos are still shot on Betacam.
Betamax redux
When Sony first introduced the Betamax in 1975 as the first affordable home video recorder, the motion picture studios were up in arms, fearing that these VCRs would cost them dearly in revenue. Boy, were they wrong about that!
Parenthetically, the fact of the matter is that, while the major studios were resisting the new invention, the adult industry thrived on it. Triple-X-rated motion pictures could now be brought into homes everywhere. The whole sexual-revolution generation could now watch adult motion pictures to their hearts' content, and could do so without patronizing dingy adult movie theaters, which, along with the arcades in adult bookstores, then constituted the only method of delivery.
In any event, in 1976, Universal Studios and Disney sued Sony and others in federal court in Los Angeles, claiming that the Betamax was nothing more than a copyright infringement machine. In June of 1982, the Supreme Court agreed to hear the case. In January 1983 the Court heard oral argument, and that July the Court ordered the case reargued – something almost unheard of in Supreme Court litigation – and it was indeed reargued in October of 1983. That January, the Court finally settled the issue with a 5-4 decision that Sony was not responsible for copyright infringement by its end users. Ironically, by that time, video rental stores had popped up from coast to coast, and Americans were renting the studios' videotapes at a pace of hundreds of millions per year—tapes the studios were selling to the video stores at 70 bucks a pop!
The question before the Supreme Court this year was, "What is the difference between a machine that copies movies and a computer program that copies movies?" After all, the second-generation P2P software was nothing more than an Internet Betamax. And, because of that, when MGM – along with other studios, record companies and artists – filed their suit in federal court in Los Angeles in 2001 (25 years after they sued Sony in the same building) the court rejected the claim; and the court of appeals affirmed.
But the Supreme Court saw the case, Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., ___ U.S. ___, 125 S.Ct. 2764, ___ L.Ed.2d ___, 2005 WL 1499402 (June 27, 2005), differently. The Court characterized the 9th Circuit Court of Appeals decision as reading the Betamax case's limitation:
"to mean that whenever a product is capable of substantial lawful use, the producer can never be held contributorily liable for third parties' infringing use of it; it read the rule as being this broad, even when an actual purpose to cause infringing use is shown by evidence independent of design and distribution of the product, unless the distributors had 'specific knowledge of infringement at a time at which they contributed to the infringement, and failed to act upon that information.'"
And this was the distinction that the Court needed to mark a difference between Sony and the P2P companies. And there is a good argument that the Court needed to do that to avoid copyright chaos. After all, overruling the Betamax decision would change a line of cases upon which everyone has relied for more than two decades, but holding that the P2P software fell into the Betamax safe harbor would certainly trigger legislative changes in the copyright law that could create an unmanageable situation.
Evil by design
Besides, there was evidence aplenty of the infringing intent by the software companies, which had conceded that most of the "billions of files" downloaded by "hundreds of millions of copies of the software ... known to have been downloaded" were of infringing materials. Moreover, there was evidence that one of the companies had in place a program (in the company's own words) "to leverage Napster's 50- million-user base " after Napster's inevitable collapse. "We have put this network in place," an internal company memo said of a program designed to convert Napster users to theirs, "so that when Napster pulls the plug on their free service ... or if the Court orders them shut down prior to that ... we will be positioned to capture the flood of their 32 million users that will be actively looking for an alternative." The plan was not to charge for the software but, rather, gain revenue from advertising that would be streamed to the program while it was in use. And "ripping and burning" was encouraged; the company never attempted to include any filtering software that would have prevented infringement. In sum, the Court found, "The business models employed by [the software developers] ... confirm that their principal object was use of their software to download copyrighted works."
"[N]othing in [the Betamax case] requires courts to ignore evidence of intent if there is such evidence," the Court found. And on that basis, it made the critical distinction between Betamax and P2P under the circumstances, that "where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, [the] staple-article rule [from the Betamax case] will not preclude liability."
"The unlawful objective is unmistakable," the Court said, summing up the evidence. A clear majority of the court rejected revisiting the Betamax case, and the line has been drawn.
This does not end the case, but it appears certain that these companies eventually will be extinguished. The question is what will happen after that.
The engine that drives P2P is advertising. So, if a new P2P pops up overseas, out of reach of the American courts, the question will become whether the advertisers can be reached by lawsuits, and there is good reason to believe that they can. If the economic motive is taken away, it is possible that P2P could substantially diminish.
Certainly, nothing is to prevent some enterprising college students from circulating a P2P program just because they can. And, remember, existing programs can function even if the software developer is shut down.
In the end, it still remains to be seen just how effective the supreme court’s decision will be, but it’s certainly better than than the studios suing college students for copyright infringement.
Clyde DeWitt is a partner in the Los Angeles, California-based, national law firm of Weston, Garrou, DeWitt & Walters. He can be reached through AVN Online's offices, at his office at 12121 Wilshire Blvd., Suite 900, Los Angeles, CA 90025, or via email: [email protected]. Readers are considered a valuable source of court decisions, legal gossip, and information from around the country, all of which is received with interest. Books are encouraged to be submitted for review, but they will not be returned. This column does not constitute legal advice but rather serves to inform readers of legal news, developments in cases, and editorial comment about legal developments and trends. Readers who believe anything reported in this column might impact them should contact their personal attorneys.
