The Supreme Court’s decision in the Brand X case today basically upheld the status quo by affirming the FCC’s ruling to classify cable modem service as an information service, and hence free of open access-type requirements. Although the Court’s decision did little to change the current environment - cable modem service has always been free of common carrier regulations - it will likely spur some strategic public policy shifts among phone companies and among proponents of network neutrality.
Incumbent telcos hope the Court’s decision will advance the ball on their efforts to free DSL service from regulation. The U.S. Telecom Association, which represents big and small phone companies, applauded the decision and said it’s now time for the FCC to apply the same information service classification to phone companies. In a statement, USTA head Walter McCormick said:
Today’s Supreme Court decision clarifies the Commission’s role in setting a framework for service providers in the rapidly changing communications market. While this was the correct decision for the cable industry, it further highlights why all providers must be given the same incentive to invest and deploy new technologies. We applaud the FCC’s victory today and urge policymakers to finish this important job by crafting similar rules for all broadband providers to ensure a consumer-driven, highly competitive and innovative American communications market.
BellSouth and SBC both issued similar statements asking the FCC to decide that DSL service move forward without the threat of access requirements.
Even the cable industry, the big winner in today’s decision, won’t raise much of a ruckus if the Commission chooses to give phone companies a break on DSL regulation. Speaking during a conference call to discuss the Brand X opinion, National Cable Telecommunications Association CEO Kyle McSlarrow said “our posture has been two-fold. Number one, we’re for more deregulation…Number two we think like services should be treated alike.” McSlarrow said he sees no reason why DSL shouldn’t also be classified as an information service.
But the real fallout of the Brand X decision could be to give the notion of network neutrality greater momentum. Net neutrality is the concept of mandating that broadband providers deliver Internet content or applications regardless of the content involved, an idea gaining currency in Washington in order to prevent phone and cable companies from blocking services, such as VoIP, that compete with those offered over their own networks.
Gigi Sohn, President of Public Knowledge, a DC-based interest group, rallied the troops around the net neutrality flag. In a statement, she said:
“The Court’s decision today in the Brand X case raises the question of whether Congress, in tackling its next revision of the Telecommunications Act, should act to ensure that communications, content, and applications are allowed to pass freely over the Internet’s broadband pipes. We believe Congress should do so, because ‘net neutrality’ is a worthy goal that not only will promote free speech and creativity on the Internet, but also will benefit those who provide broadband connectivity by making that connectivity more valuable.”
Cable, on the other hand, isn’t buying it. During the Brand X conference call, NCTA’s McSlarrow said:
Network neutrality is no such thing. The idea behind proponents of network neutrality is that somehow there is a problem and we need to provide a solution. There is no problem today - a cable customer can go anywhere they want on the web. It is in our business interest to keep a cable customer happy.Posted by Cynthia Brumfield at 7:30 PM | Print | Comments (0) | TrackBack
The Wall Street Journal hosts a half dozen experts in an online roundtable on the Grokster decision. Here’s a sampling of the discussion, which is well worth a careful read:
Ernest Miller poses some questions that his fellow panelists respond to:
Imagine that Sony had been a nefarious group of active inducers when they brought out their Betamax. Suppose that there was ample evidence that Sony fully intended and explicitly encouraged Betamax users to infringe copyright with their videotape recorder (ads, internal emails, business plans). Consequently, under this standard, sales of the Betamax were shut down. What happens when VHS comes along? What will the makers of VHS have to do in order to avoid liability thanks to the bad actions of Sony? In this decision, the Court emphasizes that StreamCast and Grokster followed in the wake of Napster and wanted to capture Napster’s users. But, heck, iTunes wants to capture Napster’s users as well. What would StreamCast and Grokster have to have done in order to avoid liability for following in the footsteps of bad actor Napster? What will the next developer of P2P have to do if Grokster and StreamCast are found liable in the lower court?
Michael Geist, who holds the Canada Research Chair of Internet and E-Commerce Law at the University of Ottawa, raises some key points:
Grokster certainly didn’t win this case, but more importantly, P2P technology didn’t lose. As many predicted, the court was clearly (and unanimously) uncomfortable with Grokster and what it viewed as intentionally profiting from copyright infringement. By seeking to retain Sony but build in active inducement, it is trying to navigate a difficult fine line. The Justice Souter money quote calls for an inducement rule premised on “purposeful culpable expression and conduct.” It will be up to future courts to determine how tough a standard this creates, but by excluding actual knowledge of infringement, I think this presents a fairly high threshold.
While we will look on with great interest at what happens on remand, a potential future action against BitTorrent seems to me to be much more interesting. BitTorrent may well have far less evidence of purposeful culpable expression, even with knowledge of infringement. Moreover, if the market evolves in the manner described by Justice Breyer, I believe that future P2P services will have even less evidence as they legitimately develop services that build on the interest in non-infringing sharing despite the knowledge that their systems support infringing activities.
Though not core to the decision, I find Justice Breyer’s willingness to question the economic impact of P2P on the recording industry noteworthy. Over the past three weeks, the OECD, FTC, and now the U.S. Supreme Court have all cast doubt on the linkage between P2P and declining music sales. That makes for a strong trio and should help move the debate beyond unsubstantiated claims of a direct correlation between file sharing and the recording industry’s bottom line.
I share the concern that the peering into the “intent” of the entrepreneur raises some uncomfortable possibilities under which some innovation is chilled due to the uncertainty surrounding potential liability. However, there is much here for the entrepreneur — no liability for knowledge of potential or actual infringement; no liability for product support or technical updates, and (absent other evidence of intent) no liability for failure to take affirmative steps to prevent infringement.Posted by Mitch Shapiro at 5:28 PM | Print | Comments (0) | TrackBack
Audio from the press conference held today by members of the Pro-Grokster camp is now available on the Electronic Frontier Foundation (EFF) web site. As we noted in an earlier post, Ernest Miller’s notes from the press conference are available on his blog. Miller also has posted some notes from a press conference held today by RIAA and MPAA, including some Q&A.
Consumer Federation of America, Consumers Union and Free Press jointly released a statement in response to today’s Grokster ruling:
The Supreme Court’s decision in the Grokster case will pose a significant challenge for consumers, innovators and the economy. Based on today’s decision, new innovators would be subject to review of the courts to assess their marketing activities and business models.
But the three organizations also expressed hope that lower courts would be reasonable in interpreting the new standard set by the Court in Grokster:
We are heartened to note that the case upholds the fundamental proposition established in the Sony Betamax case that inventors of technologies with substantial legal uses cannot be held liable for copyright infringement by users, although it appears that the innovators would be held to an additional standard of “clear expression or other affirmative steps taken to foster infringement.” The Supreme Court has endeavored to make this test a rigorous examination of overt actions to induce infringement. If the lower courts understand and implement this test as the Supreme Court has articulated, the damage to innovation could be minimized. The freedom to innovate has been a critical ingredient in a quarter of century of dynamic technological progress and any ruling that would limit this freedom is ultimately harmful. Six members of the Court expressed a very firm commitment to that principle.Posted by Mitch Shapiro at 3:34 PM | Print | Comments (0) | TrackBack
In the wake of the Supreme Court’s Grokster decision, the Recording Industry Association of America (RIAA) issued this statement from Chairman and CEO Mitch Bainwol:
“With this unanimous decision, the Supreme Court has addressed a significant threat to the U.S. economy and moved to protect the livelihoods of the more than 11 million Americans employed by the copyright industries. The Supreme Court has helped to power the digital future for legitimate online businesses – including legal file sharing networks – by holding accountable those who promote and profit from theft. This decision lays the groundwork for the dawn of a new day – an opportunity that will bring the entertainment and technology communities even closer together, with music fans reaping the rewards.”Posted by Mitch Shapiro at 3:17 PM | Print | Comments (0) | TrackBack
Susan Crawford sees today’s Grokster decision as “a victory for content AND for technology.”
I was afraid that Sony would be undermined — and it wasn’t. The content guys were afraid that they wouldn’t be able to go after bad guys — and they’ve been given ammunition. What we’ve got is an opinion that is balanced and middle-of-the-road. It leaves Sony’s “substantial noninfringing use” standard alone (yes, the concurring Justices snipe back and forth about what that standard means, but that doesn’t matter), it doesn’t adopt any formless Aimster balancing test, and it says strongly that you can’t impute intent to technology. A good day for innovation. And a good day for Congressional staff, who won’t have to deal with some request for Induce legislation — we’re done.
But Crawford does see “some clouds here for technology companies.”
If you’ve got a stated intent to help others infringe, and a bunch of “bad” ads, and lots of other evidence of culpable intent, and THEN someone writes to you and encourages you to adopt their filtering technology, and you don’t — well, then you might be liable for inducement. There are certainly ways that this opinion might spark litigation.Posted by Mitch Shapiro at 2:57 PM | Print | Comments (0) | TrackBack
Thanks to Ernest Miller for posting his notes from a press conference held today by the pro-Grokster camp. The responses were mostly downbeat, with a few signs of optimism, particularly from Public Knowledge’s Gigi Sohn, who had earlier issued a written statement. Here are some excerpts, courtesy of Miller:
From Richard Taranto, Farr and Taranto, who argued the case before the Supreme Court:
The decision is multi-faceted and the evidence burden is unclear…The second and much more important aspect of what the courts did today was to write a set of standards, the most notable feature of which is the lack of clarity…the Court has provided a very difficult roadmap to follow. We have a multi-factored standard that you can’t be sure how will be applied to you.
From Fred von Lohmann, Senior Staff Attorney for EFF, with Cindy Cohn:
Will unleash an era of legal uncertainty for America’s innovators…There is a new theory of copyright liability. Didn’t clarify Betamax, didn’t clarify vicarious liability. It will take courts some time to clarify this. By focusing on intent, the Supreme Court has opened the door to see the notes of engineering meetings, marketing plans, emails of executives. This is a high burden for technology companies.
From Gigi Sohn, President and Co-Founder of Public Knowledge:
I see positive things for technology companies and consumers. The court reaffirmed the basis for the Betamax case…The court focused on affirmative acts. We will see if there is enough evidence to prove viability…There has been a lot of debate as to whether Congress will have to act to protect Hollywood’s rights. It is clear that there is no need for Congress…Technology and consumers can be somewhat optimistic about this decision.
From a representative of the Consumer Electronics Association:
The legal clarity has decreased. The risk of litigation has increased. From a competitive point this is not a good thing. With the INDUCE Act litigation introduced in last Congress, this makes the legal landscape less clear. We seek a pro-technology, pro-innovation landscape.
From Edward Black, President and CEO of the Computer and Communications Industry Association:
This is a very dangerous decision for technology and innovation. It is big victory for lawyers. Sony upheld. But if you consider Sony an umbrella and shield, it is now full of holes.
From Charles Baker of Porter & Hedges, representing StreamCast:
This is a confusing new standard. This can lead to expensive litigation, a very fact intensive standard. If you think about inducing, you could be liable. This will not slow down, but only intensify litigation. It will hamper technology innovation.Posted by Mitch Shapiro at 2:37 PM | Print | Comments (0) | TrackBack
While the initial response of Public Knowledge focuses on aspects of the Grokster decision the pro-Grokster camp can view as positive, a press release from the Electronic Frontier Foundation is decidedly less upbeat, starting with its title: “Supreme Court Ruling Will Chill Technology Innovation: Copyright Liability Standard in Grokster Decision Endangers P2P and Other New Technologies.”
This decision relies on a new theory of copyright liability that measures whether manufacturers created their wares with the “intent” of inducing consumers to infringe. It means that inventors and entrepreneurs will not only bear the costs of bringing new products to market, but also the costs of lawsuits if consumers start using their products for illegal purposes.
“Today the Supreme Court has unleashed a new era of legal uncertainty on America’s innovators,” said Fred von Lohmann, EFF’s senior intellectual property attorney. “The newly announced inducement theory of copyright liability will fuel a new generation of entertainment industry lawsuits against technology companies. Perhaps more important, the threat of legal costs may lead technology companies to modify their products to please Hollywood instead of consumers.”Posted by Mitch Shapiro at 2:19 PM | Print | Comments (0) | TrackBack
Among the earliest to respond to the Supreme Court’s Grokster decision is Gigi B. Sohn, president of Public Knowledge:
“Today’s Court decision in the Grokster case underscores a principle Public Knowledge has long promoted — punish infringers, not technology. The Court has sent the case back to the trial court so that the trial process can determine whether the defendant companies intentionally encouraged infringement. What this means is, to the extent that providers of P2P technology do not intentionally encourage infringement, they are exempt from secondary liability under our copyright law. The Court also acknowledged, importantly, that there are lawful uses for peer-to-peer technology, including distribution of electronic files ‘by universities, government agencies, corporations, and libraries, among others.’
“The Court is clearly aware that any technology-based rule would have chilled technological innovation. That is why their decision today re-emphasized and preserved the core principle of Sony v. Universal City Studios — that technology alone can’t be the basis of copyright liability — and focused clearly and unambiguously on whether defendants engaged in intentional acts of encouraging infringement. The Court held expressly that liability for providing a technological tool such as the Grokster file-sharing client depends on ‘clear expression or other affirmative steps taken to foster infringement.’ What this means is, in the absence of such clear expression or other affirmative acts fostering infringement, a company that provides peer-to-peer technology is not going to be secondarily liable under the Copyright Act.”Posted by Mitch Shapiro at 1:51 PM | Print | Comments (0) | TrackBack
In a unanimous opinion, the Supreme Court today shot down any hopes of legal protection that P2P networks may have, ruling in METRO-GOLDWYN-MAYER STUDIOS INC. ET AL. v. GROKSTER, LTD., ET AL. that P2P networks such as Grokster actively promote copy infringement and are therefore subject to liability under the Copyright Act.
In its decision the Court said:
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, going beyond mere distribution with knowledge of third-party action, is liable for the resulting acts of infringement by third parties using the device, regardless of the device’s lawful uses.
Stay tuned for more analysis of this landmark decision and check out our resource page on the Grokster case.
Posted by Cynthia Brumfield at 12:39 PM | Print | Comments (0) | TrackBack
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