Hollywood Loses File-Swapping Case

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Hollywood lost big Thursday when a federal appeals court ruled that peer-to-peer companies can’t be held liable for copyright violations committed by people using their free file-sharing software.

The decision was handed down by a panel of the U.S. Court of Appeals for the Ninth Circuit in San Francisco, which held that the movie studios were wrong in claiming that peer-to-peer software companies were just as guilty of copyright infringement as those who traffic in protected songs, films and TV shows over the Internet.

The unanimous three-judge panel affirmed a district-court ruling, which concluded that peer-to-peer service Grokster Ltd. was sufficiently decentralized to preclude a finding of “contributory or vicarious” infringement.

The court noted that even if Grokster shut down immediately, the company would not be able to stop illegal file swapping of copyrighted material resident on millions of computers.

The court added that the film and recording industries sought changes in copyright jurisprudence that were inappropriate for courts to undertake “in the quicksilver technological environment” of today.

“Thus, it is prudent for courts to exercise caution before restructuring liability theories for the purpose of addressing specific market abuses, despite their apparent magnitude,” the court said, referring to statistics that 90% of the files exchanged with Grokster software contained copyright material largely owned by studios and record companies.

It appeared from the ruling that copyright owners’ chief line of attack is litigation against individual copyright infringers -- a step the recording industry has already taken.

The Motion Picture Association of America issued a statement signaling that it had its eye on Grokster users.

“Copyright theft is still illegal, and the Ninth Circuit Court of Appeals reiterated today that users of file-copying networks that illegally traffic in copyrighted music, motion pictures and television programs are not `sharing’ -- they are stealing,” MPAA president Jack Valenti said.

Valenti also reiterated support for legislation introduced by Senate Judiciary Committee chairman Orrin Hatch (R-Utah) that would punish software companies that induce copyright infringement.

Some studios hope to diminish illegal file sharing by offering legal Web versions of their content at low prices, aping the formula established by Apple Computer Inc.’s iTunes, which sold more than 70 million songs in its first year.

And some studios hope to frustrate illegal downloaders by setting up Web sites that contain dummy files.

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