US Supreme Court rules against file swapping

Cloud over Silicon Valley?
The justices were reviewing a pair of US lower-court decisions in which both courts said that file-swapping companies such as Grokster were not liable for the copyright infringement of people using their software. The nation's top court heard oral arguments on the case in late March.

With the potential to rewrite the US Supreme Court's 1984 Sony Betamax ruling that made VCRs -- and by extension any technology with "substantial noninfringing use" -- legal to sell, the decision has been closely watched across Silicon Valley.

Technology companies have feared that a new copyright-focused standard aimed at controlling peer-to-peer networks might result in a rise in lawsuits aimed at blocking new products. The Betamax ruling had protected generations of products, ranging from CD burners to Apple's iPod to personal computers.

In its majority ruling Monday, the court did not make any detailed changes or clarifications to that 1984 decision. However, Souter did write that the Betamax decision had not been meant as a shield for companies that actively induced or encouraged their customers to infringe copyrights. The peer-to-peer companies appeared to fall into that category, he wrote.

"There is no evidence that either company (Grokster or StreamCast) made an effort to filter copyrighted material from users' downloads or otherwise impede the sharing of copyrighted files," Souter wrote. "Each company showed itself to be aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users."

Essentially that means the Betamax ruling's protections still will apply in most cases, lawyers said. However, the ruling does dispel the most expansive interpretation of that decision, under which any product with any legal use, no matter how minimal, was viewed as necessarily legal, said Thelen Reid & Priest attorney Michael Elkin.

"I don't think the Sony Betamax decision ever gave a get-out-of-jail-free pass to anyone," Elkin said.

Critics of the ruling said that the court provided no clear standard or test to define inducement, aside from noting several instances in which the peer-to-peer companies appeared to cross the line.

Some in the technology world said the result could lead to more litigation against young companies with new technologies.

"This is a very dangerous decision for technology and innovation," said Ed Black, chief executive officer of the Computer and Communications Industry Association. "If you think of the Sony decision as a shield or an umbrella, we're afraid some holes have been punctured in that umbrella."

Added Michael Petricone, vice president of technology policy for the Consumer Electronics Association: "It is a real concern for the entire industry. We are faced with competitors in China and India who do not face the same litigation burden that companies will with this decision."

Not everyone in Silicon Valley took a bleak view of the ruling, however. An Intel spokeswoman said the company was still studying the ruling, but noted that the court seemed to have upheld the most important aspects of the Betamax decision.