WASHINGTON -- The file-sharing fight reached the U.S. Supreme Court on Tuesday, and the burning question among the justices was how to protect copyrights without restraining future tech.
The entertainment companies petitioned the Supreme Court to take the case after the 9th U.S. Circuit Court of Appeals ruled in August that file-sharing companies are not liable for their users' copyright infringement. The decision upheld a lower-court ruling from April 2003.
The appeals court based its ruling on the 1984 Supreme Court Sony Betamax case. Then, the court ruled Sony's videotape recorder was a legal device because it was "capable of substantial non-infringing uses," even though it could be used to violate copyrights.
Arguing for the recording companies and the movie industry Tuesday, attorney Donald Verrilli said that the scale of infringement on Grokster and StreamCast Networks' Morpheus is "mind-boggling" and argued that the 9th Circuit's ruling gives the file-sharing companies a "perpetual free pass" to violate copyright.
The justices asked what clear test could be applied to this case if the Betamax test was discounted.
It's "not clear from your brief what the test is," Justice Anthony Kennedy said.
Justice Stephen Breyer said that devices like the Xerox copy machine, VCR and iPod could have a "vast number of infringing uses," leading him to wonder how inventors could develop new products without being sued. Justice Antonin Scalia asked how much time an inventor should be given to increase the number of lawful uses.
How do you "give inventor the confidence" to make a new product, Justice David Souter said, when the item could be used for infringement? The iPod can be stocked with music from legitimate CDs or from other means, like illegal content from downloaded from a P2P service.
Verrilli said the law would have to look at the business models of the company. In their brief, entertainment companies charged that copyright infringement is "the lifeblood" of these shady businesses, and the reason that internet users flock to download the free software in the first place. Grokster and StreamCast then profit mightily from the advertising displayed on the file-sharing services. And since file sharers can find nearly every popular song or movie for free on the services, legitimate businesses like Movielink and Apple Computer's iTunes are threatened.
Paul Clement, acting solicitor general of the United States who also spoke as a friend of the court, representing the petitioners, said that the test is whether these file-sharing services have commercially significant, non-infringing uses. The content companies say that more than 90 percent of the content on such services is infringing.
Richard Taranto, representing the respondents Grokster and StreamCast, argued that the court must adhere to the "clear Sony rule" in judging the case.
But the Sony ruling "goes on for 13 more pages," Justice Ruth Bader Ginsburg said, and if one reads further, one can see that the primary use of the Betamax machine was for time-shifting.
Taranto said that companies have relied on the Betamax rule when developing new technologies.
Modifying it "would deter investment in innovation by subjecting innovators to standards that are unpredictable in application and expensive to litigate, and put large sectors of the digital-technology economy in the hands of entertainment-industry incumbents with a vested interest in preserving their existing business arrangements, to the detriment of both creators and consumers," the respondents' brief reads.
Grokster and StreamCast also provided examples of how the software is used for legal purposes. Artists use P2P to give away free music and promote their work and the Internet Archive relies on the software to distribute public domain works.
But the justices also brought up concerns about whether infringing content should be used as "part of startup capital" for a business. "From an economic and legal standpoint, that sounds wrong," said Kennedy.
Taranto argued that Congress is best suited to assess the effects of peer-to-peer file sharing.
After the hour-long arguments, both sides made their case to the public on the Supreme Court steps. A judgment is not expected in the case until the summer.
Dan Glickman, head of the Motion Picture Association of America, said that the case "has to do with the future of the movie and music business. If people leech off the system for free ... music and movies won't get made." Former MPAA leader Jack Valenti also attended the hearing.
Songwriter Lamont Dozier, who wrote the Supremes' hit "Stop! In the Name of Love," said he wanted to ask the Supreme Court to "stop (illegal file sharing) in the name of creativity."
He said if this problem existed in the 1960s, "we never would have had a Motown."
"Nobody is suggesting that piracy is good," said Fred von Lohmann, attorney for StreamCast. While copyright owners have a right to protect what they have created, he said, "it doesn't entitle them to control what others have created."
The entertainment companies have been wrong for 100 years, he said. With every new technology, they have found a way to make money.
Betamax is the "right test" and the "Magna Carta" for new innovations, he said. "This (case) is about the next peer-to-peer."
Oral arguments in the landmark case of ''MGM v. Grokster'' legal battle were heard before the Supreme Court of the United States March 29. In the case, 28 entertainment companies have joined together to sue StreamCast, maker of Morpheus software, and Grokster.

A final ruling is expected on the case within a few months.  The issue heard before the court was an appeal of prior decisions made since 2001 at the U.S. district court level and from the Ninth Circuit Court of Appeals.  Both of those decisions were in favor of Grokster's right to market its P2P software.

P2P stands for peer-to-peer software, which uses the Internet as a medium for millions of users to distribute digital content, such as music, movies, books, and software, among themselves.  By far the majority of the content distributed through this method is without the permission of the copyright holder.

Morpheus is one of the most-popular peer-to-peer software products worldwide.  StreamCast also operates MusicCity.com.  Lawyers from the EFF Foundation (www.eff.org) are serving as defense counsel in the case.

The result of this case could determine the ultimate fate of P2P software in the U.S., whether it is legal for software companies to produce and sell software that, in the opinion of some, facilitates profit illegally from the trade in copyrighted materials.  However, even if illegal in America, such software might still be widely available from international hosts due to technological limitations of enforcing such a ruling.  The companies behind this effort are aiming to hold technological innovators legally responsible for infringing uses of their technology.

"About 36 million Americans — or 27 percent of internet users—say they download either music or video files and about half of them have found ways outside of traditional peer-to-peer networks or paid online services to swap their files".  As a measure of public opinion on the issue, they stated, "49% of all Americans and 53% of internet users believe that the firms that own and operate file-sharing networks should be deemed responsible for the pirating of music and movie files," according to Pew Internet & American Life Project in their most recent survey,

The landmark ''Betamax'' decision of 1984 (''Sony Corp. v. Universal City Studios'') is the most relevant U.S. case law in this matter (note: the precedent Betamax case supports the legality of P2P netowrks).  A decision in the MGM v. Grokster case could either affirm ''Betamax'', or overturn it.  This is the case that essentially created the VCR market in America for distributing movies at home, and so in this modern technologically updated version, there are billions of dollars in future revenues now at stake.