April 20, 2014

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Grokster Case Lumbers On; Judge To Issue Permanent Injunction

Remember the Grokster case? In which the Supreme Court found the filesharing companies Grokster and StreamCast liable for indirect copyright infringement, for “inducing” infringement by their users? You might have thought that case ended back in 2005. But it’s still going on, and the original judge just issued an interesting ruling. (Jason Schultz has a two part summary of the ruling.)

The issue now before the judge is what relief to grant the copyright-owner plaintiffs against StreamCast, which is the only defendant still standing. It’s apparently a given that the judge will eventually assess monetary damages against StreamCast. And you’d think these damages would be enough to kill StreamCast, so it’s not clear why StreamCast hasn’t just thrown in the towel, shut its doors, and handed over all its assets to the plaintiffs. Instead, StreamCast fought on, so the judge had to decide what kind of injunction, if any, to impose on StreamCast – that is, what rules would govern StreamCast’s future behavior.

The judge first considered the question of whether he could impose on StreamCast obligations (beyond payment of damages) that go beyond what the law requires of ordinary companies. Would he just award money damages and sternly command StreamCast not to break the law again; or would he go further and impose a permanent injunction? After a detailed legal analysis, he concluded that a permanent injunction was appropriate. StreamCast had actively promoted itself as a haven for infringement and “that bell cannot be unrung”.

The copyright-owner plaintiffs had asked for an injunction requiring StreamCast to apply all feasible anti-infringement technologies and to stop all infringment. StreamCast had built its own filtering technology which it said was effective enough, and much cheaper and more practical than commercially available alternatives.

The judge first rejected the plaintiff’s proposal that StreamCast be required to stop all infringement using its software. He recognized, correctly, that that would be impossible, so that such an injunction would be a death sentence for StreamCast.

Instead, the judge will require StreamCast to set up a filtering system that reasonably balances effectiveness and cost, with the strong emphasis on effectiveness. The precise details will be worked out with the help of a special master: an independent technical expert to be appointed by the judge. Which means yet more legal process to choose the special master, wait for the special master’s advice, and then order specific action from StreamCast.

All of this may be proper from a legal standpoint, but it seems unlikely to matter in practice. It’s hard to see how StreamCast can sustain a business given the legal and financial strain they must be under, and the likely ruinous monetary damages they’re still facing. I can understand why the plaintiffs might want to keep StreamCast on life support, in the hope of getting legal rulings that prove helpful elsewhere. But why does StreamCast keep fighting?

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Entertainment Industry Pretending to Have Won Grokster Case

Most independent analysts agree that the entertainment industry didn’t get what it wanted from the Supreme Court’s Grokster ruling. Things look grim for the Grokster defendants themselves; but what the industry really wanted from the Court was a ruling that a communication technologies that are widely used to infringe should not be allowed to exist, regardless of the behavior and intentions of the technologies’ creators. The Court rejected this theory.

Last week the Senate Commerce Committee held a hearing (a video stream is available) on the Grokster aftermath. This was a chance for witnesses representing various interests to put their official spin on the Grokster ruling. All of the witnesses praised the ruling and asked Congress to wait and see what develops, rather than legislating right away. But different witnesses put different spins on the ruling.

The entertainment industry line was presented by Mitch Bainwol of the RIAA, Fritz Attaway of the MPAA, and Gregory Kerber of Wurld Media (a music distribution service). Their strategy was essentially to pretend that the Court did give the industry what it wanted, and that P2P technologies were now presumptively illegal unless they had cut licensing deals with the industry. They didn’t argue this directly, but the message was clear. For example, they tried to draw a line between “legitimate” P2P technologies and others, where legitimacy was apparently achieved by signing a licensing deal with major recording or movie companies.

For example, in response to concerns from Mark Heesen of the National Venture Capital Association about venture capitalists’ fears of financial ruin from investing in even well-intentioned communication technology companies, Mr. Kerber said this:

It’s very clear how you get investment. The rules are there. We’re a P2P – we’re a real peer-to-peer – it’s centrally controlled, we can control that … we can respect the copyright holder’s wants during – through a contractual process.

And the way that investors realize that is when we go out and get deals with the record labels, movie studios; and … the venture capitalists do their due diligence, they call and they find out that … the content owner of these assets [says] yes, we will allow this to be transferred and distributed and sold … within – on the network.

So … it’s very, very clear. If you have a contract with a major label, indy label, movie studio, publisher, what they have said is, we will allow the content to be sold in this manner across our network. So I’m a little confused by – there’s an absolute clear path for an investor to understand what’s right and wrong in the process.

It’s a simple message. Investing in technologies that have been blessed by the entertainment industry: right; investing in other technologies: wrong.

But it’s not what the Court said. The Court rejected the proposition that P2P or other communication technologies can exist only at the pleasure of the entertainment industry.

Despite this, we can expect to hear more of this rhetoric of “legitimacy”. And when P2P technologies continue to exist and be popular, we can expect calls for legislation to control the scourge of “illegitimacy”.

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Controlling Software Updates

Randy Picker questions part of the computer science professors’ Grokster brief (of which I was a co-signer), in which we wrote:

Even assuming that Respondents have the right and ability to deliver such software to end users, there can be no way to ensure that software updates are installed, and stay installed. End users ultimately have control over which software is on their computers. If an end user does not want a software update, there is no way to make her take it.

This point mattered because Hollywood had suggested that Grokster should have used its software-update facility to deploy filtering software. (Apparently there is some dispute over whether Grokster had such a facility. I don’t know who is right on that factual question.)

Picker wonders whether ordinary users can really exercise this control in practice. As he notes, the user can disconnect from the net, but that’s too high a price for most people to pay. So how can users prevent updates?

The easiest method is simply to write-protect the program’s files or directories, so that they can’t be changed. Alternatively, the user can make a backup copy of the software (perhaps by copying it to another directory) and restore the backup when an update is installed.

Standard system security tools are also useful for controlling automatic updates. Autonomously self-updating programs look a lot like malicious code – the program code changes on its own (like a virus infection); the program makes network connections to odd places at odd times (like spyware); the program downloads and installs code without asking the user (like a malicious bot). Security tools specialize in identifying and blocking such behaviors, and the tools are reasonably configurable. Personal firewalls, for example, can block a program from making unapproved network connections. Some firewalls even do this by default.

Finally, a skilled person can figure out how to patch the program to disable the auto-update feature. He can then encapsulate this knowledge in a simple tool, so that other users can disable their auto-update by downloading the tool and double-clicking it. (This tool may violate copyright by modifying the program; but if we trusted users to obey copyright law we wouldn’t be having this conversation.)

The bottom line is that in computer security, possession is nine-tenths of control. Whoever has physical access to a device can control what it does. Whoever has physical control of a computer can control what software is installed on it. And users have physical control of their PCs.

A followup question is whether you can program the software to shut itself off if the user blocks updates for too long. As far as I know, nobody is claiming that Grokster had such a capability, but in principle a P2P system could be designed to (try to) work that way. This raises interesting issues too, but I’m approaching my word count limit so I’ll have to address them another day.

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RIAA Saber-Rattling against Antispoofing Technologies?

The RIAA has fired a shot across the bow of P2P companies whose products incorporate anti-spoofing technologies, according to a story (subscribers only) in Friday’s National Journal Tech Daily, by Sarah Lai Stirland. The statement came at a Washington panel on the implications of the Grokster decision.

“There’s definitely a lot of spoofing going on on the networks, and nobody thinks that that’s not fair game,” said Cary Sherman, president of the Recording Industry Association of America, on Friday. “Some networks actually put out some anti-spoofing filters to enable people to get around the spoofs, and that may well be a sign of intent.”

The comment came in answer to a question about the kinds of lawsuits that might be brought in the wake of the high court’s decision.

What Sherman is suggesting is that if a P2P vendor includes anti-spoofing technology in their product, that action demonstrates an intent to facilitate infringement, making the vendor liable as an indirect infringer under Grokster.

Perhaps Sherman is asserting that anti-spoofing technologies lack substantial noninfringing uses, and so do not qualify for the Sony Betamax safe harbor. This is wrong in general. It’s well known that some of the files on P2P systems are of low audio or video quality, or are mislabelled altogether. This is true of both infringing and non-infringing files. A technology that can predict which files will have low quality, or which users will be sources of low quality files, will help users find what they want. Spoof files are just low quality files that are inserted deliberately, so technologies that reject low-quality files will tend to reject spoof files, and vice versa.

Of course some particular vendor might introduce such a filter for bad reasons, because they want to abet infringement. But one cannot infer such intent merely from the presence of the filter.

One popular interpretation of Grokster is that the Court said a company’s overall business practices, rather than its technology, will determine its liability. That seems to follow from the Court’s refusal to revise the Sony Betamax rule. And yet Sherman’s complaint here is all about technology choices. Is this the precursor to lawsuits against undesired technologies?

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Posner and Becker, Law and Economics

Richard Posner and Gary Becker turn their bloggic attention to the Grokster decision this week. Posner returns to the argument of his Aimster opinion. Becker is more cautious.

After reiterating the economic arguments for and against indirect liability, Posner concludes:

There is a possible middle way that should be considered, and that is to provide a safe harbor to potential contributory infringers who take all reasonable (cost-justified) measures to prevent the use of their product or service by infringers. The measures might be joint with the copyright owners. For example, copyright owners who wanted to be able to sue for contributory infringement might be required, as a condition of being permitted to sue, to place a nonremovable electronic tag on their CDs that a computer would read, identifying the CD or a file downloaded from it as containing copyrighted material. Software producers would be excused from liability for contributory infringement if they designed their software to prevent the copying of a tagged file. This seems a preferable approach to using the judicial system to make a case by case assessment of whether to impose liability for contributory infringement on Grokster-like enterprises.

It’s fascinating that Judge Posner, with his vast knowledge about the law and about economics, avoids a case-by-case law and economics approach and looks instead for a technical deus ex machina. Unfortunately, his knowledge of technology is shakier, and he endorses a technical approach that is already discredited. Nobody knows how to create the indelible marks he asks for, and in any case the system he suggests is easily defeated by encrypting or compressing the content – not to mention the problems with malicious placement of marks. In short, this approach is a non-starter.

Becker is right on the mark here:

But several things concern me about the issues raised by this and related court decisions. I basically do not trust the ability of judges, even those with the best of intentions and competence, to decide the economic future of an industry. Do we really want the courts determining when the fraction of the total value due to legal sales is high enough to exonerate manufacturers from contributory infringement? Neither the wisest courts nor wisest economists have enough knowledge to make that decision in a way that is likely to produce more benefits than harm. Does the fraction of legitimate value have to be higher than 50 per cent, 75 per cent, 10 per cent, or some other number? Courts should consider past trends in these percentages because new uses for say a software-legal or illegal- inevitably emerge over time as users become more familiar with its potential. Must courts have to speculate about future uses of software or other products, speculation likely to be dominated by dreams and hopes rather than firm knowledge?

One of the tenets of the law and economics movement is that decisions about legal regulation of economic behavior should be grounded in a deep understanding of economics. Sound economics can predict the effect of proposed legal rules; but bad economics leads to bad law. As luminaries of the law and economics movement, Posner and Becker understand this as well as anyone.

What is true of economics is equally true of computer science. Only by understanding computer science can we predict the impact of proposed regulations of technology. As we have seen so many times, bad computer science leads to bad law. Posner seems to miss this, but Becker’s stance shows appropriate caution.

One criticism of law and economics is that it works well in a seminar room but may lead to dangerous overconfidence if applied to a hard case by an overworked, generalist judge. One solution is to teach judges more economics, and economic seminars for judges have proliferated. Perhaps the time has come to run seminars in computer science for judges.

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BitTorrent: The Next Main Event

Few tears will be shed if Grokster and StreamCast are driven out of business as a result of the Supreme Court’s decision. The companies are far from lovable, and their technology is yesterday’s news anyway.

A much more important issue is what the rules will be for the next generation of technologies. Here the Court did not offer the clarity we might have hoped for, opting instead for what Tim Wu has described as the Miss Manners rule, under which vendors must avoid showing an unseemly interest in infringing uses of their products. This would appear to protect vendors who are honestly uninterested in forstering infringement, as well as those who are very interested but manage to hide it.

Lower courts will be left to apply the Grokster Court’s inducement rule to the facts of other file distribution technologies. How far will lower courts go? Will they go too far?

The litmus test is BitTorrent. Here is a technology that is widely used for both infringing and non-infringing purposes, with infringement probably predominating today. And yet: It was originally created to support noninfringing sharing (of concert recordings, with permission). Its creator, Bram Cohen, seems interested only in noninfringing uses, and has said all the right things about infringement – so consistently that one can only conclude he is sincere. BitTorrent is nicely engineered, offering novel benefits to infringing and noninfringing users alike. It is available for free, so there is no infringement-based business model. In short, BitTorrent looks like a clear example of the kind of dual-use technology that ought to pass the Court’s active inducement test.

A court that followed the Grokster analysis closely would have to let BitTorrent off the hook. To do otherwise, I think, would be to institute a de facto predominant-use test, finding BitTorrent liable because too many of its users infringed. This might be dressed up as an inducement analysis, but it would be clear to everybody what was going on. Given the squishiness of the Grokster analysis, we can’t rule this out.

So the stage is set for the next phase of the copyright/technology litigation war. The music and movie industries don’t want to live in a world where BitTorrent is allowed to exist. The Supreme Court didn’t give them enough yesterday to kill BitTorrent. So the industries’ goal will be to stretch the Grokster rule, just as they tried to stretch the Sony rule before hitting a sandbar in the Grokster district court. We’ll see a careful campaign of litigation against peer-to-peer services, trying to gradually stretch the noose of inducement liability until it fits around BitTorrent’s neck. Failing that, we’ll see a push to get Congress to codify (the industries’ interepretation of) the Grokster rule.

The real winners, as usual, are the copyright lawyers.

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Patry: The Court Punts

William Patry (a distinguished copyright lawyer) offers an interesting take on Grokster. He says that the court was unable to come to agreement on how to apply the Sony Betamax precedent to Grokster, and so punted the issue.

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Legality of Design Decisions, and Footnote 12 in Grokster

As a technologist I find the most interesting, and scariest, part of the Grokster opinion to be the discussion of product design decisions. The Court seems to say that Sony bars liability based solely on product design (p. 16):

Sony barred secondary liability based on presuming or imputing intent to cause infringement solely from the design of distribution of a product capable of substantial lawful use, which the distributor knows is in fact used for infringement.

And again (on p. 17),

Sony‘s rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product.

But when it comes time to lay out the evidence of intent to foster infringement, we get this (p. 22):

Second, this evidence of unlawful objective is given added significance of MGM’s showing that neither company attempted to develop filtering tools or other mechanisms to diminish the infringing activity using their software. While the Ninth Circuit treated the defendants’ failure to develop such tools as irrelevant because they lacked an independent duty to monitor their users’ activity, we think this evidence underscores Grokster’s and StreamCast’s intentional facilitation of their users’ infringement.

It’s hard to square this with the previous statements that intent is not to be inferred from the characteristics of the product. Perhaps the answer is in -footnote 12, which the court hangs off the last word in the previous quote:

Of course, in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses. Such a holding would tread too close to the Sony safe harbor.

So it seems that product design decisions are not to be questioned, unless there is some other evidence of bad intent to open the door.

To make things worse, the Court here criticizes Grokster and StreamCast for making a very reasonable engineering decision. There is every reason to believe that filtering technology would add to the cost and complexity of the companies’ software, without substantially reducing infringement. (We discussed this issue in the computer science professors’ brief.) In short, the Court here engages in exactly the kind of design second-guessing that technologists fear.

Legitimate technologists will still worry that a well-funded plaintiff can cook up a stew of product design second-guessing, business model second-guessing, and occasional failures of copyright compliance by low-level employees, into an active inducement case. This risk existed before, and the Court today hasn’t done much to reduce it.

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Business Model as Evidence of Intent

One interesting aspect of Justice Souter’s majority opinion in Grokster is the criticism of the business models of StreamCast and Grokster (pp. 22-23):

Third, there is a further complement to the direct evidence of unlawful objective. It is useful to recall that StreamCast and Grokster make money by selling advertising space, by directing ads to the screens of computers employing their software. As the record shows, the more the software is used, the more ads are sent out and the greater the advertising revenue becomes. Since the extent of the software’s use determines the gain to the distributors, the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing. This evidence alone would not justify an inference of unlawful intent, but viewed in the context of the entire record its import is clear.

It’s hard to think of any conceivable business model for a software company under which an increase in use of the product does not lead to an increase in revenue. If you sell software, greater use allows you to increase the price, or to sell more units. Likewise if you sell software by subscription. If you give away the software and make money on auxiliary products or services, you’ll still benefit from increased usage.

Certainly Sony’s profits would have increased the more people used Betamaxes. The same is true for iPods, TiVos, photocopiers, and many other legitimate products. Profiting from use seems like pretty poor evidence of intent to cause infringement.

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Grokster Loses

The Supreme Court ruled unanimously against Grokster, finding the company’s actions to be illegal. (Reported by SCOTUSblog.) Expect an explosion of discussion in the blogosphere. My usual one-post-a-day limit will be suspended today.

Unanimous opinion of the Court (written by Souter)
Concurrence of Ginsburg (joined by Rehnquist and Kennedy)
Concurrence of Breyer (joined by Stevens and O’Connor)

I’ll be participating in a special Grokster discussion over at SCOTUSblog, along with several distinguished lawyers. Everything I post here will be duplicated there, and vice versa.

Also, Randy Picker is organizing a lawprof “mobblawg” about today’s Grokster and BrandX rulings, with an impressive group of participants.