File-sharing sites lose at Supreme Court

The new standard: Intent
Experts immediately focused in on the court's point of distinction — intent.  Previously, courts had ruled around more technical issues, such as where the music or movie files were stored. In the case of Napster, which shut down in 2001 after losing a series of legal challenges, courts held that the company was liable because it stored copyright materials on centralized computer servers. The original Grokster summary judgment favored that firm because music and movie files were stored on local users' computers, out of Grokster's direct control.

"I like (intent) as a basis for the ruling," said Edward Samuels, author of The Illustrated Story of Copyright. "Instead of depending on the technology, which the courts are not experts in, this ruling depends on something, intent, which the courts are very familiar with."

By focusing on intent, the court also honed in on the issue of ill-gotten gains from illegal activity, Samuels said. 

"Usually, the question of intent means, 'I intend to make money from this,' " Samuels said.  "So the question is, 'Who's profiting from this activity?' And doesn't it make sense that those people should pay the copyright owners?"

Critics fear innovation 'freeze'
Intent is a vague standard, file-swapping software supporters said, and it will force software designers to imagine every possible future use of their technology.  

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"This is a very difficult roadmap to follow," said Richard Taranto, a lawyer for Grokster.   "The court has said to the Intels of the world, 'We have a multifactor standard that you can't in advance be terribly sure how it will apply to you.' The immediate impact for the industry and technology innovation will ... be a chilling one."

At a press conference arranged by the Electronic Frontier Foundation, experts called the decision Orwellian, saying that the courts have given the music industry the right to sue software makers based on private thoughts and conversations.

"I am very concerned that this new liability theory of intent will freeze the introduction of new technologies," said Michael Petricone, vice president of technology policy for the Consumer Electronics Association.

The ruling's impact on the BitTorrent file-swapping format was not immediately clear. In the years since the Grokster case was first filed, BitTorrent has become the file-sharing software of choice for many on the Internet. BitTorrent creator Bram Cohen has repeatedly said publicly that he did not design his format to encourage illegal activity. In December, when Hollywood movie studios sued a number of Web sites for promoting illegal use of BitTorrent, they made a point of saying they were not targeting the technology itself.

The Supreme Court decision does not mean the immediate end of Grokster. Instead, the Supreme Court reversed an earlier judgment for Grokster, and ordered a lower court to proceed with a trial, at which intent will be the central issue. But the ruling will likely scuttle the service "for all practical purposes," said Rosso, the former Grokster CEO, on CNBC. He also said he believed the ruling will encouraging venture capital to pay more attention to for-pay swapping services.

The case is Metro-Goldwyn-Mayer Studios v. Grokster, 04-480.

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