Journal of Law, Information and Science
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CATHERINE LEE[*]
Most internet users have probably heard of the terms ‘MP3’, ‘peer-to-peer’, ‘Napster’ and ‘Kazaa’. Together these concepts allowed internet users to download high quality files of their favourite songs or movies free of charge. They also provided a nightmare for the music and movie industries as such behaviour deprives them of millions of dollars from CD and video sales. But the entertainment industry has not taken these technological developments lying down - they have launched numerous copyright infringement actions against the networks who enable users to share copyright material with others.
This article will explain the legal ramifications of adopting different infrastructures for file sharing systems as appeared in the latest legal battle in the United States between the entertainment industry and file sharing programs. It will commence by describing the Napster system, the pioneer of peer-to-peer networks, and then analyse the recent decision in the litigation between the entertainment industry and the Grokster and StreamCast networks. Finally, it will discuss how the case might have been decided if it were heard in Australia.
Napster provided a file swapping system across the internet for collectors of MP3 music files. It did not store or copy these MP3 files onto its own equipment. Instead, the files were only located on the hard disk drives of Napster users. Napster’s function was to supply a directory service containing an index of the MP3 files that current Napster users wished to share and to permit one user to directly access another user’s hard disk drive. For example, Karen wished to obtain an MP3 file for Shakira’s song ‘Objection Tango’. After having downloaded and installed the Napster software, she would connect to the Napster server and automatically provide her online address and a list of songs to share with other users. She would then ‘tell’ the Napster Server that she wanted to download ‘Objection Tango’ and the Napster Server in turn searched the other online users to see who was willing to share this song. Then, Karen would be given a choice of users, such as Mark, who wished to share the particular song. The Napster service would then allow Karen to ‘contact’ Mark and access Mark’s hard disk drive to download the file containing ‘Objection Tango’.
Not surprisingly, Napster became a global phenomenon. This popularity was due to the system being reliable, fast and easy to use and, most of all, free. Indeed, by early 2001, the use of Napster had allegedly increased to an estimated 65 million users worldwide. Also not surprisingly, the music industry did not share users’ enthusiasm for this new service, as they again believed that free internet music was depriving them of CD sales. In December 1999, over 17 music record companies filed a complaint against Napster for contributory and vicarious copyright infringement under United States law and sought preliminary injunctions restraining Napster’s activities. This injunction was granted in February 2001.[1] Afterwards, Napster became embroiled in protracted legal and financial battles with the music industry and shut down in mid-2001.
Although the Napster system is no longer in operation, it left an everlasting legacy; that with a 65 million-plus following built up in such a short time, downloadable music is clearly not just going to disappear quietly into the pages of internet history. Numerous Napster ‘alternatives’ appeared on the internet for users to obtain their fix of free digital music. Some of these services, such as Aimster and Audiogalaxy, used a similar system to Napster and subsequently encountered the same type of legal problems as Napster when the music industry became aware of their existence.[2] Both of these services incurred the legal wrath of the music industry and were forced to change their networks to legitimate subscription services. Others, such as Kazaa and Gnutella, sought to avoid the legal problems encountered by Napster by creating an allegedly litigation-proof music service. Were they right? The recent decision involving Grokster and Streamcast Networks as distributors of the Kazaa FastTrack software (created by Consumer Empowerment BV) provides a landmark decision on US copyright law in relation to peer-to-peer technology.
Although the Napster and Grokster networks appear the same because they both allow users to share digital files, the architecture of the two systems is very different. One of the central features distinguishing the FastTrack-based software used by Grokster from other peer-to-peer technology such as Napster is the lack of a centralised server. If Karen wanted to download The Calling’s ‘Wherever You Will Go’ from Grokster, she would first need to download the FastTrack software. Once properly installed, the software enables Karen to connect her computer to a supernode, a powerful computer, with a high-bandwidth connection which is operated by another user already connected to the network. That supernode then compiles an index of digital files being offered by Karen for downloading by other network users and processes any requests, such as for ‘Wherever You Will Go’, which Karen may have submitted. In response to a search request, the supernode reviews its own index of files, and if necessary, the indices maintained by other supernodes and then displays for Karen the search results. With a few simple keystrokes, Karen can then download this song file from the hard drive of another user, say Julia, who already hosts a copy of the song.
Napster, in effect, utilised a single ‘supernode’ which it owned and operated. As a consequence, all Napster search traffic went through, and relied upon, Napster. Grokster differs in that it does not own or operate a supernode so that Grokster search traffic does not go through and rely upon Grokster. While Grokster and other systems using the FastTrack software may briefly have had some control over a root supernode, the technical process of locating and connecting to a supernode presently occurs independently of Grokster. Indeed, when users search for and transfer files using Grokster, they do so without any information being transmitted to or through any computers owned or controlled by Grokster. Further, Grokster does not have access to the source code for the FastTrack software and could not alter it in any way.
Certain versions of Streamcast’s Morpheus product prior to March 2002 were, like Grokster today, based on the FastTrack technology. However, there are key differences from the Grokster application. First, Morpheus is now a proprietary program owned and controlled exclusively by StreamCast. This means that, unlike Grokster, StreamCast has access to the source code for the software, and can modify the software at will. Second, Morpheus now is based on the open-source Gnutella peer-to-peer platform and does not employ a proprietary protocol such as FastTrack.
The combination of download speed, ease of use and wide variety of material have made the FastTrack software extremely popular with the internet community. As could be expected, the entertainment industry was far from pleased and commenced legal action in October 2001 against Consumer Empowerment BV, Grokster and StreamCast Networks on the ground that their conduct renders them liable, both as contributory and vicarious infringers, for copyright infringement committed by users on their networks.[3] In response, the networks argued that they merely provide software to users over whom they have no control, and accordingly that they are not liable under US copyright law.
The matter came before Judge Stephen Wilson in the United States District Court.[4] As there were no disputed issues of fact, Grokster and StreamCast sought a summary judgment of the copyright issues remaining in the case (but not Sharman Networks which had subsequently acquired Consumer Empowerment BV in 2002).[5]
Before either Grokster or StreamCast could be found liable for contributory or vicarious copyright infringement, it is necessary to show that users of the two networks were engaged in direct copyright infringement. Under US copyright law, to establish a prima facie case of copyright infringement one must show:
• ownership of the allegedly infringed material and
• violation by the alleged infringers of at least one exclusive right granted to copyright holders by appropriate legislation.[6]
In Napster, the second element was satisfied by ‘unauthorised copying of the original work’.[7]
It was undisputed that at least some of the users of the Grokster and StreamCast software were engaged in direct copyright infringement of entertainment industry’s copyrighted works.[8] Consequently, Judge Wilson found that entertainment industry had established direct infringement of their copyrighted works by some users of the software.[9]
Traditionally, under US law, to be held liable as a contributory infringer, one must ‘with knowledge of the infringing activity, induce, cause or materially contribute to the infringing conduct of another’.[10]
According to previous US cases, contributory liability requires that the secondary infringer (ie Grokster or StreamCast) ‘know or have reason to know’ of direct infringement.[11] Following decisions in Sony Corp v Universal Studios[12] and Napster, mere constructive knowledge is not enough. Rather, evidence of actual knowledge of specific acts of infringement plus a failure to act on that information is required for contributory infringement liability.[13]
In this case, the entertainment industry submitted a massive volume of evidence to show that both Grokster and StreamCast clearly knew that many if not most of those individuals who download their software subsequently use it to infringe copyrights. Although both Grokster and StreamCast may have known generally that copyright infringement occurred on their networks, Judge Wilson found that the critical issue was whether they had actual knowledge of specific infringements to which they had materially contributed and which therefore they could do something about.[14]
Napster highlights that liability for contributory infringement exists if one engages in personal conduct that encourages or assists copyright infringement.[15] In that case it was found that ‘without the support services the defendant provides, Napster users could not find and download the music they want with the ease of which the defendants boast’.[16] Did Grokster or StreamCast do anything apart from distributing software to actively facilitate the infringing activities of their users? Could they do anything to stop such activities?
The entertainment industry argued that like Napster, Grokster and StreamCast did facilitate the actual exchange of copyrighted files by providing the means, environment, and support that enabled users to locate, distribute and copy copyrighted works. Further, the networks allegedly provided minimal technological support and communicated with their users by supplying system updates.[17]
Judge Wilson disagreed. His Honour found that neither Grokster nor StreamCast facilitated the exchange of files in the way that Napster did. Napster hosted a central list of the files available on each user’s computer, and therefore served as the axis of the file-sharing network’s wheel. When Napster closed down, the Napster file-sharing network disappeared with it. Users connected to the respective Grokster or StreamCast networks, select which files to share, send and receive searches and download files without material involvement of Grokster or StreamCast. If either entity closed their doors and deactivated all computers under its control, users of the networks could continue to share files with little interruption.
His Honour further stated that Grokster and StreamCast are not significantly different from companies who sell video recorders or photocopiers, both of which are used to infringe copyrights. Accordingly, while Grokster and StreamCast, (like Sony or Xerox) may know generally that their products will be used illegally by some users, and may provide support services and refinements which indirectly support such use, they cannot be liable for contributory infringement merely because their peer-to-peer file-sharing technology may be used to infringe copyright.[18] In the absence of evidence of active or substantial contribution to the actual infringement, Judge Wilson found that Grokster and StreamCast were not liable for contributory copyright infringement.
In US copyright law, vicarious infringement extends liability for copyright infringement to situations where one ‘has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities’.[19]
The Napster decision stated that financial benefit exists where the availability of infringing material acts as a ‘draw’ for customers.[20] Judge Wilson had little difficulty in finding that Grokster and StreamCast derive a financial benefit from the infringing conduct. Indeed, the ability to trade copyright songs and movies certainly acts as a draw for many users of the software and has resulted in both networks having a userbase in the tens of millions. Further, while users do not pay for the Grokster or Morpheus software, both Grokster and StreamCast receive substantial revenue from advertising.[21] The more individuals who download the software, the more revenue collected. As a substantial number of users download the software to obtain copyright material, a significant proportion of the advertising revenue depends upon the infringement.
Napster identified that the ability to influence and control a network provides evidence of supervision of infringing conduct.[22] In that case, Napster’s supervision of infringing conduct was shown by maintaining the central server of files being shared, by requiring users to register with Napster and by being able to terminate user’s access for violation of its policies. Both Grokster and StreamCast argued that the decentralised structure their systems means that the communication between users is completely outside their control. Judge Wilson agreed. His Honour stated that the Grokster network is the proprietary FastTrack network, which was clearly not controlled by Grokster. Similarly, with StreamCast, the network is Gnutella, the open source nature of which places it outside the control of any single entity.[23]
The music and movies industry contended that the software could have been altered to prevent users from sharing files. This was rejected by Judge Wilson on the basis that the doctrine of vicarious liability does not contemplate liability on that grounds that a product could be made so that it is less susceptible to unlawful use, where no control over the use of the product existed.[24] As the entertainment industry could not provide any evidence of the ability to supervise and control the conduct of users, the claim of vicarious infringement was dismissed.
Although Grokster and StreamCast were successful in defending the claims of contributory and vicarious copyright infringement, Judge Wilson noted that the Court was not blind to the possibility that both entities had intentionally structured their businesses to avoid liability whilst benefiting financially from the illicit draw of their networks.[25] To justify a judicial remedy, the entertainment industry was inviting the Court to expand existing US copyright law beyond its well-drawn boundaries. Judge Wilson was not prepared to take such a step and suggested that additional legislative guidance maybe required in the area.
Despite the ruling being a major setback for the entertainment industry to combat online file sharing of its works, it has vowed to fight on and appeal the decision. Indeed, if the decision is not quickly overturned on appeal, the entertainment industry may well take Judge Wilson’s suggestion and move the peer-to-peer policy battle to the United States Congress. Presumably, the entertainment industry would lobby Congress to pass legislation changing the rules so that they would be successful in copyright infringement actions against decentralised peer-to-peer networks. Further, if the present decision stands, it would probably force members of the entertainment industry to accelerate the development of their own on-line subscription services or adopt new legal strategies that they have been previously reluctant to employ, such as taking action against individuals who copy unauthorised works through peer-to-peer networks.
It is important to realise that this decision does not directly affect Kazaa, the software now distributed by Sharman Networks and used by Grokster and StreamCast, which was also targeted in copyright actions by the entertainment industry. This is because Sharman Networks did not join the request for summary judgment. The parties in that case were back in court on 28 April 2003 hearing Sharman’s counterclaims which accuse the entertainment industry of engaging in anti-competitive behaviour. A decision in relation to Sharman’s liability as distributor and controller of the FastTrack software is eagerly awaited to determine the precise position of peer-to-peer technology in US copyright law.
The application of Australian copyright law to a Napster or Grokster type network has not been the subject of judicial consideration. However, the principles applied by the US courts are somewhat similar to those under Australian law, but the two jurisdictions are different in their treatment of copyright laws.
Australian copyright law is governed by the Copyright Act 1968 (Cth) (the Act). In 2000, this Act was amended by the Copyright Amendment (Digital Agenda) Act 2000 (Cth) in order to overcome uncertainty in relation to protection of copyright over the internet. These amendments came into effect in March 2001.
Once copyright protection is established, the copyright owner in a musical work, sound record or cinematograph film is granted several exclusive rights in relation to the composition. These exclusive rights include:
• to make a copy of the sound recording or cinematograph film;
• to cause the recording to be heard or cinematograph film to be shown in public;
• to communicate the sound recording or cinematograph film to the public;
• to authorise the doing of the above rights in Australia
For either Grokster or StreamCast to have directly infringed the copyright subsisting in the original sound recording or cinematograph film, any one of these rights must have been impinged by its users. In the circumstances of the Grokster and StreamCast cases, two of these rights, to reproduce the work (first) and to communicate the work to the public (third), are the most significant.
Section 21 of the Act was amended by the Copyright Amendment (Digital Agenda) Act to clarify the meaning of ‘reproduction’ with respect to works stored electronically.[26] The section provides that a musical work, sound recording or cinematograph film is reproduced
if it is converted into or from a digital or other electronic machine-readable form, and any article embodying the work in such a form is taken to be a reproduction of the work[27]
Clearly Grokster and StreamCast users have reproduced copyrighted material in accordance with this provision. The files created in the transfer of music and films easily fall within the ambit of digital conversions envisaged by the section. Under s 101(1), copyright is infringed by a person who, not being the owner of the copyright, and without licence of the owner in the copyright, does in Australia, or authorises the doing in Australia of, any act which is an exclusive right of the copyright holder (such as reproduction). Consequently, by sharing copyrighted songs and movies, Grokster and StreamCast users would be infringing the music companies’ copyright if the conduct took place in Australia.
The ‘centrepiece’ of the Copyright Amendment (Digital Agenda) Act was a new exclusive right of communication to the public.[28] This technology-neutral right replaces and extends the existing technology-specific broadcasting right which previously applied to ‘wireless’ broadcasts.[29] It also replaces the limited right to transmit to subscribers to a diffusion service (ie cable diffusion right).[30] This new right to communicate to the public subsists in all copyright matter except published editions.
Do Grokster and StreamCast users communicate their songs and film files to the public? To supplement the new right of communication to the public, the Copyright Amendment (Digital Agenda) Act inserted a definition of ‘communication’ into the s 10(1) of the Act. Accordingly, ‘communication’ refers to ‘making something available online’ or to ‘electronically transmit (whether over a path, or a combination of paths, provided by a material substance or otherwise)’ copyright material. The Explanatory Memorandum to the Copyright Digital Agenda Act indicates that an example of this would be uploading of copyright material onto a server which was connected to the Internet.[31]
This definition is not the only criteria for determining whether a ‘communication’ has occurred. The Copyright Amendment (Digital Agenda) Act also introduced a new s 22(6) which provides that a communication is taken to have been made by the person responsible for the content of the communication. This section was intended to protect communications carriers and ISPs from direct liability for communicating material to the public via their networks if they are not responsible for determining the content of that material.[32]
When Grokster and StreamCast users connect to the respective systems, their copyrighted musical works, sound recordings and cinematograph films potentially become available to other users who are connected to the system at that time. For instance when Karen logs onto the network she makes the library on her hard drive available for transmission to other users in accordance with the definition of ‘communication’. Having conducted a search on the Grokster style network, what would happen if Mark then decides to download a song from Karen's hard drive?
In this situation, the new amendments seem to lead to some awkward conclusions. If Mark downloads the song, Karen could be entirely liable as she has made the file available and determined the content of the communication by ‘enticing’ Mark to download her particular version. Reasons for selecting Karen over other users would include the quality and compression of the file and the internet connection speeds of both users. But if Mark downloads this song and no other among those offered by Karen, how could Karen have ‘determined the content’ of the communication? It could lead to the situation where Karen is responsible for making the material available on her hard drive to share and Mark is responsible for determining whether any transmission takes place by deciding to download the file from Karen as opposed to another user.
The Act provides little guidance in the area of peer-to-peer downloading situations. The Explanatory Memorandum indicated that the sections were originally enacted to protect ISPs and the like from liability for communicating copyright material via their networks if they were not responsible for determining the content of that material. It further provides that an example of ‘making material available online’ includes uploading material onto a server. These sections appear to envisage a situation where Karen posts copyright material, such as a song file or unauthorised photo on a particular website. It appears to be irrelevant whether Mark actually downloads the particular song or views the photograph. The sections do not appear to contemplate where two parties are involved in the infringement by accessing each other's hard drives and which of them might be liable in these circumstances.
Did Grokster and StreamCast authorise copyright infringement by its users (as per s 101(1) mentioned above)? To found an action on this ground, two elements must be satisfied; a direct infringement by Grokster or StreamCast users and an authorisation of that direct infringement by Grokster or StreamCast. The first element of direct infringement was discussed above.
The Copyright Amendment (Digital Agenda) Act inserted s 101(1A) to clarify the matters to be considered in determining whether or not a person has authorised copyright infringement. These include:
• the extent (if any) of the ‘authoriser’s’ power to prevent the doing of the act concerned;
• the nature of any relationship existing between the ‘authoriser’ and actual ‘infringer’;
• whether the ‘authoriser’ took any reasonable steps to prevent or avoid the doing of the act which infringed the copyright.
According to the Explanatory Memorandum, the inclusion of these provisions was to give a degree of legislative certainty about what steps should be taken to avoid liability for authorising copyright infringement.[33]
The extent of Grokster or StreamCast’s power to prevent the infringing conduct of its uses has some similarities with the element of ‘right and ability to supervise the infringing conduct’ in the doctrine of vicarious liability in US copyright law. As discussed above, Grokster and StreamCast successfully argued in the US court that the decentralised structure their systems means that the communication between users is completely outside their control. A similar argument would seem to be successful under Australian law. In University of NSW v Moorhouse (the student photocopying case), Gibbs J declared that:
A (capital) person who has under his control the means by which an infringement of copyright may be committed – such as a photocopy machine – and who makes it available to other persons, knowing or having reason to suspect, that it is likely to be used for the purpose of committing an infringement, and omitting to take reasonable steps to limit its use to legitimate purposes, would authorise any infringement that resulted from its use.[34]
Subsequently, a majority of the High Court in the Australian Tape Manufacturers case (the blank tapes case), endorsing the Moorhouse decision accepted that the manufacturers of blank tapes did not authorise the infringing activities of purchasers over whom the manufacturers had no control.[35] If an Australian court accepted that neither Grokster nor StreamCast had control over the activities of the users of their networks, then Grokster and StreamCast would likely to be successful on this point.
An Australian court would probably view the relationship between the networks and their users as one of commercial character. As discussed above in the ‘financial benefit’ element of vicarious liability in US law, Judge Wilson had little difficulty in finding that Grokster and StreamCast derive a financial benefit from the infringing conduct. Although users do not pay for the Grokster or Morpheus software both Grokster and StreamCast receive substantial revenue from advertising. The more users drawn to the network to share copyright material and download the Grokster or Morpheus software, the more revenue the networks receive.
Did Grokster or StreamCast take any reasonable steps to prevent the infringing conduct? In Moorhouse, the University sought to argue that it took reasonable steps to prevent the primary infringement by placing notices in library guides issued to students, in the photocopy room, on the photocopiers themselves and appointment of attendants to supervise the photocopiers. All these measures were held to be inadequate; the notices were inaccurate and evidence suggested that the attendant’s function was limited to maintenance activities. The only reasonable step that Grokster and StreamCast seem to have taken is a copyright clause in the terms of service for the software. In relation to Grokster, the notice states that:
Grokster respects the rights of copyright owners and is fully committed to protect their rights… [users] must agree that [they] will not user Grokster to infringe the intellectual property or other rights in any way. Unauthorised copying, distribution, modification, or public performance of copyrighted works is an infringement of the copyright holder’s rights
Unlike the notices given in Moorhouse, the broad Grokster notice would seem to be accurate. However, as this notice is found by searching for the policy link on the Grokster website and can be easily clicked through without reading it before downloading the software, it is arguable whether it would be a reasonable step for the purposes of preventing copyright infringement.
An action such as the Grokster and StreamCast cases arguably reveals a lack of the desired certainty and therefore inadequacy of the provisions for indirect copyright infringement as inserted by s 101(1A) of the Copyright Amendment (Digital Agenda) Act. The three criteria to be considered are not exhaustive – the section only requires that they are included as matters which must be taken into account. Applying the three criteria, it would be open for a court to find that Grokster and StreamCast had no control over their users, had a commercial relationship with them and possibly took inadequate steps to prevent infringement occurring on their networks. That possibly equates to 1 or 1.5 out of a possible total of 3. But is that enough to say that either Grokster or StreamCast indirectly infringed copyright? Depending on how a court viewed the facts or considered and weighted the criteria, it could reach a decision similar to the United States or a very different one on the issue of Grokster or StreamCast’s liability for copyright infringement. Indeed, additional legislative guidance is required in the area so that Australian courts can decide with more certainty whether a party has authorised copyright infringement or not.
In truth, it must be said, the supposedly technology neutral drafting of the legislation is again shown to be wanting, raising more questions than it answers. In the recent decision of the Federal Court in Sony Music Entertainment (Australia) Ltd v University of Tasmania,[36] the music industry sought and was granted, subject to strict conditions, the right to interrogate the network information of three universities in order to identify users, presumably students, who use the universities’ networks to download MP3 files in order to create unlawful copies. These proceedings will advance the cause of the music publishers against the students, but nothing in the Copyright Act today seems sufficient to prevent the distribution of peer-to-peer software such as that of Grokster and Streamcast.
[*] Legal Officer, Australian Copyright Council.
[1] A & M Records Inc v Napster Inc [2001] USCA9 92; 239 F.3d 1004, 1013 (‘Napster’).
[2] Aimster was found liable for copyright infringement in re: Aimster Copyright Litigation 2002 US Dist. Lexis 17054 (NDI11 4 Sept 2002). Audiogalaxy was sued by the RIAA for indirect copyright infringement. The matter was settled in July 2002.
[3] Metro-Goldwyn- Mayer v Grokster (CV-8541).
[4] Metro-Goldwyn-Mayer Studios, Inc v Grokster Ltd United States District Court Central District of California (25 April 2003) Wilson J (‘Grokster’).
[5] Grokster at 2.
[6] 17 USC § 501(9).
[7] Napster at 1013.
[8] Grokster at 9.
[9] Grokster at 10.
[10] Gershwin Publishing Corp v Columbia Artists Management Inc [1971] USCA2 378; 443 F.2d 1159, 1162 (2d Cir. 1971).
[11] Cable/Home Communication Corp. Network Products, Inc 902 F.2d 829, 845 & 846 (11th Cir 1990).
[12] Sony Corp v Universal Studios [1984] USSC 14; 464 US 417, 104 S.Ct 774 (1984).
[13] Napster at 1021.
[14] Grokster at 16.
[15] Napster at 1019.
[16] Napster (District Court) 114F. Supp. 2d at 919-20, affirmed on appeal.
[17] Grokster at 24-26.
[18] Grokster at 27.
[19] Gershwin Publishing Corp at 1162.
[20] Napster at 1023.
[21] Grokster at 29.
[22] Napster at 1023.
[23] Grokster at 32.
[24] Grokster at 31.
[25] Grokster at 33.
[26] Explanatory Memorandum to the Copyright Digital Agenda Act at 30.
[27] ss 21(1A) and s21(6).
[28] Explanatory Memorandum to the Copyright Digital Agenda Act at 3.
[29] Ibid at 52.
[30] Ibid at 33.
[31] Ibid at 33.
[32] Ibid at 31.
[33] Ibid at 54.
[34] University of NSW v Moorhouse [1975] HCA 26; (1975) 133 CLR 1 at 13.
[35] Australian Tape Manufacturers Assn Ltd v Commonwealth (1993) 176 CLR 480.
[36] Sony Music Entertainment (Australia) Ltd v University of Tasmania [2003] FCA 532 (30 May 2003).
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