In “Kazaa to settle file-share lawsuits: Firm Agrees to Launch Legal Service” John Boudreau looks at the recent court decision that forced Kazaa to pay $115 million to the record industry almost a year after the Grokster decision. Mitch Bainwol, head of the RIAA is quoted as saying that this decision is a definite victory for the recording industry yet every time popular services like Kazaa are shut down, new ones spring up almost instantly. As part of the settlement Kazaa agreed to install filtering software to block users from swapping copyrighted files. Boudreau points out that in 2005, there were approximately 20 billion illegal downloads and that other services like Limewire, Streamcast, and eDonkey are still active. Eric Garland, an executive from BigChampagne, which is a research firm that tracks online downloading and file-sharing activity found that almost 9 million people are online at any time engaged in file-sharing. He believes that victories such as the Grokster decision and the Kazaa decision are a small step in recuperating the record business, which has seen CD sales drop 30 percent since the launch of Napster in 1999.

Michael Gartenberg, a research analyst for Jupiter, believes that the key to building the recording industry back up is in changing the culture of online piracy. He asks: “How are we going to convert these people who believe everything should be free into paying customers?” Thus far, record executives have been unable to definitively answer this question. Boudreau’s article takes a somewhat pessimistic look at these court victories as only a small step in legislation that is unable to change a culture that believes that music should be available for free downloading.

Catherine Holahan’s article “Music Downloading’s New Deal” discusses the new business model of ad-supported file downloading services. Holahan starts off by giving statistics showing that illegal downloading is still rampant and believes that this is due to a generation of kids who grew up downloading and sharing files on the internet and not seeing it as the equivalent of stealing from a CD from a store. She talks about how many pirate sights are going legit and are trying to form partnerships with records labels. Holahan mentions that many of the legal pay per download services have not been profitable and how subscription services, like Napster, have not been successful either.

A new trend in legal downloading services is a system where users can download free songs but have to sit through advertisements first. The downloading companies must sign deals with record companies to be able to offer their music and then they share the revenue from advertising. Holahan then talks about companies that record labels hire to put bogus files onto illegal downloading services in order to make the process of finding illegal downloads more difficult and making it take more time to weed out the bad files. People within the industry believe that this new business model with the increased inconvenience of finding good quality illegal files will bring a new revenue stream to the music industry. Holahan talks about Qtrax, which closed down its original model to build this new model of ad-supported downloading in fear of alienating the record labels that it would need to work with in the future.

This new alternative business model to the pay per download model and the subscription model is still under development but people within the industry believe that it will have success. After years of fighting downloading services, it appears as if the record companies are finally starting to embrace them and work them into their business models.

A & M Records, Inc. v. Napster, Inc. was an incredibly significant court decision in that it was the first to address copyright laws in peer to peer file-sharing. Shawn Fanning’s Napster was the first major user-friendly service to download music on the internet and the record companies were very concerned that this would impact their sales. The recording companies accused Napster of copyright infringement. Napster responded by pointing out three kinds of fair use in sampling, where users could listen to a song before buying it; space shifting, where users could get a song on their computer that they already own on CD; and permissive distribution of songs from artists who chose to use Napster as a tool to get their music out to the public.

The court ruled that Napster infringed on the copyright holder’s exclusive rights of reproduction and distribution. The court said that samples were not fair use because they were permanent copies on the user’s computer. The court also ruled that the space-shifting argument was not valid because the shift made the song available to everyone else on the network and not just for their personal use.

The legacy of this case is that those who run websites or online services can be held liable for connecting people to copyrighted work. In the aftermath of this case, many companies tried to bypass this ruling by setting up their servers in different ways or making the transfer of digital material untraceable. Ultimately, the Grokster decision pretty much stated that the owner can be liable by knowingly facilitating the infringing of copyrighted material regardless of how their service is technically set up.

The chapter titled “The Gray Area of Music Trading” in Brad Hill’s book The Digital Songstream: Mastering the World of Digital Music gives a brief history of file-sharing which is a good background to understanding the Grokster decision. Hill traces the roots of digital music to the CD in 1982 and then to online file-sharing before the MP3 became big in 1997 when programs like Winamp made it easy to playback music on people’s personal computers. Hill talks a lot about Napster and how the main innovation that Napster made was its interface which was extremely easy to use and did not require much knowledge about computers. The court decision that led to Napster’s demise as a free downloading service did not end the problem of illegal file-sharing as the courts had hoped but rather dispersed it to several new up and coming companies all with slightly different ways of presenting the files in order to bypass the laws that made Napster’s service illegal.

Hill goes into the companies that followed in the immediate demise of Napster. Gnutella was one of the first companies of the new era of file-sharing that linked users in an unidentifiable network so as making it impossible to trace files. He briefly talks about other companies like Aimster, Kazaa and Morpheus as well. Without getting too technical about the different ways in which programs have been set up to bypass what lead to Napster being shut down, it is important to understand the history of file-sharing and how it has evolved over time. Since the Napster decision, different companies have tried to set up programs that can enable users to trade files without being able to hold the company accountable. The Grokster decision has made companies potentially liable regardless of how their service is set up.

In the chapter titled “The Jukebox Contested” from the book Digital Music Wars: Ownership and Control of the Celestial Jukebox, Patrick Burkart and Tom McCourt discuss the effects of illegal file-sharing on the recording industry and how the recording industry has responded. This chapter begins by discussing the demise of Napster and how it has opened the door for services like Freenet, Gnutela and FastTrack and then gets into how the recording industry has responded. The authors talk about how the RIAA targeted random file-sharers and even sued a sixty-six-year-old woman who allegedly had thousands of rap songs on her computer. This created a lot of ill will towards the recording industry and has alienated some fans. It was also found that this practice had very little effect on curbing illegal downloading.

Burkart and McCourt talk about how peer to peer file-sharing has actually hurt the recording industry and note that the recording industry totaled 40 billion dollars in 2000 compared with 32 billion dollars in 2002. They point out how some companies see file-sharing as inevitable despite trying to fight it and are “hedging their bets” by incorporating it into their business plans. BMG partnered with Grokster to distribute their licensed music while also suing Grokster as part of the MGM v. Grokster suit. This is similar to the Betamax case where companies originally fought the innovation of home recording devices but eventually used them as part of their business model to make money. At present time, record companies are trying to find ways use the internet and file-sharing to make money realizing that the days of CD’s only being available in record stores are gone. Since the Grokster decision, file-sharing is still very common so it begs the question of if the courts have done as much as they can to stop file-sharing and if it is now up to the record companies to figure out how to use it to their benefit.

The MGM Studios, Inc. v. Grokster, Ltd. Supreme Court decision is the basis for my argument that the decision in this case has stopped the process in which technology has continually stayed ahead of the law. In the ruling, Justice Souter wrote: "We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties." The ruling here put the burden on the company producing new technologies to not do anything that could be construed as promoting illegal activity through the use of their product. No longer could a company sell a product that was capable of enabling illegal activity and turn a blind eye to how its customers used it.

The court also made a point to say that a company cannot be found liable if there is no evidence to support that it has promoted illegal activity if it has not taken steps to prevent infringement, only if the product has other substantial non-infringing uses. This is significant in that it does not halt technological development that could be used for infringing, but tries to strike a balance between protecting technological advancement and intellectual property.

The Grokster decision effectively ended Grokster as a file sharing service and forced Grokster to pay $50 million to the recording industry. The court ruled that Grokster had shown intent of providing its service for the illegal infringement of copyrighted materials by its users. This case has taken the focus of copyright infringement off of the technological aspect to the intent of the company issuing the technology. As a result, companies must be very careful about how their intent can potentially be seen by a court and also smaller companies may have trouble with creating new innovations if they are forced into costly litigation with much larger companies.

“Supreme Court Finds Marketing Activity Creates Liability in Peer-to-Peer (P2P) File-Sharing Case” from the Journal of the Academy of Marketing Science looks at how the Grokster decision will affect the marketing of new technologies that could potentially have copyright infringing capabilities. In the Grokster case the court looked beyond the Sony ruling on the issue of whether the distributor induced copyright infringement. The court put forth the active inducement test which meant that a company could be held liable if the courts could interpret its actions as inducing, enticing or persuading its users to infringe on copyrighted works.

The Supreme Court has been trying to find the line to balance technological innovation and protect copyrighted materials. The members of the Supreme Court differed on the extent of protecting the Sony ruling. Justices Breyer, Stevens, and O’Connor believed that Sony protects distributors unless it can be proved that their products are almost exclusively used for infringement. Justices Ginsberg, Kennedy, and Rehnquist would have supported modifying Sony to require that distributors anticipate and prevent infringing uses. While at present time, the law does not require companies to anticipate infringing uses, firms can be held liable if they intentionally profit off of illegal uses. It is possible that future courts will see acts that would not previously be seen as intentional as being sufficeint to hold companies liable.

“The Lessons of MGM v.s. Grokster: Innovators have a duty to be wary of misuses of their technology” by Roland L. Trope and E. Michael Power deals with how the Grokster decision effects companies and offers advice on how they must adjust for the future. The authors talk about the larger issue at stake beyond Grokster and other file-sharing services is the “balance between the rights of technological innovators and of those who own artistic works.” Trope and Power offer answers to the questions of if customers use a technology to copy works that infringe on copyright, under what circumstances will the company be liable, as well as if a company is at risk of being liable how they can prevent liability.

Trope and Power note evidence in the Grokster case included emails among employees that were used to show intent of picking up Napster’s customers after Napster would be shut down and how this showed intent of providing a service that encouraged illegal downloading. In reviewing the court’s decision, Trope and Power compiled a list of precautions that companies should take so not to be caught in a similar situation. These include recognizing that business models and plans can be used as evidence in court and that they should be made with that possibility, and reviewing with their lawyers what kinds of expressions can be found damaging should a lawsuit be filed. They also suggest that employees recognize that small statements or remarks can become blown out of proportion and seen on a grander stage in the courtroom. Trope and Power go on to say that the courts are saying that inventors have an increasing duty to be wary of the possible illegal uses of their inventions and must respond with action to try to prevent or limit it.

This article shows that as a result of the Grokster decisions companies are now responsible to not only not have intent for their products to be used illegally but to recognize possible ways that they can be used illegally and take action against it.

“Sony Corp. of America v. Universal City Studios, Inc.” was a significant decision in copyright law dealing with new technologies that made it possible to record copyrighted television shows. The ruling in this case, also referred to as the “Betamax Case” which was the original VCR player that Sony produced, was that time-shifting is within the boundaries of fair use and is not copyright infringement. The court said that the manufacturers of such products could not be held liable for copyright infringement. This would come up during the Grokster case and it would ultimately be decided that manufacturers could be held liable if the product was intended to be used for infringing on copyrighted material.

The court stated that private time-shifting was a significant non-infringing use of the new technology. The court went on to say that just because some people could use the device for copyright infringement, the fact that there are substantial legal uses for it outweighs that. If the nature of the reproduction of works was non-commercial and non-profit then the court saw that there was nothing wrong with it.

It is quite ironic that Disney, who fought to keep Sony from producing the Betamax, was actually one of the biggest beneficiaries of the new home video technology by making a lot of money off of home videos. This case is important for my argument because this ruling has become the standard to which other copyright infringement cases have been held to for many years. The ruling in the Grokster case changed this precedent slightly by making the producer liable if it could be shown that they somehow encouraged or facilitated illegal copyright infringement.

Brian Garrity’s article “From Piracy to Profit” examines how former illegal downloading services as well as new upstart companies are attempting to start up legal downloading services. Garrity begins with talking about a new service called iMesh which is endorsed by the RIAA as a legit music downloading service. Users get a free two month trial period and then pay a $6.95 per month subscription fee after that. Users are also able to trade copyrights not controlled by the major labels for free. He also talks about upstarts like Mashboxx, SpiralFrog and QTrax that have label licensing deals with ad-supported downloads.

Garrity runs through a list of new services along with services that had been shut down by the courts and are now returning with a legal business model. He notes that BitTorent is the first P2P company to sign a deal with a major movie studio when it inked a deal with Warner Bros. Next he talks about Kazaa being shut down and ordered to pay $100 million to the entertainment industry and is now trying to build a legitimate business model and is working on licensing deals with record labels. SpiralFrog allows users to download a file for six months and forces them to watch an ad before downloading each file in order to make money. QTrax allows users to play a file five times before down before moving to its subscription service.

Garrity’s article gives an idea on how downloading services are adapting to the Grokster decision and what the future of digital music is going to be. In the larger context, the success of these joint deals between online downloading services and record companies is also very important to the future of the record industry.