Supreme Advice on Peer-to-Peer

Monday’s Supreme Court ruling on peer-to-peer file transmission technologies (P2P) brought closure to one set of questions surrounding the use of this technology (or "device," in court parlance) but opened up a whole set of additional questions that may cause consternation for companies attempting to use P2P (or grid computing, a newer term with less baggage) for legitimate delivery of streaming and digital media files.

Back in 2001, P2P for media delivery was hot. Red Herring profiled 13 companies using this technology, including Kontiki. Unlike many of the P2P delivery plays showcased in 2001 by Red Herring, Kontiki is still in business (one of only two of the original 13, the other being Red Swoosh).

When news of the Supreme Court decision broke, we contacted both companies for a quote on how this ruling might affect their business. Kontiki responded before our press deadline.

"The Supreme Court ruling is great news for the consumer media industry," said Stuart Clearly, Kontiki’s director of enterprise marketing. "The ruling draws a fine line between illegitimate business uses and legitimate ones like Kontiki."

When asked to elaborate on the fine line, Clearly said that "some companies propagated their technologies with intent and capabilities to allow users to sharing copyrighted materials illegally."

Justice David H. Souter, writing in the unanimous decision, noted the same in his primary argument against companies such as Grokster, StreamCast, FastTrack, and Gnutella.

"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," Souter wrote.

When asked about what constitutes "fostering infringement," especially since Souter’s remarks also noted that "mere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a distributor to liability," Clearly noted that the record showed that several of the companies involved had records of almost 90% illegal use.

"Inducing the public to perform illegal downloading is not a good business model," Clearly said. "Up until this point it’s been difficult for the MPAA or RIAA to go after the file sharing products, but the ruling clearly shows liability on the part of companies such as Grokster, StreamCast, and Gnutella."

MGM presented evidence during the court case, according to Souter, that "gives reason to think that the vast majority of users' downloads are acts of infringement." He went on to add: "Because well over 100 million copies of the software in question are known to have been downloaded, and billions of files are shared across the FastTrack and Gnutella networks each month, the probable scope of copyright infringement is staggering."

When asked whether the issues noted in the Supreme Court ruling could adversely affect Kontiki or other legitimate grid computing delivery plays, Clearly was upbeat.

"The ruling distinctly places the onus on companies who create P2P or grid computing software to build in features that erect barriers to illegal use of this software. Kontiki already has those features built in--we built them in five years ago since our business model was intended to benefit the copyright holder--so we already comply with the Digital Millennium Copyright Act (DMCA), and our enterprise and consumer media clients know we’ve designed failsafes into our delivery tools that discourage illegal use for copyrighted material."

"The decision opens up the door for various industry organizations on the consumer media side to address products like BitTorrent, though," Clearly added, "and we expect the industry will see further litigation and consolidation within the next few weeks."

Souter summarized the Court’s decision by noting that there is little evidence that the companies in question "made an effort to filter copyrighted material from users' downloads or otherwise impede the sharing of copyrighted files . . . As the account of the facts indicates, there is evidence of infringement on a gigantic scale . . . Digital distribution of copyrighted material threatens copyright holders as never before, because every copy is identical to the original, copying is easy, and many people (especially the young) use file sharing software to download copyrighted works."

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