Published April 26, 2003

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The following is a repost of the article found here

Court Rejects Suit Against Web Song-Swappers

Fri April 25, 2003 05:11 PM ET
By Andy Sullivan

WASHINGTON (Reuters) – A federal court denied a request to shut down Internet song-swapping services Grokster and Morpheus on Friday, handing a stunning setback to the record labels and movie studios that have sought to curb unauthorized downloading of their works.

U.S. District Court Judge Stephen Wilson said the two services should not be shut down because they cannot control what is traded over their systems. Like a videocassette recorder, the software in question could be used for legitimate purposes as well as illicit ones, he said.

“It is undisputed that there are substantial noninfringing uses for (the) Defendants’ software,” wrote Wilson, who serves in Los Angeles.

A recording-industry trade group involved in the case said it would appeal.

Wilson’s decision marks the first significant legal setback for the entertainment industry in its battle against the wildly popular “peer-to-peer” services that allow users to download movies, music and other files for free.

Federal courts have ordered earlier peer-to-peer services such as Napster to shut down, and courts have so far supported the industry’s efforts to track down individual peer-to-peer users, as well.

But Wilson’s ruling gives Grokster, Morpheus and other Napster successors some legal basis on which to operate. Just as the Supreme Court in 1984 said videocassette recorders should not be outlawed because they can be used for legitimate purposes, peer-to-peer services should not be shut down even though users are certainly trading copyrighted movies and music, he said.

Grokster President Wayne Rosso said he was surprised by the decision because it showed that the judge understood the technology. Peer-to-peer services could be used to enable the Pentagon to better share information, among other uses, he said, and the recording industry should try to work with such services rather than driving them out of business.

“Grokster doesn’t and hasn’t ever condoned copyright infringement,” Rosso said. “We hope this sends a clear signal to the rights owners in this case to come to the table and sit down with us.”

The Recording Industry Association of America said it was disappointed with the decision.

“Businesses that intentionally facilitate massive piracy should not be able to evade responsibility for their actions,” RIAA CEO Hilary Rosen said in a statement.

Rosen highlighted two portions of the 34-page decision she found favorable: first, that individuals are accountable for copyright violations; and second, Wilson’s statement that Grokster and Morpheus “may have intentionally structured their businesses to avoid secondary liability for copyright infringement, while benefiting financially from the illicit draw of their wares.”

The Motion Picture Association of America, whose movie-studio members also filed suit, had no immediate comment.

The decision could also provide a shot in the arm to Kazaa, another popular peer-to-peer service involved in a separate legal battle with the entertainment industry. A Kazaa spokeswoman said the company’s lawyers were still evaluating the decision.

A Morpheus investor, speaking to Reuters on the sidelines of a conference in Silicon Valley, said the decision would give his product a boost just as the company plans to roll out a new version.

“The timing of this couldn’t be better,” said Bill Kallman, a managing partner at Timberline Venture Partners, which has invested about $4 million in Morpheus since 1999.

RIAA members include AOL Time Warner Inc.‘s Warner Music; Vivendi Universal’s Universal Music; Sony Corp.‘s Sony Music; Bertelsmann AG’s BMG Music Group; and EMI Group Plc..

MPAA members include Walt Disney Co.; Sony Pictures Entertainment Inc.; Metro-Goldwyn-Mayer Inc.;Paramount Pictures Corp.; News Corp Ltd.‘s Twentieth Century Fox Film Corp.; Vivendi Universal’s Universal Studios Inc.; and AOL Time Warner’s Warner Bros.

(Additional reporting by Ben Berkowitz in Los Angeles and Eric Auchard in Santa Clara, California)

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