9th Circuit Napster Ruling Requires P2P Developers Ensure No One Misuses Their Systems:

Supreme Court's "Betamax" Defense to Secondary Liability Narrowed

Appeals Court Requires Judge to Rewrite Software to Prevent Infringement

By Robin D. Gross, EFF Staff Attorney for Intellectual Property

Like the district court before it, the 9th Circuit Court of Appeals found little sympathy for Internet music swapping service Napster, finding it liable for both contributory and vicarious copyright infringement. The decision chipped away at the famous holding in the "Betamax" case where the Supreme Court held that the movie studios could not outlaw a technology (VCRs) that was capable of substantial non-infringing uses. The appellate court then ordered Napster to police and control its systems to prevent future infringement and sent the case back to the district court for specific rulings about how Napster must rewrite its software to meet the court's requirements.

This ruling marks a stark departure from the Supreme Court's standard for third party liability in Betamax where knowledge that VCRs would be used for some infringement was irrelevant. In Betamax, the Supreme Court held that allowing copyright holders to ban devices capable of substantial non-infringing uses would go beyond the power of copyright monopoly, regardless of whether the creators knew their devices would be used to infringe copyrights.

Although the appellate court disagreed with the district court and held that Napster is capable of substantial non-infringing uses, it nonetheless held that the Betamax defense was unavailable to Napster because of its actual knowledge of specific infringement and unwillingness to prevent that infringement. This distinction narrows the protection for technology providers under Betamax since lawful uses of the system apparently become irrelevant once knowledge of infringement can be shown. And knowledge can be easily established by a content holder sending a "cease and desist" letter, rendering technology providers thereafter liable for the infringing actions of third parties who misuse their systems.

Under the ruling, "if a computer system operator learns of specific infringing material available on his system and fails to purge such material from the system, the operator knows of and contributes to direct infringement." Furthermore, the court held that Napster materially contributed to infringement by providing the site and facilities for the infringement to occur. And the opinion could arguably reach to ISPs and upstream providers including technology companies and individuals.

The appellate court attempted to recognize a distinction between merely providing a technology that allows for sharing of information and specific conduct that encourages the illegal distribution of music. "We are compelled to make a clear distinction between the architecture of the Napster system and Napster's conduct in relation to the operational capacity of the system," said the court. But the decision still cuts a wide swath through Betamax, since P2P providers will be required to prevent infringement or face liability. The lack of the traditional Betamax "substantial noninfringing uses" defense to P2P providers who receive notice of infringement will have a chilling effect on speech as operators will be required to act as copyright police over their systems to avoid liability themselves.

It will also undoubtedly have a chilling effect on the growth of technology, as developers and entrepreneurs will be reticent to release and promote new products, services and ideas when their liability hinges on such a thin requirement as the receipt of a single complaining letter or, as the court's vicarious liability analysis suggests, on an affirmative duty to make sure no one misuses their tools or products and a threat that the court itself will second guess their design decisions should someone do so.

The 9th Circuit laid out a new test for holding third parties liable for contributory infringement for providing file-sharing technology. According to the court, contributory liability may potentially be imposed to a file-sharing technology provider who:

1. receives reasonable knowledge of specific infringing files;
2. knows or should know that such files are available on the system; and
3. fails to act to prevent viral distribution of the works.

Although the court stated that the mere existence of a file-sharing technology, absent notice and a failure to remove the offending material, is insufficient to impose contributory liability under Betamax, P2P providers should be wary since "knowledge" of infringement trumps substantial non-infringing uses of the system under the new standard. While the 9th Circuit's decision asserts that it follows the Supreme Court in Betamax for dealing with contributory liability, its result is a dangerous narrowing of the doctrine that ignores and imperils the constitutional limitations to a copyright holder's power.

DANGER: Right + Ability to Supervise = Vicarious Liability if Fail to Police

Even more worrisome, the appellate court found that Napster engaged in vicarious copyright infringement, a doctrine based in the context of employee/employer relationship. It imposes liability when a third party has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities. Despite Napster's lack of a business model, the court found it financially benefited because the availability of the music acted as a draw for future customers.

The 9th Circuit's holding also dramatically narrowed Betamax's protection against vicarious liability by requiring technology providers to affirmatively police their systems for potential infringement, a practice which essentially forces technology creators to serve as law enforcement for the content industry, even in the absence of notification that specific infringement has occurred. In addition to creating an undue burden, this outsourcing of police functions will undoubtedly result in over-policing, limiting the distribution of legitimately shared materials and the creation of new technology.

The 9th Circuit found that Napster sufficiently "supervises" its system to trigger vicarious liability because Napster retains the right and ability to control access to its system and it failed to exercise that right to prevent infringement. "The ability to block infringers' access to a particular environment for any reason whatsoever is evidence of the right and ability to supervise," stated the three-judge panel.

The court held that to escape vicarious liability, "the reserved right to police must be exercised to its fullest extent." Napster has an express reservation of rights policy on its Web site and regularly exercises those rights including terminating users. Consequently, the court ruled Napster "bears the burden of policing the system within the limits of the system," which is designed to give it the ability to locate infringing material listed on its search indices. Put simply: because Napster granted itself a right and ability to police its system, it is required under law to do so in order to avoid liability.

Napster's failure to police its system and the court's finding that it financially benefited from infringement led to its imposition of vicarious liability. Under the ruling, a file-sharing technology provider may be vicariously liable when it fails to affirmatively use its ability to patrol its system and prevent access to potentially infringing files listed in its search index (if it has one). A file-sharing technology provider such as Freenet that is incapable of blocking access to users or disabling files because of its architectural design, seems to be at a legal advantage to systems such as Napster under the ruling.

P2P developers must proceed cautiously as 'knowingly' ignoring infringement will not absolve operators of vicarious liability for the illegal actions of others. "Turning a blind eye to detectable acts of infringement for the sake of profit gives rise to liability" said the court. Once informed of infringement, a technology provider may not escape vicarious liability because of the substantial non-infringing uses of that technology, dramatically narrowing Betamax's protection against vicarious liability.

The Napster decision makes clear that maintaining a right and ability to police the actions of users creates a dangerous legal obligation for that P2P technology provider to police its system to the fullest extent possible. Consequently, the court's treatment of secondary liability will significantly impact the future design of P2P technology (to disable right and ability to police) in order to avoid secondary liability.

Freedom of Speech Threatened as Copyright Holders' Power Extended

The legal protection P2P technology providers enjoyed under the Supreme Court's Betamax standard for secondary liability has been curtailed in the 9th Circuit under Napster, restricting freedom of expression online. The copyright industry continues to secure dangerously broad legal precedents against innovative technologies whose full ramifications have not yet been thoroughly considered by courts or society.

The potential for contributory and vicarious liability present a real danger for file-sharing technology providers and great care should be paid to the architectural design of P2P systems including consulting an attorney. The Napster decision represents another instance where the legal code will influence the design of computer code, consequently limiting the public's ability to access and exchange information online and distorting the growth of the Net.

Despite Napster's demise, P2P's legal struggle lives on -- certain to battle RIAA further in the coming months, as the industry continues to wage a war to cripple the technology it cannot control and attempts to wrestle music distribution away from the people at the expense of freedom of speech and innovation.

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