On March 29, the entertainment and technology industries will descend upon Washington, D.C. to argue their respective sides before the Supreme Court in the landmark case of MGM v Grokster. At stake: the future of peer-to-peer technology, consumer electronics, software design, and consumer rights in the United States.

In April 2003, a federal judge ruled that Streamcast Networks – the developer and distributor of the Morpheus file-sharing software, and Grokster – the developer and distributor of the Grokster file-sharing software, couldn’t be held liable for how its users interact across peer-to-peer networks. The Ninth Circuit Court of Appeals in California upheld the lower courts ruling in August 2004, setting the stage for the coming showdown.

The movie and music industries, along with their wide-reaching allies from organizations as diverse as the National Football League to the Church Music Publishers Association will make the case that companies offering peer-to-peer software – the technology behind popular networks such as Kazaa, Morpheus, and Grokster – should be legally liable for the activities conducted over their networks.

Their goal is to overturn the Supreme Court’s 1984 Sony-Betamax decision, which holds that as long as “substantial commercial non-infringing uses” are possible with a technology, manufacturers aren’t legally responsible to police over the other, infringing uses.

Ironically, that decision was based, in part, on the court’s belief that since copyright holders such as professional sports leagues and the likes of Fred Rogers (Mr. Roger’s Neighborhood) had no objections to people recording their programming, technology companies shouldn’t be forced to acquiesce to the demands of other copyright holders.

The “substantial commercial non-infringing uses” test, though, has proven a slippery slope in the legal fracas. Hard numbers are difficult to find when it comes to the amount of non-infringing use occurring across P2P networks, but anecdotal evidence suggests that the majority of traffic coursing through the file sharing services is infringing in nature.

What is known, though, is that more software applications and companies are taking advantage of P2P’s decentralized approach to file transfers.

The technology companies and their allies – everyone from the American Civil Liberties Union to the American Conservative Union – see the entertainment industry’s efforts as an attempt to dictate their product design and business model simply for the sake of preserving the entertainment industry’s revenue stream.

From a legal perspective, they are seeking to have the Sony-Betamax decision reaffirmed for a digital age, and will likely argue that peer-to-peer technology itself is not the problem since the technology has many legitimate uses. Because of this, their argument goes, it is not the province of the software firms to police their networks.

And since it’s not too much of a stretch to go from forcing P2P companies to monitor their networks to asking telcos to make sure illicit activities aren’t taking place on their phone lines, the technology industry has come down squarely on the side of Streamcast Networks and Grokster.

The way they see it, if a service such as Morpheus and Grokster have to police its network, then there is little to stop other companies from having to police its products – or completely redesign them – to appease the entertainment industry.

In essence, if the Supreme Court reverses the Sony-Betamax decision, any technology product or service that potentially interacts with a copyrighted work would have to, by default, employ copy-protection technology.

That would be a reversal of the last 21 years of consumer-friendly media use, and it would likely derail an emerging business market.

The absence of stringent, court-mandated copy protection technology has allowed consumer rights – through the concept of fair use – to flourish. The Washington Post reported in January that the U.S. DVD market reached $15.8 billion in 2004, a jump of more than 30 percent over the previous year. That dwarfs the $9 billion motion picture box office industry.

Still, the entertainment industry believes the change is necessary. Despite the rapid growth in the DVD and VHS markets, their argument goes, digital recordings shared over computer networks allow piracy to run rampant, thus reducing the chance that any legitimate home video-type market will emerge.

So, the movie studios want to reverse the situation, making it the manufacturers’ responsibility to insure piracy doesn’t occur.

“A broad consensus has emerged around the conclusion that the Sony-Betamax decision was never meant to provide cover for Grokster-style theft,” Mitch Bainwol, Chairman and CEO, Recording Industry Association of America (RIAA), says in a written press release.

However, it’s also true that a broad consensus has emerged around the conclusion that the Sony-Betamax decision was absolutely meant to protect the creation of emerging – and oftentimes disruptive – technologies.
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“The copyright law principles set out in the Sony-Betamax case have served innovators, copyright industries, and the public well for 20 years,” says Fred von Lohmann, the Electronic Frontier Foundation’s senior intellectual property attorney. “We at EFF look forward to the Supreme Court reaffirming the applicability of Betamax in the 21st century.”

One member of TechNet, an influential technology industry lobbying group, has taken it upon itself to weigh in on the side of the defendants. Intel recently filed a friends-of-the-court letter, in which it expressed its concerns with Hollywood’s case.

“Intel is acutely aware of the importance of protecting copyrights as an incentive to creativity,” the company wrote in its amicus brief. But making manufacturers liable, it argues, “would chill innovation and stifle the development of new…products, including products designed to enhance lawful access to copyrighted works.”

(This article was amended on Saturday, March 12 to clarify the relationship between Streamcast Networks/Morpheus and Grokster. Initially, we reported that Streamcast was the parent company of Grokster. That is incorrect. They are separate entities that develop different P2P technologies. - Brad King)