I offer yet more analysis of Grokster, in the spirit of angels dancing on the head of a pin, or perhaps impaling themselves on the point.

C.E. Petit Esq. of Urbana, Illinois offers an interesting take on the significance of the procedural stance of the Aimster and Grokster cases in his blawg of August 23. I confess to some curiousity as to what colleagues Jim and Bill make of this.

Tim Wu, posting on sparring partner Larry Lessig's blog, thinks that the Grokster opinion offers "words that could have been penned by Schumpeter." He quotes the court's statement that, "the introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through established distribution mechanisms . . . history has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karoke [sic] machine, or an MP3 player."

This take on Grokster as offering just another sort of creative destruction bears closer examination. For market forces to respond and offer a balance, there must be some kind of market. And the difficulty of many new technologies is that it makes the ordinary boundaries of markets--contractual, physical lock-ups, statutory, difficult or impossible to enforce. (Come to think of it, several of the examples listed by the court above were "balanced" by statutory revisions, not pure market forces, though interventions like compulsory licensing were pretty ill-conceived).

Creative destruction through competition is one thing, but creative destruction through violating rights is another. The invention and widespread dissemination of a teleportation device would play havoc with laws against theft and assault, but I doubt that an optimal policy response would be to wait to see if the market offered "balance." One balancing force we see out there so far seems to be spoofing and other tricks to mess with the heads of file sharers. The trouble with Grokster as creative destruction is that there doesn't seem to be much that is creative about it. But the market is an amazing thing, certainly, it may yet develop a means of enforcing itself.

posted by Solveig Singleton @ 8:29 PM | Internet: P2P, Search Engines...

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The Ninth Circuit's Grokster decision come down just before our Aspen conference, holding that two of the file-sharing networks could not be liable for allegedly contributing to infringement by their users based on their "current activities." I last addressed this issue in a paper in early March, in which I argued that the Ninth Circuit should reverse Judge Wilson's decision. Now that the Aspen haze has lifted, I thought I would offer a couple comments, although I confess I have not had time to keep up on this issue since that time. Fortunately, since the Ninth Circuit largely adopts what it characterizes as Wilson's "well reasoned analysis," my arguments as to why Wilson was wrong apply (or don't apply) with essentially equal force to the Court of Appeals decision.

I believe that the Grokster decision is wrong, and that its failure to impose liability on such P2P systems could have devastating effects on efforts to develop legitimate markets for online content. Hopefully, the importance of this decision will lead the Supreme Court to grant cert and decide for itself whether these systems should be subject to contributory infringement liability (and in the process enlighten us on the standard it adopted twenty years ago in Sony).

Moreover, my paper discusses, there are clear contrasts between the analyses of the Ninth Circuit and District Court in Grokster and the approach of Judge Posner's Aimster opinion, making cert even more likely. Based on my quick reading of the Ninth Circuit decision, three conflicts are worth noting:

Applying the Sony standard The Grokster court held that the mere existence of any non-infringing use triggers the need for plaintiffs to establish actual knowledge under Sony. Posner held that where there are infringing and non-infringing uses, a "balancing of the costs and benefits is necessary."

Relevance of willful blindness Judge Posner held that Aimster could not avoid liability as a contributory infringer on the theory that its encryption software prevented it from having specific information, declaring that "[w]illful blindness is knowledge, in copyright law." The Grokster court rejected the notion that there is a "separate 'blind eye' theory of liability" under vicarious infringement, but does not explain why this does not provide sufficient evidence of knowledge to justify liability for contributory infringement.

Facilitating infringement through product features Judge Posner held that even if there are substantial non-infringing uses, an alleged contributory infringer must show that "it would have been disproportionately costly" to prevent infringement. He cites Aimster's encryption feature. The Grokster court failed to consider this in evaluating whether the systems' design and distribution of software materially contributed to infringement.

As to my overall view of the policy issues, let me make just a few points.

First, P2P technologies offer potential benefits in a variety of contexts, and the technology should not itself be attacked. But these file-sharing businesses are designed primarily to promote infringement on a massive scale, know that this is their dominant use, and arguably have chosen not to incorporate features that could have reduced infringement. File-sharing systems can provide some advantages in free distribution over, say, central servers. But they have an overwhelming disadvantage for commercial distribution. As currently run, these file-sharing systems are designed to enable users to avoid payment. By spawning a huge black market, they undermine the development of legitimate markets for digital content.

Second, contributory infringement is specifically designed to enable copyright holders to efficiently enforce their rights against a relatively small number of facilitators in situations where large numbers makes enforcement actions against direct infringers inefficient or impractical. It's hard to imagine a more striking example than this case - a handful of file-sharing networks service millions and millions of infringing users. Direct infringement actions are necessary to establish key principles and educate users, but are ultimately a "teaspoon solution to an ocean problem" of enforcement.

Moreover, relying on actions against direct infringers raises special concerns here. Many file-sharers contend that they had no idea that they are doing anything wrong. While I am skeptical, it is true that they incur liability simply by using these systems as intended. Many users, especially minors, may naturally think that if file-sharing software is legally available, using it for its intended function must be legal. Thus these systems not only facilitate the efforts of those seeking engage in infringement, they may induce unsuspecting kids to engage in illegal infringement and risk incurring legal sanctions.

Third, as my paper emphasizes, protecting innovation is important. Reasonable people can disagree regarding how best to limit liability for contributory infringement and design appropriate remedies. I believe that a proper balancing of the factors identified in my paper and by Judge Posner would lead to liability for Grokster et al without threatening innovation. In this regard, let me commend to you Solveig Singleton's thoughtful contribution in this space this past Wednesday.

These issues deserve more attention than I can give them now, but I hope to have more time in the future.

posted by @ 4:55 PM | General

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The Aspen Summit Webcast is now available. More to follow...

posted by Ray Gifford @ 2:08 AM | General

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Today's blog is brought to you by Solveig Singleton, back in the DC policy scene after a hiatus and a new Adjunct Fellow at PFF. I hoped this first blog would be a gem, but the best I can do is to toss a pebble into the pond of perplexity concerning the Grokster case. To recap, the 9th Circuit upheld the lower court's ruling that Grokster would not be liable for secondary copyright infringement.

Crucially, the court found that Grokster, a P2P file-sharing service less centralized than Napster, had no control over its users' illicit copying activity at the critical time necessary to stop them. It also emphasized the potentially non-infringing uses of P2P tech, following the Supreme Court's guidance in the venerable Sony case.

Let's assume for purposes of today's argument that this result won't preserve a healthy market in music. How could a future court do better? More specifically, what test could catch Grokster and not Xerox or iPod?

A partial list of key factors roughly derived from Sony and Judge Posner's opinion in the Aimster case and further developed by PFF colleague Bill in his recent paper might include:

Defendants level of control over the primary copyright violators;
Whether the main uses of the tech are legal or illegal;
The cost of measures that could be taken by the tech's distributor to reduce violations;
The distributor's level of knowledge of particular violations.

Using these factors, Xerox seems easily enough distinguished from P2P services. The main uses of its machines are legal. Its level of control is very low and the cost of changing it high, absent Soviet-style rationing of photocopiers. Xerox's level of ongoing knowledge of actual violations is likely to be low - who would bother telling them? (Kinko's, on the other hand, has a higher level of control and potential knowledge).

iPod is more tricky. Many current users may well be illegally downloading files. While iPod's present level of control is low, some sort of tweak might change that. One might argue that hardware is "just different" - that we could reasonably expect a software distributor to reprogram, but not a hardware distributor to redesign. That doesn't work - stepping outside the copyright context, no one seems to have major complaints with rules limiting the distribution of lock picks, and that's hardware. The hardware/software distinction is hopelessly slippery anyway, as so much hardware these days has a software component.

Maybe a partial answer is that pure software distributed under a license is different - a license creates a continuing relationship between software distributor and downloader that could be the basis of control - contractually if not technologically. Another part of the answer might be that iPod's contribution to illicit copying is not sufficiently material. It's primarily a player, not a collector - of music files. That is, most of its functions if not most of its uses are legal. And, finally, the iPod relationship with iTunes suggests that whatever lack of control they have is not deliberately "turning a blind eye."

None of this gives us a bright-line test. But how can there be one, when the tech is so flexible? Any bright-line test invites software to be written to fall just on the safe side of the line, for controls and centralization to be designed out and for myriad other innocent functions to be built in to preserve the "noninfringing uses" route.

If we are not to be indifferent to continued violations and wish to preserve the freedom to innovate, the best direction for a court would be to look to the mental states of particular defendants - targeting very particular uses of technology, not whole technologies. In a nutshell, it means avoiding "turning a blind eye." But the Grokster court believed that Sony does not permit this, and these inquiries into mental states are always difficult. One hopes the Supremes will grant cert.

posted by Solveig Singleton @ 10:59 AM | Internet: P2P, Search Engines...

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PFF is about to remove to Aspen for its 10th Aspen Summit. After, I will be on vacation. So entries will be few, except to the extent that other PFFers can be dragooned into participating, until September 8.

posted by James DeLong @ 1:56 PM | General

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The Ninth Circuit just decided the Grokster case, handing the content industries a defeat on every ground.

It ia a complicated situation, and commentary will await further cogitation.

posted by James DeLong @ 1:50 PM | General

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The entertaining and literate software columnist Joel Spolksy has a book out, reprinting the best of his articles, and entitled: Joel on Software: And on Diverse and Occasionally Related Matters That Will Prove of Interest to Software Developers, Designers, and Managers, and to Those Who, Whether by Good Fortune or Ill Luck, Work with Them in Some Capacity.

Available on Amazon and other fine book stores everywhere.

posted by James DeLong @ 10:46 AM | General

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C|NET today has an interesting article on digital rights management in the publishing industry.

Print media have been insulated from the Napsterized world somewhat because a book, magazine, or newspaper is a superior way to deliver print content. Most people prefer it to reading on a screen, and, given the cost of toner, printing something out costs more than the original.

But serpents are entering this Eden, especially in connection with textbooks.

posted by James DeLong @ 9:20 AM | General

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Intellectual Property quotation of the day:

"[A] server without an operating system is a space heater."

-- Jonathan Schwartz, CEO - Sun Microsystems

posted by James DeLong @ 9:11 AM | General

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The Report of the California Performance Review is now available on-line. It contains four volumes and over 1,200 recommendations on 279 different issues, all with a purpose "to reform and revitalize California's state government."

Intellectual property comes up twice, both times in the category "Statewide Operations," and both times in connection with software..

Recommendation SO 06 is "Create a Code Library to Leverage State Intellectual Property Rights." It notes that the software code written by state departments is valuable and should be protected through patent and copyright. Furthermore, the state should make money by licensing the code to others, and should keep a wary eye out to detect and pursue any infringements.

Then there is SO 10, "Explore Open Source Alternatives," which notes that "open source software can be a more cost-effective alternative" and recommends that "Departments should . . . implement open source alternatives where feasible."

In theory, the two recommendations can be reconciled because the term "where feasible" can caulk chasms of inconsistency. But in fact the fine print of SO 10 accepts as truths that open source has lower total cost of ownership than proprietary products, is more secure, and is less vulnerable to attack, which makes the conclusion about its "feasibility" pretty foregone.

Before buying off on it, the California decision makers need to probe more deeply.

To begin, "open source software" is not a meaningful category. There are dozens of different licenses, and they have significantly different consequences. For example, if a state agency adds code to an open source program licensed under the GPL, or adds GPL'ed code to a state-written program, then the state forfeits its IP rights to that code, in apparent contravention to SO 06. The BSD license, in contrast, is more forgiving if code is added to a proprietary program, but attaching it to a newly-written product still cedes any possibility of making money from the effort.

"Open source" is not a meaningful category in another sense: one must distinguish between the open-source operating system Linux and open source applications. IBM, HP, Sun, Dell, and other companies are pro-Linux without favoring open source for applications. Sun keeps hold of Java. IBM makes billions from selling its proprietary aps, and intends to keep it that way. It wants to turn the operating system into a commodity, but not the aps.

In essence, Linux has become a way for tech companies to cooperate on a standard Unix-based operating system and bundle it with hardware, not a new approach to productive enterprise. Thus its use raises standard choices between buying something -- in this case, computer services -- as a bundle (hardware/software/services) and buying it in disaggregated form. In some cases, the bundle, including Linux, may be the best solution, but many factors are in play, and they are all hotly disputed, including questions of total cost of ownership, security, and vulnerability, maintenance over time, guarantees against infringement of others' intellectual property, and compatibility with future innovation as hardware develops.

For more on these issues -- probably more than most people want to know -- consult PFF's paper on The Enigma of Open Source Software (March 2004), plus the material cited in an earlier WebJournal entry.

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