Music Industry & Internet, Sony & Internet
...onship to the infringing acts and no idea which consumers would use VCRs to infringe. Thus, a ruling against Sony would target not just the actions of the third-party, but the existence and functioning of the technology. Sony further argued that "time-shifting"—recording a program to watch it once later—is a non-infringing use. After a rare re-argument, the Court ruled in favor of Sony 5-4. Though somewhat unclear as to whether its ruling applied to vicarious infringement, the Court held that devices like the VCR "need merely be capable of substantial non-infringing uses" to avoid contributory liability. After affirming this principle, the majority proceeded with a rather fact-intensive analysis of current VCR usage, finding that time-shifting is a non-infringing use and was "substantial." Notably, the majority did not address other arguably infringing uses, like making permanent copies or fast-forwarding through commercials. Throughout its opinion, the majority expressed its fear that, in spite of secondary liability's benefits, it would unduly hinder this new technology. The majority noted that liability here was "the functional equivalent of holding that the disputed article is within the monopoly granted" to the copyright holder. Even if damages were used instead of an injunction, the effect could be significantly harmful; as Professor Paul Goldstein notes, the precise harm of an infringing copy is difficult to assess, and, inasmuch as damages are passed onto consumers in the form of higher prices, legitimate users would be impeded. In turn, copyright would diminish the public's benefit from legitimate uses by overextending the control of private parties. For that reason, the majority attempted to "strike a balance between … copyright … and the right of others freely to engage in substantially unrelated areas of commerce" (emphasis added). In creating this balance, Sony builds on principles similar to those that the Internet teaches us about innovation: innovation thrives in an environment of minimal control and its benefits are often unpredictable. Under Sony, unless banning a given general purpose tool will certainly not harm significant legitimate uses, it should be allowed to exist. In this way, Sony protects multipurpose tools like those that flourish on the Internet. Sony is technology-protective in three key ways. First, because the majority used a clear rule that has no referent to infringing uses, rather than a flexible balancing test, Sony creates the utmost certainty for innovators. Innovators do not have to worry about being dragged into court because of a use they did not consider or the degree of infringement. Once substantial non-infringing uses are identified, the inquiry ends. Second, because a technology "need only be capable of substantial non-infringing uses" (emphasis added), the rule contemplates that a technology's uses will emerge over time. In so doing, it creates a significantly low threshold for multipurpose tools creators. Many emerging uses might not even implicate copyright, but, even when they do, copyright's "fair use" defense to infringement allows for new non-infringing uses to develop. Before the VCR, no one would have imagined that some day people could easily copy TV programs; because fair use is not discrete, the doctrine could evolve with the technology. Though the majority's fact-intensive fair use analysis has led some to assert that Sony’s result was tied to current VCR uses and could change over time, the word "capable" suggests otherwise. Reading the ambiguous words "capable" and "substantial" together, Sony suggests that a product, used minimally for non-infringing uses today, is still protected because the uses could become substantial tomorrow. Third, the majority's reasoning suggests that innovators should not be forced to redesign their multipurpose technologies, ignoring arguments made earlier in the case that Sony should do so. As Professor Jane Ginsburg notes, the majority faced an "all or nothing" choice: it could prohibit the device and all its non-infringing uses, or allow it and all its infringing uses. Forcing Sony to change the VCR's design was problematic because the same mechanisms that allowed people to make infringing uses also enabled non-infringing uses. Given that non-infringing uses could not be fully predicted ahead of time, the effects of a redesign on legitimate uses would be unpredictable as well. One could argue that Sony did not actually preclude such a remedy for all types of technologies. After all, the court explicitly distinguished this case from one's where the technology provider had an "ongoing relationship" and control over the infringing actor. However, given Sony's logic, redesigning the technology itself would still not need to be an option. If Sony had watched TV with its customers, then it could have been expected to prevent infringement. That result has little to do with whether the VCR should be enjoined, but whether Sony's conduct should be. There, a remedy would only target the innovator's actions, not the technology itself. Internet Innovation and Speech The argument thus far has set the stakes for an alternative to Sony in terms of innovation. Here, moving back to considering the Internet in particular, I will add one important element to the equation. While the Sony secondary liability rule is agnostic towards the legitimate use's character, its protection of the VCR and thus "time-shifting" was particularly significant because it enhanced consumers' access to televised information. In the Internet and P2P context, inhibiting technology will affect both reception and dissemination of speech on a far larger scale. Because the Internet’s benefits are closely connected to these important social values, they are worth paying special attention to. The Internet is capable of enabling and disintermediating communication. Just as no one controls the applications that run on the Internet, anyone can send communication directly to another "end" on the network. Unlike "one-to-many" mediums, like television and radio, the Internet can be "many-to-many," allowing for mass two-way communication. Communication on the Internet is also of limited expense compared to traditional mediums. In these ways, the Internet obviates the need for and power of intermediaries in information distribution. This transformation furthers democratic values by creating a richer marketplace of ideas. Scholar Niva Elkin-Koren suggests that diminishing power of intermediaries will increase diversity of views, in part because corporate sponsorship and thus marketability will be less relevant. Not only will more people be able to express themselves to others, but they will also have greater access to knowledge and information. As the ACLU amicus brief in Grokster points out, many libraries and archival projects distribute public domain works and other materials freely on the Internet and P2P. Indeed, the benefits of P2P file-distribution are most pronounced in this context. P2P further decreases costs and reliance on intermediaries compared to the client-server model. Before P2P systems flourished, distribution typically occurred by setting up a website through a third-party—a website hosting service—or by setting up a server and maintaining a stable Internet connection. Practically speaking, one also had to be indexed by a search engine, which generally favor large, static, American, commercial sites. With P2P distribution, your computer can become a file distributor with some readily available software, and your files become automatically accessible using the search tool. Decentralized P2P in particular diminishes intermediary control and enables speech. To understand the full extent of this, it is helpful to imagine a situation in which someone wants to suppress the spread of an important document. With client-server or centralized P2P designs, a clever attacker or an accidental server error can shut down the network, silencing the speech. Even a high level of traffic at the center could slow down the entire network. In decentralized models, however, there is no such chokepoint. Furthermore, by expressing to a centralized source that you have or that you want the document, your actions can be more easily recorded and reported to others. Though privacy can still be compromised in decentralized models, there is no centralized entity that one must trust. Hoping to provide a space for open dialogue, Freenet, a distinct decentralized system, was designed with these dangers in mind. The system is resistant to attack and technically hinders attempts to track users’ activities. The Internet and P2P under Sony and the Negligence Rule With the stakes now laid out, I will turn to the current state of Sony in P2P cases, focusing primarily on Aimster's negligence rule approach. I will argue that a negligence rule will substantially undermine Internet innovation and legitimate speech by generating uncertainty and constraining technological designs. a) Background: Napster and Grokster In the fall of 1999, Shawn Fanning created the infamous Napster. As noted above, Napster was a centralized P2P system that required users to connect to its servers and search its central index. Napster appealed after losing at the district level, and the 9th Circuit Court of Appeals ruled that, once a copyright holder told Napster of infringement on its system, Napster was obliged to block it. Eventually, the courts forced Napster to shut down for failing to prevent all infringement. Scholars have extensively debated the precise extent of Napster's holding, with some even arguing that Sony's VCR would not succeed under it. The court's opinion is convoluted, yet, the key point is threaded throughout it: though Napster's current and potential uses were clearly substantial, its continuing control over infringing uses made it unlike Sony. In this way, the 9th Circuit followed the essence of Sony. Because Napster could ban users and remove specific file titles from its index, the specific infringing uses could be potentially severed from the current or future legitimate ones, and thus the danger to creating liability was less significant. The court explicitly confirmed that the Napster technology was shielded as distinct from "Napster's conduct in relation to the operational capacity of the system." Furthermore, though the court said Sony did not apply to vicarious infringement, it came to much the same result as in the contributory section, repeating that Napster had control but any remedy must fit its current technological architecture. Why, then, was Napster shut down? Even though the 9th Circuit recognized that blocking infringing files was not an "exact science" because Napster did not inspect the actual contents of the song files, the district court's remedy amounted to forcing Napster to alter its design until it could do what it feasibly could not—prevent all infringement. As will become clear in my discussion of the negligence rule, this forced redesign and shut down are a troubling precedent. The court effectively killed off development of centralized P2P file-sharing. For the purposes of this essay, however, I will not discuss Napster's numerous problems specifically; putting aside the remedy and the court’s not applying Sony directly to vicarious liability, the case’s overall logic follows Sony relatively well. This faithfulness to Sony played out in the only case thus far involving decentralized P2P, Grokster. The case involved two distinct decentralized systems that allow for transferring of any file type and, to an extent, were created in reaction to Napster's focus on control. The first, StreamCast Networks' Morpheus, accesses the Gnutella network, and, as such, StreamCast has no central control. On the other hand, Grokster accesses the FastTrack network, which designates particular users within the network to acts as indexes, rather than passing requests from peer to peer as Gnutella does. Still, this network allegedly has no central point of control, and, even if it did, Grokster is a third-party licensee that has no access to the network's underlying code. On April 25, 2003, the judge followed Sony and Napster and ruled in favor of the defendants. Noting that the systems had substantial non-infringing uses, the judge cited distribution of public domain, government, and copyrighted materials authorized for distribution. Both services, unlike Napster, had no ability to control its users' searching for and transmitting infringing files after distribution of the software; in particular, he noted that even if the companies went out of business, neither service would be affected. Those factors provided the rationale for dismissing contributory infringement claims, and, similarly, the judge set aside vicarious liability because the companies lacked control. Making clear the connection to Sony (at least as far as the contributory section went), the judge affirmed: Grokster and StreamCast are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights. While Defendants, like Sony or Xerox, may know that their products will be used illegally by some (or even many) users, and may provide support services and refinements that indirectly support such use, liability for contributory infringement does not lie 'merely because peer-to-peer file-sharing technology may be used to infringe plaintiffs' copyrights.’ b) Aimster and the negligence rule Not long after Grokster, the 7th Circuit Court of Appeals fashioned a secondary liability rule in Aimster that threatened the immunity of decentralized P2P providers. Aimster integrated search and file-sharing features into America Online's Instant Messenger chat tool. While the district court did not determine whether Aimster centrally indexed files, Aimster at least had some central control over its network such that pulling the plug on its servers would have some effect. In his ruling against Aimster on June 30, 2003, the esteemed Judge Richard Posner asserted that liability rests on weighing "the respective magnitudes of the [infringing and non-infringing] uses", including how probable they are as well as whether the "prevention of infringing uses would be highly burdensome." Because Aimster had provided no evidence of any non-infringing activity, it easily failed this test. Furthermore, in affirming that this "cost-benefit trade-off" does not treat control and actual knowledge of the infringing act as exclusively determinant, Posner explicitly rejected Napster's interpretation of Sony. In a seeming divergence from Sony's holding, Posner asserted in dicta: "Even when there are noninfringing uses of an Internet file-sharing service, moreover, if the infringing uses are substantial then … the provider … must show that it would have been disproportionately costly for him to eliminate or at least reduce substantially the infringing uses." This test bears striking similarity to suggestions made by the Grokster plaintiffs as well as William Landes and Doug Lichtman's suggestion that indirect liability be premised on a negligence rule. Like Posner, Landes and Lichtman would weigh all costs and benefits of applying liability, attempting to maximize social welfare. In particular, they would ask whether a "party’s failure to take economically reasonable precautions results in a harm," thus encouraging people to take such precautions ahead of time. Though imposing liability will impair legitimate users, if that harm can be mitigated and the benefit to limiting infringement is great, then on balance liability would be justified. In some special cases, even if redesigning a product to eliminate infringing uses would be too difficult, damages could still apply if a social welfare gain could be achieved. Such a rule encompasses the necessary predicates for suing decentralized P2P systems. First, a negligence rule would tend to disfavor P2P, because it is disproportionately used for infringement. Because so many people are effortlessly using P2P to commit infringement, there is a significant potential for harm. In particular, P2P critics point out the significant decline in music sales since P2P's genesis. Second, control would not be a wholly determinative factor. The Grokster plaintiffs argue that decentralized systems could and should have included some mechanism to filter out infringing uses. Before addressing some broader problems with this approach, it is worth focusing on this filtering point, for it is where the negligence rule is seemingly at its strongest. Let us assume for the moment that all decentralized systems had to incorporate filtering systems but were not enjoined altogether. Let us further assume that the filtering would not be overbroad, only blocking infringing files, and that this rule only affects decentralized P2P file-sharing services. If we eliminate the mass infringement and do not inhibit legitimate uses, seemingly avoiding the "all or none" problem faced in Sony, would there be any deficiency with this approach? Indeed, there would, because a company-controlled filtering implementation would have to sacrifice some aspects of a decentralized design. Any filtering list will become obsolete almost immediately, for new copyrighted works are created all the time. Rather than deploying the software with a filters list, the software would have to acquire a new filters list each time it is used. Even if searches and indexing were not performed centrally, P2P software would have to depend on a centrally-controlled filters server. In its practical effect, this conflicts with the benefits of the Internet's end-to-end design. That is, the Internet would still technically retain its end-to-end architecture, but the law would limit it by banning the decentralized P2P design. Even though the same legitimate file-transfers would still be possible through other means, legitimate uses would lose the decentralized system's current and potential technical benefits. The precise harm cannot be fully known because development of decentralized P2P will be stopped in its tracks. At the very least, in terms of using the system to distribute speech, the negligence rule would sacrifice the specific benefits mentioned above and substitute the Internet's disintermediation of speech for mandated intermediary control. The ACLU amicus brief in Grokster notes that mandated control could have its most dramatic effect on politically controversial speech, for filtering and a central point of control can easily become a tool of censorship. Projects like Freenet, dedicated to protecting freedom of speech by eliminating centralized control, would be entirely impossible. Moreover, this rule would have a substantially negative effect on who can innovate. As noted, one advantage of decentralized P2P is that providers need not maintain any costly infrastructure. Far fewer budding programmers would attempt to write the next Gnutella if doing so requires hosting a centralized infrastructure. Even in this hypothetically ideal situation, the negligence rule would have demonstrably harmful effects. If we move towards a more realistic account, these problems—undermining the benefits of end-to-end in terms of hampering innovation and speech—are compounded by many orders of magnitude. First, it is important to note that whatever effects the negligence rule has on innovation will be widespread. Legally, there is no obvious reason why the rule would apply to just decentralized P2P; certainly, Landes, Lichtman, and Posner are all proposing generally applicable rules. As a technical matter, there would be no principled reason why the negligence rule could not apply to essentially any technology that helps one receive and transmit data over the Internet. Decentralized P2P is not unlike many other stand-alone file-distribution tools. As the defendants in Grokster suggest, email clients like Microsoft Outlook could be forced to screen out infringing files. Since Web browsers, like Gnutella, interpret content sent using HTTP, they, too, could be forced to screen downloaded content. Indeed, if it applies to decentralized systems, where the link between the infringer and innovator is weak, then the negligence rule should apply to non-stand-alone software as well. Centralized search engines like Google, which have control over their indices, could be forced to perform filtering beyond their architecture. America Online uses a central logon server for its Instant Messenger program and allows for user-to-user file-transfers (Aimster simply made this easier and added a search tool). This is not to say that liability would be imposed, but rather than any of these services could have a conceivable case brought against them. Second, the negligence rule is not suited to technological advances because a technology’s costs and benefits cannot be easily assessed. The rule's underpinning is that a judge can narrowly tailor a solution that maximizes benefit while minimizing the harm of infringement. However, in indirect infringement cases, a court will not be able to determine the value of future legitimate uses. Any given case will only look at a technology's costs and benefits as understood at that particular moment. In turn, a judge will not be able to account for the legitimate uses that have yet to emerge fully. Also, as the decentralized P2P example above suggests, the effects of forcing someone to redesign a technology are often subtle and cannot be fully understood in the present. Even if it were simply a matter of determining the added expense of rebuilding the tool, it will be exceedingly difficult for a judge to comprehend fully the costs and feasibility of redesigning a tool. Moreover, because the negligence rule replaces Sony's clear rule with a balancing test, innovators will suffer due to heightened uncertainty. No innovator will be able to estimate ahead of time whether his particular technology is protected. Determining what quantum of non-infringing uses is needed, or what architectural constraints make a redesign "disproportionately costly," is left up to a judge's discretion. Technology developers will have to be constantly wary of being sued. This approach's deficiencies will be most stark for technologies in their infancy, thus posing a serious threat to...