Suits OK'd against makers of file-sharing software

The US Supreme Court yesterday gave the nation's entertainment industry a resounding victory over companies that make software used by millions to obtain music and movies without paying for them.

In a unanimous decision, the nine justices held that Grokster Ltd. and StreamCast Networks Inc., two makers of file-swapping software, can be sued by Metro-Goldwyn-Mayer and other movie studios for encouraging consumers to violate copyright law. The high court ruling overturned a decision by a federal court in California, which said the companies were not liable for illegal use of their product.

''One who distributes a device with the object of promoting its use to infringe copyright . . . is liable for the resulting acts of infringement by third parties using the device, regardless of the device's lawful uses," said Justice David H. Souter, who wrote the court's main opinion. Justices Ruth Bader Ginsburg and Stephen G. Breyer filed concurring opinions, which offered somewhat different rationales for the same conclusion.

StreamCast distributes Morpheus, one of the most popular file-swapping programs; Grokster distributes another such program under its own name. Both programs, and a number of others, are popular with millions of Internet users. The programs create networks of users who can share digital files among their computers. While people can use them to exchange any kind of file, these programs are mainly used to swap copies of music recordings and movies, enabling people to acquire vast entertainment libraries without paying the publishers and artists. Both Morpheus and Grokster programs are free; the companies make money by running a constant stream of paid advertisements on the screen while the program is running.

In 2003, MGM and other studios filed a lawsuit against Grokster and StreamCast, arguing that the companies were violating copyright law by encouraging illegal file-swapping. But a federal judge threw out the case, saying that a 1984 ruling of the Supreme Court protected the software companies.

The federal judge based his ruling on the high court's ''Sony Betamax" decision. In that case, the high court refused to outlaw home videotape recorders, even though they could be used to illegally copy movies and TV shows. In the Sony Betamax case, the court held that a technology could not be banned if it had substantial legitimate uses.

An Appeals Court last year upheld the lower court ruling in favor of Grokster and StreamCast. When the Supreme Court agreed to settle the matter, technology industry leaders worried that the high court might abandon the Sony standard. If so, inventors could face legal challenges for creating technologies that could be used to violate copyrights.

Yesterday, the court upheld Sony, but interpreted it more narrowly than the lower court. Souter said the Sony precedent did not protect companies that market a product in a way that induces users to violate copyright law. And the court declared that Grokster and StreamCast routinely practiced such inducement in their marketing. By contrast, Sony marketed its videotape recorder as a way for busy consumers to record shows for later viewing, a practice the high court held to be legal.

''There is substantial evidence in MGM's favor on all elements of inducement," the court held.

Representatives of the movie and music industries hailed the verdict. ''If you build a business that aids and abets theft you will be held accountable," said Dan Glickman, the president of the Motion Picture Association of America.

''Thou shalt not steal," said Mitch Bainwol, chairman and chief executive of the Recording Industry Association of America. That's what this is all about." Bainwol said the ruling would benefit consumers by spurring development of new, legal ways to obtain digital entertainment products.

The ruling dismayed Grokster and StreamCast attorneys, who said it would threaten future technological innovations. ''This decision seems somewhat Orwellian to me." said StreamCast general counsel Matthew Neco. He predicted that technology companies would face a barrage of legal hassles every time they introduced a new product or service that might be used to violate copyright laws.

Internet activist groups that filed briefs in support of Grokster and StreamCast had a mixed reaction to the ruling. ''I think today's Supreme Court decision is going to unleash a new era of uncertainty on America's technology innovators," said Fred von Lohmann, senior staff attorney for the Electronic Frontier Foundation.

But Gigi Sohn, the president of Public Knowledge, praised the high court for reaffirming the Sony ruling. She said that under yesterday's ruling, it won't be enough to show that a new technology might be used for illegal ends; the plaintiffs must prove that the new technology was intended for illegal use.

Hiawatha Bray can be reached at bray@globe.com.