Court to decide fate of file-swap software

The software used by millions to swap files over the Internet could be outlawed if the music and movie industries prevail in today's digital showdown at the US Supreme Court.

The high court will review a 2003 California ruling that the makers of two popular file-sharing programs, Grokster Ltd. and StreamCast Networks Inc., could not be held liable when their users download music and movie files without paying for them.

If the Supreme Court reaffirms this ruling, major media companies would lose a powerful weapon in their campaign to stamp out illegal Internet file-sharing, which costs the companies hundreds of millions of dollars in lost revenue.

Music and movie companies have filed thousands of lawsuits against individuals engaged in illegal file-swapping, but tens of millions of people worldwide have continued the practice. A successful lawsuit against makers of file-swapping software would allow the media companies to attack the technology that enables the illegal copying.

''We think this establishes a very important principle," said John Feehery, a spokesman for the Motion Picture Association of America -- ''whether we're going to be supporting free markets, or allowing black markets to prosper."

But computer industry specialists and civil liberties groups warn that making file-swapping software illegal might give the media companies veto power over any new technology that could cut into their profits. Critics say that popular new technologies, such as Apple Computer Inc.'s iPod music players, could fall under suspicion, because some people use them to listen to illegally copied music.

''If I build the next digital gadget, like an iPod, am I going to get sued?" said Art Brodsky, communications director for Public Knowledge, an Internet civil liberties group that has filed a brief in support of Grokster and StreamCast.

Grokster, based in Nevis, West Indies, licenses the Kazaa software, which has 60 million users. StreamCast, of Woodland Hills, Calif., distributes software known as Morpheus.

In his opinion backing the software companies, US District Judge Stephen Wilson relied on the Supreme Court's 1984 Betamax ruling, which rejected a bid by movie studios to block the Japanese firm Sony from selling home videocasette recorders. The studios argued that the VCR technology would let people make illegal copies of movies and TV shows. But the court noted there were legitimate uses for VCRs, such as recording a show for later viewing. The justices said that as long as there were substantial legitimate uses, the technology could not be banned.

The Betamax ruling has provided valuable legal protection for technology firms. In 1998, for instance, the music recording industry tried to halt the sale of the Diamond Rio, the first portable device for playing MP3 music files. A federal court refused, citing the Betamax case. Since then, such music players have become popular with millions of consumers worldwide.

Wilson's ruling in the Grokster case, also based on the Sony Betamax precedent, has spawned efforts to modify or set aside the 1984 ruling. Last year, US Senator Orrin Hatch, Republican of Utah, proposed making it illegal to produce software intended to ''induce" people to illegally copy files. Hatch said that such a law would protect legitimate technological innovation, while allowing lawsuits against file-swapping programs which, in his view, are mainly used to download illegal files.

The Hatch bill aroused bitter opposition from computer hardware and software makers, as well as Internet activists. The prospect that the Supreme Court might use the Grokster case to back away from the Betamax ruling has them just as worried.

''Do you want the next TiVo or the next iPod to be invented by techies and engineers who know how stuff should work?" Brodsky asked. ''Or do you want it controlled by recording companies and movie companies who can decide what you're going to watch and how you're going to watch it?"

Grokster attorney Michael Page refused to speculate on his client's prospects. ''The Supreme Court should say that they meant exactly what they said in Sony, and it's the law," Page said. But, he added, ''what's going to happen is anybody's guess."

Wayne Rosso, former president of Grokster, is now chief executive of Mashboxx, a new company that plans to offer a file-sharing system that doesn't violate copyright laws. Rosso predicted the court will try to find a compromise. ''You can't expect the court to simply overrule Betamax," Rosso said. ''I think it's going be one of these opinions that will be -- how should I say -- eclectic, and it'll take about a month to figure it out."

Whatever the outcome, Rosso predicted a bleak future for makers of file-swapping software. Even if Grokster and StreamCast win, he said, the movie and music companies will pressure Congress to pass tough new legislation to restrict file-swapping.

''The free lunch is over. Close the buffet," he said. ''To be honest, even when I was at Grokster, we knew it couldn't go on."

Hiawatha Bray can be reached at bray@globe.com. Material from Bloomberg News was used in this report.