Peer to peer websites – heathen chemistry?

The US music and film industries are spending millions on litigation aimed at crushing the internet’s MP3 file-sharing site, writes Paul Motion.

P2P - the acronym that music and film studios love to hate. It stands for the “Peer to Peer” system of computer file sharing, invented by 19-year-old US computer geek Shawn Fanning. He it was who in 1999 set up the music swap website, Napster. [If you think the ‘geek’ epithet is a tad unfair, ask yourself who else would name his company after his hairstyle...] And here’s why the studios are worried about P2P: global record and CD sales fell 5% in the last 12 months, their first ever fall. The studios blame the P2P websites that enable MP31 file - swaps. There are now an estimated 447,857,377 Internet users and therefore potential file-swappers2. The music industry sees the way forward as subscription based MP3 websites3. Bertlesmann Music has now effectively bought out Napster and hired Fanning for such a venture. The Internet public however remains unconvinced. It is still flocking to the free P2P swap sites in vast numbers.

The movie studios are also worried about Napster’s more potent 21st century successors, websites like Grokster, Morpheus and KaZaA. Public demand for DVD movies is increasing, but this entails the conversion of soundtracks and pictures into huge digital files. The point being that ‘digital’ signifies the ability to make unlimited perfect copies of anything. And compressing DVD copies down to MP3 format makes those perfect copies “swappable” over the internet for the cost of a very long local phone call. This is a problem for pop videos as pirate copies released early can play havoc with global marketing campaigns, as Oasis found out with their latest album, ‘Heathen Chemistry’ which was leaked in full on the Internet before official release.

Napster Litigation, and the “Betamax” Defence.

Fanning’s P2P software allowed Napster users to connect with each other and transmit MP3 files directly from each other’s hard drives. Napster was originally set up to allow up-and-coming bands to post their music on-line. Users very quickly realised that tracks ‘ripped’ into MP3 format from their own CDs collections could be swapped and located on-line using Napster - very much cheaper than paying for the real thing!  Or, as the music moguls would have it, Napster knowingly afforded unlimited scope to plagiarise and copy music on-line.

Napster was quickly sued by A & M records4, who argued the American principle of contributory copyright infringement. In the Napster appeal (widely misunderstood in the press) the Ninth Circuit in fact recalled the injunction initially granted to A & M in the district court. The appellate judges emphasised a “clear distinction between the architecture of the Napster system and Napster’s conduct in relation to the operational capacity of the system”. The court felt bound to follow Sony Corporation v Universal City Studios, Inc 464 US 417, 104 S. Ct. 774, 78 L. Ed. 2d 574 (1984). There, it was accepted that although Betamax VCRs could be used to copy television programmes, the manufacturers and retailers were not liable for copyright infringement. This was so since “…the sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory copyright infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed it need merely be capable of substantial non-infringing uses”5 . In recognising that there were ‘substantial non-infringing uses’ for the VCRs, the court would not impute constructive knowledge in the manufacturers or retailers.  Napster’s much-publicised shut-down was not in fact ordered directly by any court. Napster had to close because it could not comply with a “zero infringement” standard (imposed by the district court) in the operation of its centalised file-indexing service.

The Next Generation - Grokster, Morpheus and KaZaA

Learning from Napster’s mistakes perhaps, a second generation of file swap websites quickly sprang up, based on the open-source Gnutella format. Crucially these websites unlike Napster did not hold any information on their servers about the possession, receipt, transfer, searching, or indexing of media files by their users. The new sites - Morpheus, KaZaA and Grokster - were part of an international file-sharing network using Version 1.3 of ‘FastTrack’, a software licensed by Consumer Empowerment of the Netherlands.

FastTrack turns individual users’ hard drives into servers. Rather like a spider’s web, if one ‘server’ breaks down, other ‘servers’ allow data to continue to flow. Once users had downloaded the free software they no longer needed to go via the main Morpheus (or KaZaA or Grokster) server to do the file swaps.

On Kazaa’s own figures their software has been downloaded 82,979,853 times in total 5 and a staggering 2,696,193 times in the week ending 27th May 2002 alone - even on an independent assessment6 .

All three sites have now been sued for copyright infringement, in the USA and elsewhere, by a variety of American movie and music interests. West Indies-based Grokster is understood to be running out of money and may abandon its defence. The trading company KaZaA BV, based in the Netherlands, scored a surprise victory when on 28th March 2002 an appeal court in the Netherlands overturned a lower court’s ruling that had held KaZaA BV liable for copyright infringement. The appeal court stated that KaZaA BV was not responsible for the illegal actions of people using its software. That decision - the first anywhere to protect a file swapping website against liability for copyright infringement - gave hope to the P2P companies. However, KaZaA too has experienced financial difficulties. The trading company was sold to Sharman Networks, a Vanuatu company, in February 2002. The FastTrack software has just been licensed to a California partnership involving Brilliant Digtal and Altnet. KaZaA BV itself has ceased trading and conceded a default judgment in the Netherlands.

Morpheus too was sued by the RIAA7. It had hired for its defence one Andrew Bridges, the attorney who in 1999 successfully defended Diamond Multimedia’s ‘Rio’ MP3 player from the attentions of the RIAA8. One of the cornerstones of the Morpheus defence was the “Betamax” principle above, the other being that Morpheus had no control or influence over its users, hence the appeal court’s ruling in Napster also favoured Morpheus . This latter thread of the defence however came spectacularly unstuck in March 2002. The Morpheus network, distributed by Nashville’s Streamcast Networks, crashed early one Tuesday morning when a software upgrade changed how the system operates. Morpheus later blamed the problem on hackers but the point had already been made: the whole network could be brought down, implying its dependence upon a central point of control. Morpheus’s motion for summary judgment dismissing the RIAA action for want of evidence was ruled premature on 5th March 2002. The action is now due for jury trial in October 2002. However on 23rd May 2002, Bridges announced he was pulling out of the case as Streamcast could no longer afford his fees. Morpheus now plans to begin distributing music protected by its own digital rights management technology - possibly to assuage those lingering concerns as to its legitimacy? In the meantime it is looking for new counsel. Interestingly, Morpheus also prays in aid of its case the Gutenberg Project (http://promo.net/pg/), whereby its technology is helping convert to digital form, and to supply free on the Internet, the King James Bible, the collective works of Shakespeare, and the CIA World Fact Book.

UK Position

The P2P / MP3 issue per se has yet to be tested in the UK courts. Here it is illegal to “circumvent a device of copy protection knowing or having reason to believe that it will lead to infringing copies”9 . The UK courts have been prepared to look at the copyright holder’s intention in relation to Sony Playstation DVDs10. A ‘superchip’ that circumvented coding on the DVD intended to prevent copying was held illegal under the CDPA 1988 [whereas it was arguably not illegal under the EU’s Software Directive11]. The court decided it was enough that the superchip might permit infringing use, and that the importer knew this to be a possible use.

Usenet
The irony is that, for all the prodigious P2P / MP3 litigation unleashed against the newcomers since 1999, one of the older (and geekier?) areas of the Internet could yet rise to become the unregulated file-swopping Nemesis of the music and movie industries.  Usenet “newsgroups” provide forums for anyone, anywhere in the world, to post “messages” about anything. This is confusing terminology, because a lot of these newsgroups contain no actual news whatsoever and nor do many of the messages. Very often the news server operators accept material with no vetting and exercise no control over content. Large numbers of the “messages” are in reality the components of dissected MP3 music and video files. Numbers of Usenet users are difficult to estimate. However as an indication of the volume, one might note that in February 2001 the operators of the Google search engine www.google.com bought up the archives of former Usenet operator www.Déjà.com – comprising a library of some 650,000,000 Usenet postings from mid 1995 onwards, representing in effect a global history of the early Internet. If somebody posts a message on a particular subject it will end up on the computers of all ISPs which offer Usenet and decide to take the newsgroup dealing with that subject. There are already large numbers of newsgroups offering binary music and video files [alt.binaries.mp3.sounds.80s for example]. The material can be accessed, and the dissected files readily reassembled, using ‘newsreader’ programs such as Grabit http://www.shemes.com/grabit/ and Forte Agent http://www.forteinc.com/agent/index.php.

Summary
The spectacle of industry giants crushing the minnows into submission is not new to the courts. Nor as a matter of natural justice is it a particularly appealing sight. Standing the number people willing (apparently) to transgress the law in order to access the music and films they choose, two issues arise. First, it would be desirable for at least some of these litigations to conclude in the usual way, in order to establish some legal principle, rather than witnessing Internet start-ups having to concede through lack of resources. Second, perhaps the recording and film industries should reconsider their present packaging and pricing structures. Do people really want to pay for twin-disc DVD sets with endless out-takes, interviews, and ‘the-story-of-the-making-of’ footage, or would they perhaps rather just pay less watch the film? Perhaps it is time for the RIAA and its colleagues to divert their time and resources (individually or collectively) away from litigation and towards offering the public some on-line products they will actually want to buy -  via competitive, micro-priced, P2P websites for example.

Paul Motion is a partner with Ledingham Chalmers and is the Convener of the Society’s Electronic Commerce Committee. This article represents a personal viewpoint.