GROKSTER, MORPHEUS DO NOT INFRINGE COPYRIGHT SAYS CALIFORNIA COURT

May 16, 2003

This Newsletter:

NEW: FILMMAKER INCENTIVE INFORMATION AVAILABLE ONLINE

In deciding where to shoot, cost is always a factor. Most states and several countries offer a variety of tax breaks, rebates and co-production funds to encourage television, film and commercial production companies to film on location and in state.

We have compiled a summary of U.S. and international filmmaker incentives which are now available online at http://www.marklitwak.com/ under "Filmmaker Incentive Programs." Since these programs are subject to change, confirm the terms of each program by contacting the film offices to get the latest information

GROKSTER, MORPHEUS DO NOT INFRINGE COPYRIGHT SAYS CALIFORNIA COURT
By Chrys Wu, Paralegal to Mark Litwak

A recent California District Court decision has dismissed a copyright infringement lawsuit against two distributors of heavily-used peer-to-peer software that allows users to trade files over the Internet.

Film studios and music publishers sought to block Grokster Ltd. and Streamcast Networks, Inc. from distributing their popular Morpheus and Grokster programs, claiming that the companies were liable for 1) contributory infringement and 2) vicarious infringement of movie and music copyrights.

Citing heavily from A & M Records, Inc. v. Napster, Inc., 114 F. Supp. 2nd 896 (N.D. Cal. 2000), and drawing a key distinction between Napster's distribution methods and the methods used by Morpheus and Grokster, U.S. District Judge Stephen Wilson ruled that neither Streamcast nor Grokster were liable for the two causes of action lodged against them.

To prove contributory infringement, the studios and publishers had to show that defendants knew of specific acts of infringement and could act to stop those particular acts; and that the companies made an "active and substantial contribution" to the infringment by encouraging or assisting its users in wrongdoing.

The defendants could not have had actual knowledge of the specific instances of copyright infringement, the court reasoned, because the programs operate on a peer-to-peer network that allows users to trade files without going through any central server owned and operated by the defendants.

The court also noted that Streamcast and Grokster Inc. merely distributed their software programs, which can be used for both unlawful and lawful purposes such as trading government documents, e-books, free music and software, and files in the public domain, a fact acknowledged by the plaintiffs. Citing Napster, the court wrote that Defendants' liability could not be established "merely because peer-to-peer file-sharing technology may be used to infringe plaintiff's copyrights." Plaintiffs were unable to prove that defendants materially contributed to copyright infringement, other than by distributing the software in the first place.

To prove vicarious infringement, plaintiffs had to show that defendants received financial benefit from the infringement, and had the right and ability to supervise the infringing conduct. Unlike contributory infringement, defendants do not have to be aware of the infringement.

For this cause of action, the court decided that defendants received significant financial benefit by distributing the software, which contains advertisements. The more copies distributed, the more advertising revenues they'd recoup. And since many users download Grokster and Morpheus for the express purpose of trading copyrighted files, "a significant portion of Defendants' advertising revenue depends upon the infringement," the court concluded.

However, the court again noted the important distinction that prevented Grokster and Streamcast from assuming the "right and ability " to supervise the infringing conduct. Because the programs operate on a peer-to-peer basis, "Defendants provide software that communicates across networks that are entirely outside Defendants control," wrote the court.

Based on these findings, the court granted summary judgment to Grokster and Streamcast. An appeal is expected.

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