The End of Peer-to-Peer File Sharing?

Another major peer-to-peer file sharing platform will soon face obscurity as well as a potentially crippling damages payout. LimeWire was recently told by a U.S. District Court in New York to shut down its peer-to-peer file-sharing system, after being held liable for copyright infringement.[1] The RIAA, Recording Industry Association of America, filed suit about four years ago claiming that “as much as 93 percent of LimeWire’s file sharing traffic was unauthorized copyright material.”[2] This was the first time since the Supreme Court ruled in MGM Studios, Inc. v. Grokster, LTD that a file sharing software maker was targeted. The RIAA claims that LimeWire owes trillions of dollars in damages for enabling distribution of copyrighted songs, a claim the federal judge presiding has deemed to be “absurd” yet admits this is the first time “a court has been asked to consider the issue of whether a copyright holder can claim multiple awards for one copyrighted work.”[3] There is speculation that “the ruling could pave the way for a deal, similar to the way Napster was sued out of existence in 2000 but was reborn and now under the ownership of Best Buy, with licensing deals with all the major recording companies.”[4] Still, industry legal experts speculate statutory fines up to $150,000 per violation could leave LimeWire with a bill exceeding $1 billion, since the court will use the standard of one statutory damage award per each work regardless of the number of infringers (rather than each individual infringement of a copyrighted work)[5]. The RIAA, in preparation for the May 2^nd court date, needs to determine how many direct infringements per copyrighted work occurred. This is not an easy task because LimeWire’s structure was as a “connect-style P2P platform” which makes determining the actual number of downloads difficult. [6]

A copyright infringement occurs when “copyrighted work is reproduced, distributed, performed, publicly displayed, or made into a derivative work without the permission of the copyright owner.”[7] LimeWire employed peer-to-peer networking, which allows computer to communicate with each one another, instead of utilizing a central server like Napster and other earlier file sharing sites.

Disputes regarding copyright infringement started back in 1984, most notably with the Sony Corp. of America v. Universal City Studios, Inc. The court protected VCR manufacturers from liability to contributory copyright infringement, determining that taping television was fair use, if done for the purpose of time shifting. If Sony and the movie industry been victorious, video-recording devices would have been eliminated from American homes. The Court held, that “because the device had legitimate uses, Sony wasn’t contributing to copyright infringement by selling it, even though the company knew that some users were using the product illegally.”[8]

Copyright infringement did not reach the mainstream level of Sony until A&M Records, Inc. v. Napster, Inc. in 2001. Napster permitted paid subscribers to search for a song, receive a list of other users who possessed a copy of the song and copy the song into their personal library. Napster routed these exchanges through internal servers, allowing “a modicum of control over how people used its network.”[9] This “modicum of control” ultimately prompted a rule that since Napster could prevent infringement, it had a responsibility to do so.

The generation of peer-to-peer sharing came about with the development of Morpheus and Kazaa. These services removed their centralized serves, thus allowing users to directly connect libraries and eliminated the possibility for someone to argue Kazaa had any control over what its users did. In 2005, MGM v. Grokster made headlines as a landmark case that specifically addresses the legality of peer-to-peer Internet file-sharing services, but [had] broad implications for any technology that could potentially be used to infringe on copyrighted materials.”[10] The Court decided Grokster and other similar enterprises could be sued for the marketing of their file sharing software since the technology had both legal and illegal uses. The case also made headlines when Billionaire Mark Cuban helped finance most of Grokster’s legal expenses, and Intel, Yahoo, Microsoft stepped into the court battle. On MGM’s behalf, the RIAA and MPAA stepped in. In the end, the court did not care so much that the technology could be used for illegal purposes, but rather that Grokster encouraged infringement. Judge Souter wrote in the courts opinion concluding “whoever distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.”[11] Grokster’s decision “cleared the way for lawsuits targeting companies that induced or encouraged file sharing piracy.” [12] Today, visitors to the Grokster website are warned their illegal activity will be caught and the following message:

“The United States Supreme Court unanimously confirmed that using this service to trade copyrighted material is illegal. Copying copyrighted motion picture and music files using unauthorized peer-to-peer services is illegal and is prosecuted by copyright owners. There are legal services for downloading music and movies. This service is not one of them. YOUR IP ADDRESS IS XX.XX.XXX.XX AND HAS BEEN LOGGED. Don’t think you can’t get caught. You are not anonymous.”

On May 3, 2011 a jury began deciding what amount LimeWire will pay in damages, with individual baselines ranging from $750 to $150,000 for each worked that was infringed. At the time, total payout was expected to be between $7.2 million to $1.4 billion.[13] On May 18^th, Limewire settled with the major labels for $105 million.[14]