There is something about the pomp and circumstance of a Supreme Court decision, especially a long-awaited one like last week's file-sharing case, that tempts one to view any conclusion of nine justices as a historic turning point. Though plenty of cases clear that bar, my guess is that MGM v. Grokster will not be among them. Not that the court didn't nail the basic issues--the case was all about dealing with technological innovation when it empowers illegal activities (in this case, copyright infringement), and the Robed Ones not only struck a balance but delivered an impressively clueful precis of how file-sharing services work on the Internet. In retrospect, though, the conclusion seems rather obvious: it's not OK to steal. (More specifically, it's not OK to build a business based on helping people to steal.) And in practice, it's not clear that the decision is going to make much difference in the struggle between the music and film industries and their Net-savvy customers.
First, a recap of the case. Studios and labels were successful a few years ago at closing down Napster, which allowed massive free copying of their copyrighted works. But when they tried to sue the next wave of file-sharing systems, a district court stopped the suits. The reason? Unlike Napster, these systems didn't have an in-house registry of files offered. The infringement might have been the same, but the new services like Grokster technically weren't involved. Thus, the lower court reasoned, Grokster and fellow defendant StreamCast (which distributes Morpheus) fell under the Supreme Court's Sony Betamax decision, which protects a technology with substantial legal uses, even if it has considerable illegal uses as well. (Grokster and its cousins let people share public-domain stuff like Shakespeare.) The studios and labels appealed, claiming that the Groksters consciously exploit illegal use. Technology companies sided with the file-sharing services, fearing a chilling effect on innovation.
The justices believed that the Betamax decision was never meant to protect schemes where businesses solicited customers intent on stealing. So without overturning the Sony decision, they ruled that Grokster and its cousins could be sued. Score one for Hollywood.
Though execs from the film and music industries are hailing the decision as a turning point, it may prove to be much less. As Hilary Rosen, former head of the Recording Industry Association of America, recalled in a blog entry last week, the RIAA celebrated after the courts shut down Napster--after which clever geeks figured out a way to make illegal file sharing an even bigger force than ever. This victory may be just as hollow. "It's not companies that build this software but kids like Shawn Fanning [creator of Napster], who originally do it for free," says Eric Garland, CEO of Big Champagne, a firm that tracks file sharing. "Businesses like Grokster are an after-thought--if they go away tomorrow, that won't stop the infringement." Once the software is released into the hands of millions of users, the file-sharing networks are self-sustaining, no matter what the judges rule.
The RIAA's current CEO Mitch Bainwol knows that illegal file sharing won't disappear, but hopes that the action will now shift to a new generation of peer-to-peer software that has the ability to identify copyrighted works and charge users for downloading. (Irony watch: one of the designers of this software is Shawn Fanning.) But for this and other legal approaches to dominate, the industry must reconcile itself to winning customers with enticements, not threats or morality lectures. This means lower prices (reflecting the fact that digital distribution means no costs in pressing, trucking or warehousing disks), more leniency in releasing material (to compete with the huge range of offerings from the peer-to-peer community) and a less draconian regimen of restrictions that sometimes make stolen music more valuable than legally acquired tunes. No matter what song comes from the Supremes, the only way content holders will win this war is by Internet business models that rock.