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Extreme Lawsuits

With the advent of digital technology, defeat in court can mean death to a company

6 min read
Illustration of two gavels intertwined.
Illustration: Christoph Niemann

Illustration of two gavels intertwined.Illustration: Christoph Niemann

The current fights over digital copyright are basically struggles over two questions. One is: how should the law protect copyright owners who control access to their works with measures such as encryption? The other asks whether you should be held liable for copyright violations if you make a product that can evade those control measures—but that also has legitimate uses.

Answers to these questions are now emerging, if fitfully and confusingly, from a host of lawsuits, legislation, and business developments [see “Legal Scorecard”]. Those answers will have far-reaching effects on everything from how we purchase music, movies, and other cultural works; what we can do with them after we buy them; and how future consumer electronics products are designed.

Copyright owners concerned that digital technology can allow consumers to quickly make perfect copies of their works have increasingly considered adopting technology to limit that capability—technology that often limits viewing or hearing those works as well. This approach is in direct contrast to analog copies, which have given consumers unlimited access.

special report copy protection graphic

Technological restrictions on digital copying are numerous. For example, music can now be sold in an encrypted format that lets the buyer listen to a compact disc in an audio CD player, but not copy the music to a PC. Other limits are used by some online music services, which sell digital downloads of a song that can be played for, say, only 30 days.

Such controls often invite the technologically savvy to find ways to get around them. As a result, copyright owners successfully persuaded the U.S. Congress to outlaw such behavior. Under the Digital Millennium Copyright Act of 1998, with some narrow exceptions, it is now against the law to manufacture or distribute any product or service that is primarily designed to circumvent a copyright owner’s technological protection measure or that offers only a limited commercially significant purpose besides such circumvention. In certain cases, even the act of getting around the copyright controls is illegal.

Two high-profile cases have tested the limits of this anti-circumvention law. The first, Universal City Studios Inc. v. Corley, involved DeCSS, a computer program that decrypts the content scramble system (CSS) encryption used to prevent copying commercially distributed movie DVDs. When DeCSS became available on the Internet, film copyright owners sued the operators of Web sites that posted DeCSS software or linked to sites that did.

The trial court in New York City in 2000 ruled DeCSS a prohibited circumvention technology that did not come within any of the law’s narrow exceptions—a ruling upheld on appeal. The court also ruled that disseminating DeCSS—including by offering links to Web sites where the program was available—was illegal even though users might circumvent the encryption and use the film on the DVD in a way that copyright law allowed. Examples might be viewing the film on one’s own computer or copying short excerpts for purposes that would qualify as fair use. The court’s decision was upheld on appeal.

Another case raises issues of technological protection measures beyond the territory of familiar copyrighted material such as motion pictures or e-books. Lexmark International Inc. v. Static Control Components Inc. involves a computer chip that laser printer maker Lexmark (based in Lexington, Ky.) placed in its printers. That chip apparently prevents the printer from using toner cartridges other than those made by Lexmark. The suit alleges that Static Control (based in Sanford, N.C.) makes computer chips that circumvent this technological protection measure, allowing the printer owner to use non-Lexmark toner cartridges. In February, a federal judge in Kentucky ordered Static Control to stop making or selling its chips, pending further consideration of the case.

Dual-use technologies

Another case challenges the concept of “dual-use” technologies: products that can be used to infringe copyrights, but that can also be used in legal ways.

The introduction of the videocassette recorder (VCR) brought this dual-use problem in copyright to the U.S. Supreme Court back in the 1980s, in the often-cited case of Sony Corp. v. Universal City Studios. Owners of TV and movie copyrights sued Sony Corp. (Tokyo), claiming that users of its Betamax video recorder were infringing on the owners’ copyrights when they taped TV programming and that Sony contributed to that by selling VCRs.

The Supreme Court decided that someone selling copying equipment would not be liable if a buyer used it to infringe copyright as long as the equipment was “capable of substantial noninfringing use.” Consequently, because a significant use of the VCR—recording a program broadcast on TV to watch it later and then erasing it—was found to be noninfringing, the court ruled that making and selling VCRs was not a copyright violation, even though many buyers might infringe.

The issue of dual-use technologies has reemerged in the digital era. In Paramount Pictures Corp. v. ReplayTV & SONICblue Inc., movie and TV studios and TV networks have sued SONICblue (Santa Clara, Calif.), the maker of ReplayTV, a home digital video recorder (DVR), which digitally records TV programs on a hard disk. The copyright owners claim that Replay facilitates copyright infringement by its DVR users and should be barred from manufacturing or selling its most recent DVR models. The suit focuses on several of their features that make them different from traditional VCRs. The newer models:

  • Can automatically skip commercials when a recorded program is played.
  • Allow ReplayTV users with high-speed Internet connections to send recorded programs to one another.
  • Have a storage capacity of up to 320 hours of programming, which may facilitate building libraries of recorded programs rather than mere time-shifting.
  • Whether these differences will result in a different legal conclusion from that of the Sony decision remains to be seen. The case before the court in California is still pending, but SONICblue has entered Chapter 11 bankruptcy, citing its legal expenses as a cause.

Claim to fame

By far the highest-profile digital copyright case to date has been the suit against Napster, which disseminated software that let users participate in a peer-to-peer (P2P) network in which they could transmit digital music files to one another. Although the files were transmitted directly from user to user, the software had to connect to Napster’s central server to locate other users and the files available on their computers. The major record labels and others sued the company, claiming users were infringing copyright and Napster was legally liable for those infringements.

A federal appeals court in San Francisco ruled in 2001 that many Napster users were likely infringing copyright in using the network. Napster argued that, under the Sony case, it was not liable for its users’ infringements because its software had substantial noninfringing uses. These included the trading of music files for which permission had been granted by copyright owners and of other files on which there was no copyright.

“Such controls often invite the technologically savvy to find ways to get around them.”

The court ruled, however, that Napster was doing more than supplying copying equipment—in this case, software—as in Sony; it was also operating a computer network. The company could be liable if it operated the network with actual knowledge that copyright infringement was occurring yet failed to block access to infringing transmissions. The court therefore ordered Napster to cooperate with copyright owners to filter infringing activity.

Before the case could proceed to trial, Napster reached a settlement with some plaintiffs. Difficulty in complying with the court's injunction, however, led Napster to shut down its network in July 2001.

Despite Napster's demise, other P2P transmissions continue, as does the legal battle. Second-generation P2P companies generally disseminate software that enables users to participate in such networks without any connection to a central server such as Napster’s. Many such programs exist. In a recent lawsuit that could affect their use, companies disseminating three of the most widely used software programs—KaZaA, Morpheus/StreamCast, and Grokster—have been sued in California by film and music copyright owners.

The defendants have argued that, like Sony, they are disseminating technology that can be used for legal purposes, and that, unlike Napster, they do not operate an ongoing computer network. It may or may not be of legal significance that the services are designed to let users share digital files of all types, not just music. This case, MGM Studios Inc. v. Grokster, is in its early stages, but it may help to clarify how copyright law will deal with dual-use technologies in the era of digital networks. Issues that might be resolved include whether consumer electronics manufacturers and software developers must affirmatively design their products not to allow copyright infringement or whether such products are legal so long as they have solidly lawful uses.

These cases, and the others that will surely follow, will define what legal and technological control copyright owners will have over how consumers use copyrighted works and how technology companies design and sell software and electronic devices.

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