Amicus Curiae Brief — Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd.

Supreme Court brief2005

Ask Donna

What actually matters in this document.

Text

IN THE

Supreme Court of the United States

METRO-GOLDWYN-MAYER STUDIOS INC., ET AL.,

Petitioners,

GROKSTER, LTD., ET AL.,

Respondents.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF OF AMICI CURIAE INTERNET LAW FACULTY

IN SUPPORT OF RESPONDENTS

WILLIAM W. FISHER III

Counsel of Record

JOHN G. PALFREY JR.

JONATHAN ZITTRAIN

1575 Massachusetts Ave.

Cambridge, MA 02138

(617) 495 0957

March 1, 2005 Counsel for Amici Curiae

TABLE OF CONTENTS

Ce GE Qe i ccctccerscsasictiornesnsesnpisiniiesnninciilianintjeniaiinnnintis ii

Reabepest OF Asntial Cab Ot .cccenicsscsiscianttnercimscisitsttsmnicinnninnianianaitey 1

SUERASY CE AGRIGIR ccccsearesnseptmnemteneieninttianenienansenanenndiinin 1

REG PIIIIIR, ccccccssesscessnmsemnensresesesemsnmmeneseneiqnenmsccnsseesetionsscsasesisuncetst 3

I. The Sony Standard Works Well; the Court

Should Neither Change it, Nor Deem it

Inapplicable to Today’s Technologies. ............sses00 3

Il. The Emergence of New Business Models for

Digital Distribution May Eliminate the Need to

Adjust Copyright Law to Protect the Revenues

of Copyright OWMe®s. ...........csssssssessssssnssenssesessessesseeees 12

Ill. Other Modifications of Copyright Law Would

Help Copyright Owners More and Hurt

Society Less than Revision of the Sony

Standard, and Those Modifications are Best

TABLE OF AUTHORITIES

CASES

A&M Records, Inc. v. Napster, Inc.,

114 F.Supp.2d 896 (N.D. Cal. 2000) .........ccsccssssesseesesseeensees 6

Campbell v. Acuff-Rose Music, Inc.,

SEO US. SED (IDPS) ...ccrccnccocsncenssvssesstensssanstonansissansnneiinaiiil 6

Eldred v. Ashcroft,

FOF US, BG CII ccvcnccscnessssncseccinnigatitgnsiatesieisaaanane 27

In re Aimster Copyright Litigation,

334 F.3d 643 (7th Cir. 2003) .......ccccccseseereeseees scvesonpsenies 1, 21

Recording Indus. Ass'n of Am. v. Diamond Multimedia

Sys. Inc.,

180 F.36 9672 (Gn Cie. 2909). .cccncesrsemsssersisinsnsemitnamianaatia 6

Sony C. ». of America v. Universal City Studios, Inc.,

466 US. 417 (BSBE) nccccsercccoresscevessnmnessinisiemananieaiatiath passim

Teleprompter Corp. v. Columbia Broadcasting System, Inc.,

415 US. SDE (BGP) ncccccsscsosiccnceeynscnesccsesnetiteiinopensialaniaiiall 26

White-Smith Music Pub. Co. v. Apollo Co.,

BBD US. 9 (BGG nncccassccsrsscscectstninninenseemninsiisaaaan 25

STATUTES AND LEGISLATIVE MATERIALS

87 UBC. 6 20D .ninssncniesnisssscresinieasshbesamaaia nn 5,6

BF UBL. 6 206 ceccansscinnsseesesnsnssnstiaiueaiilaansaeieana 6, 10

17 UG. © 200 onccincescieccrsasriasetttiasinaiinaimeien 5,6

87 UGC. 6 198 n--inevcontsinicisecissietestibibdaissaimmiiaanne 26

. et REE

ee ree mer

Artists’ Rights and Theft Prevention (ART) Act, S.

1932, 108th Cong. (2003).....ccssssvcccsssvesssesseseesssssssssseneneesee 27

Author, Consumer and Computer Owner Protection

and Security (ACCOPS) Act of 2003, H.R. 2752,

I Ga, Ge ccscnnsecnsncasssseszcnssssssecscesscsnsnnsnenseescscensscens 27

Consumer Broadband and Digital Television

Promotion Act, S. 2048, 107th Cong. (2002)..........c000000« 27

Cooperative Research and Technology Enhancement

(CREATE) Act of 2004, H.R. 2391, 108th Cong.

SETIED csecabanscestisnesinvnsneuscntnnssevnsibensesnnsmnessoconemnesnessseecsceesssesua 27

Enhancing Federal Obscenity Reporting and

S. 1933, 108th Cong. (2003).........sssvsesesesneneneseensnrenenenes 27

Family Entertainment and Copyright Act of 2005, S.

BEF, TR Coats, CI ccccccscccczstsssseczcnssscssenzcocssennsnssenennnses 27

ERR, SEE, BE ree, GED ccccceszcnsnsescnssssesnescscsnscnssccesnansseces 27

Home Recording of Copyrighted Works: Hearings on H.R.

4783, H.R. 4794, H.R. 4808, H.R. 5250, H.R. 5488,

and H.R. 5705 Before the Subcomm. on Courts, Civil

Liberties, and the Admin. of Justice of the House

Comm. on the Judiciary, 97th Cong. (1983) ; 13

Inducing Infringement of Copyrights Act of 2004, S.

2560, 108th Cong. (2004). 27

Piracy Deterrence and Education Act of 2004, H.R.

4077, 108th Cong. (2004). 27

Protecting Children from Peer-to-Peer Pornography

Act of 2003, H.R. 2885, 108th Cong. (2003) .27

Protecting Intellectual Rights Against Theft and

Expropriation (PIRATE) Act of 2004, S. 2237,

OTHER AUTHORITIES

Associated Press, Box Office Receipts Soar to Record in ‘04,

ABC News, Jan. 3, 2005, http://abcnews.go.com/

Entertainment/wireStory 7?id=381006.................c0eseeeeeeeees 15

Chris Baker, Podcasts Penetrate Radio Market,

Washington Times, Feb. 11, 2005

http://www. washtimes.com/business/

200502 10-105302-7678r tm ..........c0cceesesseeeeeseeseeseeneeseennenens 7

The Berkman Center for Internet & Society, UDRP

Opinion Guide, at http://cyber.law.harvard.edu/

udrp/opinion (January 2002) ..............csseesesseenesenneeneneees 22

Josh Bernoff, Forrester Research, Will Ad-Skipping Kill

Television? (November 2002) ..............c--escccseeeesseeereneeneeseees 4

Jo Best, Doctors Turn to iPods and Open Source to Cut

Costs, at http://hardware.silicon.com/storage/

0,39024649,39127655,00.htm (Feb. 7, 2005)... 7

John Borland, RIAA Files 717 File-swappers, news.com, at

http://news.com.com/RIAA+sues+717+file-swappers/

2110-1027_3-5553517.html (Jam. 27, 2005) .........-.eseeseseee 19

Brief Amicus Curiae of Creators and Distributors of

Programs, Somy, 464 U.S. 417 ..0.0......cccccccccsesnsensenenenencennens 13

Brief of The International Alliance of Theatrical Stage

Employees (“IATSE”), Somy, 464 U.S. 417 ...........-cecereneneee 13

Kate Bulkley, DVDs force the movie business to rewrite

its rules, Financial Times, Jan. 20, 2004, at 8 .............0..00+ 13

CinemaNow, Portable Media Center, at

http://www.cinemanow.com/pmc/ (last visited

eB, FR, BBB cccccsnsecsscssssesemenmmesssssessnempnntstinemmenanitans 17

Sean Daly, 10 Million iPods, Previewing the CD's End,

Washington Post, Feb. 13, 2005, at AO1............cceeesereeees 6

Katie Dean, File Sharing Growing Like a Weed,

wired.com, at http://www.wired.com/news/

digiwood/0,1412,65774,00.html (Nov. 22, 2004)............... 18

Katie Dean, P2P Tilts Toward Legitimacy, wired.com,

at http://www. wired.com/news/digiwood/

0,1412,65836,00.html (Nov. 24, 2004) ...........-ccccereceeeeneneeees 17

Discover a Whole World of Music, at

http://www.napster.com/using_napster/

all_the_music_you_wantindex.html#discover

(last visited Feb. 22, 2005) - 16

William Fisher, Promises to Keep: Technology, Law, and

the Future of Entertainment (2004)............... 4, 5, 6, 11, 23-24

Tim Gnatek, An Online Supplier for Your Desktop

Cineplex, New York Times, Aug. 12, 2004 at G8............... 17

Paul Goldstein, Copyright: Principles, Law and Practice

Sabie, TEs, cieneintchiieliada diipieadtint iia’ 26

Diane Holloway, Dawn of a View Era: Digital Video

Recorders Are Changing Television Forever, Austin

American-Statesman, July 5, 2003, Lifestyle

Section, http://www.newslibrary .com/sites/aasb/.............7

Kai-Lung Hui & Ivan Png, Piracy and the Legitimate

Demand for Recorded Music, Contributions to

Economic Analysis, Vol. 2, No. 1, Art. 11 (2003)............. 14

Import as Many Songs as You Like, at

http://www.apple.com/itunes/import.html (Feb.

BD, FERID cccecszsssssessessassennnsensnsunnmneseqnonses ensseunmenmsenssnenenessensennd 4

Int'l Fed’n of the Phonographic Indus. (“IFPI”), Digital

Music Report 2005 4, at http://www.ifpi.org/

site-content/library/digital-music-report-2005.pdf

DD 15, 16, 17, 19

Interview with Jeff Tweedy, Wilco front man, Wired

News, Music is Not a Loaf of Bread at

http://www.wired.com/news/culture/

0,1284,65688,00.html (Nov. 15, 2004) .........cccceeeeeererennnes 18

Interview with Josh Bernoff, prinicpal analyst at

Forrester Research, , orrester Research's Josh

Bernoff Provides Cause for Optimism, Midem at

http://www.midem.com/App/homepage.cfm?mo

duleid=585&appname=100140&K_MAG _ID=1853

&K_MT_ID=75&step=FullStory (Nov. 20, 2003).............. 17

iTunes Hits 250 Million Downloads, news.com, at

http://news.com.com/

iTunes+hits+250+million+downloads/

2110-1027_3-5547939. html (Jan. 24, 2005) ....0........cccecceeeee 10

JupiterResearch, Market Forecast Report: Music, 2004-

SEED TOG Ble TIED eccccsnesssesscsscesssenmetsenenceniuone 16, 17

Raymond Shih Ray Ku, The Creative Destruction of

Technology, 69 U. Chi. L. Rev. 263 (2002)..........cccccsseseenenes 23

vii

Jennifer Lee, Birth of an Industry: iPod Loading, N.Y.

Times, Jan. 23, 2005, Section 10, at 3............ccccccceeceseeeeeeeeee 5

Mark A. Lemley and R. Anthony Reese, Reducing

Digital Copyright Infringement Without Restricting

Innovation, 56 Stan. L. Rev. 1345 (2004)............cccccceeeneeee 22

Lawrence Lessig, Free Culture (2004) ........serseserserensnesennees 23

Lawrence Lessig, Why Wilco Is the Future of Music,

wired.com, at http://www.wired.com/wired/

archive/13.02/view.html (Feb. 2005) ............cc..ccceeseeeeeeeee 18

Douglas Lichtman & William Landes, Indirect

Liability for Copyright Infringement: An Economic

Perspective, 16 Harv. J.L. & Tech. 395 (2003) 8,9

Stan J. Liebowitz, Pitfalls in Measuring the Impact of File-

sharing, at 35-59, at http://www.utdallas.edu/

~liebowit/intprop/pitfalls.pdf (last visited Feb. 22,

2005).. - 14

Stan J. Liebowitz, Will MP3 Downloads Annihilate the

Record Industry? The Evidence So Far at

http://ssrn.com/abstract=414162 (June 2003). 14

Jessica Litman, Sharing and Stealing, 27 Hastings

Comm. & Ent. L.J. 1 (2004) 23

Glynn S. Lunney Jr., The Death of Copyright: Digital

Technology, Private Copying, and the Digital

Millennium Copyright Act, 87 Va. L. Rev. 813

(2001) 23

viii

Jay Lyman, Napster Goes Mobile with ‘To Go’ Service,

TechNewsWorld, at

http://www.technewsworld.com/story/

Napster-Goes-Mobile-with-To-Go-Service-40299. htm]

AD. 9, TIED) seccncessesecccnssssemnescscoenscevensnscesnenmasecttsnameasennssantes 16

Mike McGuire, Free iPods at Duke University Say More

About Strategy than Music, GartnerG2, July 20,

Mike McGuire, Online Music Industry Sustains Solid

Growth in 2004, GartnerG2, May, 2004, at 5..........c0ceese0 17

Brian Mansfield, When Free Is Profitable, USA Today,

May 20, 2004, at 1E available at

http://www.usatoday.com/tech/webguide/music/

2004-05-20-file-sharing-main_x.Atm..........-ccereerseeeerseees 18

Neil W. Netanel, Impose a Noncommercial Use Levy to

Allow Free Peer-to-Peer File Sharing, 17 Harv. J. L.

Be FRG, 3 GID ccccccccsscsccessssecscescsesercevenesensssqnenscsenseasssensietss 23

Christopher Null, Mega Storage to Go, PC World

Magazine, August, 2003, http://www.pcworld.com/

reviews/article/0,aid,111110,00.aSp ............ceseeseeseesereesenes rs

Felix Oberholzer & Koleman Strumpf, The Effect of

File Sharing on Record Sales; An Empirical Analysis,

(March 2004), available at

http://www.unc.edu/~cigar/papers/

FileSharing_March2004.pdf (March 2004).............0ss000« 14

Pew Internet Project and Comscore Media Metrix,

The State of Music Downloading and File-sharing

Online, at http://www.pewinternet.org/pdfs/

PIP_Filesharing_April_04.pdf (April 2004) ................000 19

- ve we eR es | -

David Pogue, Price Tags Get Smaller at Apple, N.Y.

pe GB OY fe 4, 10

Press Release, Apple, Apple Presents iPod, at

http://www.apple.com/pr/library/2001/oct/

23ipod. html (October 23, 2001).......ssereeseneseeesseeeeeenenes 10

Press Release, Apple, iTunes Music Store Downloads Top 25

Million Songs, at http://www.apple.com/pr/library/

2003/dec/15itunes.html (Dec. 15, 2003) ........-.ssesereseserenees 15

Press Release, Apple, iTunes Music Store Downloads Tops

200 Million Songs, at http://www.apple.com/pr/library/

2004/dec/16itunes. html (Dec. 16, 2004) ........0cecesereesereeee 15

Press Release, RIAA, Recording Industry Begins Suing P2P

File Sharers, at http://www.riaa.com/news/

newsletter/090803.asp (Sept. 8, 2003) ..........ssssseserrsereees 19

Rafael Rob & Joel Waldfogel, Piracy on the High C’s:

Music Downloading, Sales Displacement, and Social

Welfare in a Sample of College Students, (November

2004) at http://papers.nber.org/papers/W 10874.............. 14

Bill Rosenblatt, MusicMatch Introduces Sharing

Feature, at http://www.drmwatch.com/ocr/

article. php/3390791 (Aug. 4, 2004).........cssereesersesenennens 16

Derek Slater, Meg Smith, et al., Berkman Publication

Series Paper No. 2005-01, Content and Control:

Assessing the Impact of Policy Choices on Potential Online

Business Models in the Music and Film Industries, Jan. 7,

2005, at http://papers.ssrn.com/sol3/

papers.cfm?abstract_id=654602......... 16

Mike Snider, Record Year for DVDs, USA Today, Jan.

5, 2005, http: / / www.usatoday.com/life/

movies / news /2005-01-05-dvd-main_x.htm .........c00000 15

Veronis Suhler Stevenson, Communications Industry

Faweenst 7G: C8, FU TOGED cecccssnssensscessnssveeesessinrenerenienn 13

Veronis Suhler Stevenson, Communications Industry

Forecast & Report (17th & 21st eds. July 2003) ..............00. 13

Veronis Suhler Stevenson, Communications Industry

Forecast & Report (18th & 22nd eds. 2004) .........cccccceseeeees 13

US Sees Growth in CD Sales Market, BBC News, Jan. 6,

2005, at http: / /mnews.bbc.co.uk/2/hi/

NF re a ccciescrtantcnnstctarnnnntinnasnincienininsn 15

Weed, Music Producers Hail SML’s Weed Distribution

Service, at http://weedshare.com/web/releases/

12-11-03_WEED_RELEASE.html (Dec. 11, 2003)............. 18

Whatcha Listening to?, at http://www.apple.com/itunes/

store/share.htmi (last visited Feb. 22, 2005)..................... 16

Kate Zernike, Tired of TIVO? Beyond Blogs? Podcasts

are Here, N.Y. Times, February 19, 2005, at A1 .............00+ 7

INTEREST OF AMICI CURIAE

Amici curiae are teachers of intellectual-property law and

Internet law.' They are all affiliated with the Berkman Cen-

ter for Internet & Society at Harvard Law School. They file

this brief in support of Respondents because they believe

that the outcome of this case will affect in important ways

the shape of copyright law, the development and usage of

new technologies, and the future of the Internet.

William W. Fisher III is the Hale and Dorr Professor of In-

tellectual Property Law at Harvard Law School. John G. Pal-

frey Jr. is the Executive Director of the Berkman Center and a

Lecturer on Law at Harvard Law School. Jonathan Zittrain

is the Jack N. and Lillian R. Berkman Assistant Professor of

Entrepreneurial Legal Studies at Harvard Law School. All

file in their personal capacities and not on behalf of the insti-

tutions with which they are associated.

SUMMARY OF ARGUMENT

In Sony Corp. of America v. Universal City Studios, Inc., 464

U.S. 417 (1984), this Court held that the manufacture and

distribution of technology that is sometimes used to engage

in copyright infringement does not give rise to secondary

liability so long as the technology in question is “capable of

substantial noninfringing uses.” Id. at 442. For the purposes

of this brief, amici curiae assume (a) that the standard articu-

lated in Sony governs claims for vicarious infringement as

well as claims for contributory infringement; and (b) that

‘No counsel for any party contributed to the writing of this brief, and

no person or entity other than amici curiae made a financial contribution to

its preparation. Amici are informed that all parties have consented to the

submission of this brief and that their letters of consent are on file with the

Court.

2 Support for this interpretation of the Court's ruling in Sony may be

found in In re Aimster Copyright Litigation, 334 F.3d 643, 654 (7th Cir. 2003),

but amici will not explore the issue in this brief.

the standard was properly applied by the courts below to

the facts of this case. The brief is concerned solely with the

scope of the “staple-article-of-commerce defense” articulated

in Sony. Specifically, amici contend that the Sony standard

has proven to be an effective means of balancing the inter-

ests of copyright owners with the equally important need to

preserve incentives for technological innovation— and thus

that the Court should not now modify the standard.

Part I summarizes the enduring merits of the Sony test

and the hazards of changing it. Parts II and III rebut the ar-

gument made by some of the participants in this case that

the need to protect the revenues of the entertainment indus-

try requires adoption of a more stringent test. Part II does so

by surveying recent technological and marketing innova-

tions in the music and film industries that offer copyright

owners promising ways of repairing whatever financial in-

jury they may have sustained—or may in the future sus-

tain—as a result of unlawful uses of “peer-to-peer” file-

sharing systems. Part III contends that, if those new busi-

ness models prove insufficient and, consequently, adjust-

ment of the copyright system is necessary to provide copy-

right owners both fair returns for their efforts and incentives

to engage in creative activity, then modification of the stan-

dard for secondary liability would be inferior, for several

reasons, to either a streamlined dispute-resolution system,

enabling expeditious and inexpensive processing of claims

against direct infringers, or a compulsory-licensing regime.

Congress is better equipped than the Court to decide if any

such reform is necessary and, if so, to select and implement

the best of the options.

re es

ee ae

ARGUMENT

THE SONY STANDARD WORKS WELL; THE COURT SHOULD

NEITHER CHANGE IT, NOR DEEM IT INAPPLICABLE TO

TODAY’S TECHNOLOGIES.

In 1984, this Court was called upon to define the circum-

stances under which the manufacture and distribution of

technology that was used for both infringing and nonin-

fringing purposes would give rise to secondary liability. The

line the Court drew was unambiguous:

The staple article of commerce doctrine must

strike a balance between a copyright holder's le-

gitimate demand for effective — not merely sym-

bolic - protection of the statutory monopoly, and

the rights of others freely to engage in substan-

tially unrelated areas of commerce. Accordingly,

the sale of copying equipment, like the sale of

other articles of commerce, does not constitute

contributory infringement if the product is

widely used for legitimate, unobjectionable pur-

poses. Indeed, it need merely be capable of substan-

tial noninfringing uses.

Sony, 464 U.S. at 442 (emphasis added).

For the past twenty years, that ruling has shielded from

use” products—devices that are frequently used to violate

the copyright laws but also are frequently used for lawful

and socially valuable purposes. Three examples:

Personal video recorders (PVRs) consist, essentially, of

digital versions of video-cassette recorders (VCRs)—the de-

vices at issue in the Sony case itself. Like VCRs, they enable

users to record and then replay films and television shows

broadcast over the airwaves or through satellite or cable sys-

tems. Unlike VCRs, they enable users conveniently to store

large numbers of recordings, and most contain features that

enhance the ability of users to “fast-forward” through adver-

tisements. Introduced into the consumer market in 1999,

they spread slowly at first, then increasingly rapidly. By the

end of 2003, roughly 4.3 million were installed in American

households. By the end of 2005, that number is likely to be

17.6 million.’

Devices popularly known as “CD burners” enable their

users to copy material from computer hard drives or pre-

recorded compact discs (CDs) onto blank CDs. The first one

suitable for personal use was introduced into the American

consumer market in 1995 for a retail price of roughly $1,000.

Today, versions capable of copying the contents of one CD

onto another at fifty-two times playback speed are available

for as little as $40. The large majority of personal computers

sold in the United States now come with such devices al-

ready installed.‘

Apple Computer's “iPod” is the most popular brand of

portable digital music player. Ten million have been sold to

date.» The biggest model (roughly the size of a pack of

cards) holds up to 15,000 audio recordings—equivalent to

roughly 750 CDs. Consumers can obtain those recordings in

three ways. First, they can purchase individual songs from

Apple's iTunes Music Store (of which more will be said in

Part II of this brief). Second, they can use software that ac-

companies each iPod to copy CDs (either their own or their

friends’) first onto their personal computers and then onto

their iPods.* Third, they can download recordings in mp3 or

> See Josh Bernoff, Forrester Research, Will Ad-Skipping Kill Television?

(November 2002).

* See William Fisher, Promises to Keep: Technology, Law, and the Future of

Entertainment 128 (2004).

> See, e.g., David Pogue, Price Tags Get Smaller at Apple, N.Y. Times, Jan.

13, 2005, at G1.

* See Import as Many Songs as You Like, at http://www.apple.com/

AAC format onto their computers from the Internet and

then transfer them to their iPods. A substantial proportion

of the last set is likely obtained through peer-to-peer services

like Grokster.

Technologies of these sorts are commonly used in ways

that violate the copyright laws. For example, PVRs are

commonly used to create permanent or semi-permanent

copies of copyrighted motion pictures. In the Sony case, this

Court held that using a VCR to make a verbatim copy of a

motion picture for the purpose of “time-shifting” —i.e., to

watch it only once at a time different from the time it was

broadcast—was excusable as a “fair use” under 17 U.S.C.

§ 107 (2005), but strongly implied that making a recording

for the purpose of “librarying” would not so qualify. Sony,

464 U.S. at 423, 442, 447-56. The implication: many, proba-

bly most, purchasers of PVRs are regularly using them to

violate the copyright laws.

Similarly, a common use of the CD burners embedded in

most personal computers is to make verbatim copies of pre-

recorded CDs containing copyrighted sound recordings.

That practice, it could well be argued, is illegal. Because the

burners themselves do not qualify as “digital audio re-

cording devices” under the Audio Home Recording Act,

their use is not immunized by 17 U.S.C. § 1008. And because

the practice likely corrodes to some degree the normal mar-

kets for the prerecorded CDs, it may not qualify as a fair use

under 17 U.S.C. § 107.”

itunes/import.html (Feb. 19, 2005) (describing how this practice has been

facilitated by the emergence of professional iPod loader services); Jennifer

Lee, Birth of an Industry: iPod Loading, N.Y. Times, Jan. 23, 2005, Section 10,

at 3 (reporting that “for $1 to $1.49 a CD, the professional loaders will em-

bark on the time-consuming process of copying a music collection onto an

iPod, often providing a digital backup copy as well.”).

’ For a more detailed exploration of the legal status of CD burners, see

Fisher. supra, at 128-30. Of course, a finding that the practice of “burning”

prerecorded CDs impaired the “potential markets” for copyrighted musi-

For closely related reasons, some of the most common ac-

tivities enabled and encouraged by iPods and the software

with which they are bundled are arguably illegal. The ma-

chines themselves do not qualify as “digital audio recording

devices”; their use is thus not protected by 17 U.S.C. § 1008.

Unauthorized copying onto iPods of copyrighted songs ob-

tained through peer-to-peer services likely violates 17 U.S.C.

§ 106(1) for the same reason that downloading songs

through those services violates 17 U.S.C. § 106(1) in the first

instance.’ And using the iPod software to copy one’s own or

one’s friends’ CDs onto one’s portable player likely under-

mines the potential markets for those CDs (and for the same

recordings in compressed formats) and thus might not pass

muster under the fair-use doctrine."

Yet these devices are also often employed in lawful and

socially valuable ways. PVRs, for example, radically in-

crease the flexibility and convenience with which consumers

can gain access to broadcast television. (For that reason, Mi-

chael Powell, Chairman of the Federal Communications

Commission, recently referred to the PVR as “God's ma-

cal works and sound recordings would not, by itself, necessitate a judg-

ment that it could not pass muster under 17 U.S.C. § 107; other factors

would have to be considered as well. But the additional facts (i) that the

works being copied are primarily creative rather than factual in character

and (ii) that they are being reproduced in their entirety would make a fair-

use defense difficult to construct. Cf. Campbell v. Acuff-Rose Music, Inc.,

510 U.S. 569, 577 (1994) (explicating and applying the four principal fair-

use factors).

* See Recording Indus. Ass'n of Am. v. Diamond Multimedia Sys. Inc., 180

F.3d 1072, 1078 (9th Cir. 1999).

* See A&M Records, Inc. v. Napster, Inc., 114 F.Supp.2d 896, 911 (N.D. Cal.

2000), aff'd, 284 F.3d 1091 (9th Cir. 2002).

see Sean Daly, 10 Million iPods, Previewing the CD's End, Washington Post,

Feb. 13, 2005, at AO01. Again, other factors would have to be considered as

well in order to determine the proper application of the fair-use doctrine.

See generally supra note 7.

chine.”"') CD burners are often employed to make “backup”

copies of data housed on computer hard drives, thus reduc-

ing the risk that computer “crashes” will result in catastro-

phic losses of valuable information. And iPods are used not

only to house recordings lawfully purchased through the

iTunes Music Store, but also in many legitimate ways unan-

ticipated by their designers. For example, entering students

at Duke University are now provided iPods, which they use

to download and store coursework, lectures, and adminis-

trative information from the university website.'? Radiolo-

gists at UCLA use them to store high-resolution images in-

expensively.'"* And a rapidly growing group of amateur and

professional broadcasters are now making recorded radio

programs available on the Internet, enabling iPod owners to

download them and listen to them at their convenience."

Petitioners and some amici and commentators urge the

Court in this case to modify, in one way or another, the “ca-

pable-of-substantial-noninfringing-uses” standard articu-

lated in Sony. The Motion Picture and Recording Company

Petitioners, for instance, contend that “the staple article of

commerce defense should not apply when the primary or

principal use of a product or service is infringing.” Brief for

Motion Picture Studio and Recording Company at 31. Simi-

larly, the Solicitor General argues that secondary liability

under Sony should be imposed “[i]f the defendant's product

"! See Diane Holloway, Dawn of a View Era: Digital Video Recorders Are

Changing Television Forever, Austin American-Statesman, July 5, 2003, at

Lifestyle Section, http://www.newslibrary.com/sites/aasb/.

2 Mike McGuire, Free iPods at Duke University Say More About Strategy

than Music, GartnerG2, July 20, 2004, at 1.

'8 Jo Best, Doctors Turn to iPods and Open Source to Cut Costs, at

http://hardware.silicon.com/storage/0,39024649,39127655,00.htm (Feb. 7,

2005).

“ See Chris Baker, Podcasts Penetrate Radio Market, Washington Times,

Feb. 11, 2005, http://www.washtimes.com/business/

200502 10-105302-7678r.htm; Kate Zernike, Tired of TTVO? Beyond Blogs?

Podcasts Are Here, N.Y. Times, February 19, 2005, at Al.

is overwhelmingly used for infringing purposes and the vi-

ability of the defendant's business depends on the revenue

and consumer interest generated by such infringement....”

Brief for the United States as Amicus Curiae at 5. Where the

infringing activities are less prevalent, the Solicitor General

urges the Court to look to other factors, including how the

product is marketed, its efficiency for performing nonin-

fringing uses, and the steps taken by the defendant to elimi-

nate infringement. Id. at 6."° In a recent article, Professors

Lichtman and Landes take a somewhat different tack, con-

tending that secondary liability should be imposed when-

ever a defendant could “eliminate or greatly reduce the level

of infringement without significantly cutting down on the

quantity and quality of lawful uses.”"* Amici Kenneth Ar-

row, et al., go further, urging the Court to reformulate the

standard established in Sony to require lower courts to en-

gage in ad-hoé evaluations of all economic variables impli-

cated by claims of secondary liability. Brief of Amici Curiae

Kenneth J. Arrow, et al., at 7-8.

Had one or another of these proposed standards been in

force during the past twenty years, the manufacturers of

many of the devices sketched above would likely have con-

fronted legal challenges. For example, copyright owners

disadvantaged by the deployment of PVR technology would

likely have pointed out that such devices could easily be —

programmed to delete each video recording after it has been

watched once all the way through—thus enabling it to be

used for time-shifting but not librarying, thereby eliminating

'S See also Brief of Amici Curiae The Progress and Freedom Foundation

at 10-16 (proposing to impose liability not on technologies but on those

businesses that deliberately structure themselves to be dependent on in-

fringement); Brief Amicus Curiae of Americans for Tax Reform at 10 (urg-

ing the outlawing of business models that “seek to profit from inducing

the theft of personal property” ).

* Douglas Lichtman & William Landes, Indirect Liability for Copyright

Infringement: An Economic Perspective, 16 Harv. j.L. & Tech. 395, 398 (2003).

its unlawful uses while preserving its value for lawful pur-

poses. Even more precise adjustments to the relevant tech-

nology can readily be imagined. For example, TiVo, the

most popular of the PVRs, incorporates a system under

which each machine typically communicates daily with a

central server, ascertaining the times and channels on which

particular programs are scheduled for broadcast, thereby

enabling consumers more easily to identify the programs

they wish to record. At low cost, the operators of the TiVo

system could separate the set of programs scheduled for

broadcast into two groups—those whose copyrights are

owned by parties who object to librarying and those whose

copyrights are owned by parties who do not object to li-

brarying—and then instruct the TiVo machines to permit

permanent storage of the latter but not the former. Under

the standard proposed by Professors Lichtman and Landes,

the failure to incorporate such obvious and inexpensive fea-

tures would seem to make the manufacture and distribution

of the device (and its accompanying service) actionable.

CD burners would have been vulnerable to attack from a

different angle. Their principal legitimate function—namely,

making data “backups” —could easily be performed inex-

pensively by devices that employ storage media other than

CDs, which have the distinct disadvantage, from the stand-

point of copyright owners, of being usable in standard music

CD players to play sound recordings.” Amici Kenneth Ar-

row, et al., contend that “possible legitimate uses of a tech-

nology should be evaluated in light of plausible alternative

means by which to accomplish the same ends.” Brief at 12.

In other words, if a lawful use of a particular device could

easily be accomplished using some other procedure or tech-

nology, then that use should count for little when determin-

” Alternatives include external hard drives, ZIP disks, DVDs, USB flash

memory drives, and CompactFlash cards. See Christopher Null, Mega

Storage to Go, PC World Magazine, August, 2003,

http://www. pcworld.com/reviews/article/0,aid, 111110,00.asp.

ing whether the manufacturer of the device should be liable

for contributory infringement. On this theory, the legal

status of CD burners would be questionable.

Under the standard advocated by the Solicitor General,

the status of iPods would be contestable. Each iPod cur-

rently contains an average of 25 recordings purchased

through the iTunes Music Store.'"* The bulk of the enormous

storage capacity of these devices is thus likely occupied by

recordings obtained in ways that, for the reasons sketched

above, might be deemed to violate 17 U.S.C. § 106(1). More-

over, Apple emphasizes those problematic techniques when

advertising iPods," and the commercial success of the de-

vices likely depends to a substantial degree on consumers’

awareness of them.

In short, many socially valuable technologies, built and

deployed in reliance on the standard this Court articulated

in Sony, would be vulnerable to challenge under the modi-

fied standards urged by Petitioners and their supporters.

Would all of them in the end be deemed infringing? Proba-

bly not, but some would. And a finding of infringement

would result in the imposition of statutory damages that, in

view of the scale of the direct infringement such technolo-

gies are alleged to facilitate, would likely bankrupt the com-

* A total of roughly 250 million recordings have been sold through the

system, see iTunes Hits 250 Million Downloads, news.com, Jan. 24, 2005, at

http://news.com.com/i Tunes +hits+250+million+downloads/

2110-1027 _3-5547939.html, while roughly 10 million iPods have been sold.

See Pogue, supra.

" See, ¢.g., Press Release, Apple, Apple Presents iPod, at

http.//www.apple.com/pr/library /2001 /oct/23ipod.htmi (October 23, 2001)

(“With iPod, Apple has invented a whole new category of digital music

player that lets you put your entire music collection in your pocket and

listen to it wherever you go,’ said Steve Jobs, Apple's CEO,” and “iPod's

revolutionary Auto-Sync feature makes it easy to get your entire music

collection into iPod and update it whenever you connect iPod to your

Mac.”).

panies in question.”

Even more serious than the impact of such a change on

existing enterprises would be its chilling effect on techno-

logical innovation in the future. The prospect of prolonged,

ad-hoc, fact-specific litigation through which arguments of

the sort sketched above would be tested —litigation that, if

successful, would result in statutory damages far in excess of

the actual resultant injury to copyright owners— would dis-

courage many potential innovators and investors, causing

them to abandon ventures that would have redounded to

the benefit of society at large.

Large, established manufacturers of consumer electronic

equipment might be able to respond to this threat by offer-

ing copyright owners positions at their design tables. The

drawback of that response is that the copyright owners

would likely use their new-found leverage to insist upon the

inclusion in all electronic devices of features that would pro-

tect their existing business models but would prevent or de-

lay the development of new, more efficient distribution sys-

tems.

The adverse impact of the reforms urged by Petitioners

would be even greater with respect to zones of information

technology not yet dominated by major firms. The efflores-

cence of the Internet, in particular, has resulted from the un-

coordinated inventive activities of thousands of persons and

entities, many of them driven more by the love of creativity

than the desire to make a profit. From their efforts have

emerged many recursively generative technologies —open-

ended platforms that enable further waves of innovation. In

part because of their open-ended character, some have

seemed pernicious when they first appeared, supporting

more malign than benign uses. But often, like the iPod, they

have soon been adapted to a variety of socially worthy ac-

»” CE Fisher, supra, at 99-102 (describing the collapse of MP3.com follow-

ing the imposition of statutory damages).

tivities, unanticipated by the original designers. The net ef-

fect has been the rapid emergence of a communications me-

dium that offers us extraordinary social, economic, and po-

litical benefits. The adoption of a standard of secondary

liability that would force innovators in this space henceforth

to obtain the approval of copyright owners before launching

new ventures would both constrict and slow the flow of new

ideas sharply.

THE EMERGENCE OF NEW BUSINESS MODELS FOR DIGITAL

DISTRIBUTION MAY ELIMINATE THE NEED TO ADJUST

OwNneERS.

The principal rebuttal to the argument made in the pre-

ceding Part is that the current situation in the entertainment

industry is dire—that the promiscuous distribution and con-

sumption of copyrighted recordings enabled by new tech-

nologies is threatening the foundations of the industry — and

consequently that a permissive secondary-liability standard

that may have been appropriate for the 1980s must be jetti-

soned in favor of one better able to meet the threats of the

twenty-first century. The Motion Picture and Recording

Company Petitioners make this argument clearly: “The

staggering success of [peer-to-peer systems] threatens the

very foundations of the incentive system on which our intel-

lectual property laws rest.” Brief for Motion Picture Studio

and Recording Company at 42. A failure to shut them down,

it is implied, would be catastrophic.

Before assessing this claim, it is worth recalling that simi-

lar predictions were made in the early 1980s with respect to

the likely impact of the VCR on the music industry. In 1982,

Jack Valenti, President of the Motion Picture Association of

America, told a House subcommittee: “The VCR is to the

motion picture industry and the American public what the

Boston strangler is to the woman alone.””" Many similar

predictions were made by the film studios and their sup-

porters in the Sony litigation.” In the end, events took a dif-

ferent course. VCRs, it turned out, could be employed not

just to record broadcast programming, but also to play pre-

recorded tapes rented or purchased from video stores,

which in turn purchased those tapes from the studios. The

studios quickly began to exploit this new potential market

for their products. The graph on the following page traces

the growth of the resultant income stream.” Today, the stu-

dios earn more money from sales and rentals of cassettes

tapes—and their successors, DVDs—than they do from the-

atrical performances.”

2! Home Recording of Copyrighted Works: Hearings on H.R. 4783, H.R. 4794

H.R. 4808, H.R. 5250, H.R. 5488, and H.R. 5705 Before the Subcomm. on

Courts, Civil Liberties, and the Admin. of Justice of the House Comm. on the

Judiciary, 97th Cong. (1983) (statement of Jack Valenti, President, Motion

Picture Association of America). _

” See, ¢.g., Brief Amicus Curiae of Creators and Distributors of Pro-

grams, Sony, 464 U.S. 417 (arguing that massive videocopying will erode

the movie and television industries and have “a pernicious impact on the

creative community”); Brief of The International Alliance of Theatrical

Stage Employees and Moving Picture Machine Operators of the United

States and Canada (“IATSE”), et al., Sony, 464 U.S. 417 (claiming that the

“interests of L[ATSE could be catastrophically affected if Appellants pre-

vail”).

» The data incorporated in the graph pertaining to the years 1998-2003

were derived from Veronis Suhler Stevenson, Communications Industry

Forecast & Report (18th & 22nd eds. 2004). The data for 1997 were derived

from Veronis Suhler Stevenson, Communications Industry Forecast & Report

(17th & 21st eds. July 2003). The data for 1986-1996 were derived from

Veronis Suhler Stevenson, Communications Industry Forecast & Report (13th

ed. Nov. 1999). The data for 1980-1985 were derived from Veronis Suhler

Stevenson, Communications Industry Forecast (7th ed. July 1993).

* See Kate Bulkley, DVDs force the movie business to rewrite its rules, Fi-

nancial Times, Jan. 20, 2004, at 8 ("In the US, 2002 revenue from DVD/VHS

vid» les and rental accounted for 62 per cent of the total domestic in-

come of the major studios, according to consultancy Screen Digest.”).

CONSUMER HOME VIDEO AND THEATER SPENDING

1980 to 2003. $ mullhons

rh 4 — ae,

@.658 Compound an:.ual growth rates

1980-2003 1999-2003

3.600 ome video «27% 14%

~ aml

sll iH} I |

Something similar appears already to be happening with

respect to online distribution of audio and video recordings.

To some extent, the increasingly common practice of distrib-

uting compressed versions of digital audio and video re-

cordings over the Internet has probably reduced the incomes

that copyright owners in the music and film industries oth-

erwise could have earned. (We say “probably,” because the

economists who have studied the matter continue to dis-

agree over how large a net injury, if any, copyright owners

have sustained to date® and because the revenues generated

” Kai-Lung Hui & Ivan Png, Piracy and the Legitimate Demand for Recorded

Music, Contributions to Economic Analysis, Vol. 2, No. 1, Art. 11 (2003);

Stan J. Liedowitz, Pitfalls in Measuring the Impact of File-sharing 35-59, at

http://www.utdallas.edu/~liebowit/intprop/pitfalls. pdf (last visited Feb.

22, 2005) (criticizing Oberholzer and Strumpf); Stan J. Liebowitz, Will MP3

Downloads Annihilate the Record Industry? The Evidence So Far, at

http://ssrn.com/abstract=414162 (June 2003) (arguing file sharing has

caused a decline in music sales); Felix Oberholzer & Koleman Strumpf,

The Effect of File Sharing on Record Sales; An Empirical Analysis, at

http://www.unc.ed u/~cigar/papers/FileSharing_March2004. pdf (March

2004) (concluding file sharing has had no statistically significant impact on

music sales); Rafael Rob & Joel Waldfogel, National Bureau of Economic

Research, NBER Working Paper No. 10874, Piracy on the High C's: Music

. :

;

by all of the traditional business models in the entertainment

industry were higher in 2004 than in 2003.%) However, a

rapidly growing set of companies have identified ways in

which the same technology can be used to create new busi-

ness models that provide consumers recordings more

quickly, conveniently, and cheaply —and, at the same time,

fairly compensate creators.

The best known of these new business models consist of

online digital-media “stores” and subscription services, such

as Apple Computer's iTunes music store and Napster 2.0.

Though still in their infancy, these systems have grown ex-

tremely rapidly. For example, the iTunes music store, estab-

lished only in 2003, now boasts a catalog of over one million

songs—more than twice the number it offered last year.”

New similar services spring up constantly. In the past year

and a half, over a dozen online music services have opened

in the United States; in the past year alone, the number of

services available in the world as a whole has quadrupled to

230.78

Downloading, Sales Displacement, and Social Welfare in a Sample of College

Students, (November 2004), at http://papers.nber.org/papers/W 10874.

* See Associated Press, Box Office Rearipts Soar to Record in ‘04, ABC

News, Jan. 3, 2005, http://abcnews.go.com/Entertainment/

wireStory ?id=381006; Mike Snider, Record Year for DVDs, USA Today, Jan.

5, 2005, http: / / www.usatoday.com / life / movies / news /2005-01-05-dvd-

main_x.htm; US Sees Growth in CD Sales Market, BBC News, Jan. 6, 2005,

http: / /news.bbc.co.uk /2/hi /entertainment /4150747.stm.

” Compare, Press Release, Apple, iTunes Music Store Downloads Top 25

Million Songs, at http://www.apple.com/pr/library/2003/dec/

15itunes.htmil (Dec. 15, 2003) ("iTunes Music Store offers ... more than

400,000 songs"), with Press Release, Apple, iTunes Music Store Downloads

Tops 200 Million Songs, at http://www.apple.com/pr/library/2004/dec/

_ 16itunes.htmil (Dec. 16, 2004) ("The iTunes Music Store features more than

one million songs").

8 Int'l Fed’n of the Phonographic Indus. (“IFPI”), Digital Music Report

2005 4, at http://www. ifpi.org/site-content/library/digital-music-report-

2005.pdf (January 19, 2005).

Fierce competition among these enterprises is driving the

rapid introduction of new features, which increase their ad-

vantages over traditional music distribution systems.” For

example, most of the online services permit consumers to

purchase single tracks in addition to entire albums. Some

provide access to their entire catalogs of music in exchange

for a flat-fee monthly subscription. This month, Napster 2.0

began offering the first authorized subscription service that

allows songs to be moved to portable players.” Other recent

innovations involve features that help build a sense of com-

munity among subscribers or that encourage existing sub-

scribers to recruit new members.”

Of most relevance to the current controversy, the monies

collected through these alternative channels have been rising

fast. In 2004, consumers in the United States used these new

systems to purchase roughly $270 million of digital music,

nearly three times as much as they did in 2003.% Global

sales also increased sharply, reaching roughly $330 million

in 2004." Most observers expect these numbers to continue

* See generally Derek Slater, Meg Smith, et al., Berkman Publication

Series Paper No. 2005-01, Content and Control: Assessing the Impact of Policy

Choices on Potential Online Business Models in the Music and Film Industries,

Jan. 7, 2005, at http-//papers ssrn.com/sol3/

papers.cfm?abstract_id=654602.

* Jay Lyman, )apster Goes Mobile with ‘To Go’ Service, TechNewsWorld,

at http://www.technewsworld.com/story /Napster-Goes-Mobile-with-To-

Go-Service-40299. htm! (Feb. 3, 2005).

" See, ¢.g., Bill Rosenblatt, MusicMatch Introduces Sharing Feature, at

http://www.drmwatch.com/ocr/article.php/3390791 (Aug. 4, 2004); Dis-

cover a Whole World of Music, at

http://www.napster.com/using_napster/all_the_music_you_wantindex.ht

mifdiscover (last visited Feb. 22, 2005); Whatcha Listening to?, at

http://www.apple.com/itunes/store/share.htmi (last visited Feb. 22, 2005).

“ Jupiter Research, Market Forecast Report: Music, 2004-2009 10 (July 22,

2004) (reporting that total market was $99 million in 2003 and projecting

growth to $270 million in 2004).

®% IFPL Digital Music Report 2005: Facts and Figures, at

http://www. ifpLorg/site-content/press/20050119b.htmil. (Jan. 19, 2005)

to rise sharply in the near future.”

The existing online market for movies is smaller than the

market for music, primarily because digital video re-

cordings, even compressed, are much larger and thus more

difficult to distribute (even through broadband connections)

and store than audio recordings. Nevertheless, the movie

industry is already beginning to experiment with innovative

online distribution systems. Movielink allows consumers to

rent individual movies. In the past jear, CinemaNow and a

partnership between Starz! and RealNetworks have both

launched online movie subscription services.* In light of the

enormous size of the DVD market, these models hold ex-

traordinary revenue potential.

Peer-to-peer networks are themselves now giving rise to

new business models that provide consumers access to law-

ful, licensed digital entertainment. The major record labels

have announced that they will license their music to such

services, like Snocap and Peer Impact,* later this year. Many

(quoting Jupiter Research's prediction of the global $330 million market).

™ IFPI, Digital Music Report 2005, supra, at 3 (arguing that the music

“market will grow apace in 2005" and noting Jupiter Research's projection

that global music market revenue will double in 2005); Market Forecast

Report: Music, 2004-2009, supra (predicting that US digital music sales will

nearly double in 2005 and will rise to $1.7 billion in 2009); Mike McGuire,

Online Music Industry Sustains Solid Growth in 2004, GartnerG2, May, 2004,

at 5 (predicting that the online music industry will generate more than $1

billion in 2008); Interview with Josh Bernoff, principal analyst at Forrester

Research, Forrester Research's Josh Bernoff Provides Cause for Optimism, Mi-

dem, at http://www.midem.com/App/hompage.cfm?moduleid=58°

appname=100140&K_MAG_ID=1853&K_MT_ID=75éstep=FullStory (Nov.

20, 2005) (Fervester Research peodicts US online aumic sachet will seach

$4 billion in 2008).

* See Tim Gnatek, An Online Supplier for Your Desktop Cineplex, New

York Times, Aug. 12, 2004 at G8 (describing the features offered by these

legitimate online movie services); CinemaNow, Portable Media Center, at

http://www.cinemanow.com/pmc/ (last visited Feb. 20, 2005) (describing

portability feature of their online movie service).

%* See Katie Dean, P2P Tilts Toward Legitimacy, wired.com, at

independent labels, artists, and producers have already em-

braced Weed, a service that enables lawful consumer-to-

consumer distribution through peer-to-peer exchanges.”

More radical business-model experiments employ online

peer-to-peer distribution as a promotional tool to spur pur-

chases of content and related goods. For example, the band

Wilco believes that releasing a recent album for free online

contributed to the subsequent dramatic rise in record sales.*

Artists who depend heavily on alternative revenue streams,

such as live performances and merchandise, have achieved

broad distribution and exposure through peer-to-peer net-

works. Some bands, such as Moe and Donna the Buffalo,

have concluded that free peer-to-peer distribution of their

recordi igs has a net positive impact on their revenues by

increasing their fans and driving new sources of profit.”

Related digital efforts, such as Wilco’s recent decision to of-

fer the first-ever MPEG-~4 live webcast through peer-to-peer

networks,” further create loyalty between artists and their

audience and drive revenue through ancillary sales to the

artists and, where relevant, their distributors.

In short, the music and movie industries are adapting to

the increased availability and popularity of Internet-based

http://www. wired.com/news/digiwood/0,1412,6583€,00.html (Nov. 24,

2004).

” See Katie Dean, File Sharing Growing Like a Weed, wired.com, at

http://www. wired.com/news/digiwood/0,1412,65774,00.html (Nov. 22,

2004); Weed, Music Producers Hail SML’s Weed Distribution Service, at

http://weedshare.com/web/releases/12-11-03_WEED_RELEASE.html (Dec.

11, 2003).

* Brian Mansfield, When Free Is Profitable, USA Today, May 20, 20( 4, at

1E, at http://www.usatoday.com/tech/webguide/music/

2004-05-20-file-sharing-main_x.htm; Interview with Jeff Tweedy, Wilco

front man, Wired News, Music is Not a Loaf of Bread, at

http://www. wired.com/news/culture/0,1284,65688,00.htmi (Nov. 15, 2004).

* Mansfield, supra.

* Lawrence Lessig, Why Wilco Is the Future of Music, wired.com, at

http://www. wired.com/wired/archive/13.02/view.html (Feb. 2005).

—_— re «

distribution technologies, just as the movie industry adapted

previously to the development of the VCR. In both cases,

the adaptations have benefited consumers as well as crea-

tors.

Petitioners, while praising the new models, are less san-

guine concerning their potential to generate sizeable

amounts of revenue for copyright owners. iTunes, Napster

2.0, and their like, they argue, will not be able to compete

effectively with “free” services like Grokster and Streamcast.

Brief at 41. But, in fact, the new models already seem to be

competing quite well. In part, their success seems to derive

‘from increased awareness on the part of the public that

downloading music through the unauthorized services is

illegal." Many consumers, it appears, once aware of the law,

strive to abide by it. Those who are less naturally law-

abiding may have been affected by the increased pace of the

lawsuits brought by the recording induStry against individ-

ual uploaders.” Last but not least, many consumers are at-

“| IFPI Digital Music Report 2005, supra, at 22 ("Seven out of ten people

surveyed in North America and Europe are now aware that unauthorized

file-sharing is illegal. Before the recording industry began its public edu-

cation initiatives and anti-piracy actions against unauthorized file-sharing,

* this figure stood at only 37%."); Press Release, RIAA, Recording Industry

Begins Suing P2P File Sharers, at http://www.riaa.com/news/

newsletter/090803.asp (Sept. 8, 2003) ("Since the recording industry

stepped up the enforcement phase of its education program, public

awareness that it is illegal to make copyrighted music available online for

others to download has risen sharply in recent months. According to a

recent survey by Peter D. Hart Research Associates, fully 61% of those

polled in August [2003] admitted they knew such behavior was against

the law —up from 54 percent in July and 37 percent in early June [2003],

prior to the announcement.”); Pew Internet Project and Comscore Media

Metrix, The State of Music Downloading and File-sharing Online, 5, at

http://www.pewinternet.org/pdfs/PIP_Filesharing_April_04.pdf (April

2004) (In the February 2004 survey, 37% care whether files they download

are copyrighted, up from 27% in the March-May 2003 survey).

@ The RIAA has filed at least 7669 lawsuits since September 2003. John

Borland, RIAA Sues 717 File-swappers, news.com, at

http://news.com.com/RIAA +sues+717+file-swappers/2110-1027_3-

tracted by the quality, convenience, and low cost of the ser-

vices provided by iTunes and its ilk.

In sum, the sky is not yet falling. Instead, we seem to be

witnessing today a transition in the entertainment industry

as a whole analogous to the transition we saw twenty years

ago in the film industry: a new technology is disrupting ex-

isting business models, but a new group of intermediaries is

identifying ways of harnessing that technology — ways that

will leave copyright owners, when the dust settles, better off.

To the foregoing argument, the copyright owners are

likely to respond: We are entitled to more than protection

against net injury as a result of new technologies. We are

entitled, under the copyright statute, to prevent all unau-

thorized reproductions and distributions of our materials

(putting aside, of course, reproductions and distributions

shielded by the fair-use doctrine and other defenses). Thus a

demonstration that the revenues that they are able to collect

from authorized users of a new technology exceed the losses

they will sustain as a result of unauthorized uses of the same

technology, they will argue, misses the point.

This retort has considerable force in the context of direct

infringement. An individual defendant who downloads a

copyrighted recording through Grokster or Streamcast can-

not plausibly resist an infringement action by pointing to the .

income that the copyright owner earns from the defendant's

neighbor, who obtains the same recording from the iTunes

Music Store.

But that the copyright owners are entitled to prevail in

suits against direct infringers does not mean that the doc-

trine of secondary liability should be changed so as to re-

duce to a minimum the levels of direct infringement. As the

Court recognized in Sony, an optimal and fair secondary-

liability standard must balance the value of effectively sup-

5553517.htmi (Jan. 27, 2005) (reporting 717 additional lawsuits in the sec-

ond round, thus bringing the total to 7669).

pressing direct infringement against the social value of pre-

serving opportunities for technological innovation. In Sorry,

the Court concluded that that balance was best achieved by

exempting from liability the distributors of technologies that

are “capable of substantial noninfringing uses.” The Court's

judgment proved “prescient.““ Although substantial

amounts of infringing conduct was allowed to continue, the

movie industry did not collapse, but rather flourished, and

both consumers and electronics manufacturers were permit-

ted to exploit fully the advantages of the new technology.

For the reasons outlined above, adherence to the Sony stan-

dard in the present case would likely lead to a similarly at-

tractive outcome.

OTHER MODIFICATIONS OF COPYRIGHT LAW WOULD HELP

REVISION OF THE SONY STANDARD, AND THOSE

MODIFICATIONS ARE BEST LEFT TO CONGRESS.

If the sky were falling, there would be more effective and

sensible ways of propping it back up than changing the

standards for secondary liability. Already, two possible

modifications of copyright law have been proposed, either of

which, if adopted, would do more to shield the revenues of

the owners of copyrights in musical compositions, sound

recordings, and motion pictures from corrosion while simul-

taneously doing less damage to other important values ad-

vanced by the copyright system.

The first of these, advanced by Professors Mark Lemley

and Anthony Reese, would create a new, streamlined dis-

pute-resolution system, overseen by administrative-law

judges within the Copyright Office, which copyright owners

could employ when pursuing persons who use peer-to-peer

systems to engage in direct copyright infringement. To avail

himself of such a system, a copyright owner would need to

show thai a particular person (whose identity had been as-

certained through a subpoena directed to an Internet Service

Provider) had uploaded a certain number of copyrighted

works to a peer-to-peer service within a prescribed period of

time and that the owner had “registered claims of copyrights

in the works in question.” The defendant would be able to

opt out of the svstem (Le., to force the copyright owner to

pursue an ordinary infringement suit in the courts) by “pre-

sent|ing] plausible legal or factual issues as to the uploader’s

liability.” But if the defendant failed to do so, streamlined

procedures, analogous to those used under the Uniform

Dispute Resolution Policy to process claims of “cybersquat-

ting,” would enable expeditious and inexpensive processing

of the claim.“ Remedies would include damages and “offi-

cial designation” of the defendant as an infringer (a designa-

tion that would have the practical effect, if repeated, of mak-

ing it difficult for the defendant in the future to obtain

Internet access). A streamlined appellate system would fos-

ter consistency and ensure that the procedure was not

abused. As Professors Lemley and Reese point out, such a

system would radically increase deterrence of unlawful uses

of peer-to-peer services, while avoiding the side effects of

expanding the scope of secondary liability: the suppression

of lawful uses of those services; and inhibition of technologi-

cal innovation.”

The second approach has been explored separately by

Professors Neil Netanel, Jessica Litman, and William

“ For a summary of the UDRP. see The Berkman Center for Internet &

Society, UDRP Opinion Guide, at http://cyber.law.harvard.edu/udrp/

optruon (January 2002).

*“ For a tar more detailed description of the proposed system, see Mark

A. Lemley and R Anthony Reese, Reduang Digital Copyright Infringement

Without Restricting Innovation, 56 Stan. L. Rev. 1345, 1410-25 (2004).

co — ——_ eeh, my

Fisher.“ Their proposals vary somewhat, but each suggests

replacing the current unsatisfactory systems for policing the

unlawful distribution of audio and video recordings over

the Internet with some kind of compulsory licensing regime.

One variant of this idea is summarized below:

The owner of the copyright in an audio or video

recording who wished to be compensated when

it was used by others would register it with the

unique file name, which then would be used to

track its distribution, consumption, and modifi-

cation. The government would raise the money

necessary to compensate copyright owners

through a tax—most likely, a tax on the devices

and services that consumers use to gain access to

digital entertainment. Using techniques pio-

neered by television rating services and perform-

ing rights organizations, a government agency

would estimate the frequency with which each

song and film was listened to or watched. The

tax revenues would then be distributed to copy-

right owners in proportion.to the rates with

sumed. Once this alternative regime were in

place, copyright law would be reformed to

eliminate most of the current prohibitions on the

unauthorized reproduction and use of published

recorded music and films. The social advantages

“ See Fisher, supra, at 199-258; Jessica Litman, Sharing and Stealing, 27

Hastings Comm. & Ent. LJ. 1 (2004); Neil W. Netanel, Impose a Noncom-

mercial Use Levy to Allow Free Peer-to-Peer File Sharing, 17 Harv. J. L. & Tech.

1 (2003), Other reform proposals in the same vein can be found in: Law-

rence Lessig, Free Culture, 300-04 (2004); Raymond Shih Ray Ku, The Cree-

true Destruction of Copyright: Napster and the New Economics of Digital Tech-

nology, @ U. Chi. L. Rev. 263, 312-15 (2002); Glynn S. Lunney Jr, The Death

of Copyright: Digital Technology, Private Copying, and the Digital Millennium

of such a system ... would be large: consumer

convenience; radical expansion of the set of crea-

tors who could earn a livelihood from making

their work available directly to the public; re-

duced transaction costs and associated cost sav-

ings; elimination of the economic inefficiency

and social harms that result when intellectual

products are priced above the costs of replicating

them; reversal of the concentration of the enter-

tainment industries; and a F st to consumer

creativity caused by the abandonment of encryp-

ton.”

To be sure, neither a streamlined dispute-resolution sys-

tem nor a compulsory-licensing system would be perfect.

Each would have significant disadvantages, explored at

length in the essays cited above. But if appropriately tuned,

each would protect the revenues of copyright owners while

simultaneously enabling consumers and society at large to

enjoy fully the enormous potential benefits of the new tech-

nologies. In that respect, either would be superior to the re-

lief sought in this case by Petitioners.

Both reform proposals have two additional, crucial vir-

tues. First, their impact would be limited to the sector of the

mechanisms for detecting and punishing the unauthorized

reproduction and distribution of audio and video recordings

over the Internet. A modification of the Sony standard, by

contrast, would affect in unpredictable but likely pernicious

ways the entire body of copyright law, including many sec-

tors that now seem to be functioning well. Second, either of

the alternative reform proposals would be prospective in

application. Thus, unlike the relief sought by Petitioners, it

would not destabilize established businesses that have relied

on the Sony standard.

* Fisher, supra, at 9.

- +

For the reasons outlined in Part Il, neither of the pro-

posed reforms may prove necessary. But if protection of the

legitimate interests of the copyright owners in fair compen-

sation eventually does necessitate some adjustment in the

first to determine the optimal strategy and then to imple-

ment it in a way that accommodates the interests of all af-

fected parties.

When major technological shifts in the past have created

analogous needs for modification of the copyright system,

this Court has recognized the hazards of judicial interven-

tion and the advantages of letting Congress make the neces-

sary adjustments.“ For example, a century ago the Court

refused to come to the aid of music publishers disadvan-

taged by the development of piano rolls, allowing Congress

to create a new right over “mechanical copies,” tempered by

a compulsory license.” Similarly, the Court declined to in-

* While amia Senators Hatch and Leahy argue that the courts have a

vital role in articulating principles of secondary liability and in deciding

properly presented cases, Brief Amici Curiae of United States Senator Pat-

rick Leahy and United States Senator Orrin G. Hatch at 4, they also effec-

tively acknowledge the more fundamental! point being made here:

Amia recognize, as this Court has, that advances in technology of-

ten present new challenges to tne established principles of copy-

right law, and that when such difficulties undermine the funda-

mental purposes of that law, Congress “has fashioned the new

rules that new technology made necessary.” Of course, “[s}ound

policy, as well as history supports [this Court's] consistent defer-

ence to Congress when major technological innovations alter the

market for copyrighted materials. Congress has the constitutional

authority and the institutional ability to accommodate fully the

varied permutations of competing interests that are inevitably im-

plicated by such new technology.”

Id. at 15 (citation omitted) (quoting Sony, 464 U.S. at 431).

“ White-Smith Music Pub. Co. v. Apollo Co., 209 U.S. 1, 18 (1908) (noting “it

may be true that the use of these perforated rolls, in the absence of statu-

tory protection, enables the manufacturers thereof to enjoy the use of mu-

tervene on behalf of the owners of copyrights in broadcast

programs disadvantaged by the unauthorized retransmis-

sion of their materials by cable systems, leaving it to Con-

gress to create yet another compulsory licensing system that

balanced the interests of the copyright owners against those

of the ca’ le systems and consumers.”

The Cuurt recently had occasion to reiterate the principle

underlying this consistent practice of deference:

[I}t is generally for Congress, not the courts, to

decide how best to pursue the Copyright

Clause's objectives. See Stewart v. Abend, 495 U.S.

at 230 (“The evolution of the duration of copy-

right protection tellingly illustrates the difficul-

ties Congress faces . . . . It is not our role to alter

the delicate balance Congress has labored to

achieve.”); Sony, 464 U.S. at 429 (“It is Congress

that has been assigned the task of defining the

scope of [rights] that should be granted to au-

thors or to inventors in order to give the public

appropriate access to their work product.”); Gra-

ham, 383 U.S. at 6 (“Within the limits of the con-

sical compositions for which they pay no value. But such considerations

properly address themselves to the legislative and not to the judicial

branch of the Government”). In response, in the Copyright Act of 1909,

Congress set up the compulsory -licensing system now embodied in 17

U.S.C. § 115 (2005).

* See Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U.S.

394, 414 (1974) (holding that cable TV (“CATV”) did not violate per-

former's copyright because “|t)hese shifts in current business and com-

mercial relationships, while of significance with respect to the organiza-

tion and growth of the communications industry, simply cannot be

controlled by means of litigation based on copyright legislation enacted

more than half a century ago, when neither broadcast television nor CATV

was yet conceived. Detailed regulation of these relationships, and any

ultimate resolution of the many sensitive and important problems in this

field, must be left to Congress.”). For a description of Congress’ response,

Vol. 1, 639-42.

stitutional grant, the Congress may, of course,

implement the stated purpose of the Framers by

selecting the policy which in its judgment best

effectuates the constitutional aim.”).

Eldred v. Ashcroft, 537 U.S. 186, 212-13 (2003).

Congress has already made clear its willingness to inter-

vene on behalf of the owners of copyrights in audio and

video recordings if their complaints concerning the adverse

impact on their revenues of file-sharing prove well founded.

In the past few years, a wide variety of ways of reinforcing

their legal positions have been proposed and discussed.*' If

the Court refuses to modify the Sony doctrine, many more

legislative initiatives will undoubtedly be forthcoming. For

the same reasons that have prompted the Court to hold back

in analogous circumstances in the past, it would be wise in

the present case to let the legislative deliberations take their

natural course.

109th Cong. (2005); Inducing Infringement of Copyrights Act of 2004, S.

2560, 108th Cong. (2004); Cooperative Research and Technology En-

hancement (CREATE) Act of 2004, H.R. 2391, 108th Cong. (2004) (as

amended by the Senate); Piracy Deterrence and Education Act of 2004,

H.R. 4077, 108th Cong. (2004); Protecting Intellectual Rights Against Theft

and Expropriation (PIRATE) Act of 2004, S. 2237, 108th Cong. (2004); Art-

ists’ Rights and Theft Prevention (ART) Act, S. 1932, 108th Cong. (2003);

Enhancing Federal Obscenity Reporting and Copyright Enforcement (En-

FORCE) Act of 2003, S. 1933, 108th Cong. (2003); Protecting Children from

Peer-to-Peer Pornography Act of 2003, H.R. 2885, 108th Cong. (2003); Au-

thor, Consumer and Computer Owner Protection and Security (ACCOPS)

Act of 2003, H.R. 2752, Rep. 108th Cong. (2003); H.R. 5211, 107th Cong.

(2002); Consumer Broadband and Digital Television Promotion Act, S.

2048, 107th Cong. (2002).

CONCLUSION

For these reasons, the judgment of the Court of Appeals

should be affirmed.

Respectfully submitted,

William W. Fisher III

Counsel of Record

John G. Palfrey Jr.

Jonathan Zittrain

1575 Massachusetts Ave.

Cambridge, MA 02138

(617) 495 0957

March 1, 2005 Counsel for Amici Curiae

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.