Copyright in the Courts
Summaries Provided by HRRC.org

Sony Corporation of America v. Universal City Studios (“Betamax”)

Summary: The Supreme Court's ruling in Sony v. Universal Studios (known as the Betamax case) is a landmark copyright precedent that has sheltered a wide array of technology innovators from copyright lawsuits.  In 1976, Universal Studios sued Sony, maker of the Betamax VCR, for “secondary” copyright infringement, arguing that Sony should be liable whenever a consumer makes an unauthorized copy of a television program. In 1984, the Court held that the maker of a device, like the VCR, could not be held responsible when consumers use the device to infringe copyrights, so long as the device is “capable of substantial non-infringing uses.”  

Key Issue: Where a technology has many uses, the public cannot be denied the lawful uses just because some consumers may use the product to infringe copyrights.  The Betamax decision is known as the “Magna Carta” of the consumer electronics industry.  Without the protection of the Betamax rule, nearly any digital media device, from the iPod to the TiVo to the Slingbox, would be threatened by copyright lawsuits and damages rising easily into the billions of dollars. Facing that threat, many great new devices simply won’t be built.

The Betamax rule is under threat as never before from new laws and new court cases that have eroded its protections. Today, devices and services that give us new ways to interact with the digital media we have bought legally are under threat, and the Betamax rule offers less and less protection.

MGM Studios v. Grokster

Summary: In 2001, a federal court shut down the pioneering peer-to-peer service Napster.  The court ruled that Napster was actively facilitating copyright infringement by hosting a central directory of files available on individual users’ computers.  After Napster shut down, Grokster and StreamCast (Morpheus) created new file-sharing software that did not rely on a central directory.  In 2004, MGM and twenty-eight of the world's largest entertainment companies sued Grokster and StreamCast.  As they had against Napster, the entertainment companies accused Grokster and StreamCast of “secondary liability.”  In that case, MGM and others argued that simply distributing file-sharing software to the public made the software’s authors responsible for any copyright infringement by users of the software.  Grokster and StreamCast argued that they were protected by the Betamax rule, as companies that simply made a product that could be used for either legal or illegal purposes.

In 2005, the case reached the U.S. Supreme Court.  Rather than deciding whether to keep or discard the Betamax rule directly, the Court invented a new species of secondary liability, known as “inducement.”  Under the Court’s new rule, anyone who makes a technology that might be used for copyright infringement could be held responsible for that infringement if the company somehow encouraged consumers to infringe copyrights.

Key Isssue: What the Court did not make clear was how much and what kinds of encouragement make a technology company responsible for infringement by consumers.  If the lower courts later decided that the very design of a new technology could encourage consumers to infringe – regardless of whether the technology company advertised or even mentioned the illegal uses – then the Betamax rule would be essentially dead, and any new digital media technology could face crippling lawsuits.

Later Developments in Grokster

Summary: Grokster itself settled with the studios soon after the Supreme Court opinion.  StreamCast continued to defend itself in the lower courts. In late 2007, the federal district court in Los Angeles suggested that simply distributing a product with both lawful and unlawful uses could make the distributor liable.  The court held that once a product is found to “induce” copyright infringement by consumers, the product can be banned from the market regardless of its lawful uses.

Key Issue: This confirms the worst fears of consumer advocates arising from the Grokster case, that courts can now ban a general-purpose device because its very design may encourage some people to use it to infringe copyrights.

Twentieth Century Fox et al. v. Cablevision Systems Corporation

Summary: In 2006, Cablevision Systems Corporation announced that it would roll out a "Remote-Storage DVR System" (the "RS-DVR). To the consumer, this service would work almost exactly like a standard digital video recorder (DVR) such as a TiVo.  With the RS-DVR, the hard drive and other recording hardware would be located at Cablevision’s central office rather than in a box attached to the customer’s TV set.  This setup would reduce hardware and service costs for Cablevision.  A group of TV studios led by Fox sued to stop the rollout of the RS-DVR.  The studios did not accuse Cablevision of “secondary liability” for encouraging the customer to make infringing copies of TV shows.  If the studios had taken the secondary liability route they would have had to convince the court that the Betamax rule did not apply, and that consumer recordings of TV shows are not a “fair use” under copyright law.

Rather than take that course, the studios accused Cablevision of direct liability – in other words, that Cablevision itself was making illegal copies of TV programs at its central offices every time an RS-DVR customer pressed the Record button. A New York federal court agreed with the studios.  To the court, the location of the hardware, and the specific design of the recording system, made the difference between a lawful recording done by the consumer and an unlawful recording done by Cablevision.  A federal appeals court is currently considering this decision.

Key Issue: When a company records or otherwise transforms digital media at the consumer’s command, as a service to the consumer, rather than in a product sold to the consumer, who actually “did” the copying? And should this matter as to copyright?  Although the court in this case emphasized the differences between the RS-DVR and a traditional DVR, some of the court’s decision might one day be used against TiVo and other home devices that combine a product with a service.  As many new digital devices have a service or network component to them, the outcome of this case will be critical.

Atlantic Recording Corporation v. XM Satellite Radio
and Music Publishers v. XM Satellite Radio

Summary:In 2006, the major music labels, led by Atlantic Records, sued XM Satellite Radio. The labels alleged that XM’s “Inno,” a handheld satellite radio receiver with recording and archiving functions, violated the copyrights in the songs it recorded.  The labels tried to cast the Inno as a digital download service rather than simply a recording device, because digital audio recording devices are protected against copyright suits by the Audio Home Recording Act of 1996.  According to the labels’ argument, although a digital audio recording device, standing alone, is a lawful product, and XM’s satellite radio service is also legal when standing alone, a combination of the two, offered by the same company, violates copyright law.  XM countered that selling a legal product along with a legal service does not add up to infringement.

In an early phase of the case, the court agreed with the labels and ruled that the Inno was not protected by the Audio Home Recording Act. According to the court, the Inno was a “service” rather than a device, and could be subject to a copyright suit.

The representatives of songwriters, who hold separate copyrights in recorded music, also sued XM, and its competitor Sirius Satellite Radio, on the same grounds.

Key Issue: As with Fox v. Cablevision, the XM case threatens digital media products with a service or network component, even for devices that simply allow familiar consumer activities like making a personal recording.  Atlantic v. XM highlights a familiar theme of the entertainment industries: they claim that as soon as a “market” develops that allows charging a fee for a consumer activity that was once free and unregulated, such as personal recordings, any device that still allows the free and unregulated behavior becomes illegal.  In this case, the labels claimed that since digital music stores like Apple’s sell downloads of individual songs, the decades-old practice of recording selected songs from the radio is now illegal – and so is any device that makes it possible.

RIAA v. Verizon

Summary: In 2003, the Recording Industry Association of America (RIAA), using a controversial subpoena provision of the 1998 Digital Millennium Copyright Act (DMCA), demanded that Verizon Internet Services reveal the identity of a Verizon subscriber who allegedly used KaZaA peer-to-peer software to share music online.

Verizon refused to divulge the subscriber's identity, claiming that the provision didn't cover alleged copyright-infringing material that resides on individuals' own computers, only material within the Internet service provider’s system.

Overruling a lower court, the D.C. Circuit Court of Appeals agreed with Verizon. The D.C. Circuit found the subpoenas were not authorized by the DMCA.

Key Issue:In its ongoing lawsuit campaign against alleged individual file-sharers, the recording industry identifies Internet connections from which files have been shared.  Linking a particular Internet connection to a particular person in order to sue that person is one of the biggest difficulties facing the recording industry.  By limiting the power of the DMCA subpoena provision, the Verizon case took away one of the RIAA’s key tools but also created stronger protections for Internet users’ privacy.

RIAA v. Alleged File Traders

Summary:As a result of the RIAA v. Verizon decision the recording industry now discovers the identity of alleged file sharers by filing "John Doe" lawsuits, issuing subpoenas to Internet service providers for the identity of an Internet user, and then re-filing suits against the identified user. 
Key Issue: While this practice is generally allowed in U.S. federal courts, it runs contrary to the principle of giving a defendant advance notice of court proceedings against them, and allowing defendants to fight subpoenas.  In the John Doe cases, the alleged file sharers have no notice of the lawsuits until after they have been “fingered” by their ISP.