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AUGUST 20, 2004
By Ronald Grover Surviving to Download Another Day After an Appeals Court win by file-sharing services Grokster and Streamcast, the entertainment industry vows to keep up the pressure The ghost of Betamax continues to haunt Hollywood and music producers. America's entertainment industry has been fighting fiercely to rein in companies like Groskter and StreamCast Networks that provide software that computer users often use to download illegal music, films, and TV shows from the Internet. But on Aug. 19, the San Francisco-based U.S. 9th Circuit Court of Appeals dismissed at least part of their argument, citing the landmark 1984 U.S. Supreme Court decision that it's O.K. for consumers to tape movies and TV shows for their personal use. The irony is that Hollywood, which fought the introduction of Sony's Betamax video-cassette recorder in the early '80s, is today a big beneficiary of that case. While its Betamax format eventually lost out to the more popular VHS technology, Betamax was the pioneer for both the VCR and more recently the DVD player. Together, the DVD and video-cassette businesses this year are expected to generate $17 billion in sales, according to a recent report by PricewaterhouseCoopers. Back then, Walt Disney (DIS ) and MCA (now NBC/Universal, owned by General Electric [GE ]) argued that Betamax would allow folks to steal movies and TV shows off the TV, an argument much like Hollywood's legal arguments against Grokster and Streamcast. (Grokster offers the Groskter file-sharing software, while StreamCast makes the Morpheus software.) In the current case, the studios argued that these Web-based companies, which have sophisticated software for detecting viruses, should be able to filter out illegal songs and films as well. RALLYING CRY. U.S. District Judge Stephen Wilson in Los Angeles initially ruled last year that Grokster and Streamcast weren't liable when computer users illegally traded content on the Internet using these companies' software. He first cited the Betamax case, which held that the technology, while capable of being used for illegal means, had legitimate uses that didn't violate copyrights, such as copying free over-the-air TV programs. Today this "fair use doctrine" is also a rallying cry for many of the makers of consumer-electronic devices that can download movies from the Net and for companies like Sharman Networks, whose Kazaa program is the most widely used music and film download software. An industry case against Kazaa is still pending in another court. The latest decision isn't the end of the content-makers' fight, however. The music industry has prevailed in cases brought against more than 1,000 individuals and has against Internet service providers like Verizon (VZ ), which have been forced to turn over records of folks accused of downloading illegal content. The Motion Picture Association of America issued a strong statement in the wake of the Aug. 19 Appeals Court ruling that it "should not be viewed as a green light for companies or individuals seeking to build businesses that prey on copyright holders' intellectual property." TO THE HIGH COURT? The court did find that users of these programs had employed them to steal content, the MPAA noted. The trade group said it would "continue to pursue all avenues in our power to fight those who illicitly profit from" stealing copyrighted works. The MPAA said it's "carefully reviewing our next steps" and could still decide to appeal the ruling to the U.S. Supreme Court. Two weeks ago, the MPAA announced it had won a substantial settlement from 321 Studios, which made software that let consumers to copy DVDs. Following a lengthy court battle, St. Louis-based 321 no longer makes the software. In the Grokster/Streamcast case, however, the court ruled that the downloading services may in some cases be allied with consumer interests. "The technology has numerous other uses (besides illegal ones), significantly reducing the distribution costs of public domain and permissively shared art and speech, as well as reducing the centralized control of that distribution," wrote Judge Sidney R. Thomas in a unanimous decision by the three-judge panel. DECENTRALIZATION. Here's another irony: The 9th Circuit court is the same one that ruled three years ago against music-download service Napster, effectively shutting it down. (It has since resurfaced as a legal service.) That case hinged on Napster's centralized servers, making it the source of illegally obtained music, the court found. In the current case, Grokster and StreamCast don't store music on a centralized server, but rather provide the software for consumers to user while trading music or movies. The ghost of Betamax lives.  Grover is BusinessWeek's Los Angeles bureau chief
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