S. HRG. 109–1115 MGM v. GROKSTER HEARING BEFORE THE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION JULY 28, 2005 Printed for the use of the Committee on Commerce, Science, and Transportation ( U.S. GOVERNMENT PRINTING OFFICE 64–524 PDF WASHINGTON : 2011 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 14:07 Feb 17, 2011 Jkt 064524 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 S:\GPO\DOCS\64524.TXT SCOM1 PsN: JACKIE SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION ONE HUNDRED NINTH CONGRESS FIRST SESSION TED STEVENS, Alaska, Chairman JOHN MCCAIN, Arizona DANIEL K. INOUYE, Hawaii, Co-Chairman CONRAD BURNS, Montana JOHN D. ROCKEFELLER IV, West Virginia TRENT LOTT, Mississippi JOHN F. KERRY, Massachusetts KAY BAILEY HUTCHISON, Texas BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine BARBARA BOXER, California GORDON H. SMITH, Oregon BILL NELSON, Florida JOHN ENSIGN, Nevada MARIA CANTWELL, Washington GEORGE ALLEN, Virginia FRANK R. LAUTENBERG, New Jersey JOHN E. SUNUNU, New Hampshire E. BENJAMIN NELSON, Nebraska JIM DEMINT, South Carolina MARK PRYOR, Arkansas DAVID VITTER, Louisiana LISA J. SUTHERLAND, Republican Staff Director CHRISTINE DRAGER KURTH, Republican Deputy Staff Director DAVID RUSSELL, Republican Chief Counsel MARGARET L. CUMMISKY, Democratic Staff Director and Chief Counsel SAMUEL E. WHITEHORN, Democratic Deputy Staff Director and General Counsel LILA HARPER HELMS, Democratic Policy Director (II) VerDate Nov 24 2008 14:07 Feb 17, 2011 Jkt 064524 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\64524.TXT SCOM1 PsN: JACKIE C O N T E N T S Page Hearing held on July 28, 2005 ............................................................................... 1 Statement of Senator Boxer .................................................................................... 48 Statement of Senator Ensign .................................................................................. 43 Statement of Senator Inouye .................................................................................. 1 Statement of Senator Pryor .................................................................................... 41 Statement of Senator Stevens ................................................................................ 1 Editorial, dated July 16, 2005, from Billboard Magazine, entitled ‘‘After Grokster, Can Music Business Save Itself?’’ ............................................... 2 WITNESSES Attaway, Fritz E., Executive Vice President and Washington General Coun- sel, Motion Picture Association of America ........................................................ 32 Prepared statement .......................................................................................... 33 Bainwol, Mitch, Chairman and CEO, Recording Industry Association of Amer- ica .......................................................................................................................... 28 Prepared statement .......................................................................................... 29 Baker, David N., Vice President, Law and Public Policy, EarthLink, Inc. ......... 24 Prepared statement .......................................................................................... 26 Eisgrau, Adam M., Executive Director, P2P United, Inc., on behalf of the Electronic Frontier Foundation (EFF) ................................................................ 4 Joint prepared statement of Adam M. Eisgrau, Executive Director, P2P United, Inc.; and Fred von Lohmann, Senior IP Attorney, Electronic Frontier Foundation (EFF) .......................................................................... 5 Heesen, Mark G., President, National Venture Capital Association ................... 18 Prepared statement .......................................................................................... 19 Kerber, Gregory G., Chairman and CEO, Wurld Media, Inc. .............................. 14 Prepared statement .......................................................................................... 16 APPENDIX Lafferty, Marty, CEO, Distributed Computing Industry Association (DCIA), prepared statement .............................................................................................. 55 (III) VerDate Nov 24 2008 14:07 Feb 17, 2011 Jkt 064524 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\64524.TXT SCOM1 PsN: JACKIE VerDate Nov 24 2008 14:07 Feb 17, 2011 Jkt 064524 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 S:\GPO\DOCS\64524.TXT SCOM1 PsN: JACKIE MGM v. GROKSTER THURSDAY, JULY 28, 2005 U.S. SENATE, COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, Washington, DC. The Committee met, pursuant to notice, at 2:34 p.m. in room SR–253, Russell Senate Office Building, Hon. Ted Stevens, Chairman of the Committee, presiding. OPENING STATEMENT OF HON. TED STEVENS, U.S. SENATOR FROM ALASKA The CHAIRMAN. This afternoon, we want to examine the issues related to the MGM-Grokster decision and the appropriate balance between copyright protection and communication innovation. The Supreme Court decision cleared the way for peer-to-peer and other communication technologies to be liable for contributory or vicarious copyright infringement. Going forward, we’ll all have to balance the competing interests of encouraging innovative services like peer-to-peer that spur new services, jobs, and economic growth against protecting content providers from piracy to ensure return on investment and continued innovation in the content space. Now, I know it’s a very controversial subject we’re dealing with this afternoon, and we have a series of witnesses here. First let me turn to our Co-Chairman, Senator Inouye. STATEMENT OF HON. DANIEL K. INOUYE, U.S. SENATOR FROM HAWAII Senator INOUYE. I thank you very much, Mr. Chairman, for hold- ing this hearing on the Supreme Court’s recent decision. As we all know, it was unanimous. It’s unusual in Washington these days to get a unanimous decision on anything, especially an issue as im- portant as copyright. In my view, the Supreme Court has struck the proper balance between protecting the rights of copyright holders and creating an environment for technological innovation, and, in doing so, has made the American consumer the ultimate winner. With its ruling, the Supreme Court has sent an important message that the law does not allow companies to induce others to steal. Given that millions of Americans have downloaded or swapped files using peer-to-peer technology, the Department of Justice ob- served that it appears many people have come to view piracy over peer-to-peer networks as different and less objectionable compared to stealing a physical copy of a CD or DVD from the store. By hold- ing companies that promote copyright infringement by clear expres- (1) VerDate Nov 24 2008 14:07 Feb 17, 2011 Jkt 064524 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\DOCS\64524.TXT SCOM1 PsN: JACKIE 2 sion or other affirmative steps taken to foster infringement, the Su- preme Court has made it very clear that stealing is unacceptable. The recording industry, motion picture, and computer software industries are key components of our Nation’s economy. According to a recent study by the International Intellectual Property Alli- ance, the copyright industries are strong and growing. In 2002, these industries accounted for 6 percent of the gross domestic prod- uct and employed 4 percent of the workers of the United States. In addition, these industries recorded more than $89 billion in for- eign sales and exports in 2002, which is well ahead of other major industry segments. Given the importance of these industries by our economy, I ap- plaud the Supreme Court’s decision to hold persons accountable for actions that encourage unlawful behavior. And so, I thank you, Mr. Chairman, for holding this hearing. The CHAIRMAN. Thank you very much. Senator Pryor, do you have a statement? Do you have a state- ment, Senator? Senator PRYOR. I don’t, thank you. The CHAIRMAN. Thank you very much. Just so the record will disclose the extent of this conflict, I’m going to put into the record the Billboard editorial of July 16 by Fred Goldring. [The information previously referred to follows:] Billboard Magazine—July 16, 2005 AFTER GROKSTER, CAN MUSIC BUSINESS SAVE ITSELF? By Fred Goldring Last week, the Supreme Court handed down a decision in the MGM vs. Grokster case that the news wires immediately heralded as a ‘‘sweeping victory’’ for our in- dustry. Then, of all people, former Recording Industry Assn. of America head Hilary Rosen spoiled the party, pointing out that while the ruling ‘‘maybe [sic] important psychologically, it just won’t really matter in the marketplace.’’ She clarified that ‘‘knowing we were right legally really still isn’t the same thing as being right in the real world.’’ Then The New York Times piled on, insisting that ‘‘[h]owever valid the industry’s desire to protect its products, trying to stop file sharing has become a Sisyphean exercise.’’ Rosen got the last word in that story, too, calling the Grokster decision ‘‘meaningless.’’ Next, a Los Angeles Times piece suggested that the recording industry might try making MP3 music legitimately available rather than trying to sell files ‘‘that re- strict copying, deter sharing and limit portability.’’ People in our industry