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The P2P Threat from Your PC The P2P Threat From Your PC November 16, 2004 Robert Steinberg Yury Kapgan* * Robert Steinberg is a partner in the corporate and litigation departments, as well as a member of both the Venture & Technology and Intellectual Property and Technology practice groups in the Los Angeles office of Latham & Watkins. Bob has a J.D. from Georgetown University and B.S. degrees in Systems Science Engineering and Economics from the University of Pennsylvania. Bob has an extensive background in business, law and engineering. His practice focuses on all aspects of negotiations, transactions and litigation and rights acquisitions concerning technology and media. He has represented start-up companies, emerging and middle market companies, major international corporations, entertainment studios, venture capitalist and investment banks, including companies such as America Online, Broadcom and Disney. Yury Kapgan is an associate in the corporate and litigation departments at Latham & Watkins in Los Angeles. He has a J.D. from the University of California, Boalt Hall School of Law and a B.A. from UCLA. Special thanks to Roxanne Christ and Dan Schecter, partners in the Los Angeles office of Latham & Watkins, for their comments on this paper. The positions and opinions taken by the authors are not necessarily representative of their employers or clients. This notice also disclaims any responsibility with regard to actions taken or results obtained on the basis of this paper. © Copyright 2004 Latham & Watkins LLP. All rights reserved. Latham & Watkins operates as a limited liability partnership worldwide, with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership. Page 1 I. INTRODUCTION Not since the advent of the VCR over 20 years ago has copyright law had the potential to affect the behavior of so many Americans so significantly. The computer technology at the heart of the recent uproar over Internet file-sharing is used by tens of millions Americans for downloading music.1 Peer-to- peer (P2P) technology essentially permits the trading online of music, movies, videogames, and practically any other file between the hard-drives of participating home computers.2 It should not be a surprise that such file-sharing has garnered a great deal of attention from big business as well as big government. The recording and motion picture industries in particular have come to believe that P2P is to blame for their declining revenues, especially the revenue decline seen by the music industry,3 which has suffered a 31 percent drop in compact disc sales since mid-2000.4 In response to this perceived threat to their livelihood, the major recording labels, their distributors, and the Recording Industry Association of America (RIAA), as well as film studios, performers, and various other associated parties have launched scores of lawsuits. Starting with P2P service providers like Napster, Aimster, Kazaa, Grokster, and StreamCast, these suits have swelled to include individual downloaders, financial investors and traditional Internet service providers (ISPs) who refused to reveal clients’ names in the face of subpoenas.5 The Motion Picture Association of America (MPAA) and most of the large movie studios are now following the recording industry’s lead by suing individuals who download movies illegally.6 Though the infamous Napster cases7 decidedly carved out the copyright landscape for P2P technology, the law on point has become part of a dynamic process whose twists and turns have been 1 See, e.g., Carl Bialik, “Key Questions in Crackdown On File Sharing by Music Firms,” Wall Street Journal Online (June 30, 2003), available at http://www.mediadefender.com/press%20about%20MD/wsj_6_30_03.htm. 2 In a conventional Internet system, users access information from servers rather from each other. A peer-to-peer system is premised on the goal of allowing users to communicate directly with each other, such that each user becomes both a client and a server that can both receive and disseminate information. See Damien A. Riehl, Peer- to-Peer Distribution Systems: Will Napster, Gnutella, and Freenet Create a Copyright Nirvana or Gehenna?, 27 Wm. Mitchell L. Rev. 1761, 1765 (2001). 3 By some estimates, the record industry’s profits have tumbled “about 10 percent annually for the past few years.” Rebecca Dana, Colleges Tackle Music Piracy, Washington Post (August 28, 2003), available at http://stacks.msnbc.com/news/958371.asp. 4 Jeordan Legon, 261 Music File Swappers Sued; Amnesty Program Unveiled (Jan. 23, 2004), at http://www.cnn.com/2003/TECH/internet/09/08/music.downloading/index.html. 5 Id.; Jen Rogers, Music Industry Suing 532 Song Swappers (Jan. 26, 2004), at http://www.cnn.com/2004/TECH/ internet/01/22/online.music/index.html; John Borland, RIAA Takes Hundreds More ‘John Does’ to Court (June 22, 2004), at http://news.com.com/2102-1027_3-5243587.html; Reuters, RIAA Sues 744 More Over File-Sharing (Aug. 25, 2004), available at http://msnbc.msn.com/id/5819566. 6 Jon Healey & Lorenza Munoz, “MPAA Plans Suits to Stop Film Piracy,” Los Angeles Times, Nov. 4, 2004, at C1, C10. 7 A&M Records, Inc. v. Napster, Inc., 114 F. Supp. 2d 896 (N.D. Cal. 2000), aff’d, 239 F.3d 1004 (9th Cir. 2001) (“Napster”). Page 2 reported in almost daily news headlines. Technological innovation has always pushed copyright law to adapt in due turn, forcing the law to embrace technologies and acts that were hardly, if at all, in existence when the Copyright Act of 1978 or even the Digital Millennium Copyright Act (DMCA) of 1998 came into being. Just a few years ago P2P file-sharing systems were fairly rare, such that copyright law hardly could have envisioned the range of conduct at issue. As a result, judges have been forced to try to adapt the general legal theories and defenses of copyright law to the particular oddities and nuances of the P2P environment. Plaintiffs have urged the courts to stretch contributory and vicarious infringement doctrines, in particular, to fit a new range of acts and actors. As the law has evolved and theories of liability arguably expanded, P2P services have responded by trying to design around and distance themselves from the features that felled Napster. Some such efforts may yet prove successful, as evidenced by the recent Ninth Circuit Court of Appeals victory for P2P services Grokster and StreamCast,8 while others like Aimster have failed and still others await their fates, leaving some uncertainty as to the future of P2P. This paper discusses the cutting-edge legal issues surrounding P2P technology, including the most recent court decisions, in the hope of providing some guidance in navigating this precarious field in copyright law. II. OVERVIEW OF P2P SYSTEMS From a technical standpoint, all P2P networks help link individual computers together, allowing one user to search and access the hard-drives of and download files from other logged-on users. If the file in question is a music file, as is often the case, User 1 might offer one music track to User 2 in the hopes of receiving a different track off the system in return. In effect, a P2P system is a virtual cooperative in which individual users afford complete strangers access to their computer files.9 In fact, the millions of computers linked together from time to time in this sort of ad hoc relationship have been said to create a massive computer “network,” built from scores of unrelated PCs in homes and businesses across the country and around the world.10 P2P providers generally distribute their software free of charge (or for a nominal fee), permitting individual users to download the P2P providers’ software onto their personal computers. It can be said that P2P providers supply the base platform from which end users exchange digital media and create the so-called P2P transfer network. A user may choose to share files from his own computer, including, for 8 Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd., 259 F. Supp. 2d 1029 (C.D. Cal. 2003), aff’d, 380 F.3d 1154 (9th Cir. 2004) (“Grokster”). The plaintiffs filed a petition for a writ of certiorari to the United States Supreme Court on October 8, 2004; the defendants filed their opposition brief on November 8, 2004. 9 Profit from Peer to Peer, The Economist, June 21, 2001, available at http://www.cfo.com/article/ 1,5309,5869,00.html. 10 Id. Page 3 example, “music files, video files, software applications, e-books and text files,”11 or merely access the files of other logged-on users. When launched, the software automatically connects the user to a P2P network “and makes any shared files available for transfer to any other user currently connected to the same peer-to-peer network.”12 A user can then search for specific files, whether audio, audiovisual or text, by using some combination of keyword, title or artist terms, as available, to retrieve the exact items desired.13 In terms of practical mechanics, P2P technologies tend to span a continuum, from systems in which individuals trade files without the intervention of servers or computers controlled by a P2P provider (a “decentralized system”), to systems in which the P2P provider’s central servers serve as a hub to help connect users and enable them to perform search functions (a “centralized system”). In a decentralized system, the P2P provider’s role is intended to be nominal, more akin to a software provider who contributes the back-end program but theoretically little else towards facilitating the swapping of files among users. In this sense, once the software has been transferred to the client, the provider’s role is complete, and it is “hands-off” from that point.
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