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High Court Must Protect Innovators

Everyone knows about the problems facing Hollywood and the recording industry because of the rampant illegal trading of their goods via peer-to-peer Networks.

Both industries have launched legal campaigns to stamp out illegal file trading and in one case, it has reached the Supreme Court. While most consumers do not follow Supreme Court cases, this is one we should all watch because the impact on the future of technology innovation could be significant.

Remember the Betamax (search)? Most people would probably answer that question by saying, “Oh, yeah. Those videotapes we used to have back in the ‘80s.”

The Betamax recording device may have faded from our collective memory, but the name lives on in the form of an important legal standard, generally referred to in legal shorthand simply as Sony Betamax. In layman’s terms, Sony Betamax serves to balance the interests of those who create copyrighted works and those of innovators who develop new technologies that might be used by others to make copies of copyrighted materials, such as television programs and music.

The question of proper interpretation of Sony Betamax as a legal doctrine is at the heart of a technology case, the Grokster (search) Case, on which the U.S. Supreme Court will hear oral arguments on March 29. At issue is the question of whether companies like Grokster that develop and distribute peer-to-peer file-sharing programs should be liable when users of their programs engage in copyright infringement.

Companies like Grokster and others that provide the peer-to-peer file-sharing software say they should bear no liability for any copyright infringement that might be perpetrated by their customers. They are joined in that view, in large part, by manufacturers of consumer electronics devices.

Equally unsurprising is the fact that owners of the copyrighted material – movies, music, and other intellectual property – are on the other side of the argument and want the Groksters of the world to be held liable when the tools they created are used to make illegal copies. After all, they argue, Grokster is the one that made the file-sharing possible and thus enabled the piracy in the first place, according to this legal reasoning. They also say that Grokster is actively encouraging copyright infringement.

So far, as this case has wound its way through the legal system, both a federal trial court and the 9th Circuit Court of Appeals in San Francisco have sided with Grokster. Citing the Sony Betamax standard, these courts have held that since the Grokster software is capable of substantial non-infringing uses, then Grokster is not liable.

The Gregorian knot is now presented to the Supreme Court for untangling. And the stakes are high. Generally accepted estimates are that these peer-to-peer file-sharing systems have been used to circulate millions of copies of pirated intellectual property (search) including movies, songs and computer software. So that means that billions of dollars are potentially at stake.

There is also a great deal at stake for consumers themselves.

Unless the courts maintain a proper balance between protecting innovation and discouraging piracy, the steady pace of technology advancement we have come to expect over the years could be in jeopardy. The Sony Betamax decision has worked to promote innovation. But if it is misinterpreted by the lower courts it can instead have a perverse effect. It must not become a shield from liability for unlawful active encouragement of copyright violations. If the 9th Circuit decision in the Grokster case is allowed to stand, it could easily be just that.

The Supreme Court needs to clarify that the 1984 Betamax decision protects the design, development, manufacture and distribution of technology-based products and services. But the court also needs to balance that by upholding the principle that there is a secondary infringement liability for conduct that goes beyond these activities.

In the days since we first heard the word Betamax, consumers have been greatly enriched by technology advances. That happened because the creators of the intellectual property behind those advances – whether individuals or corporations – knew that their rights would be protected by the law. Preservation of the Betamax legal standard, along with its proper interpretation by the courts, will help allow that technology leadership to continue to work for the benefit of consumers.

And that is what I, for one, hope will come out of Supreme Court review of the Grokster case.

Jim Prendergast is executive director of Americans for Technology Leadership.