updated 2/3/2004 11:29:54 PM ET 2004-02-04T04:29:54

A federal appeals judge on Tuesday questioned whether distributors of online file-sharing software should be held responsible for copyright infringement just because some people use the programs to swap copyright music and movies.

In oral arguments before a three-judge panel of the 9th Circuit Court of Appeal, entertainment company lawyer Russ Frackman cited the landmark legal case involving Sony’s Betamax video recorder. While the machine had legitimate uses that did not violate the copyright of movie and television programs, Frackman said, 90 percent of the content flowing through file-sharing networks is illegal.

Judge John Noonan, however, wasn’t convinced.

“So 10 percent is non-infringing?” Noonan asked. “That sounds like a lot of non-infringing files to me.”

Answered Frackman: “If 10 percent is commercially sufficient ... then let them build their business on that 10 percent.”

The case’s outcome could determine whether music and film companies can hold distributors of file-sharing software liable for illegally swapped music and movies online.

Attorneys representing a cadre of entertainment companies and copyright holders fielded questions from the judges along with lawyers for two firms that distribute file-swapping software.

1984 Supreme Court decision scrutinized
The hearing was held to consider an appeal of an April summary judgment by U.S. District Judge Stephen Wilson in Los Angeles, who said Grokster Ltd. and StreamCast Networks Inc. are not legally responsible for the swapping of copyright content through their file-sharing software.

On Tuesday, the judges focused much of their questioning on whether a 1984 U.S. Supreme Court decision in a copyright infringement case against Sony over its Betamax videocassette recorder can be interpreted to protect the file-sharing firms from liability.

That decision held that Sony was not liable for copyright infringement when people used its Betamax videocassette recorders to copy movies illegally because the technology had significant uses that did not violate copyrights.

Wilson applied the Supreme Court’s decision in the Sony case when he ruled in favor of Grokster, which distributes file-sharing software by that name, and StreamCast, the firm behind the Morpheus software.

Frackman said Sony made money by selling the Betamax and could not control how consumers used it. But Grokster and StreamCast could filter the copyright content from their systems, like they do with computer viruses, but refuse to do so, because the free songs and movies are what draw their users and ultimately generate ad profits, he said.

“They give their software away for the very purpose of capitalizing from this ongoing relationship ... based on 90 percent infringement,” Frackman said. “That makes Sony an impossible defense here.”

Fred von Lohmann, a senior intellectual property attorney for San Francisco’s Electronic Frontier Foundation who argued on behalf of StreamCast, said the firms’ software is used to swap live music by Pearl Jam, Dave Matthews and Phish — songs which the artists have allowed to be freely distributed, he said.

“Two million songs by (The) Prodigy have been distributed with authorization,” von Lohmann said. “The record is undisputed that these pieces of software are capable of substantial non-infringing uses.”

Judge questions impact
Another member of the panel, Judge Sydney Thomas, questioned whether forcing the file-sharing firms to filter copyright content would ultimately do enough to quell file-swapping on the Internet.

“Aren’t we just chasing the wind?” Thomas asked.

Frackman said Napster’s failure as an illegal file-sharing enterprise because of legal action showed that courts play a major role in curbing such copyright abuses.

Legal experts said the panel could take months to rule. The 9th Circuit took about four months to return a decision in an appeal of the entertainment companies’ suit against Napster in 2001.

A successful appeal would clear the way for the entertainment companies to pursue legal action against Grokster and StreamCast. The outcome of the appeal will also affect the entertainment companies’ case against Sharman Networks Ltd., makers of the Kazaa program, which averages more users than any other file-sharing software.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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