Thursday, June 30, 2005

Supreme Court doesn't kill off technology or P2P

It's hard to remember the last time that each side in a major court case misread a ruling so badly as in the Supreme Court case about Grokster. While the major labels crowed that they had slam dunked a major victory, defendants including various Peer-to-Peer services painted a gloomy scenario of a devastated online music landscape. The truth lies somewhere in between these two views though.

First of all, start with the ruling itself. Reading through it, you see that it's not as clear as either side would have you believe. Bob Lefsetz's article What Doomed Them has extensive quotes from the decision. The substance there is that the decision hinges on the point that StreamCast asked for trouble by poising itself as "the next Napster." In other words, if you put out P2P software online and you ask for advertising dollars 'cause you're gonna get thousands of people trading MP3's without paying for them, you're gonna be in trouble with the courts. As a Harvard law professor puts it more artfully in an L.A. Times article (Firms Can Be Held Liable for Net Piracy), "There's only one thing that will clearly get you in trouble after this opinion, and that is actively promoting or marketing it for illegal purposes."

Which is all good and well but the problem is that this still isn't a cut and dry matter. What exactly constitutes 'promoting or marketing' these kinds of services is something that's still going to need some clarification. A sage editorial from Wired (The Real Lesson of Grokster), explains this:

"Even if companies have not promoted infringement in obvious ways, plaintiffs could still tie them up in litigation and costly discovery in search of damning e-mails--actions that could drain the coffers of thinly financed start-ups but barely dent the resources of the motion picture and music industries.

"The high court did a lot of things right in Grokster. But defending the rights of copyright holders in the face of disruptive new technologies does not demand protecting outmoded ways of selling products. It's time for the entertainment industry to accept the inevitable and stop trying to use the courts to put a leash on unpredictable new technologies."

And you know what? Even Hilary Rosen, former RIAA head and leading villain in the music industry, actually agrees with them. After a boneheaded, hollow contention that "we won" (echoes of Gina Arnold?) in a blog for the Huffington site (The Wisdom of the Court , Part 2), she goes on to say: "The euphoria of this decision does not and should not change the need for the entertainment industry to push forward and embrace these new distribution systems." This follows up on an earlier post (The Supreme Wisdom of Not Relying on the Court) just before the court decision where she talks about the authorized and unauthorized online music services: "These (non-authorized) services have traffic at a rate 40 to 50 times the traffic of legitimate sites. Yet, the amount of time and money wasted on besting the game by the entertainment and technology industries is huge. This volume needs to be embraced and managed because it cannot be vanquished. And a tone must be set that allows future innovation to stimulate negotiation and not just confrontation." Too bad she didn't have the same wisdom when she ran the RIAA and made all kinds of excuses for the majors' heel-dragging on the subject.

Which all goes back to the ultimately blunted impact this decision is going to have. While you can't totally dismiss a scenario like Cory Doctrow's Supreme Court Strikes a Blow against P2P Sharing where other countries are going to take up the tech slack if U.S. companies are going to stop them in courts, two other articles point to the problem that major labels are going to have with using this as a club against tech companies. Jon Pareles' The Court Has Ruled So Enter the Geeks argues that tech geeks always find a way around majors' maneuvering, includes each new generation of file sharing and MP3 blogs. Reason's Don't Stop Grokkin' also believes that this court decision isn't going to change much in the future in and of itself, mainly because it still has the fuzzy 'induce' language to say what is and isn't promoting theft. In other words, the courts are going to need to find specifics as to what the hell the Supreme Court said. One theory is that it will take a company like Apple to sort out this mess if they get nailed for their recent Podcasting initiative: Grokster May Haunt Podcasting. If the company that once told consumers to "Rip, Mix, Burn" can show that it isn't promoting music theft here, the courts would be hard pressed to rule against them. As such, it would take a company as big as Steve Jobs and friends to put enough legal muscles and money to hold back the majors from destroying their own industry.

Again, the important thing to remember about the decision is that even though the Supreme Court set a standard of what was a no-no for P2P, the lower courts still have to make their own final ruling in this (which is probably going to be argued back up to the Supremes anyway). These other courts have been using the 1984 Sony decision as a legal benchmark, correctly noting that VCR's had legit purposes- and sure enough, the entertainment biz was able to exploit it to their advantage to the tune of billions of dollars a year. That bolsters Lil Hilary's argument that the biz needs to do the same with these online services or else.

What that means is that the next move in this battle will come from the lower court decisions on this case. If they go along with the S-Court guidelines and rule against StreamCast and others based on intent, it obviously won't end the battle. Even if Apple isn't dragged into the fray, another software company will inevitably make it there. As noted above, many of the smaller companies won't have the money to duke it out but Microsoft or Sun (who live in court) will not only have time, money and legal power to battle this, it will be in their own interest to bat down any kind of nonsense challenge to their technology. Microsoft especially has coffers that make the majors look like mom-and-pop businesses and has also shown a proclivity to world (economic) domination so good luck trying to keep them back.

Because these battles can take a while though, Doctrow's worries may not be totally unfounded. As it stands, a lot of entertainment technology makes the rounds in East Asia months or years before it makes it to the States. No amount of lobbying is going to make them shut down their labs in sympathy with the majors while these delicate matters are being hashed out in U.S. courts. Rulings in the States aren't going to stop them and they should go ahead with any potential technology they're developing. Once they do and it makes it out to the Net, we all know how hard it is to cap anything flowing through cyberspace.

I'm not even convinced that the majors themselves aren't cynically playing this P2P card themselves. Even while they prosecute record stores for circulating unauthorized material offline, they don't seem to have a problem with some rap artists who generate their own mixtapes to generate interest in their work. Also, how do you explain the lack of prosecution with MP3 bloggers? Some of the high-tier scribes here get their own advance copies of releases directly from the labels- if they put up full-length songs on their sites for anyone to download for free, where's the legal line to be drawn for P2P services which do the same thing?

Pareles is right to note that this is a large-scale cat and mouse game going on. Techies come up with something that disrupts the music biz status quo and then lawsuits follow to stop them and then they come up with new technologies to get around that. And on it goes. Rosen has the right idea too but the majors haven't shown a good track record with embracing new technology quickly. Since it's happening faster and faster, they're going to have to learn to adopt even more quickly than before or else. The problem is that these huge bureaucracies can't do anything quickly- they're build around lawyers, meetings, committees, accountants that make such a thing impossible. What that would seem to mean is that smaller, leaner indies would be more equipped and adept to deal with these issues. Ideally that's the case but as far as I can tell, that hasn't necessarily happened, not because of will (I think) but because of nature of their size, it's not as easy to devote resources to catch up to all the tech innovations.

Any way you look at it, there's plenty of bloody battles coming about online music. I said it before and it bears repeating- until the labels invest more in innovation than litigation, they're screwed. And I don't mean copy protecting either- fans want music everywhere, anytime and they can get around this crap with a magic marker and other lo-fi methods. How technological is that?


Blogger Scott Soriano said...

One of the "solutions" some folks (econ profs at UC Berkeley & some politicos) are pushing is a nationwide tax that would get distributed to record companies and musicians to "make up for lost sales." I assume that since the RIAA is the organization which is recorgnized by the powers that be and the mainstream as representing the music industry, they would be the conduit for these funds. As a result only those recognized as record labels and musicians by the RIAA would get the tax money (after they and the gov't took their slice). Since there is no way to really know how many people download what songs, the RIAA would estimate based on what they THINK a band should be selling or has sold in the past. Thus major labels and bands such as U2, Destiny's Child, & Coldplay would slurp up most of the money and small bands and indies would be left out. Any one involved in indie labels, especially small indie or micro labels, knows that the RIAA has absolute no interest in them. What results is a public subsidy for major corporations.

There is also legislation pending in NJ & Wisc. that would create an MP3 tax. The tax would apply to downloads. The RIAA is very hip on this as it would give the gov't a very strong enforcement tool in the RIAA's fight against "illegal" downloads. Those who do P2P trading would be dodging taxes. For any trade is taxable even is cash is not involved, because the tax is based on the value of what is traded not the cash itself. Of course this doesnt get enforced but it can (and will if the RIAA has their way).

This is different than the so-called MP3 tax which some Euro countries have and which is under consideration in NJ and Wisc. (which I'll get to in a second).

2:21 PM  

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