The Supreme Court handed movie studios and record labels a sweeping victory against file swapping, ruling that peer-to-peer companies such as Grokster could beon their networks. In a unanimous decision, the nine justices said companies that build businesses with the active intent of encouraging copyright infringement should be held liable for their customers' illegal actions.
The decision comes as a surprisingly strong victory for copyright companies and stands to reshape an Internet landscape in which file swapping has become commonplace.
The ruling will give the recording industry and Hollywood immediate ammunition to file lawsuits against file-trading companies. It could also be a boon for legal music services such as Apple Computer's iTunes, which could see their strongest competitors--freely downloadable songs--driven further underground.
Get news, analysis
and commentary on the
Supreme Court's sweeping
The decision, however, isanytime soon, industry experts say. The ruling casts uncertainty on the fate of Grokster and other file-swapping companies, but not on the viability of swapping itself, an activity that has only flourished under legal attacks, observers say. That's because the software that underlies peer-to-peer networks is designed to function and evolve without the aid of any particular commercial venture.
At the same time, recent surveys indicate that growth of unauthorized file swapping has slowed somewhat as online music stores, such as iTunes and RealNetworks' Rhapsody, have taken off. The slowdown may also be tied to the fact that the Recording Industry Association of America has sued hundreds of file swappers during the past year or so.
Many musicians, songwriters and music publishers. Although peer-to-peer networks have allowed smaller bands and musicians to reach wider audiences, illegal downloads have hurt their bottom lines by depressing sales.
"It became so rampant that it was hurting everyone," said Matt Whittington, label manager for Eighteenth Street Lounge Music, or ESL. "Everyone wants to get paid for what they do."
In another key decision, the Supreme Court ruled that cable companies willwith competing Internet service providers. In a 6-3 decision, the court overturned a federal court decision that would have forced cable companies to open up their networks to Internet service providers such as Brand X and EarthLink.
The decision likely will not affect consumers immediately, since cable companies have long been exempt from having to share their networks. But Brand X and its supporters believe that over the long term, the decision will hamper competition and ultimately lead to higher broadband prices.
The political spat likely to play out over the next few years will center on whether DSL (digital subscriber line) technologyas telephone companies. The Federal Communications Commission is mulling whether DSL should be regulated as a "telecommunications service" and thus subject to the weighty stack of regulations designed for the analog telephone system of the early 1900s--or as an "information service," which would be relatively free from government control.
Certain types of DSL should be treated with a light touch, the agency has tentatively concluded. But any definitive ruling will have to wait until a successor to FCC Commissioner Michael Powell is confirmed by the Senate. Kevin Martin, a commissioner since 2001, has been selected to fill Powell's role as chairman. But Powell's departure still leaves a vacant seat on the five-member panel.