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Ruling bolsters file-traders' prospects

A Dutch court becomes the first to protect a file-swapping company against copyright liability, ruling it is not responsible for the actions of people using its software.

Embattled Internet song- and movie-swappers were given new hope Thursday by a Dutch court ruling protecting the legality of popular file-trading software.

In a surprise decision, an appeals court in the Netherlands overturned a lower court ruling that had held file-trading company Kazaa BV liable for copyright infringement, saying Kazaa is not responsible for the illegal actions of people using its software. That decision--which still can be appealed to a higher court--was the first anywhere to protect a file-swapping company against copyright liability.

Lawyers and file-swapping aficionados in the United States are now scrutinizing the decision to see what effect it could have in U.S. courts, or in providing a safe overseas haven for the distribution of software that might ultimately be deemed illegal in the United States.

Analysts say one more swapping-friendly nation may not make much difference in a world where remote countries without strict copyright enforcement are tied into international networks. But the ruling does put new pressure on the copyright industry's increasingly international battle to keep control of their songs, movies and software.

"Finding (piracy) havens is not difficult," said Jupiter Media Metrix analyst Aram Sinnreich. "But having that haven right there in the European Union would further isolate the American copyright industry from the rest of the world."

A complex conflict
Dutch company Kazaa BV distributes the FastTrack file-swapping software used by Grokster and Sharman Networks' service, and formerly by MusicCity's Morpheus. The company is also being sued in the United States, along with Grokster and MusicCity.

Copyright holders, although criticizing the example set by Dutch courts, downplay the effect it would have on their overall piracy battle, even if upheld by the Netherlands' Supreme Court.

"I don't think this summary decision...will have any more impact than it would have from any other country that doesn't enforce copyright law consistent with the United States," said Matt Oppenheim, a senior vice president with the Recording Industry Association of America.

Attorneys say the issue could force an unusual conflict between national courts and governments, however.

Any Dutch company that offers software and advertising to U.S. residents can still be sued in U.S. courts, attorneys say. Collecting damages or enforcing an injunction against a Dutch company with no U.S. assets or servers is trickier.

Dutch attorneys say no international treaty provides for direct, automatic enforcements of U.S. civil judgments in the Netherlands. Instead, U.S. companies must seek an enforcement order from a Dutch court.

Most European and U.S. courts respect foreign decisions unless they are deemed to violate public policy. But there are exceptions. A U.S. court, for example, recently decided not to uphold a French court's block of sales of Nazi memorabilia on Yahoo, saying it violated American public policy interests.

With file swapping, the public policy issue could become a wild card, attorneys say. Copyright holders might be able to convince Dutch courts that pursuing file swappers is in the country's public policy interest, and so going against a local court's ruling is justified. Or they might not.

However, copyright holders say there could be other avenues. Working through international treaties or organizations dealing with copyright, such as the Berne Convention or the World Trade Organization, could provide some leverage. Even attacking a company's domain name, which could be hosted on U.S. servers, might provide options.

"There are many avenues," said Mark Litvack, a vice president and director of international piracy issues for the Motion Picture Association of America. "The Internet--unfortunately--sometimes makes those who are doing illegal things harder to find. But they're usually found."

Still, many file-swappers are now wondering if the Dutch ruling will let the Netherlands become a safe haven for file-swapping companies, which could distribute their wares from servers in that country without fear of liability.

That idea, in other forms, has sprung up repeatedly since the original U.S. court ruling against Napster. People immediately began speculating that file-swappers' servers would begin migrate to regions outside U.S. jurisdiction or beyond the reach of international treaties. The notoriously libertarian pseudo-nation Sealand, a former military station located off the coast of Britain, was often cited as a future home for Napster clones.

Little effect on U.S. cases
While it is likely to play some small role here, it's difficult to see the Dutch decision directly affecting the record industry and Hollywood studios' case against Kazaa and its peers in the United States, attorneys say.

"The Dutch court is not binding in any way on U.S. courts," said John Delaney, a New York-based intellectual property attorney with Morrison & Foerster. "A U.S. court would apply U.S. law, which is very different."

Nevertheless, attorneys for Kazaa and the other defendants in the United States welcomed the Dutch decision. They noted that the big record labels and movie studios had included the earlier Dutch ruling against Kazaa as a part of their U.S. lawsuit exhibits.

"I assume that they believe (that) case is as relevant as before," said Wilson Sonsini Goodrich & Rosati attorney Andrew Bridges, who is representing MusicCity.

While unlikely to be the sole basis for any future developments in the U.S. case, it would certainly come up in court, the file-swapping companies' attorneys said.

"We will let this court know that an appellate court, looking at the same arguments, reasoned through the legal and technical issues and decided" in Kazaa's favor, said Ken Wilson, Kazaa BV's U.S.-based attorney.