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Justices to rule on fate of file swapping

Supreme Court decision closely watched by Hollywood, Silicon Valley could come as soon as this week.

Perhaps as soon as this week, the U.S. Supreme Court will rule on the future of file swapping, in one of the most closely watched legal battles of the year.

With implications that could ripple from Hollywood studio gates to executive suites of the biggest Silicon Valley companies, the case has drawn an impressive list of participants. Groups ranging from state attorneys general to the Christian Coalition all have weighed in, promising near-apocalyptic consequences if the court ignores their advice.

At issue is how much responsibility technology companies have for the actions of customers who use products to break copyright laws. Peer-to-peer file swapping is the heart of the issue, but the court is addressing a delicate legal balance between copyright interests and technological progress that has lasted for two decades.

The court did not rule on the issue Monday morning, one of only a few days left in the month during which it is scheduled to release decisions. The next day slated for major rulings is Thursday.

"It's been 21 years since the last case of this nature reached the Supreme Court," said Raymond van Dyke, a Washington, D.C.-based copyright attorney. "It shows the change in technology since then, and is an indication that some new directive may be needed."

Indeed, the case, pitting Hollywood studios and record labels against file-swapping companies Grokster and StreamCast Networks, is widely viewed as one of the most critical moments for technology and copyright-based businesses in years.

At issue is a series of lower court decisions that have enraged studio and label executives by saying that file-swapping companies such as Grokster are not legally liable for the widespread piracy that happens on their networks.

The most fundamental rules of economic fair play are at risk if file-swapping networks are allowed to operate as is, those companies say.

"Shall we keep in place legal protections that promote the free market, or shall we tear down those protections in such a way as to allow the black market to prosper and dominate?" Motion Picture Association of America Chief Executive Officer Dan Glickman asked in a speech on Tuesday. "These (peer-to-peer software) companies exploit content and facilitate infringement on a massive, global scale."

The studios and record labels have proposed a new standard for review, under which any company whose business is "predominantly" devoted to facilitating copyright infringement should be held liable for their customers' actions.

For their part, technology companies well beyond the peer-to-peer world deem this proposal a threat to their businesses.

Intel, venture capitalists, consumer electronics companies and more all say that the 21-year-old Supreme Court ruling on Sony's Betamax, which made VCRs legal to sell, should be maintained. That ruling said that products with "substantial noninfringing uses" could be sold without fear of legal liability.

"It's not a coincidence that the time since then has been a time of really unprecedented growth in technology companies," said Hummer Winblad venture capitalist Hank Barry, who served as chief executive officer at the original Napster for more than a year.

At the one-hour hearing on the issue in March, justices showed some indication that they were sympathetic to both sides' arguments.

Several showed little inclination to make it easier for copyright-based companies to wield influence, in the form of pre-emptive lawsuits, over the direction of technological innovation.

"What I worry about is the suit that just comes right out of the box, as soon as the company starts up," said Justice Antonin Scalia.

Yet the justices also showed little sympathy for arguments that the file-swapping companies should bear no responsibility for the copyright infringement that their products have enabled.

If companies can deliberately turn a blind eye to piracy, then "unlawfully expropriated property can be part of the startup capital for (a) product," said Justice Anthony Kennedy. "From an economic standpoint and a legal standpoint, that sounds wrong to me."

The court is slated to rule by the end of June, but the decision could come on either of the Mondays or Thursdays remaining in the month.