Innovation v. Establishment
An Analysis of the Peer-to-Peer Wars and the Future of the Music Industry
Shokoh Honey Yaghoubi
Posted Sunday, May 1, 2005
5 U.C. Davis Bus. L.J. 17 (2005)


Innovations in technology pose challenging questions relating to the control authors can exercise over their works. The Copyright Statute, enacted by Congress to implement the copyright provision of the Constitution, gives authors exclusive rights in certain areas, including reproduction, distribution, derivative works, public performance, and public display of the copyrighted material.[1] Courts often use a balancing approach in deciding the amount of power authors should have over their work. For example, one senator proposed that the balance should be such that "creators should maintain sufficient control over new markets to keep the copyright incentive meaningful" but not so much as to stifle the creation of new technologies.[2] This balance, however, is difficult to maintain and technological progress alters the equilibrium between creators and users.

Traditionally, copyright owners in America have had near exclusive control over their works.[3] This was due both to the copyright protection afforded by the Constitution and the relative difficulty in copying and disseminating works. For instance, until the advent of the copy machine, consumers either purchased or borrowed copyrighted works.[4] Similarly, before the invention of audio and video recording equipment, consumers only had access to works through licensed media. Despite these technological advances, however, copyright owners were not threatened with massive infringement. It was still cumbersome and time consuming to make copies and the quality of the copied audio or video product was generally inferior to the original. For instance, each subsequent copy of an analog tape is inferior in sound quality to its predecessors and the original.

With the advent of digital technology and the Internet, however, copyright owners have been presented with a massive threat unmatched by earlier technological shifts-global exposure and similar quality copies at a minimal cost.[5] This new technology has become a source of legal trouble because it enables consumers to reproduce and distribute copies of copyrighted works on a large scale with minimal financial and time expenditures while maintaining the quality of the original work.[6] Additionally, this system threatens to undermine the Constitutional system of economic incentives to create.[7] If authors and inventors lose control over their exclusive rights, they will be unable to demand the same compensation for their work. This threat has led some copyright holders to attack those who engage in infringing activities. At the forefront of this assault are lawsuits by the music industry. This industry's targeting of individual violators has sparked considerable debate over what measures are appropriate to ensure enforcement of copyrights.[8]

From the inception of peer-to-peer networks to the response of the music industry to unauthorized digital downloading, this paper examines the relevant protections that copyright law provides to musical works. It also analyzes the changes that Congress has made to copyright law in response to the development of the Internet. It then presents the rise of peer-to-peer technology and the subsequent reaction of major copyright holders. Finally, this article will explore Congressional efforts to deal with peer-to-peer technology and the societal response to current copyright law. It will also explore the efforts of the music industry and others to adapt to the new technology and infrastructure that allow for easy copying and unauthorized mass dissemination of copyrighted works.


Article I, Section 8, Clause 8 of the United State Constitution provides that "Congress shall have the power… to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."[9] The First Congress implemented the copyright provision of the U.S. Constitution in 1790. The law was meant to provide an incentive to authors, artists, and scientists to create original works by providing creators with a monopoly. At the same time, this monopoly was limited in order to stimulate creativity and the advancement of "science and the useful arts" through wide public access to works in the "public domain."[10] Since 1790, the Act has undergone many major revisions, with the last major revision occurring in 1976.[11] The 1976 Act preempted all previous copyright law and was designed to address technological developments and their impact on copyright.[12]

The Copyright Act distinguishes two types of copyright in a recorded piece of music. The first is the copyright that the composer owns, which includes both musical notes and lyrics.[13] The second is the copyright in the sound recording, which is generally governed by contract law.[14] The composer of a musical work is granted copyright protection under section 17 U.S.C § 106 of the Copyright Act. This gives the holder the exclusive rights to reproduce the work; prepare derivative works; distribute copies by sale, rental, lease, or lending; and to publicly perform the work.[15] In terms of sound recordings, § 106 grants the owner of the copyright in the sound recording the exclusive right to perform the copyrighted work publicly by means of a digital audio transmission.[16] However, the exclusive right held in sound recordings is limited by 17 U.S.C. § 114. For example, the exclusive right to reproduce a sound recording is limited to duplication by "phonorecords or copies that directly or indirectly recapture the actual sounds fixed in the recording."[17]

Until recently, copyright owners focused legal action against the file sharing services that facilitated unauthorized downloading of copyrighted files rather than suing direct infringers individually. These early cases were based on theories of secondary liability. Therefore, in order to understand the development of copyright law as it pertains to the Internet, one must examine the theories of secondary liability that allowed copyright owners to bring suit against services that are not direct infringers.


The Copyright Act does not include any statutory provision providing for liability for the infringing acts of another. A long series of cases stemming from both the 1909 Copyright Act and the current Act, however, have imposed contributory or vicarious liability for infringement. In Sony Corporation of America v. Universal City Studios, 464 U.S. 417, 435 (1984), the Supreme Court stated:

The absence of such express language in the copyright statute does not preclude the imposition of liability for copyright infringements on certain parties who have not themselves engaged in the infringing activity. For vicarious liability is imposed in virtually all areas of the law, and the concept of contributory infringement is merely a species of the broader problem of identifying the circumstances in which it is just to hold one individual accountable for the actions of another.[18]

In order to establish a case under vicarious liability the plaintiff must prove two elements. First, that the defendant possessed the right and ability to supervise the infringing conduct and second, that the defendant had an obvious and direct financial interest in the exploitation of the copyrighted materials.[19] Accordingly, in a series of "Dance Hall" cases decided under the vicarious liability provisions of the 1909 Act, courts held that when a musical group performs music without permission, each member of the group is directly responsible for infringement.[20] In addition, the Supreme Court held that the owner of the place where the music is performed is vicariously liable for the infringing activity because he financially benefits from the infringement and has the right and ability to supervise the act.[21]

Based on this authority, in Fonovisa Inc. v. Cherry Auction Inc., 76 F.3d 259, 262-263 (9th Cir. 1996), the Ninth Circuit held vicariously liable the landlord of a swap meet that served as the premises for the sale of infringing works, even though the vendors paid low daily rental fees.[22] The court found that the defendants "reap financial benefits from admission fees, concession stand sales, and parking fees all of which flow directly from customers who want to buy the counterfeit recordings at bargain basement prices."[23] The recent Internet file sharing cases have refined these established principles of vicarious liability. For instance, the Ninth Circuit held in A&M Records Inc. v. Napster, Inc., 239 F. 3d 1004 (9th Cir. 2001) that even absent receipts of any revenues, a future hope to "monetize" constitutes a financial interest in the exploitation of the copyrighted material.[24] The Ninth Circuit interprets "financial interest" to encompass both direct benefits and possible indirect benefits that have yet to be realized. It found that Napster's failure to police the system combined with the potential financial benefit flowing to Napster from the system made Napster vicariously liable.[25]

Secondary liability may also be found through a theory of contributory infringement. Like vicarious liability, contributory infringement involves a two-part test. The first part of the test requires that the defendant have knowledge of the infringing activity.[26] The second prong requires that the defendant induce, cause, or materially contribute to the infringing conduct of another.[27] In the Sony case, the Supreme Court described a contributory infringer as one who "was in the position to control the use of copyrighted works by others and had authorized the use without permission from the copyright owner."[28] As a result, in cases where vicarious liability is lacking because there is no supervision or direct financial benefit, liability may still exist if the defendant acts with knowledge and his activities somehow aid or contribute to the infringing acts of a direct infringer.

There are certain types of activities that have been litigated under the theory of contributory infringement. For instance, experts have suggested that having facilities where the infringing activity may be conducted and knowing that people will use the facilities to conduct infringing activities may result in a finding of contributory infringement.[29] In Electra Records Co. v. Gem Electronic Distributors, Inc., 360 F. Supp 821 (E.D. N.Y. 1973), the district court held the defendants liable because they operated a business that lent costumers copyrighted tapes and also sold blank tapes.[30] This district court found the defendants liable as contributory infringers even though it was the customers that actually duplicated the tapes.[31]

In Sony, however, the manufacturers of the Betamax recording equipment were not found liable for contributory infringement even though it was through the use of the Sony-manufactured equipment that people were infringing copyright.[32] The district court found that mere knowledge that the equipment might be used for infringing purposes was not enough to constitute contributory infringement.[33] It analogized the case to a line of patent cases that used the "staple articles of commerce doctrine" which said that if a product is suitable for "substantial non-infringing uses" the manufacturer cannot be held liable as a contributory infringer.[34]

The Supreme Court upheld the decision of the district court.[35] Its decision was primarily motivated by the public policy concern that creating liability for manufacturers of recording equipment could result in socially harmful results.[36] An oft quoted example is that under this theory of liability, even a manufacturer of a pencil could be found liable for contributory infringement. Furthermore, the Supreme Court was reluctant to find liability because it felt that doing so would impede technological progress.[37] In contrast, the circuit courts have generally been far more reluctant to protect technological advances at the expense of copyright owners - particularly in peer-to-peer cases.


A. The File Sharing Technology

At the heart of the current controversy is the spread of digital file sharing services. Digital technology allows for a perfect reproduction of a sound recording. This recording can then be compressed into the MP3 format and quickly and easily transported across the Internet. Although the MP3 format decreases the quality of the original sound recording, peer-to-peer systems transfer files in this format because of its ease of use.[38] The nature of file sharing technology ultimately implicates copyright law as the digital files being shared are "fixed" for purposes of copyright law (whether on a hard drive, CD, or in RAM) and the transmission of a file from one person to another results in a reproduction, a distribution, and possibly a public performance.[39]

There are different types of file sharing services. The first is the system design used by Napster which operated through a central server. Online users uploaded their files to the central server and a list was created for other users' search requests.[40] Once another user selected a file to download, the server communicated the host user's Internet address to the other computer and connected the two so that the files could be transferred.[41] This is in contrast to "pure" peer-to-peer file sharing service such as Gnutella, which allow for direct file sharing without a gateway between the two systems. With the Gnutella system there is no central server because individual computers are able to directly search other computers for available files.[42] Consequently, where Napster's central server was a key component of the file sharing process, giving Napster the ability to control or supervise the underlying conduct of its users, the pure peer-to-peer system has no similar point of control. Pure peer-to-peer is difficult to design because the lack of centralized control makes it difficult to ensure that the quality of performance of the system is maintained as the network grows. In addition there are issues of trust within the network as there is no central authority that regulates content or conduct.[43]

B. The Peer-to-Peer Cases

1. Napster

Several notable cases highlight the problems associated with emerging technology and existing copyright law. The most prominent of these cases is the Ninth Circuit's A&M Records Inc. v. Napster, Inc. In the 1990's, Napster revolutionized the Internet with its peer-to-peer system, which allowed users easy access to MP3 files stored on other users' hard drives.[44] The system allowed individuals to search for MP3 music files stored on other people's computers and for the transfer of exact copies of those files from one computer to another.[45] In order to access the system, the user was required to register with the Napster system by creating a "username" and password and installing Napster's MusicShare software on his or her computer.[46] Downloaded MP3 files could be played directly from the user's hard drive or transferred to an audio CD if the user possessed the necessary equipment and software. Using this system, sound quality was slightly diminished compared with the original recording because of the conversion to MP3 format.[47]

The issue before the Ninth Circuit in Napster was whether it should uphold the district court's injunction against Napster. The lower court had found Napster vicariously and contributorily liable for infringement. The Ninth Circuit first addressed the contributory infringement claim. Using the two-prong test discussed above, it held that Napster satisfied the first prong of the test because Napster had both actual and constructive knowledge of the infringing activity.[48] In finding actual knowledge, the Ninth Circuit looked to a document authored by Napster's co-founder admitting that the users were exchanging "pirated music" and that the Recording Industry Association of America ("RIAA") had informed Napster of over 12,000 infringing files on its system.[49] In reaching its conclusion, the Ninth Circuit rejected Napster's claim that under the reasoning of Sony they were not liable, as the file sharing system was "capable of substantial non-infringing use."[50] The Ninth Circuit reasoned that if an entity has control over and derives a financial benefit from the direct infringement, the existence of "substantial non-infringing uses" for its service is irrelevant.[51]

Addressing the second prong of the contributory infringement test, the Ninth Circuit held that Napster materially contributed to the infringing activity because without the support services that Napster provided, users could not download music.[52] In holding that Napster had actual knowledge, the court stated, "if a computer system operator learns of specific infringing material available on its system and fails to purge such material from the system, the operator knows of and contributes to direct infringement."[53] The Ninth Circuit clarified, however, that "absent any specific information which identifies infringing activity, a computer system operator cannot be liable for contributory infringement merely because the structure of the system allows for the exchange of copyrighted material."[54] Therefore, the court concluded that control is a necessary component for secondary liability.

Turning to the issue of vicarious liability, the Ninth Circuit found that Napster financially benefited from the availability of protected works on its system because a large user base would eventually draw advertisers.[55] However, it disagreed in part with the findings of the district court in terms of Napster's ability to supervise its services. The district court had found that Napster had the "right and ability to supervise its users' conduct."[56] Although the Ninth Circuit held that Napster had the right and ability to police its system and failed to do so, it nevertheless recognized that the boundaries of such policing were limited because the system's architecture did not "read the content of the indexed files."[57]

The Ninth Circuit then considered Napster's claim that there was no direct infringement because its users were engaged in fair use of the material. The court rejected this contention, noting that the use was largely commercial in nature and that Napster was engaged in "repeated and exploitative" copying of copyrighted works.[58] The Ninth Circuit noted that fair use is limited to unauthorized copying which does not materially impair the marketability of the work copied.[59] The court found that there was a deleterious effect on the present and future digital downloading market, and as such, Napster's users did not have a fair use defense.[60] The Ninth Circuit explained that "lack of harm to an established market cannot deprive the copyright holder of the right to develop alternative markets for the works."[61]

The injunction against Napster was a great victory for the music industry. The Napster system had been one of the greatest threats to the music industry to date because of its widespread use. As subsequent cases showed, however, the power to block a particular technology is not the power to prevent progress. The Ninth Circuit's emphasis on control in Napster became a lesson for future peer-to-peer networks. Therefore, developing pure peer-to-peer networks without such central control became the goal for the technologically savvy. As the following cases demonstrate, these innovative efforts were ultimately successful.

2. Aimster

Following in the footsteps of Napster, the Seventh Circuit in In re Aimster Copyright Litigation, 334 F.3d 643 (7th Cir., 2003), addressed the same vicarious and contributory infringement claims. In In re Aimster, the plaintiffs succeeded in obtaining a preliminary injunction in the district court and the Seventh Circuit upheld the ruling, concluding that the copyright owners were likely to prevail on their claim of contributory infringement.[62]

In order to use the Aimster file sharing services, users downloaded software and then registered on the website with a username and password.[63] Users could then exchange files with other online users who were connected in a chat room enabled by an instant-messaging service. The Aimster server provided the matching service but did not make copies of the swapped files.[64] Unlike the Napster system, Aimster users could designate other registrants as "buddies" and then communicate directly with each other when both were online, attaching to their communications any files that they wanted to share.[65] In addition, Aimster encrypted all communications with its own encryption software. If the user did not designate buddies, every Aimster user became his buddy, and he could send or receive files from any of them.[66] The Aimster system searched for requests from users and once the requested item was located, the system instructed the computer that had the file to initiate a transfer with the searching computer.[67]

The Seventh Circuit concluded that Aimster was a contributory infringer because Aimster knew of the direct infringement and had materially contributed to the infringement.[68] It rejected Aimster's argument that that they did not have actual knowledge because the encryption system prevented them from knowing what was being copied.[69] The Seventh Circuit said that "willful blindness is knowledge in copyright law…as it is in the law generally."[70] Also, in looking at Sony's "substantial non-infringing uses" test, it found that although there were possible non-infringing uses, Aimster failed to produce any evidence that its service had ever been used for non-infringing purposes.[71] The Seventh Circuit also stated that even if there are non-infringing uses, "the provider of the service must show that it would have been disproportionately costly for him to eliminate or at least reduce substantially the infringing uses."[72] Similarly, the court found that Aimster facilitated the infringement by providing software and support services, thereby inducing, causing, or materially contributing to the infringing activity.[73]

The Seventh Circuit was less confident than the district court that the music industry would prevail on the issue of vicarious infringement.[74] The Court of Appeals reasoned that by eliminating the encryption feature and monitoring the use of its system, Aimster could have limited the amount of infringement.[75] The Seventh Circuit compared this to the Sony decision which held that Sony was not a vicarious infringer even though Sony could have reduced the likelihood of infringement by a design change.[76] Judge Posner then went on to say that Aimster's "ostrich-like" refusal to discover the extent to which users were employing its system to infringe was merely another piece of evidence for contributory infringement[77] and affirmed the district court's preliminary injunction.

Aimster's attempt at avoiding secondary liability failed because it did not establish a true peer-to-peer system. Unlike Napster, no files or names were uploaded onto Aimster's servers. Nevertheless, the Seventh Circuit refused to find in favor of Aimster because its efforts to avoid control were contrived and deliberate.[78] The court recognized that the encryption feature is a valuable tool for the Internet but that Aimster's use of the feature was a deliberate attempt to avoid knowledge of what it should have known were infringing acts by its users.

3. Grokster

Aimster and Napster were both great victories for copyright holders, but subsequent court decisions made it more difficult for the music industry to succeed on its secondary liability claims because they established bifurcated treatment of file sharing systems based on whether users' shared files passed through a central server over which the file sharing service had control. On April 25, 2003, a California district court decided in favor of the peer-to-peer file sharing service in Metro-Goldwyn-Mayor Studios, Inc. v. Grokster, LTD., 259 F. Supp. 2d 1029 (C.D. Cal. 2003).[79] Much like the Napster software, the Grokster software could be installed free of charge from the defendant's servers. Once the software was installed, users could choose to share certain files such as music or movies. The software then automatically connected the user to a peer-to-peer network and made any shared files transferable.[80]

The plaintiffs in Grokster argued that the defendants were both vicariously and contributorily liable for the infringing acts of the users of the Grokster and StreamCast software. In looking at the knowledge factor for contributory infringement, the district court found that there were substantial non-infringing uses for defendants' software.[81] For instance, the court found that the system was regularly used to search for public domain and government materials.[82] The district court also agreed with defendants' contention that in order to be liable for contributory infringement, "they must have actual knowledge of infringement at a time when they can use that knowledge to stop the particular infringement."[83] The court found that notice of infringing conduct is irrelevant if it comes at a time when the defendants can do nothing to stop the alleged infringement.

On the question of whether or not the defendants materially contributed to the infringing activity, the issue before the court was whether or not the defendants only distributed software or whether they also had the power to stop the users' infringing activity.[84] Here, the district court found that the defendants did not operate a centralized file sharing network,[85] but a "pure" peer-to-peer system which allowed for direct file sharing.

Grokster's decentralized architecture was based on FastTrack software technology which utilized "supernodes."[86] An end-point on the Internet, such as a user's computer, is normally referred to as a "node."[87] Supernodes have the heightened function of accumulating information from other nodes.[88] An individual node, such as a personal computer using this software, selects its own supernode status. Then, when the user starts his or her software, the user's computer finds a supernode and connects to the network.[89] As a result, each node in the network is dynamic, selecting its supernode status based on the resources needed and the availability of the network.[90] The evidence in the case showed that Grokster's software was preset with a list of "root supernodes" over which Grokster originally had some control but no longer did.[91] In light of this evidence, the district court found that Grokster did not provide "the site and facilities for direct infringement."[92] The court found that even though the defendant sometimes provided technical support, these services were "incidental services" and not sufficiently substantial to constitute contributory infringement.[93]

The district court held the same for the StreamCast Morpheus software, which is based on the Gnuttella "true" peer-to-peer network, which is even more decentralized than the Grokster software.[94] StreamCast's system allows a user to connect to the Gnuttella network by contacting another user who is already connected.[95] The court stated, "this initial connection is usually performed automatically after the user's computer contacts one of many publicly available directories of those currently connected to the Gnutella network."[96] These directories were completely independent of StreamCast.[97]

The district court also concluded that the defendants could not be found vicariously liable. Although it found that the defendants derived a financial benefit from the infringing conduct, it also found that the decentralized architecture of the Grokster and StreamCast networks did not give the defendants the right and ability to supervise the infringing conduct.[98] While the district court acknowledged that the ability to trade copyrighted songs and other copyrighted works acted as a "draw" for users of the software and that most of the defendants' revenue was derived from advertising contracts contingent on the extent of downloading activity,[99] the court distinguished this case from Napster by finding that the Grokster and StreamCast software allowed communication across networks that was entirely outside of the its control.[100] Because the defendants lacked the ability to supervise or control this communication, they were not liable for the infringing use of some of the users.[101]

The district court noted that it was not blind to the possibility that the defendants may have intentionally structured their systems to avoid secondary liability[102] but added that it was not the proper role of the court to expand copyright law.[103] It suggested that Congress is the appropriate entity to accommodate the "permutations of competing interests"[104] when technological innovations alter the market for copyrighted works. After the Ninth Circuit affirmed the district court's holding on these issues,[105] the Supreme Court granted certiorari and heard oral arguments on March 29, 2005.[106] The Supreme Court's decision is expected to reflect the tension between the competing public interests in not unduly impeding technological progress and providing protection to copyright holders.


A. Digital Millennium Copyright Act

Amid the flurry of cases grappling with emerging technology and existing copyright law, Congress tried to accommodate the competing interests with new legislation. In 1998, Congress passed the Digital Millennium Copyright Act ("DMCA") with great support from the technology and entertainment industries.[107] Generally, the Act criminalizes circumvention of anti-piracy measures built into most commercial software.[108] It outlaws manufacturing, importing, or offering to the public any product, service, or device that is primarily designed for the purpose of circumventing protection afforded by a technological measure that protects a right of copyright.[109] The Act, however, does permit reverse engineering to conduct encryption research and to assess product interoperability.[110]

Notably, the DMCA provides a safe harbor for Internet service providers ("ISPs"), which limits liability for copyright infringement.[111] An ISP is afforded safe harbor if it does not know that the material on its system or network is infringing and does not receive financial benefits directly attributable to the infringing material.[112] Upon obtaining knowledge or awareness of the infringing material, the ISP must remove or disable access to the material.[113] Therefore, in complying with the notice and take down provision of the Act, the only duty of the ISP is to take down the infringing material and notify the subscriber that it has removed or disabled access to the material.[114] This provision of the Act not only protects the online service provider but it also protects subscribers who may not know that their material is infringing. The safe harbors outlined in the Act are narrowly defined, however, and do not address many of the new and emerging file sharing technologies.[115] Congress had not anticipated improved peer-to-peer file sharing when it limited the liability of ISPs and, as a result, many peer-to-peer products may not fit into some of the exceptions created by the Act.[116]

Despite trying to address technology concerns, the Act created additional problems. One of the most controversial provisions of the Act is the subpoena provision. Under § 512(h), a copyright owner or other authorized person may request the clerk of any United States district court to "issue a subpoena to a service provider for identification of an alleged infringer" if they submit a sworn declaration stating that the subpoena is to identify the alleged infringer and that the information will only be used for the purpose of protecting the rights under the title.[117]

When the RIAA realized that it could no longer go after the peer-to-peer services that had achieved a decentralized system, it began to seek the identity of and sue individual infringers. The subpoena provision of the Digital Millennium Copyright Act provided an easy way to do this. In Recording Indus. Ass'n of Am. v. Verizon Internet Serv., Inc., 351 F.3d 1229 (D.C. Cir. 2003), the Federal Circuit addressed the RIAA's use of the subpoena provision of the DMCA to identify Internet users that the RIAA believed were infringing the copyrights of its members.[118] In this case the RIAA had served subpoenas on the Verizon Internet Service in order to discover the names of two Verizon subscribers that it believed were trading large numbers of MP3 files on peer-to-peer systems such as KaZaA.[119] Verizon refused to comply with the subpoenas arguing that § 512(h) of the DMCA "does not authorize the issuance of a subpoena to an ISP acting solely as a conduit for communications the content of which is determined by others."[120] The Court agreed with Verizon's argument and held that a "subpoena may be issued only to an ISP engaged in storing on its servers, material that is infringing or the subject of infringing activity."[121] The Court found that Verizon did not store the infringing material on its server and that Verizon could not remove or disable a user's access to infringing materials on another user's computer because "Verizon does not control the content on its subscribers' computers."[122] In invalidating a major use of the subpoena provision for copyright holders, the Federal Circuit voiced its sympathy for the RIAA's concerns over infringement but appealed to Congress to create legislation to solve the problem.

B. The Hollings Bill

Since the DMCA, several bills have been introduced in Congress in order to cure the defects of the DMCA. While none of these new bills have passed, efforts to pursue greater copyright protection continue. In the 107th Congress, Senator Earnest Hollings, a South Carolina Democrat, introduced The Consumer Broadband and Digital Television Promotion Act.[123] This bill would require any device "that can retrieve or access copyrighted works in digital form to include a federally mandated copy protection system."[124] The bill's reliance on technology based products and solutions to secure and control access to digital rights (commonly referred to as digital rights management) was widely praised by the entertainment industry. The entertainment industry primarily supported what it considered "a voluntary marketplace solution to the growing threat of online piracy."[125] Technology groups, however, had a different reaction to the bill. Ken Kay, Executive Director of the Computer Systems Policy project, stated in a press release that "[g]overnment mandates on technology products, as proposed in the Hollings Bill, will decrease consumer choice, degrade product performance, stifle innovation, and reduce global competitiveness for U.S. IT products."[126] In the same press release the IT industry reinforced its commitment to stopping piracy but stressed that this bill was not the most appropriate means of achieving this objective.[127]

While the Hollings Bill ultimately died in the 107th Congress, important questions on both sides of the issue remain unanswered. The main objection of the technology industry is that it would impose the immense cost of digital rights management ("DRM") on the technology sector while the content holders would benefit without cost.[128] Another objection is that DRM technology could not prevent the copying of works before they are released with copy protection.[129] Yet, despite these apparent limitations, the content holders fear that without cooperation from the technology industry in implementing DRM, piracy will overwhelm the distribution of copyrighted materials and the entertainment industry will collapse. The Hollings Bill failed to pass because it placed an unfair burden on the technology industry and it did not solve the ultimate problem for content holders.

C. The Berman Bill

The Hollings Bill was not the only proposed bill advocating change. In the 107th Congress, Representative Howard Berman of California introduced a bill to amend Title 17 to limit the liability of copyright owners for protecting their works on peer-to-peer networks.[130] In general, the bill provides that a copyright owner would not be liable for disabling or interfering with the unauthorized distribution, display, performance, or reproduction of his or her copyrighted work on a peer-to-peer network if the interference does not alter, delete, or impair the integrity of the computer file or data residing on the computer of a file trader.[131] In short, the bill would allow copyright owners to legally "hack" into peer-to-peer networks and disable or impair the network. The bill also required that the intrusion may not "cause economic loss of more than $50 per impairment to the property of the affected file trader."[132] The other exception is that the copyright owner must notify the Department of Justice of the specific technologies the copyright owner intends to use.[133]

The Berman Bill gave copyright owners a self-help solution to the piracy problem but it did not pass in the 107th Congress. The bill's efforts to help the entertainment industry neglected to address the major concerns of consumers and the technology industry. One such concern was that the bill did not identify which techniques the copyright holders would have been able to use to legally hack into the peer-to-peer networks.[134] Another concern was that the bill applied to any copyright holder, which could include anyone from news organizations to the Church of Scientology.[135]

D. Digital Rights Management

In both cyberspace and real space, there are two types of protections. One is the traditional legal protection that prescribes places where people may not enter and punishes those who do.[136] The other is a fence, which, in cyberspace, means codes and security devices that prevent access.[137] The issue in cyberspace, however, is that tracing and punishing copyright violators is an almost impossible task.[138] Therefore, in cyberspace, traditional protections do not work as well as fences. However, fences create problems for consumers. Until now, a purchased textbook came with a large bundle of rights. It could be sold, lent to friends, and copied for personal use because these activities would be considered fair use. With the personal codes associated with fences, however, the architecture of technological devices could be changed so that, for instance, a CD could be programmed to only permit limited access and use. This type of digital rights management scheme may have some benefits such as lowering product prices because consumers could only use the product for a limited time. These systems, however, also have the power to erode fair use and reduce freedom of expression because they may effectively contract away established uses such as commentary, scholarship, and parody.

E. The Future of Copyright: The New Music industry

In light of the existing case law and enacted legislation such as the DMCA, the RIAA has chosen methods other than DRM to sue infringers. Since the Verizon decision, the RIAA has continued its anti-piracy campaign by going after direct infringers. In the fall of 2003, the RIAA sent out hundreds of notices to people for copyright infringement, sparking a major controversy. The penalties for infringement range from $750 to $150,000 per song.[139] While this potentially could lead to substantial penalties for direct infringers,[140] most of these cases are likely to settle for small amounts before they go to trial. The RIAA asserts that these tactics, although resulting in negative publicity for RIAA, serve to show the general public that stealing copyrighted materials has serious consequences.[141]

In light of the developments of the past several years, the future of the music industry is uncertain. The main opponent of the RIAA's tactics has been the Electronic Frontier Foundation (EFF), a non-profit digital consumer rights organization. It has represented numerous parties in infringement suits brought by copyright owners, including Grokster in MGM. v. Grokster and some of the individuals sued by the RIAA as direct infringers. It is also involved in a campaign to foster discussion about models of artist compensation that would still accommodate consumer use of peer-to-peer services. In a symposium at the U.C. Davis School of Law entitled "Digital Divide: New Currents in Digital Downloading," Gwen Hinze, a staff attorney for the EFF, proposed a several new models of compensation as potential ways of dealing with current downloading issues. One model was a voluntary collective licensing scheme that would apply on a blanket basis.[142] Under this model, music fans would pay a low monthly fee to legally download files that they are currently illegally downloading for free.[143] The EFF's position is that alternatives to litigation such as this one will be more effective in addressing the RIAA's concerns about illegal distribution of copyrighted material because litigation neither compensates artists nor increases product sales. However, the music industry argues that a low-fee monthly license would change the entire structure of the industry. It claims that implementation of a licensing fee scheme such as that proposed by the EFF would result in a loss of music industry revenue. It further argues that this loss of revenue would result in a reduction in marketing which in turn would deprive artists of the promotional benefits associated with such marketing efforts.[144]

Central to the debate is the role of copyright holders, such as record companies, as major marketing and distribution structures. Prior to mainstream use of the Internet, marketing and distribution efforts by record companies created a market for music that was impossible to develop on a small, decentralized scale. However, with the advent of the Internet, the existing large scale marketing and distribution structures associated with the music industry are arguably no longer essential to the operation of the market. Internet sites such as allow unknown artists to gain exposure and provide a vehicle for consumers to discover and purchase music.

Acknowledging this change, the music industry has tried to come up with alternatives to compete with peer-to-peer systems. These alternatives include Apple's iTunes which allows users to legally download of millions of songs for 99 cents per song.[145] Another source is Rhapsody, an online site that allows users to legally download songs.[146] However, it is difficult for fee-based sites such as these to compete with peer-to-peer sources like Grokster and Morpheus that are cost-free and offer a wider variety of music.

Another problem is that the music industry is composed of a large number of uncoordinated companies and people, many of whom have competing interests. In order to fully compete with systems like Grokster, the music industry would have to consolidate its content and develop a means of distributing the royalties equitably among its members.

While the music industry struggles to maintain its established structure, organizations outside of the music industry, such as Creative Commons, have started a new movement that looks at traditional copyright law from a different angle. Like the open-source and free software movements, Creative Commons is at the forefront of what has been termed the "copyleft" movement.[147] Creative Commons provides a way for authors to offer their works to the public through special licensing schemes while retaining certain rights. There are different types of licenses that an author can use including the attribution, the non-commercial, or the no derivative works licenses.[148] These licenses allow the author to give away some of his rights so that others may use the works but only pursuant to certain conditions. For instance, the attribution license allows others to distribute, display, and perform the copyrighted work, and even to make derivate works, but only if the user gives the author credit.[149] The goal of Creative Commons is to "skip the intermediaries."[150] It essentially eliminates the role of record companies by allowing for personal distribution and licensing. The Creative Commons licensing scheme allows artists to gain exposure and to build upon the works of others. Such a scheme is ultimately limited, however, by its inability to generate revenue for artists. It also lacks the promotional and marketing efforts that usually accompany more traditional distribution and licensing methods such as those associated with a record deal.


At the Digital Divide: New Currents in Digital Downloading symposium, Jeffery Knowles, speaking on behalf of the RIAA, proposed a three-prong solution to the RIAA's concerns. The first prong is educating people so that they understand that downloading unauthorized content is the same as stealing it.[151] The second prong is offering plausible alternatives, such as iTunes and Rhapsody.[152] The third and final prong is deterrence. This assumes that there will always be illicit file sharing networks and that there needs to be a working mechanism to identify and provide recourse against such infringement.[153]

Mr. Knowles proposes sensible solutions to the problems of file sharing. The first step in this process of reform is education. It is imperative to educate society on the difference between fair use and theft. Section 107 of the Copyright Act allows for fair use of a copyrighted work for purposes such as "criticism, comment, news reporting, teaching, scholarship or research."[154] Congress enacted this judicially created exception to allow for free use of works that would enrich society in a way that would not harm the market for the original work. But the rationale for fair use or "free use" is eliminated when copyrighted works become so widely disseminated that the author no longer has a market to sell the work. For example, making a copy of a purchased CD for use in that purchaser's car is unlikely to hurt the market for the CD and would constitute fair or free use. However, offering unlimited copies of the CD to millions of strangers on the Internet would eliminate a substantial amount of revenue flowing to the copyright holder and would not constitute such fair or free use.

Educating the public about theft must involve discussing the effects that file sharing has on the artists. One way to accomplish this is by having artists impacted by file sharing communicate with the public about the consequences of file sharing through advertisements, public appearances, concerts, and interviews. One of the main problems in convincing the public that music theft is an issue is that many people perceive that only the major record companies are affected by illegal file sharing. Effective communication techniques will be necessary to ensure that the public realizes that its file sharing activities ultimately deprive artists of the means to make a living from producing music, which will therefore discourage and prevent artists from doing so.

Offering plausible alternatives to illegal file sharing is another critical element of any music industry initiative to reduce or eliminate music pirating. Plausible alternatives are necessary because peer-to-peer systems have revolutionized the way music is distributed and alternatives to file sharing need to exploit the advantages of these new distribution systems instead of trying to eliminate or fight them. Peer-to-peer systems are popular because they offer convenient and free access to an extremely large number of musical works. With a system like Grokster, songs can be downloaded without the hassle and expense of buying a CD. Some online sites such as iTunes and Rhapsody have found ways to combine revenue generation with the principles underlying the file sharing systems. Society should look favorably upon such efforts that both embrace technological advances yet maintain economic incentives that reward artists' work.

As of January 24, 2005, Apple Computer reported that customers had purchased more than 250 million songs from its online iTunes Music Store.[155] The success of iTunes is significant because it proves people are willing to pay for music that they could obtain free of charge from other online sites. It also demonstrates that the RIAA's deterrence mechanisms and educational efforts may have been successful in dissuading people from engaging in illegal downloading. The music industry needs to follow in the steps of iTunes and develop a means of consolidating their music catalogs so that they can offer fee-based downloading that provides a greater variety of music at reasonable prices. Not only will this maintain a means of rewarding artists for their work, but it will also lead to increased competition among distributors and lower prices for the CD-buying public.

Finally, the music industry must focus on diversifying its methods of deterrence. The RIAA has had great success in suits brought against file-sharers.[156] Litigation is costly, however, and it creates negative publicity. One way to prevent piracy is through DRMs and encryption techniques. For example, in response to online piracy, the music industry started using copyright tags on copyrighted songs.[157] The copyright tags attach themselves to the song so that when the song is downloaded from a peer-to-peer network it can neither be played nor copied.[158] One of the major criticisms of DRMs and encryption codes is that, like most technological barriers, they can easily be cracked. This leads to a high cost of updating DRM protection over time. However, the average person does not have the time or resources to crack codes. As a result, the benefits of DRMs as effective access controls may be great enough to outweigh the high costs of maintaining them.


New technology has always challenged the control of copyright holders. File sharing, in particular, has created complicated problems for the music industry because it is an efficient way of disseminating unauthorized copies of songs to many other people. Ninth Circuit precedent in Napster and Seventh Circuit precedent in Aimster provided some protection to content holders through vicarious and contributory liability. Congress has also passed legislation such as the DMCA increasing protection for the rights of content holders. However, file sharing companies are adapting to such decisions and Ninth Circuit's recent Grokster decision declared that Grokster's decentralized file sharing system was not liable for copyright infringement under Napster. Uncertainty surrounds the future of the music industry as we await the Supreme Court's final word on the legality of the Grokster system.

What is certain is that there are no simple solutions to Internet copyright infringement and that legal means are unlikely to be the most effective way to resolve the current conflicts over file sharing. Digital rights management and alternatives to strict copyright protection are evolving to become more effective ways of dealing with this problem. While sympathy for the plight of the music industry may be scant, society should be concerned that the creators of artistic works continue to have some means to be compensated for the fruits of their labor and creativity. In order to maintain the incentive to create, creators of copyrighted works must maintain some power over their creations. Conversely, placing all of the power in the hands of copyright owners would also be harmful because important social benefits are associated with adopting new and more efficient technologies and distribution systems. Further, society needs continued access to copyrighted works in order to build upon them in the creation of new works. Therefore, we must strive to maintain a balance in the law that allows consumers access to musical works by utilizing new technology while still protecting the interests of copyright holders. It is clear that any feasible solution will require greater cooperation between the vastly divided factions involved in these issues.

[1] See generally Copyright Act, 17 U.S.C. §§ 101-1332 (2003).

[2] Jane C. Ginsburg, Copyright and Control over New Technologies of Dissemination, 101 Colum. L. Rev. 1613. (2001). See, e.g., 144 Cong. Rec. S11,887-88 (daily ed. Oct. 8, 1998) (statement of Sen. Ashcroft) (explaining his belief that the Digital Millennium Copyright Act would protect copyright holders without limiting development of legitimate new technologies).

[3] See Id. at 1614, (While for the most part copyright holders have had near exclusive control over their works, over the years significant technological progress has altered the balance for copyright holders. Examples of inventions that have altered the balance include the printing press, the VCR, the copy machine, and other types of audio and video recording equipment including the tape player and MP3 players.)

[4] Id.

[5] Jennifer Norman, Staying Alive: Can the Recording Industry Survive Peer-to-peer?, 26 Colum. J.L. & Arts 371 (2003).

[6] Id.

[7] Id.

[8] RIAA, Anti-Piracy-What the RIAA is Doing About Piracy, at (last visted Jan. 27, 2005).

[9] U.S. Const. art. I, § 8, cl. 8.

[10] Copyright Act of 1790, ch. 15, §§ 2, 6, 1 Stat. 124, 125 (1790) (current version at 17 U.S.C. § 101 (2003)).

[11] Major revisions to the act were implemented in 1831, 1870, 1909, and 1976.

[12] See generally, 17 U.S.C. §§ 101-1332.

[13] Id. at §106.

[14] Id. at §114.

[15] 17 U.S.C. § 106 (2003).

[16] Id.

[17] Id.

[18] Sony Corp. of Am. v. Universal City Studios, 464 U.S. 417, 435 (1984).

[19] Id.

[20] See e.g. Buck v. Jewell-LaSalle Realty Co., 238 U.S. 191, 198-199 (1931); Dreamland Ballroom, Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354 (7th Cir. 1929).

[21] See Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 12.04 [A][1] 12-75 (3d ed. 1978).

[22] Id. at 12-75.

[23] Fonovisa Inc. v. Cherry Auction Inc., 76 F.3d 259, 262-263 (9th Cir. 1996).

[24] A & M Records, Inc. v. Napster, Inc. 114 F. Supp. 2d 896, 921 (N.D. Cal. 2000) aff'd in part, rev'd in part, 239 F.3d 1004 (9th Cir. 2001).

[25] Id. at 921.

[26] Casella v. Morris, 820 F.2d 362, 365 (11th Cir. 1987) (quoting Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971)).

[27] Id.

[28] Sony, 464 U.S. at 437.

[29] Nimmer & Nimmer, supra note 19, §12.04 [A][2][b], at 12-81.

[30] Elektra Records Co. v. Glen Elec. Distribs., Inc., 360 F. Supp 821 (E.D.N.Y. 1973).

[31] Id.

[32] Sony, 464 U.S. at 417.

[33] Id.

[34] Nimmer & Nimmer, supra note 19, §12.04 [A][2][b], at 12-83.

[35] Sony, 464 U.S. at 417.

[36] Id. at 441.

[37]Id. at 431.

[38] Norman, supra note 5, at 373.

[39] Fred von Lohmann, IAAL: What Peer-to-Peer Developers Need to Know about Copyright Law, Electronic Frontier Foundation Publication (Dec. 2003), available at

[40] Norman, supra note 5, at 373.

[41] Id.

[42] Id.

[43] Tim Wu, When Code Isn't Law, 89 Va. L. Rev. 679, 718 (2003).

[44] Napster, 239 F. 3d at 1011.

[45] Id.

[46] Id.

[47] Id.

[48] Id. at 1020.

[49] Id.

[50] Id. at 1021.

[51] Id. at 1023.

[52] Id. at 1021.

[53] Id. at 1021.

[54] Id.

[55] Id.

[56] Id. at 1023.

[57] Id. at 1023.

[58] Id. at 1015.

[59] Id. at 1016.

[60] Id. at 1017.

[61] Id.

[62] In re Aimster Copyright Litig., 334 F.3d 643 (7th Cir., 2003).

[63] Id. at 646.

[64] Id.

[65] Id.

[66] Id.

[67] Id.

[68] Id.

[69] Id. at 650.

[70] Id.

[71] Id. at 653.

[72] Id.

[73] Id.

[74] Id. at 654.

[75] Id.

[76] Id.

[77] Id. at 655.

[78] Id.

[79] Metro-Goldwyn-Mayor Studios, Inc. v. Grokster, Ltd., 259 F. Supp. 2d 1029 (C.D. Cal. 2003).

[80] Id. at 1032.

[81] Id. at 1035.

[82] Id. at 1035.

[83] Id. at 1037.

[84]Id. at 1039.

[85] Id.

[86] Id. at 1040.

[87] Id.

[88] Id.

[89] Id.

[90] Id.

[91] Id.

[92] Id. at 1041.

[93] Id. at 1042.

[94] Id. at 1041.

[95] Id.

[96] Id

[97] Id.

[98] Id. at 1043, 1044.

[99] Id..

[100] Id. at 1045.

[101] Id. at 1046.

[102] Id. at. 1046.

[103] Id.

[104] Id.

[105] MGM Studios, Inc. v. Grokster Ltd., 380 F.3d 1154 (9th Cir., 2004)

[106] MGM v. Grokster, available at

[107] Pub. L. No. 105-304, 112 Stat. 2860 (1998) (codified in scattered sections of 17 U.S.C.).

[108] See 17 U.S.C §1201(a) (2003).

[109] See id. §1201(b).

[110] See id. §1201(f-g).

[111] See 17 U.S.C. §512 (2003).

[112] See id. §512(c).

[113] See id. § 512.

[114] Id.

[115]von Lohmann, supra note 36.

[116] Id.

[117] See 17 U.S.C. § 512(h).

[118] Recording Indus. Ass'n of Am. v. Verizon Internet Serv., Inc., 351 F.3d 1229 (D.C. Cir. 2003).

[119] Id. at 1231.

[120] Id.

[121] Id. at 1234.

[122] Id. at 1235.

[123] Paul Boutin, U.S. Prepares to Invade Your Hard Drive, (Mar. 29, 2002), at feature/2002/03/29/hollings_bill/

[124] Id.

[125]Press Release, Recording Industry Association of America, Comment of Hilary Rosen, President and CEO, Recording Industry Association of America, "On Introduction of 'Consumer Broadband Act'" (Mar. 21, 2002), available at

[126] Press Release, Ken Kay, Executive Director, CSPP, IT Industry Opposes Legislation Calling for Government Content Protection Mandate on Technology Products, (Mar. 21, 2002), available at docs/cbdtpa/riaa.cbdtpa.release.032102.html

[127] Id.

[128] See Norman, supra note 5 at 398.

[129] See Id.

[130] H.R. 5211 , 107th Cong. (2002), available at

[131] Id.

[132] Id.

[133] Id.

[134] Declan McCullagh, Hollywood Hacking Bill Hits House, at (last modified Jul. 25, 2002).

[135] Id.

[136] Lawrence Lessig, Code 122 (1999).

[137] Id. at 123.

[138] Id. at 125.

[139] RIAA, Anti-Piracy-Penalties of Piracy, at (last visted Apr. 30, 2004).

[140] The targeted defendants had an average of 1,000 illegally downloaded songs on their computers. Press Release, RIAA, Recording Industry Begins Suing P2P File Sharers Who Illegally Offer Copyrighted Music Online (Sept. 8, 2003), available at

[141] Id.

[142] Gwen Hinze, Introduction speech, Digital Divide: New Currents in Digital Downloading symposium at the UC Davis School of Law, (Mar. 4, 2004).

[143] Id.

[144] See Leslie Frank, A Hard Day's Night, 4 U.C. Davis Bus. L.J. 9 (2004), at (May 1, 2004).



[147] Creative Commons, About Us, at (last visited Apr. 29, 2004).

[148] Creative Commons, Licenses Explained, at (last visited Apr. 10, 2004).

[149] Id.

[150] Get Creative, at (Creative Commons Flash Presentation 2002).

[151] Jeffery Knowles, Introduction speech, supra note 134.

[152] Id.

[153] Id.

[154] 17 U.S.C. §§ 107 (2003).

[155] The Associated Press, iTunes Sales Top 250 Million, at (last visited February 1, 2005)

[156] See supra note 133 and 134.

[157] John Tehranian All Rights Reserved? Reassessing Copyright and Patent Enforcement in the Digital Age, 72 U. Cin. L. Rev. 45.

[158] Id.