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European IP Bulletin, Issue 25, September - Hot Topics
Hot Topics
1. The Beginning of the End for P2P Technology?
On 5 September 2005, the Australian Federal Court handed down its much anticipated decision in case of brought by Universal Music Australia Pty Ltd against Sharman Networks and its affiliates ([2005] FCA 1242), better known as the owners of Kazaa, the world renowned internet peer-to-peer (“P2P”) file sharing system. This decision followed closely in the wake of the United States Supreme Court decision in Metro-Goldwyn-Mayer Studios Inc v Grokster (545 US (2005)), manufacturer and distributor of P2P software. Both courts adopted the view that operators of P2P networks may be found liable for infringement of copyright, by authorising the infringing acts of the users of the software in relation to copyright in sound recordings.
The question now on the minds of all UK copyright litigators is whether the English courts will follow suit. Despite the British Phonographic Industry’s promise to clamp down on illegal file sharing, there has not yet been comparable litigation in this area in England. Therefore, the only English precedent on this question remains the old case of CBS Songs Ltd v Amstrad Consumer Electronics plc [1988] 2 All ER 484. This article examines the development of the law of copyright infringement by “authorisation” in England and abroad, and speculates upon the future course of the law in England.
Under the Copyright, Designs and Patents Act 1988, section 16(2), copyright in a work may be infringed by a person who without the licence of the copyright owner authorises another to do any of the acts restricted by the copyright. Therefore, although another person may be the direct infringer, the person found to have authorised copyright will be liable for a separate action of infringement from the act which itself is authorised.
In 1988, the question of liability for copyright infringement by authorisation was first addressed to the House of Lords, who had to determine the claim brought by CBS that Amstrad was authorising copyright infringement by virtue of their manufacture of twin-deck tape recording machines. It was CBS’ contention that since people were able to make illegal copies of cassettes using Amstrad's newly developed tape recorder, Amstrad was authorising users to infringe copyright and was therefore liable for copyright infringement. CBS based their argument on s1(1) of the Copyright Act 1956 (the “1956 Act”) whereby a copyright owner has the exclusive right to authorise copying. CBS submitted that since copies of copyright works could be made using Amstrad’s recorder, Amstrad was infringing this exclusive right of the copyright owner.
In its decision, the House of Lords looked at the meaning of “authorise” for the purpose of the Act. It held that “to authorise means to grant or purport to grant to a third person the right to do the act complained of, whether the intention is that the grantee shall do the act on his own account, or only on account of the grantor…”, and, in other words, to “sanction, approve, and countenance”. The Court found that Amstrad had not sanctioned nor approved infringement. The Court distinguished between conferring the power to copy and granting the right to copy. Although Amstrad’s advertisements promoted the advantages of the new recorder, of which one was the fact that records could be copied, there was also a clear warning that copying required permission which could not be granted by Amstrad. Furthermore, and importantly, it was possible to use the recorder to make lawful copies. Therefore, Amstrad had not purported to authorise or grant any right to copy to third parties purchasing the recorder.
The Court also distinguished the case of Moorhouse v University of New South Wales [1976] RPC 151 where the High Court of Australia took a more expansive view as to what was required to establish infringement by authorisation. UNSW was held to be liable for authorising infringement by virtue of the provision of a photocopying machine to students. In Moorhouse, although UNSW was not directly committing the infringement itself, because it retained control over the machine and could reasonable know or suspect that the machine would be used for infringement, it was liable for any such infringement. The situation was the reverse of CBS Songs, as Amstrad had no control over the use of their machines once they were sold.
Although CBS Songs was decided under the Copyright Act 1956, the same principles can be applied to the current Copyright, Designs and Patents Act 1988. Moreover, there has been no other change to the law in relation infringement of copyright by authorisation in England since this case. Therefore, at present, companies behind P2P software rely on the case to argue that they are not liable for copyright infringement as they not authorising infringement but rather are providing the software for lawful means.
However, the recent spate of overseas decisions against P2P providers has left their UK counterparts on decidedly shakier ground.
In the US, prior to the Supreme Court’s decision in Grokster, the leading authority was the Sony Betamax case (Sony Corp. of America v Universal Studios, Inc. 464 US 417 (1984)). This was a claim of secondary liability for copyright infringement against Sony based on its manufacture of video recorders (VCR). It was submitted that due to the fact that purchasers of the VCRs could record copyrighted television programmes, Sony was providing the means to infringe. Furthermore, it was argued that Sony had constructive knowledge that infringement would occur. However, the Supreme Court held that as there was no evidence that Sony was encouraging infringement, and the machines were capable of significant non-infringing uses, Sony was not liable for copyright infringement by virtue of their sale of VCRs.
With the advent of P2P technology and file sharing networks, the providers of this technology hid behind the Sony Betamax decision to avoid liability for copyright infringement. Indeed, when Grokster and Streamcast were sued by MGM and other copyright owners, initially the appeals court, following Sony Betamax, found that they were not liable for the infringements committed by the users of their software because there was evidence that the software had substantial non-infringing uses.
In MGM v Grokster, the facts were as follows: Grokster Limited and Streamcast Networks Inc, the two defendants, distributed free P2P file sharing software which enabled users to share music, film or other digital files. Most of these files were copyright protected works. Therefore, a group of copyright owners sued the defendants for secondary copyright infringement, alleging that that the defendants intentionally distributed the software to enable users to reproduce and distribute copyright works without the authorisation of the copyright owners.
As seen above, the appeals court found in favour of the defendants based on the Sony Betamax case. However, upon appeal to the Supreme Court, this decision was reversed and it was held that there will be an infringement of copyright law where a software developer or distributor provides individuals with the means to share copyrighted files without authorisation. The ruling, handed down on 27 July 2005, was based on the US rule against inducement. The Court said that where a person actively or knowingly aids another’s direct infringement and takes active steps to encourage infringement, such as advertising infringing uses, that person may be liable for copyright infringement. In the case, neither of the defendants had attempted to prevent the use of their software to share copyright materials. Rather, both defendants advertised and promoted their software’s potential for such purposes, and thus actively induced and encouraged copyright infringement. Further, in relation to the non-infringing uses principle from Sony Betamax, the Supreme Court said that it was not applicable in this case as the rule in Sony Betamax applied to products which were capable of substantial non-infringing uses, whereas the defendants’ software had no other real function and was not intended for any other purpose, other than copyright infringement. Therefore, both Grokster and Streamcast were held liable for contributory copyright infringement.
This decision represented a major turning point for copyright owners. Although it was unsurprising that the Supreme Court was unwilling to let Grokster and Streamcast shelter behind the Sony Betamax doctrine when they had purposely manufactured a product capable of infringing uses and then promoted and encouraged users to infringe. Nevertheless, the copyright world was watching and waiting for further pronouncements. It did not have to wait long.
On 5 September 2005, the Australian Federal Court handed down its decision against the owners of Kazaa. There were 30 claimants in the case, comprising owners, licensees and distributors of sound recordings, claimed that the defendants were infringing copyright by authorising the copyright infringing conduct of users of the Kazaa P2P file sharing system.
The claimants submitted that the file-sharing actions of Kazaa users were done without the licence of the relevant applicant, that there was a common design between each of the Sharman companies and the Kazaa users, and that the acts of the Sharman companies were done without the licence of the relevant applicant.
By way of response, the defendants argued that although, by distributing the software, they conferred on users the ability to make available for download by other users any files in digital format, they did not authorise any infringing acts. Further, the software was capable of being used to communicate and/or download non-infringing material, and, once they had they have no control over the user's use of the distributed software. Finally, the defendants relied on the copyright warnings and end user licence agreements supplied to and entered into by users of the software.
The defendants arguments were to no avail. Justice Wilcox found that six of the ten defendants were liable for authorizing users of the Kazaa system to infringe copyright without the licence of the relevant claimant. Wilcox J followed the decision in UNSW v Moorhouse, and said the test for establishing whether a person had authorised the infringing act remained whether that person had sanctioned, approved or countenanced the infringement. In assessing liability for authorising infringement, Wilcox J said the relevant principles were:
- How much control the alleged authoriser had over the direct infringer, i.e. whether the alleged authoriser would have been able to prevent the infringement?
- Whether the alleged authoriser took any reasonable steps to prevent users from infringing copyright.
- Whether a reasonable person would conclude that the defendant sanctions, approves, or countenances the infringement.
Wilcox J found that:
- The defendants were widely aware of the copyright infringement in the digital files exchanged on the Kazaa network.
- They had the capacity and means to prevent or substantially curtail infringing acts.
- It was in their financial interests that there was infringing file-sharing because it mean more users and they made their money from advertising.
- The warnings against the sharing of copyrighted works, and the end user agreements were ineffective to prevent copyright infringement.
- Rather than attempting to prevent copyright infringement, the Kazaa system was promoted as a device with the object of its use being infringement of copyright.
- The Kazaa website contained exhortations to Kazaa users to increase file-sharing.
The record industry and entertainment companies greeted the decision with rapture and hailed it as a second groundbreaking step in the fight against P2P file-sharing systems following Grokster. Indeed, although there are distinctions between Grokster and Kazaa cases, due to the differences in the conduct of the systems’ respective operators, and the fact that Australian statutory law has no counterpart in United States law, it is clear that the Courts have turned their focus from the characteristics of the product to the conduct and intentions of the maker or supplier. The result is that right of manufacturers or distributors of P2P software to presume that their products will be used in accordance with the law is now severely restricted. Arguably, the earlier cases of CBS Songs and Sony Betamax, in which although certain products were able to be used to infringe copyright, it was presumed that the manufacturer was not liable for authorising infringement if he had not purported to grant to anyone committing an infringement a licence or permission to infringe, can no longer protect file-sharing networks.
Therefore, in the wake of Kazaa and Grokster, whether a provider will be guilty of infringement by authorisation is now directly linked to the degree of control exercised by the provider over the primary infringer; whether it made any attempt to stem the infringement or in fact actively promoted its facilities or products as able to infringe copyright; the extent to which its commercial interests were linked to the primary infringer; and the actual or constructive knowledge it had, or should have had, that infringement of a protected work might take place.
Although the UK courts are not required and do not follow US or Australian precedents, it cannot be said that the ruling do not make a difference to software developers in the UK. Following the decisions in Grokster and Kazaa, it is anticipated that it will not be long until the UK courts are asked to reconsider claims for authorising copyright infringement and revisit the principals set out in CBS Songs.
P2P software developers worldwide have been put on notice that they can and will be held liable for authorising infringement. However, until the UK courts are provided the opportunity to give its opinion and guidance on the matter, no definitive advice can be given to P2P developers to enable them to protect themselves from liability for copyright infringement. Nevertheless, in this environment of legal uncertainty, P2P developers should be advised to tread carefully in the development and promotion of commercial file-sharing systems.
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