The Honorable Marybeth Peters

Hearing on S. 2560, the Intentional Inducement of
Copyright Infringements Act of 2004

Statement of the Honorable Marybeth Peters, Register of Copyrights

Mr. Chairman, Senator Leahy, Members of the Committee, good afternoon.

Thank you for giving me the opportunity to testify about S. 2560, the Intentional Inducement of Copyright Infringements Act. I believe this bill addresses the most important issue facing our copyright system today: new services that employ peer-topeer technology to create vast, global networks of copyright infringement. There shouldbe no question that such services should be liable for the copyright infringement they encourage and from which they profit.

The Copyright Office supports S. 2560 because it improves the existing law of secondary liability for copyright infringement. This area of the law is essential for
effective copyright protection, but it has become confused as courts have struggled to apply the existing common-law doctrines to the new peer-to-peer services, with
conflicting results. This bill recognizes liability for the "intentional inducement" of copyright, which will allow courts to examine fully the circumstances behind infringing
activity to find those truly responsible, such as the operators of the current peer-to-peer networks who depend upon infringement for their commercial viability.

I. Background

A. Contributory Infringement and Vicarious Liability S. 2560 and the controversy surrounding peer-to-peer services revolve around the central legal issue of secondary liability for copyright infringement. For decades, courts
have recognized that those who assist and facilitate copyright infringement are liable just as those who actually commit the acts of infringement. For example, in 1929 the Seventh Circuit Court of Appeals in Dreamland Ballroom, Inc. v. Shapiro, Bernstein & Co.,1 held
that a dance hall that hired an orchestra to provide music to its patrons was liable for the unauthorized public performance of musical works committed by that orchestra.

That case is an example of "vicarious liability," which the landmark case of Shapiro, Bernstein & Co. v. H.L. Green Co.2 explained this way :

When the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials ... the purposes of copyright law may be best effectuated by the imposition of liability upon the beneficiary of that exploitation.

Thus, vicarious liability requires two elements: (1) the right and ability to supervise or control the infringing activity; and (2) a direct financial benefit from that activity. It is closely related to the doctrines of enterprise liability and respondeat superior in tort law.
There is another form of secondary liability in copyright law, "contributory infringement," which stretches back to 1911.3 As the Second Circuit Court of Appeals has explained, contributory infringement occurs where "[o]ne who, with knowledge of the infringing activity, induces, causes, or materially contributes to the infringing conduct

1 36 F.2d 354 (7th Cir. 1929)
2 316 F.2d 304, 307 (2d Cir. 1963)
3 See Kalem v. Harper Brothers, 222 U.S. 55 (1911).

of another."4 In general, the two elements of contributory infringement are (1) knowledge of the infringing activity; and (2) material contribution to the activity. Note that the common formulation of contributory infringement includes a reference to those who "induce" another to commit infringement, which is similar to the language of the proposed bill. In theory, the existing contributory infringement doctrine may be flexible enough to cover situations where a defendant induces another to commit
infringement. When actually applying this standard, however, courts have not focused on the inducement aspect of contributory infringement, and thus, as I will explain,
legislation is needed to address these circumstances directly to remove any doubt about liability for inducement.

These doctrines were developed by case law under the 1909 Copyright Act, which did not contain any express provision on secondary liability. In the 1976 Act, Congress
recognized secondary liability in the grant of rights under copyright, providing authors and copyright owners with the "exclusive right to do and to authorize" the enumerated
rights.5 As the legislative history to the Act explains, "[u]se of the phrase 'to authorize' is intended to avoid any questions as to the liability of contributory infringers."6 The statute, however, left the details of the secondary liability doctrines to the courts to apply
in specific cases.

From a policy perspective, the secondary liability doctrines are critical to the effective functioning of our copyright system, and even more so in the new digital
environment. They allow copyright owners to focus their enforcement (and licensing) efforts on those entities that foster infringing activity and have the resources and
4 Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971).

5 17 U.S.C. § 106 (emphasis added).
6 H.R. Rep. 94-1476, at 61.

wherewithal to either pay licensing fees or satisfy an infringement judgment, without bringing costly, time-consuming and usually futile actions against multiple, mostly judgment-proof individual defendants. As one court has explained, Recognizing the impracticability or futility of a copyright owner's suing a multitude of individual infringers ... the law allows a copyright holder to sue a contributor to the infringement instead, in effect as an aider and abettor.7

Thus, enforcement against the "middlemen" who encourage, facilitate and benefit from infringement has long served an important role in providing meaningful and efficient
copyright protection. As another court explained, in finding a supplier of "time-loaded" cassettes liable for infringement facilitated by those cassettes: Regrettably, in copyright litigation, enforcement efforts seem ineffective.

Misappropriation may often needlessly succeed. Thus, liability for contributory infringement is particularly appropriate here. Given the apparent division of labor in the counterfeit recording industry, the actions of contributory infringers make possible the wide dissemination of the infringing works.8

As I will explain, a similar phenomenon is occurring in the digital environment, as proprietors of services that use peer-to-peer technology rely on a "division of labor"
strategy that enlists millions of consumer to become distributors of infringing copies, thereby attracting more users and advertisers who generate revenue for these companies, but which is designed to leave the proprietor without legal liability. Secondary liability is
appropriate in these situations, but there is confusion in the courts as to whether current law reaches that result. I will next describe the state of the law and how it has been
applied to these new services.

7 In re Aimster, 334 F.3d 643, 646 (7th Cir. 2003) (Posner, J.).
8 A&M Records, Inc. v. General Audio Video Cassettes, Inc., 9 48 F. Supp. 1449, 1455 n.4 (C.D. Cal.1996).

B. The Sony Betamax Case
Perhaps the most significant development in secondary liability was the Supreme Court's first attempt to interpret the 1976 Copyright Act, Sony Corp. of Am. v. Universal City Studios, Inc.9 Often referred to as the Betamax case, Sony involved the question of whether a manufacturer of a VCR could be held liable under the doctrines of secondary liability for the infringing actions of the customers who buy the VCR. The Court recognized that secondary liability was established in copyright law:
[V]icarious 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.10
But the Court concluded that these doctrines had not been applied to a situation presented by the VCR, where the manufacturer did not have actual knowledge of the infringing
activity for which customers used the device, only "constructive knowledge of the fact that its customers may use that equipment to make unauthorized copies of copyrighted material."11

To resolve this situation, the Court looked to patent law, specifically the "staple article of commerce" doctrine embodied in Section 271(c) of the Patent Act, which
provides that sale of a "staple article or commodity of commerce suitable for substantial noninfringing use" is not contributory infringement, on the grounds that patent rights
should not extend the patentee's control to allow it to control the sale of staple articles or commodities. Applying this concept to the copyright context, the Court explained that:

[t]he staple article of commerce doctrine must strike a balance between a copyright holder's legitimate demand for effective - not merely symbolic

9 464 U.S. 417 (1984).
10 464 U.S. at 435.
11 Id. at 439.

- protection of the statutory monopoly, and the rights of others freely to engage in substantially unrelated areas of commerce.12

Based on this reasoning, the Court adopted the following approach to address the question of whether Sony could be held liable for copyright infringement:

The sale of copying equipment, like the sale of other articles of commerce,does not constitute contributory infringement if the product is widely used
for legitimate, unobjectionable purposes. Indeed, it need merely be
capable of substantial noninfringing uses. The question is thus whether
the Betamax is capable of commercially significant noninfringing uses.13
It found that the Betamax met this test, based largely on its separate conclusion that the
customers' "time-shifting" of broadcast television programs was a fair use. The Court
noted, however, that judgments in this area were primarily the responsibility of Congress
rather than the Courts, and that it might be appropriate for Congress to take a "fresh look"
at these issues in new copyright legislation.
C. Secondary Liability and Peer-to-Peer Services
The Sony decision has played a substantial role in the legal dispute over "peer-topeer"
services like Napster and its progeny, such as Aimster, Grokster, Morpheus and
Kazaa. As I explained in my testimony before this committee last Fall, the courts have
struggled to apply Sony to resolve the question of whether companies who operate peerto-
peer networks are liable for the massive amounts of infringement that take place on
them. In the case of Napster and Aimster, the courts have held the operators of those
services liable under theories of secondary liability. In the case of Grokster and
Morpheus, a district court found that secondary liability did not apply to those peer-topeer
services, in large part because of the Sony decision. To understand how secondary
12 35 U.S.C. § 271(c).
13 464 U.S. at 442.
6
liability and Sony have operated in this context, I will go into these cases in some more
detail.
1. A&M Records v. Napster
The first peer-to-peer service to prompt copyright infringement litigation was
Napster.14 A user would download Napster's "Music Share" software and install it on his
computer. When he started the software, it would send information to the Napster
servers about the MP3 files the user had stored in the "shared folder" of his hard drive.
The file names that were sent to the Napster servers were included in an index of all of
the files being made available by users of the Napster network. When the user searched
for an artist or title of a song, the Music Share software used the index on the Napster
server to locate another user with that MP3 file. If he chose to download the file, the
software then connected the two users together and a transmission proceeded directly
between them, rather than go through any Napster server.15
Because the user's equipment, and not Napster's, actually reproduced and
distributed the MP3 file copies of the copyrighted works, Napster could only be liable for
secondary liability, rather than direct copyright infringement. The major record
companies and musical work copyright owners brought suit against Napster in 2000 for
contributory infringement and vicarious liability. The district court issued a preliminary
injunction against Napster in July 2000, and the Ninth Circuit affirmed that decision in
part in February 2001, finding that the plaintiff copyright owners had shown a likelihood
of success on the merits to support a preliminary injunction.
14 A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001).
15 Id. at 1012-13.
7
The panel found that Napster met the requirements for both contributory
infringement and vicarious liability. As to contributory infringement, the Ninth Circuit
found that Napster had actual knowledge of infringing activity being made possible by its
software, and that the software and services Napster provided were its "material
contribution" to the infringement.16 On the issue of vicarious liability, the panel found
that Napster enjoyed a financial benefit from the infringement, and has the right and
ability to supervise the infringing conduct by blocking users' access to the Napster
service.17
The Ninth Circuit discussed the Sony case and its effect on the issue of
contributory infringement, as it interpreted Sony as providing a defense only to that form
of secondary liability. It held that Sony was "of limited assistance to Napster" because
Napster had "actual, specific knowledge of direct infringement" occurring on its
network.18 It viewed the Sony test of whether the technology is "capable of substantial
noninfringing uses" as a means for imputing knowledge of infringement to the
technology provider. Where such knowledge was actually present, the Ninth Circuit held
the Sony test does not apply. In this way, the court felt "compelled to make a clear
distinction between the architecture of the Napster system and Napster's conduct in
relation to the operational capacity of the system."
The Sony case also played a role in the panel's review of the district court's
preliminary injunction, where it narrowed the scope of the injunction to apply only where
Napster had reasonable knowledge of infringing files on its service and failed to take
action to prevent the distribution of those files. It noted that the mere existence of the
16 Napster, 239 F.3d at 1019-22.
17 Id. at 1022-23.
18 Id. at 1020.
8
network on which files could be distributed was not enough to render Napster liable,
citing Sony. This reflects the Supreme Court's concern over inhibiting non-infringing
uses of technology through an overly-broad application of secondary liability under
copyright.
As a result of the Ninth Circuit's opinion, Napster was forced to filter out
infringing files from its network. Unable to find a way to continue operating in light of
the injunction, it shut down in 2002.
2. In re Aimster
The Seventh Circuit was the next appellate court to consider the liability of a
peer-to-peer service in the case of In re Aimster.19 Aimster operated in conjunction with
an instant-messaging ("IM") service, such as AOL's Instant Messenger, hence the AIM
in Aimster. When users were online using an IM program to chat, they could also trade
music files through the Aimster P2P software. The transmissions between users were
encrypted such that the proprietor of the Aimster service argued that he could not know
whether the files being transmitted were copyrighted or not. The district court issued a
preliminary injunction against Aimster, and the Seventh Circuit affirmed that decision in
an opinion written by Judge Richard Posner.
Judge Posner's opinion addresses Aimster's liability only in terms of contributory
infringement, not vicarious liability.20 It concludes that Aimster did have sufficient
knowledge of infringing activity, based on evidence from the software's tutorial that
showed examples of how it is to be used that only included copyrighted music files.21
19 334 F.3d 643 (7th Cir. 2003).
20 Id. at 654-55 (noting that existence of vicarious liability was "academic" in light of contributory
infringement finding).
21 Id. at 649. In so doing, the Seventh Circuit departed from the Ninth Circuit's holding that where a
9
Also, the service offered a "Club Aimster" option for a monthly fee that lists the 40 most
popular songs being made available on the service, which the court found were
"invariably under copyright."22 The panel rejected Aimster's argument that the
encrypted nature of the transmissions prevented it from having knowledge of the
infringing activity, concluding that this feature was an attempt by Aimster to avoid
liability by remaining purposefully ignorant of the infringement, and noting that "willful
blindess is knowledge, in copyright law ... as it is in the law generally."23
Judge Posner also extensively analyzed the Sony defense raised by Aimster,
ultimately rejecting it on the grounds that Aimster had offered no evidence that its
software could be used for noninfringing purposes.24 He noted that it is not enough for a
defendant to show that a "product or service be physically capable ... of a nonfringing
use."25 Even if Aimster could show such substantial noninfringing uses, the panel held
that the defendant would have to "show that it would have been disproportionately costly
for [it] to eliminate or at least reduce substantially the noninfringing uses,"26 which
Aimster also failed to do.
3. MGM Studios v. Grokster
In contrast to the Napster and Aimster decisions, in the case of Metro-Goldwyn-
Mayer Studios, Inc. v. Grokster, the District Court for the Central District of California
ruled that the peer-to-peer services Morpheus (operated by Streamcast) and Grokster
provider of technology has actual knowledge of specific infringing uses the Sony defense becomes
inapplicable.
22 Id. at 651-52.
23 Id. at 650.
24 Id. at 653 ("Aimster has failed to produce any evidence that its service has ever been used for a
noninfringing use, let alone evidence concerning the frequency of such uses.")
25 Id.
26 Id
10
were not liable for the copyright infringement of their users.27 The court focused on the
central technological difference between these new services and Napster - rather than
maintain a centralized index of files being distributed on their servers like Napster, the
defendants' software either creates ad hoc indices on the computers of users on the
network, known as supernodes, or it uses no centralized index at all. In essence, the
court accepted defendants' characterization that all they did was sell a piece of software
to users, and had no further interaction after that, just as Sony merely sold a VCR to
consumers. Based on this fact, the court concluded that Grokster and Streamcast could
not limit the infringement occurring on their networks, because there was no centralized
index through which they could control infringing uses of their software.28
Thus, when applying the tests for contributory infringement and vicarious
liability, the court's characterization of defendants as mere providers of software became
essential to its analysis. Although it recognized that the defendants had actual knowledge
of infringement thanks to plaintiffs' numerous notices sent to defendants, it held that
contributory infringement requires knowledge of specific infringement at the precise
moment when defendants could limit such infringement.29 In this case, the court, relying
heavily on the Sony decision, found that once the software had been downloaded, then the
defendants could not longer control the use of the software, and thus their knowledge of
infringement occurring after the download was irrelevant.
With respect to the material contribution element of contributory infringement,
the court relied again on Sony to find that defendants did not materially contribute to the
infringement, comparing their software to the VCR or a photocopying machine - devices
27 259 F. Supp. 2d 1029 (C.D. Cal. 2003).
28 Id. at 1041-42.
29 Id. at 1037.
11
that enable both infringing and non-infringing uses. On these grounds the court denied
contributory infringement.
On vicarious liability, the court found that defendants gained a direct financial
benefit from the infringement that takes place on their service. As the court explained:
Here, it is clear that Defendants derive a financial benefit from the
infringing conduct. The ability to trade copyrighted songs and other
copyrighted works certainly is a "draw" for many users of Defendants'
software. As a result, Defendants have a user base in the tens of millions.
* * *
[I]ndividuals are attracted to Defendants' software because of the ability to
acquire copyrighted material free of charge. While those who use
Defendants' software do not pay for the product, Defendants derive
substantial revenue from advertising. For example, StreamCast had $ 1.8
million in revenue in 2001 from advertising. ... And as of July of 2002,
StreamCast had $ 2 million in revenue and projects $ 5.7 million by the
end of the year. ... Grokster also derives substantial revenue from
advertising. ... The more individuals who download the software, the
more advertising revenue Defendants collect. And because a substantial
number of users download the software to acquire copyrighted material, a
significant proportion of Defendants' advertising revenue depends upon
the infringement. Defendants thus derive a financial benefit from the
infringement.30
Yet, on whether they had the right and ability to control the infringement, the court again
relied on the lack of a centralized index to find that defendants could not control the
infringement taking place on the network created by their software.
In the end, the court acknowledged that its result might not be the right one from a
policy standpoint. It noted the "possibility that Defendants may have intentionally
structured their businesses to avoid secondary liability for copyright infringement, while
benefiting financially from the illicit draw of their wares."31 It also noted that "additional
legislative guidance may be well-counseled" in this circumstance. The case is currently
30 Id. at 1044.
31 Id. at 1046.
12
on appeal to the Ninth Circuit, where oral argument was held this past February, but no
decision has been issued to date.
In my view, the Grokster decision was wrongly decided, and I hope the Ninth
Circuit corrects the errors in the district court's decision. The court employed an
unnecessarily cramped view of existing secondary liability doctrines, creating a much
narrower test of "knowledge", "material contribution" and "right and ability control" than
any case before it, including the Ninth Circuit's decision in Napster. It also misapplied
the Sony decision to an inaccurate characterization of the defendants as mere providers of
software, comparing them to maker of a VCR, when their services were functionally the
equivalent of Napster and Aimster. Most importantly, the Grokster decision fails to see
the forest for the trees; it essentially ignores defendants' intent to establish and create a
network of massive infringement - by enlisting ordinary consumers to engage in piracy -
upon which they have built their business.
* * *
As can be seen from the discussion of these cases, application of the secondary
liability doctrines in the peer-to-peer context has produced conflicting results. On the
one hand, the Napster and Aimster services were found to be liable by the Ninth Circuit
and Seventh Circuit, while, on the other hand, Grokster and Streamcast were not found
liable by the Central District of California. Each of the cases involved different
interpretations of the Supreme Court's decision in Sony and its effect on the secondary
liability doctrines.
But there is one constant in all of these cases. All of the services at issue facilitate
massive copyright infringement involving literally billions of copies of copyrighted
13
works. There is also no dispute that the use of these services constitutes copyright
infringement - unlike the Sony case which held that the principal use of the VCR was a
fair use. It is also undisputed that the defendants who operate these services rely on the
copyright infringement as a draw to attract users, thereby attracting advertisers. These
facts make the comparison to Sony remarkably inapt. In my view, if the VCR had been
designed in such a way that when a consumer merely turned it on, copies of all of the
programs he recorded with it were immediately made available to every other VCR in the
world, there is no doubt the Sony decision would have gone the opposite way.
It would seem, in these circumstances, that sensible application of secondary
liability doctrines would result in liability against these companies, even accounting for
the concerns expressed by the Supreme Court in the Sony decision. As I noted above, the
doctrine of contributory infringement, which includes notions of inducement, is likely
broad enough to find liability in these circumstances. Yet, as the Grokster case shows, it
appears that defendants are able to evade copyright liability successfully while still
profiting from massive copyright infringement which they enable and encourage.
As I testified last year, I believe that legislative action in this area is warranted if
courts interpret current law to exonerate proprietors of P2P services like Grokster,
Morpheus and Kazaa. In my view, S. 2560 would help correct the problems created by
the Grokster court's misapplication of Sony and secondary liability doctrines in the peerto-
peer context. I will now turn to the provisions of the bill.
II. The Inducing Infringements Act
The Inducing Infringements Act would add a new subsection (g) to Section 501 of
the Copyright Act. The existing Section 501 defines copyright infringement - in
14
subsection (a) - and provides a civil cause of action for the legal or beneficial owner of
copyright to bring against infringement. 32 The new subsection would create a new
species of copyright liability by making clear that anyone who "intentionally induces any
violation of subsection (a) shall be liable as an infringer." In other words, a person who
"intentionally induces" infringement would be liable as if he or she committed the
infringement. The bill defines "intentionally induces" as meaning:
[i]ntentionally aids, abets, induces, or procures, and intent may be shown
by acts from which a reasonable person would find intent to induce
infringement based upon all relevant information about such acts then
reasonably available to the actor, including whether the activity relies on
infringement for its commercial viability.
Paragraph (3) of the new subsection makes clear that the new form of inducement
liability is in addition to existing common-law secondary liability doctrines, and does not
modify them in any way. It also provides that nothing in the bill "require[s] any court to
unjustly withhold or impose any secondary liability for copyright infringement."
As you explained in your floor statement, Mr. Chairman, this provision draws
from patent law and federal criminal law. Section 271(b) of the Patent Act provides that
"[w]hoever actively induces infringement of a patent shall be liable as an infringer."33
Similarly, the Section 2 of the Federal Criminal Code provides that "[w]hoever commits
an offense against the United States or aids, abets, counsels, commands, induces or
procures its commission, is punishable as a principal."34 You have noted that the concept
of liability for "inducement" was not at issue in Sony, as the Court made clear that no
evidence existed that the defendant in that case "intentionally induce[d] its customers to
make infringing uses of respondents' copyrights, nor does it supply its products to
32 17 U.S.C. § 501(a) & (b).
33 35 U.S.C. § 271(b).
34 18 U.S.C. § 2.
15
identified individuals known by it to be engaging in continuing infringement of
respondent's copyrights."35
In my view this change would be a positive addition to the copyright law. As I
described above, secondary liability for copyright infringement is an important feature of
copyright - it helps ensure real, effective enforcement of copyright against those who are
truly responsible in both legal and financial terms. This is especially true in the context
of peer-to-peer services, which have created vast networks of copyright infringement by
relying on clever technology and inducing others to join the network and infringe
copyright. As I testified last year, we are seeing the natural consequences of what
happens when secondary liability doctrines are not applied in this context: enforcement
against infringement is left to suits against individual users, rather than the businesses
that are profiting from the infringement. As you pointed out in your floor statement, Mr.
Chairman, this result makes no sense, and is a departure from traditions of copyright,
which has regulated the relationship between copyright owners and intermediaries (like
dance halls and swap meets) for the ultimate benefit of consumers. Decisions like
Grokster scramble this venerable structure, forcing copyright law to administer the
relationship between copyright owners and consumers, to the undeserved benefit of
intermediaries like Kazaa and Grokster.
The bill is appropriately tailored to the defendant's intentions and behavior, rather
than the technology it chooses to employ, making the bill technology neutral. It would
allow courts to examine all of the circumstances of a particular case to determine whether
the defendant had intentionally constructed its business to profit from infringement of
others that it induced. Recognizing that an actor's state of mind can often only be shown
35 Sony, 464 U.S. at 439 n. 19.
16
by indirect evidence, the definition of "intentionally induce" allows a court to apply an
objective, reasonable person standard to the conduct of defendant to determine whether
that evidences the requisite intent. The central definition, however, requires that the
defendant "intentionally aids, abets, induces or procures" infringement, which is a high
level of mens rea that should limit application of this bill only to the most egregious
actors.
For example, the provisions of this bill would appropriately place liability on the
operators of the current peer-to-peer services such as Grokster, Kazaa and
Morpheus/Streamcast. There is a wide array of evidence that the proprietors of those
services induce users to infringe copyright:
1. Their business is based on advertising revenue, which is based on the number
of users participating on the network, which, as the Grokster court recognized is based on
the free availability of copyrighted works on that network.
2. The availability of copyrighted material on the network is assured by the
software, which automatically and invisibly to the user immediately begins making their
copies of works available to the millions of others on the network. As the Harvard Law
School's Berkman Center for Internet and Society explains: "With Kazaa, it is easy to
begin file sharing, but much more difficult to turn it off."36 The Berkman Center explains
the several different steps Kazaa has programmed into is software to make sure the user
is "sharing" as many files as possible:
? "[B]y default, Kazaa starts itself immediately when the user turns on his
computer. The program runs in the background, pre-set with the filesharing
feature turned 'on' and configured to allow an unlimited number
36 Brief of Amicus Curiae Berkman Center for Internet & Society at Harvard Law School, filed in Capitol
Records, Inc. v. Alaujan, No. 1:03-CV-11661-NG at 9-12 (D. Mass. filed May 24, 2004).
17
of uploads at a time. Many users may not be aware that the program is
running continuously in this fashion."
? "When a user downloads a file from another Kazaa user, by default that
copy is stored in the publicly shared folder, which means that it becomes
immediately available for copying by others on the Kazaa network. Kazaa
defaults to creating a shortcut to open this folder on the user's desktop;
however the user may not be aware where exactly the folder itself is
located on his computer."
? "Unlike most computer applications, clicking on the 'x' button on the top
right-hand corner of the Kazaa program does not shut down Kazaa. This
action merely hides the Kazaa program from the screen while the program
continues to run the program in the background. To actually shut down the
program, the user must then right-click the Kazaa icon located in
Windows taskbar and choose the 'close' option."
? "Disabling the default file-sharing features in Kazaa is a complicated
process due to an intricate series of steps within the software itself. In
addition, the available resources that detail how to disable file sharing are
often inconsistent or provide incomplete instructions."
As the Berkman Center concludes, "it can be extremely difficult for a non-expert
computer user to shut down their file-sharing capability." That difficulty is not an
accident - it is the intentional design of the proprietors of these services.
3. The defendants also affirmatively encourage people to distribute as many files
as possible, knowing that most people will share infringing files. Kazaa implements what
it calls "Participation Levels", which increase a user's download performance based on
the amount uploaded from that user.37 In other words, the more attractive the files you
are sharing with other, the easier it will be for you to download copies from others.
Indeed, Kazaa suggests that the user "share large and interesting files." This feature
encourages users to make available popular copyrighted works, which will likely be the
most frequently downloaded by others.
37 See Kazaa User Guide Glossary, "Participation Level" at
http://www.kazaa.com/us/help/glossary/participation_ratio.htm.
18
4. The proprietors of these services employ strategies of "plausible deniability"
and "disaggregat[ing] functions" to avoid legal liability but allow copyright infringement
on their networks to continue. As one attorney for these services explained:
Can you plausibly deny what your users are up to? ...
Have you built a level of 'plausible deniability' into your product
architecture? If you promote, endorse, or facilitate the use of your product
for infringing activity, you're asking for trouble. ... Software that sends
back user reports may lead to more knowledge than you want. Customer
support channels can also create bad "knowledge" evidence. Instead, talk
up your great legitimate capabilities, sell it (or give it away), and then leave
the users alone.
Disaggregate functions ... In order to be successful, peer-to-peer networks
will require products to address numerous functional needs--search,
namespace management, security, dynamic file redistribution, to take a few
examples. There's no reason why one entity should try to do all of these
things. ...
This approach may also have legal advantages. If Sony had not only
manufactured VCRs, but also sold all the blank video tape, distributed all
the TV Guides, and sponsored clubs and swap meets for VCR users, the
Betamax case might have turned out differently. ...
A disaggregated model, moreover, may limit what a court can order you to
do to stop infringing activity by your users.38
As I noted above, secondary liability, like the form proposed in this bill, can and should
be used to impose liability where the defendant organizes its business structure to permit
illegal activity to continue unabated but keep itself insulated from liability.
In short, the way Kazaa and other peer-to-peer technologies have structured their
businesses and designed their software, they make a user's infringement almost
inevitable. Indeed, many users probably don't know they are engaged in the distribution
of works, and continue to do so even after they think they've turned the program off.
38 Fred von Lohmann, Electronic Frontier Foundation, "IAAL [I am a Lawyer]: What Peer-to-Peer
Developers Need to Know about Copyright Law", § V.7 (December 2003)
(http://www.eff.org/IP/P2P/p2p_copyright_wp.php).
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When all of these circumstances are considered, they meet the test of "intentionally
induce," and courts should be able to find liability based on them under the new
provision.
These circumstances also help to show why the concerns about the breadth of the
bill are misplaced. As Senator Leahy's floor statement makes clear, those who merely
provide copying technology should not be liable under this bill, because they would lack
indicators of "intentional inducement" like those found in the peer-to-peer context. For
example, the seller of a portable MP3 player does not make it nearly inevitable that the
user will commit copyright infringement just by turning the device on. Rather, several
additional steps must be taken by the user before any potential infringement takes place.
Also, the seller of the portable device is very likely not reliant on building a network like
the peer-to-peer service that is trying to sell advertising, and therefore it typically has no
need to and does not encourage users to become distributors of copyrighted works.
While I believe the bill as drafted does not present the concerns raised by some, to
the extent you wish to confirm this interpretation of the scope of the bill with additional
clarifying language, the Copyright Office would be pleased to assist you with suggestions
that would help achieve this result.
In addition, concerns that this bill would affect liability of Internet Service
Providers ("ISPs") are unfounded. Normal activity of an ISP like that defined in the
Section 512 safe harbors could not reasonably be considered intentional inducement.
Even if such actions could be considered within this new species of liability, nothing in
this bill affects operation of Section 512, so that the same limitations of liability would
apply to qualifying ISPs for this new form of liability.
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While I think this bill would provide courts with a useful and effective means of
assessing the liability of the current generation of infringing services, I am concerned that
the next generation of technology-based pirates will be able to devise a way around this
new species of liability. They may be able to limit evidence of their "inducement," yet
still be able to reap substantial financial benefit from enabling and encouraging massive
copyright infringement, just as Grokster, Kazaa and Morpheus appear to have devised a
way around the Napster decision. To achieve a more comprehensive solution, this
Committee may want to consider other legislative approaches in addition to this bill that
would provide guidance to courts so that liability can be found in appropriate
circumstances. While you have carefully crafted this bill to preserve the 20-year-old
decision in the Sony case, it may become necessary to consider whether that decision is
overly protective of manufacturers and marketers of infringement tools, especially in
today's digital environment. If the Sony precedent continues to be an impediment to
obtaining effective relief against those who profit by providing the means to engage in
mass infringement, it should be replaced by a more flexible rule that is more meaningful
in the technological age, but that still vindicates the Court's goal to balance effective
"and not merely symbolic" protection of copyright with the rights of others to engage in
substantially unrelated areas of commerce.39 The Copyright Office offers whatever
assistance this Committee would need with respect to such efforts.
Let me be clear, however, that our concern about its future application should not
hold up this bill. It is an important improvement over existing law that will help avoid
results like the district court opinion in Grokster. It also has a sufficiently high standard
39 Sony, 464 U.S. at 440.
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of intent that will not subject legitimate businesses to any new liability. I support
enactment of the Inducing Infringement Acts of 2004.
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