TOC Notes on
Case Analysis:

-1-The facts of the case MGM versus Grokster were undisputed:

  • an overwhelming majority of the users of Grokster, a peer to peer network, use the network to exchange music files in violation of existing copyright law
  • Grokster never had a direct role in the illegal activities of these users as its network works outside of its knowledge and control
  • the usefulness of the Grokster network goes, at least in theory, beyond illegal copying, a key requirement in the so-called Sony precedent
The crux of the dispute was whether nevertheless Grokster could be held liable for the copyright infringements of its users in view of one of two reasons:
  • the existence of non infringing usage was immaterial to Grokster's business profitability
  • in marketing its service, Grokster explicitly and actively encouraged illegal activities
Adding to the difficulty of the case was a need for a clear test to allow a potential entrepreneur to know in advance whether a project was or not shielded from such liabilities.

The Supreme Court summarized its decision as follows:
One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, going beyond mere distribution with knowledge of third-party action, is liable for the resulting acts of infringement by third parties using the device, regardless of the devices lawful uses.

-2-There have been many comments on the Grokster decision, see for instance the Electronic Frontier Foundation. Beyond the fact that it effectively shut down Grokster, the organization, but not of course Grokster, the network of computers running the Grokster software, we wish to stress two points:

  • copyright infringement is now a complex notion, combining actions (distribution), intents (marketing plans) and financial results (source of profitability, aka business model)
  • from a laudable search for justice:
    a sound balance between the respective values of supporting creative pursuits through copyright protection and promoting innovation in new communication technologies by limiting the incidence of liability for copyright infringement in the Court's own words, the word "balance" which symbolizes Justice itself appearing no fewer than 7 times in 55 pages,
    one can foresee more work for lawyers as each future case will have to be checked against this complex notion
We leave the reader to consider a full page advertisement taken in the New York Times of November 14, 2005 by Verizon, a large US telephone company. In promoting its DSL broadband communication services, Verizon claims users will be able to "download large files in the time it takes [them] to tie [their] shoes", adding "Verizon reminds you to always download legally". The issue: the former claim is cast in a 12 point bold face, the latter disclaimer in a barely legible 6 point regular face, a classic marketing trick. In order to be sheltered from infringement liability the clearest test appears "be a large, mature company rather than a start up".

-3- The action taken by the New York State Attorney General against Sony BMG Music is better understood in its historical context. Already, during the 1950's, music studios paid radio stations to promote songs while disguising their advertising as independent programming (source Big Payola Case Uncovered by dontbuycds.org).

In this perspective, payola and file sharing have a surprising number of points in common:

  • both have their origin in putting new, disruptive technologies, radio broadcasts and peer to peer networks, into the hands of consumers
  • both economic models are based on making content available for free, paid for by the revenues from the associated ad stream
  • in both cases, it appears highly efficient to use the channel thus created to market new artists
The difference lies in the level of control music studios is able to exercise over the channel:
  • with payola, they determine the content, paying the channel to play what they want
  • on a peer to peer network such as Grokster, they loose all control to the users, who exchange what they like
This fundamental difference explains the contrast between studios as defendants in matters of payola and as plaintiffs in matters of file sharing.

-4- In case chapters II-1 (healthcare), II-3(safe harbor), III-1(protection), IV-1(spamming), IV-2(denial of service) were not enough to illustrate the point, here again intermediaries appear as a key element in

  • blurring the origin of the information: did the song I just heard on the radio station reflect the taste of the disk jockey or the marketing plan of the record label ?
  • creating deniability, assuming the intermediary can be kept at arm length:
    • in file sharing, each user becomes an intermediary, who infringes on song copyrights and whose actions benefits Grokster
    • in payola, the record label hires the services of "independent promoters" to channel the money to the radio station
Nefarious schemes based on intermediaries are nothing new of course. But the payola scheme illuminates a deep thruth about information: its ambivalence. Once stripped of its context, ie. the name of the author, the intent of the author, the potential presence of a trusted recommender, raw information is open to many interpretations: is it factual information, self-interested advertising, free artistic expression ? While interested readers might look up the works of Roland Barthes for more insights on this question, we have a more mundane goal: stress that,
from a business perspective, information loses most of its value unless it is delivered in context, an implicit contract between a sender and a receiver. It is not enough that the information be transmitted without corruption, the contract itself must be preserved. Unfortunately this contract may be abused by the receiver (file sharing) or the sender (payola) and is an easy prey for intermediaries.
Today "context preservation" is an unresolved issue.

-5-While the reader may have his or her own reservations as to their consequences, the two decisions reached against Grokster on the one hand and Sony BMG Music on the other reflect well on the law: no organized stealing (of copyrights), no lying to the public (about programming).

However a second issue remains unresolved: what "viable business model(s)" should be adopted in view of modern Information technology ?
By viable, we mean a model which:

  • takes advantage of the characteristics of the medium, including its efficiency for distributing information and marketing new artists
  • protects the revenues of authors and interprets, and whatever intermediaries are needed to help them to tap their talents
  • protects the freedom of consumers to enjoy convenient access to information and their rights of fair usage
  • does not rely exclusively on the virtue of each user, corsetted as it may by the application of the law

General Comments:

-1-In analyzing the case for this chapter, we have encountered two unresolved issues: how to preserve the information context and what viable business model to apply. In order to understand the phenomenon of illegal copying, one must keep in mind a third issue, not only unresolved but unsolvable. Once broken, any information protection scheme becomes useless. Since one can, if not legally at least easily distribute the method by which to break the scheme, all existing protected information can be released and it becomes futile to use the scheme on new information.

Coupled with the vanishing cost of copying and distributing information over the Internet, this issue is a major source of instability. Assume for example some protection scheme is found to be good. The advantage one may gain in breaking it grows together with its popularity. And since it only needs to be broken once, there will always come a time where the investment necessary to break it becomes profitable. It does not matter that the corresponding resources may be out of the reach of individuals and most organizations. According to a lawsuit since dropped, NDS, a News Corp. subsidiary, allegedly could and did afford to break the industrial strength protection scheme used at the time by Canal +, a competitor.

Even worse is the special but important case of the "null" protection scheme. Once some information has been released unprotected, it becomes futile to protect it, while making it easier to break the protection scheme used to do it.

-2- It is not difficult to find the motives behind illegal copying. They mirror those behind denial of service analysed in chapter IV-2:

  • material gain, obtained directly by stealing copyrights or, as Grokster was found liable, by reaping the benefits of vicarious infringement
  • competitive advantage, derived from exposing a rival's copyrighted production to large scale illegal copying

-3-In chapter IV-1 on spamming, we show how US law creates a category we call legal spamming. In chapter IV-2 on denial of service, we suggest some such practices may come to be considered legal forms of picketing. It is therefore no surprise to find legal copying of copyrighted works exists, under the name of fair use, e.g. US Code Title 17, section 107 and Berne Convention Article 10. In the US especially, this is an extensive right, covering purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research and to be appreciated with respect to the effect of the use upon the potential market for or value of the copyrighted work.

The last criteria is in fact quite intriguing. We have seen that peer to peer networks, as broadcast radio before, are an excellent tool to promote new artists by word of mouth. One can argue that, as long as non for profit file sharing increases "the potential market for or value of the copyrighted work", it is covered by fair use.

Unfortunately fair use falls victim to our so-called third issue. Once released without protection, a copyrighted work can no longer be protected in any efficient way. The Supreme Court's guiding principle of striking a balance between competing rights is here at a dead-end: in the Information Age, practical solutions implemented so far have an inherent tendency to strike down either the rights of authors or those of the consumers.
We suggest that a future solution will need to:

-4-The casualty list created by modern technology relative to copying is not limited to fair use. It includes all intermediaries.
Some, like Grokster and Verizon as analyzed above, are actively, if indirectly, benefiting from illegal copying.
Others are entangled unwittingly. The most glaring case is provided by the lawsuit filed by Healthcare Advocates against Harding Earley and the Internet Archive. An illustration of the pitfalls of disposing of digital information, the case centers on the use of a non for profit archiving site, the Internet Archive, by imaginative lawyers to access discontinued web pages previously published by their opponent in some legal dispute.
Other intermediaries are creating an issue simply in view of the sheer size and scope of their activities such as Google. Issues related to the digitization of whole libraries put aside, Google doubles as a gigantic archive as it caches web pages to deliver faster results. Grokster's former home page was downloaded from Google on November 8, 2005 after Grokster had stopped offering its peer to peer software(Google's cache has since been purged).

Any future solution must also clarify the role of these value-adding intermediaries.

-5-Sources of recommendation is one such category of value-adding intermediaries, whose role in the information context we have already mentioned. The key context parameter to be accounted for and preserved is the source of their financing, or to use a popular expression "who pays the bill".

In the case of payola, the crime was to make listeners believe the radio manager responsible for the program had exercised an artistic judgment within the goal of pleasing the audience. For a similar reason Jack Grubman was forced to leave Citigroup in 2002 and fined in 2003, as his role as a stock analyst appeared to have been influenced by his undisclosed ties to recommended companies such as WorldCom.
On the other hand celebrities are commonly used to endorse products for a fee, a practice which proves that opinions can be monetized as long as it is visible in the context.

The best example of successful monetization of recommendations is Google, who gets paid by advertisers to include ads to the results sent back in response to a search. By clearly segregating paid information from independent information, Google met the expectations of both advertisers and users. And by limiting the space devoted to paid information, Google actually made it more valuable.

A worrisome example is provided by Bzzagent.com, which is paid by advertisers to recruit agents to spread favorable word of mouth. While Bzzagent.com does not pay cash to its agents and recommends they disclose their "volunteering for Bzzagent", one may be excused for doubting consumers are made aware of the full context. In particular using the term "volunteering" in this situation does appear a cute semantic stretch.
Yet Bzzagent.com has identified a real market opportunity and the goal of rewarding word of mouth is quite legitimate. What is lacking is an acceptable context.

-6-A more complete landscape starts to emerge. The issues surrounding illegal copying will not go away until one realizes modern technology has left open for grab the entire value chain from author to consumer of digital information. What is occurring is a war pitching against one another:

  • the authors, artists, interprets...
  • the publishers, record labels, movie studios...
  • the distribution channels, online stores, on demand pay per view digital channels, libraries...
  • the player hardware manufacturers, of DVD players, MP3 portable players, cellular phones...
  • the software providers, of peer to peer networks, Digital Right Management systems, digital formats...
  • the intermediaries, paid advertisers, independent recommenders...
  • the users
The current copyrights law shows how a solution can emerge. As it evolved to cover the value added chain of past technologies, centered around the manufacturing of physical objects, it came to distinguish a multiplicity of rights: rights of authors, of interprets, of users.. (see the Berne Convention) and arbitrate among them. A whole new scheme is called for.

One notion which must be addressed is that of exclusivity. As long as the information is conveyed by an independent physical object, e.g. a book, the vertical integration of publishers and printers is of passing interest to consumers. When the player becomes the gatekeeper of the dematerialized information, control of players by distributors, such as iPod by iTunes, is of far more reaching consequences.

-7-The problem of war and illegal practices is that there is little incentive to stop reprehensive behaviors, once started.
Copying outside of a stable, enforceable, legal framework means that both the sharing software and the shared content may come with:

  • viruses and trojans (see chapter III-1 on protection)
  • spyware and adware
  • files masquerading as "the real thing", but with content corrupted on purpose by the legitimate copyright owner to lower overall quality
Notice there is nothing intrinsically wrong with spyware which reports to a central site their users' profiles and adware which compensate for distributing something for free. Marketing surveys and advertising-based media are fulfilling similar needs. The issue is over the way control is taken from the user and his or her computer, in general using stealth and deception.

This problem is compounded by the creation of a chain of anonymous contributors, making file sharing among strangers a risky proposition, mainly appealing to young users.

-8- We have so far presented the issues behing illegal copying by painting a most encompassing canvas. Indeed we believe that lasting solutions will emerge by taking this total picture into account. However it is time to turn towards practical solutions as used by current copyright law breakers.
From this perspective, illegal copying becomes a highly focused activity, as any successful business.

One key is user involvement. Sharing goes with desire and the most lucrative markets are centered around celebrity and fame in entertainment.
The other is ease of use. As long as books are seen as more convenient to enjoy as physical objects, the bulk of copying will be devoted to music and movies, for which physical objects are an expendable intermediate step to move content to the required player.

for offense
Before one can dream to download it from some peer to peer network, someone must get the copyrighted information in the first place. There are multiple ways to do so:

  • rent or purchase a non copy-protected copy, a notion which can refer to a lack of:
    • physical protection, as when one buys an ordinary CD and rips it, i.e. outputs its content as an ordinary computer file
    • legal protection, for example in countries with less restrictive copyright laws (please refer to useful links on the case page)
  • steal a copy of the master, before it gets protected for distribution, a possibility which turns recording and mastering facilities into the equivalent of money printing plants
  • rent or purchase a copy protected copy and proceed to break its protection scheme, either decrypting the information or bypassing the right management system
    • either by looking up the relevant method on the Internet or by word of mouth
    • or by following an available methodology which will lead to the method sought after, such as Prof Felten's approach to watermark elimination
    • or with an original method
  • capture the analog expression of a copy-protected copy and remaster it, always possible even if detrimental to quality
If relevant, one can circulate the method to break a protection scheme. To avoid any legal entanglements (see the case of Prof Felten in chapter III-3 on distribution), one is advised to locate the information on a server located and registered in some foreign country.

The next step is the easiest: locate a peer to peer network and upload the information to it. This is actually a misnomer since the information stays on the computer of the person providing it. As Chan Nai-ming's lawyer said, "Mr Chan had only saved the movies on his computer and connected the computer to the Internet in a way that allowed others to actually download the movie", as his client was successfully prosecuted for copyright violations in Hong Kong (source Keith Bradsher, THe New York Times, November 2005).
One will notice Chan Nai-ming's legal defense was similar to Grokster's: the only culprit is the end user who retrieve a copy from the peer to peer network. In both cases the courts found infringement, either contributory (infringement was the only possible outcome) or vicariously ( inducing others to infringe).

As just explained, the final step is for a user to locate the desired file on a peer to peer network and download it to his or her computer.

Compared to the complexity involved in spamming and denial of service, illegal file sharing is fairly easy, which explains its great popularity, with about 8 million users a year ago according to Big Champagne.

for defense
In chapter III-3 on distribution, we have mentioned the different types of solutions available to protect coprighted information. They fall into three categories:

  • marketing, by changing the business model to make illegal copying unrewarding
  • technical, by making it more difficult to carry on
  • legal, by prosecuting all the links involved in the offense chain depicted above: initiators, abettors, propagators and users
While in 2000-2001 the emphasis was more on the technical side, the period 2003-2005 has seen a heavy use of legal challenges, tracking down initiators (Operation Site Down), shutting down peer to peer networks as abettors (Kaaza in Australia, Netease in China, Grokster in the US, i2hub in US universities...), suing Massachusetts college students as propagators and users (abuse of Internet2 at Harvard, MIT and fifteen other leading universities).
It would be instructive to compare the figures giving the number of peer to peer users in November 2005 to those a year ago to see if the major music labels and movie studios have succeeded in curbing illegal file sharing (current public numbers from Slyck.com cannot be directly compared to those privately sold by BigChampagne to its clients).
Meanwhile the industry is slowly evolving new online business models, even endorsing peer to peer networks such as Snocap, Mashboxx and Peer Impact.
For more information on the positions of the entertainment industry, one can consult their US professional associations, the RIAA and the MPAA. The largest lawsuit todate against propagators has been filed in November '05 by the International Phonographic Federation Industry.

However care must be taken as too much technical and legal pressure can backfire too.
On the legal side, several measures to enhance the ability of the industry to protect its copyrights have been turned down: On the technical side, the worst fiasco so far happened in November '05 when Sony BMG Music was forced to recall millions of CD's [...]because they contain copy restriction software that poses risks to the computers of consumers (Tom Zeller Jr. , The New York Times). Other sources bluntly consider Sony's rootkit software malicious, complete with a backdoor, i.e. a real trojan horse. Users who had switched from illegal file sharing to legal consumption of Sony's digital music are entitled to think the cure can be worse than the ill.

Tools available

For tools for the defense, please refer to chapter III-3 on distribution.

Tools for the offense fall into two major categories:

  • CD ripping, to get content into ordinary computer files which can later be shared on a network. For sources see:
  • peer to peer networks, to propagate the content on the Internet. For sources see:
    • Morpheus from StreamCast Networks, the codefendent in the Grokster case
    • eDonkey
    • BitTorrent, an innovative peer to peer network which works well for very large files
    • the Wikipedia for a more in depth look at
      • Gnutella, an open source decentralized protocol implemented in a variety of clients
      • FastTrack, the other file sharing protocol, adopted by Grokster and KaZaA (see the status of the legal challenges and details about the dangers of associated malware)
    • Slyck.com for current news about peer to peer networking
    • and finally, for an historical perspective about the centralized peer to peer network which started it all, Napster

August 2005
Copyright © 2005 Philippe Coueignoux. All rights reserved.