Intellectual Property & Copyrights Research Paper

Covering Cases:

Metro-Goldwyn-Mayer Studios, Inc. vs. Grokster, Ltd.

A&M Records, Inc. vs. Napster, Inc.

Christopher Pappas

Business Ethics, Law and Communication

Wednesday, October 29, 2008






© 2008

Christopher Pappas



 TABLE
OF
CONTENTS

INTRODUCTION ..................................................................................................................................................... 2


CASE
STUDY
I:
A&M
RECORDS,
INC.
VS.
NAPSTER,
INC................................................................................ 5


INTRODUCTION .......................................................................................................................................................................... 5


NAPSTER’S
OPERATION ........................................................................................................................................................... 6


LEGAL
ISSUES ............................................................................................................................................................................. 8


CONCLUSION ............................................................................................................................................................................ 12


CASE
STUDY
II:
METRO‐GOLDWYN‐MAYER
STUDIOS,
INC.
VS.
GROKSTER,
LTD ................................13


INTRODUCTION ....................................................................................................................................................................... 13


GROKSTER’S
OPERATIONS .................................................................................................................................................... 13


LEGAL
ISSUES .......................................................................................................................................................................... 14


CONCLUSION ............................................................................................................................................................................ 16


ETHICAL
ISSUES ..................................................................................................................................................17


REFERENCES ........................................................................................................................................................20


APPENDIX
A............................................................................................................................................................................. 24


APPENDIX
B............................................................................................................................................................................. 28


APPENDIX
C............................................................................................................................................................................. 29





 Intellectual
Property
&
Copyrights,
Research
Paper,
2


INTRODUCTION


In
1883,
the
importance
of
intellectual
property
was
recognized
for
first
time
in
the


Paris
Convention
for
the
Protection
of
Industrial
Property
followed
by
the
Berne


Convention
for
the
Protection
of
Literary
and
Artistic
Works
in
1886.
Nowadays,
the


Universal
Declaration
of
Human
Rights,
and
to
be
more
specific
Article
27,
protects
the


intellectual
property
rights
that
a
creator
or
an
owner
of
a
patent
or
copyright
has
on


his/her
own
work
or
investment
(“What
is
intellectual
property?”
n.d.).


It
is
true
to
say
that
countries
realized
that
intellectual
property
is
a
powerful
tool


for
economic
development
and
social
and
cultural
welfare.
Furthermore,
countries
wanted


to
promote
creativity
and
invention
especially
when
the
interests
of
the
innovator
are
the


same
as
those
of
the
public
interest.
As
a
result,
countries
created
laws
to
protect


intellectual
property.


Moreover,
each
of
us
should
promote
intellectual
property
rights
because
of
the


benefits
we
join.
For
example,
with
the
patent
system
an
inventor
of
a
new
and
highly


effective
drug
for
cancer
will
continue
his/her
research
in
order
to
produce
a
better
and


more
efficient
product.
The
results
of
this
invention
will
benefit
the
members
of
the
society


with
several
ways.
Patients
will
have
more
possibilities
of
being
cured
and
the
inventor
will


be
rewarded
for
his
creativity.


Intellectual
property
refers
to
the
intangible
property,
such
as
patents,
copyrights,


trademarks,
and
trade
dress,
which
belong
to
a
person
or
a
company.
To
be
more
specific,
it


refers
to
the
creations
of
the
mind
like:
symbols,
inventions,
artistic
works,
literary,
and


images
(“Introduction
to
intellectual
property:
theory
and
practice”
(1997).



 Intellectual
Property
&
Copyrights,
Research
Paper,
3


General
speaking,
intellectual
property
is
divided
into
two
categories:



1. Patent
or
industrial
property,
which
includes
trademarks,
inventions,
industrial


designs,
and
geographic
indications
of
source;
and



2. Copyright,
which
includes
literary
and
artistic
works,
such
as
poems,
paintings,


plays,
films,
musical
works,
novels,
drawings,
photographs,
architectural
designs,


and
sculptures
(“What
is
intellectual
property”
n.d.).


Moreover,
a
patent
for
an
invention
is
an
exclusive
right
granted
to
the
inventor,


issued
by
the
United
States
Patent
and
Trademark
Office.
A
patent
provides
protection
for


the
invention
to
the
owner
of
the
patent
for
a
limited
period,
generally
20
years
from
the


date
the
application
for
the
patent
was
filed
in
the
United
States
and
the
maintenance
fees


were
paid.
Moreover,
U.S.
patent
grants
are
effective
only
within
the
United
States,
U.S.


territories,
and
U.S.
possessions.
Patent
protection
means
that
the
invention
cannot
be


commercially
made,
used,
distributed,
or
sold
without
the
patent
owner’s
consent.


Furthermore,
a
patent
owner
can
sell
the
right
of
the
invention
to
someone
else,
who
will


become
the
new
owner
of
the
patent.
When
a
patent
expires
the
protection
ends,
and
as
a


result,
the
invention
becomes
available
to
commercial
exploitation
by
others
(“What
is
a


patent?”
2005).




 Also,
there
are
several
types
of
patents
but
the
most
common
are
three:


1. Utility
or
function
patents,
such
as
a
process,
machine,
article
of
manufacture,
or


composition
of
matter,


2. Design
patents,
such
as
a
new,
original,
and
ornamental
design
for
an
article
of


manufacture;
and


3. Plant
patents,
such
as
a
distinct
and
new
variety
of
plant
(“What
is
patent?
n.d).


 Intellectual
Property
&
Copyrights,
Research
Paper,
4


Furthermore,
the
purpose
of
copyrights
is
to
protect
the
expression
of
ideas.
In


other
words,
it
protects
the
rights
of
the
authors
and
creators
in
any
field,
such
as
literary,


dramatic,
musical,
artistic,
and
certain
other
intellectual
works,
both
published
and


unpublished.
As
Jennings
M.
(2006),
states:
“A
copyright
gives
the
holder
of
the
copyright


the
exclusive
right
to
sell,
control,
or
license
the
copyrighted
work.”
(p.
624)



According
to
the
Section
106
of
the
1976
Copyright
Act,
the
holder
of
the
copyright,


or
in
other
words,
the
rightsholder
has
the
total
control
over
the
use
of
the
copyrighted


work,
such
as
the
exclusive
right
to
reproduce
the
copyrighted
work,
to
prepare
derivative


works,
to
distribute
copies
or
phonorecords
of
the
copyrighted
work
(“What
is
copyright”


2005).



Also,
rights
related
to
copyright
include
those
of
performing
artists
in
their


performances,
producers
of
phonograms
in
their
recordings,
and
those
of
broadcasters
in


their
radio
and
television
programs.
These
closely
associated
field
of
rights
related
to


copyright
are
called
related
rights.
The
related
rights
sometimes
are
more
limited
and
of


shorter
duration
than
the
copyrights
(“Copyrights
Basics”
2006).
Moreover,
after
January
1,


1978
the
creator
holds
the
copyright
from
the
date
it
has
been
created
until
70
years
after


his
death
(Appendix
A).
Also,
the
Copyright
Office
of
the
Library
of
Congress
registers


copyrights
(“What
is
copyright”
n.d).


In
addition,
the
term
fair
use
is
related
to
copyrights.
Fair
use,
in
fact,
is
the
right
to


occasionally
and
in
a
reasonable
manner
use
the
copyrighted
material
(“Fair
use”
2006).


According
to
sections
107
through
118
of
the
Copyright
Act,
“one
of
the
most
important


limitations
is
the
doctrine
of
fair
use.”
(Appendix
A).
The
doctrine
was
not
mentioned
in


previous
copyright
law
until
it
was
developed
through
a
substantial
number
of
court


 Intellectual
Property
&
Copyrights,
Research
Paper,
5


decisions
over
the
years
and
codified
in
section
107
of
the
copyright
law
(Appendix
B).


Based
on
Section
107,
there
are
four
factors
that
determine
of
whether
or
not
an
activity
is


within
fair
use:


1. The
purpose
of
the
use,


2. The
nature
of
the
work
being
used,


3. The
amount
of
the
work
used,
and


4. The
effect
of
the
use
on
the
market
for
or
value
of
the
original,
copyrighted,
work


(“Fair
use”
2006).


In
the
two
cases
that
we
will
discuss
in
this
paper
we
will
examine
the
court’s
analysis
of


these
four
factors.


CASE
STUDY
I:
A&M
Records,
Inc.
vs.
Napster,
Inc.


Introduction



Shawn
Fanning,
a
19‐year‐old
student
at
Northeastern
University,
Boston,
created
a


peer‐to‐peer
music
file
sharing
service.
The
purpose
of
this
service
was
to
enable
people


copy
and
distribute
MP3
music
files
with
each
other.
Shawn
cooperated
with
his
friends


and
his
uncle.
In
fact,
his
uncle
was
a
cofounder
and
the
chairman
of
Napster.
His
uncle
was


also
the
largest
shareholder
(Spencer,
2000).
They
named
the
service
Napster
after


Fanning’s
nickname.
It
is
true
that
Napster
was
a
pioneer
service
that
was
released
in
June


1999
and
operated
in
this
format
until
July
2001.
However,
Napster
had
to
face
legal


challenges
related
to
intellectual
property
and
copyrights.
Today,
Napster
operates
under
a


new
policy
and
philosophy.
Before
we
further
analyze
this
case
step‐by‐step,
it
would
be


useful
to
define
the
following
key‐terms:


 Intellectual
Property
&
Copyrights,
Research
Paper,
6


• MP3:
Is
the
name
of
the
file
extension
and
also
the
name
of
the
type
of
file
for
MPEG,


audio
layer
3.
Layer
3
is
one
of
the
three
coding
schemes
for
the
compression
of


audio
signals.
Layer
3
uses
perceptual
audio
coding
and
psychoacoustic


compression
to
remove
all
superfluous
information,
especially
the
redundant
and


irrelevant
parts
of
a
sound
signal.
Also,
it
adds
a
Modified
Discrete
Cosine
Transform


(MDCT)
that
implement
a
filter
ban,
increasing
the
frequency
resolution
18
times


higher
than
that
of
layer
2.
With
simply
words,
it
makes
an
audio
file
smaller
and
as


a
result
easy
to
transfer
over
the
Internet
(“MP3”,
2001).


• Peer‐to‐Peer
(P2P)
technology:
Is
the
technology
that
individuals
can
use
in
order
to


connect
with
each
other
directly
without
the
need
of
a
central
point
of
management.


There
are
three
different
types
of
P2P:



1. Pure
P2P.
In
the
first
type
there
is
no
central
server
or
router
and
the
users


function
as
both
clients
and
servers
of
the
system,


2. Hybrid
P2P.
In
the
hybrid
P2P
there
is
a
central
server,
but
users
have
the


responsibility
for
hosting
information,
for
sharing
files,
and
for
downloading,


and
finally,


3. Mixed
P2P.
The
third
type
has
some
common
characteristics
with
both


systems
(Crosse
et
al.,
2003).


Napster
is
a
hybrid
P2P
network.




Napster’s
Operation



Napster
was
a
pioneer
service
and
a
powerful
tool
for
sharing
information
that
won


a
notable
success
due
to
its
network
structure
and
its
costless
service.
In
the
following


 Intellectual
Property
&
Copyrights,
Research
Paper,
7


paragraphs
we
will
present
the
operation
of
Napster
in
order
to
realize
how
the
network


worked.




 Fanning
created
his
software
based
on
the
following
three
objectives:


1. A
search
engine
that
was
able
to
find
only
MP3
files,


2. The
MP3
search
engine
should
have
the
ability
to
trade
MP3
files
directly,
without


the
use
of
a
centralized
server
for
storage,
and


3. An
effective
way
of
online
interaction
between
the
users
of
the
MP3
search
engine.


These
three
objectives
were
the
basic
principles
of
Napster
software.
In
order
for
Fanning


to
create
this
software,
he
had
to
learn
Windows
programming
and
UNIX
server
code.
The


fact
that
the
software
was
allowing
computer
users
to
swap
files
directly,
reduced
server


problems.
Also,
only
Napster
index
and
directory
were
uploaded
on
Napster’s
server,
all


the
MP3
files
were
transferred
across
the
Internet
using
several
Windows
protocols


directly
from
one
user
to
the
other
(Giesler
&
Pohlmann,
“The
anthropology
of
file
sharing:


Consuming
Napster
as
a
gift,”
2003).


The
users
of
Napster
had
to
appropriately
install
Napster’s
free
software
in
their


computer,
and
then,
they
had
to
connect
to
the
Internet
in
order
to
connect
with
Napster’s


central
server.
Next,
they
had
to
request
a
file
from
Napster’s
system.
Then,
the
software


was
searching
all
computers
that
were
connected
to
the
Napster
system,
located
the


requested
file,
and
sent
all
files
from
all
different
computers
that
matched
to
the
user.
Also,


users
were
able
to
load
files
into
their
computers
and,
by
connection
to
the
Napster
system,


allow
any
other
user
in
any
place
of
the
world
to
retrieve
that
file
on
demand.
The
fact
that


users
were
able
to
quite
simply
upload
and
download
several
files
with
relatively
little


 Intellectual
Property
&
Copyrights,
Research
Paper,
8


effort,
made
Napster
really
popular
across
the
globe
(Giesler
&
Pohlmann,
“The
social
form


of
Napster:
Cultivating
the
paradox
of
consumer
emancipation,”
2003).



Based
on
the
above,
it
becomes
obvious
that
it
was
fairly
easy
to
peers
to
use
this


friendly
user
network
since
they
only
needed
to
have
basic
computer
skills
and
an
Internet


connection.
Moreover,
the
fact
that
the
service
was
free,
made
Napster
even
more


compelling.

Napster
claimed
that
one
year
after
the
release
of
the
service
its
unique
users’


accounts
were
more
than
20
millions,
making
Napster
the
largest
file
sharing
community


(“Napster:
20
million
users,”
2000).
Users
were
excited
about
the
quality
and
credibility
of


this
service.
They
were
able
to
hear
and
download
the
music
they
liked
at
no
cost.
However,


people
involved
in
the
music
industry
such
as
music
companies
and
artists,
counter


Napster
a
big
threat
for
their
intellectual
property
and,
of
course,
their
profits.
There
are


examples
of
famous
singers
that
opposed
to
Napster.
For
example,
the
famous
heavy
metal


band
Metallica,
sued
Napster
in
2000
since
it
released
their
songs
even
before
the
official


release
of
their
CD
(Jones,
2000).Hence,
it
was
obvious
that
music
industry
had
to
deal
with


numerous
problems
arising
by
this
new
reality.


Legal
Issues


In
2000,
A&M
Records
along
with
18
other
record
companies
sued
Napster.
Under


the
US
Digital
Millennium
Copyright
Act
(DMCA),
A&M
accused
Napster
for
contributory


and
vicarious
copyright
infringement
(Brannen,
2008).
Before
we
further
analyze
the
legal


issues
of
this
case,
we
will
briefly
discuss
the
basic
topics
covered
by
the
DMCA.
Based
on


the
U.S.
Copyright
Office,
the
DMCA
was
signed
in
1998
and
consists
of
five
major
titles.


These
titles
are:



 Intellectual
Property
&
Copyrights,
Research
Paper,
9


1. “WIPO
Copyright
and
Performances
and
Phonograms
Treaties
Implementation
Act


of
1998.”


2. “Online
Copyright
Infringement
Liability
Limitation
Act.”


3. “Computer
Maintenance
Competition
Assurance
Act.”


4. Title
four
consists
of
six
miscellaneous
provisions.
These
provisions
regard
issues


such
as
Copyright’s
Office
operations
and
distance
education.



5. “Vessel
Hull
Design
Protection
Act.”
(“The
Digital
Millennium
Copyright
Act
of


1998”,
1998).


Under
DMCA
Act,
A&M
accused
Napster
for
three
major
infringements:


1. Its
users
were
directly
infringing
plaintiff’s
copyright


2. Napster
was
liable
for
contributory
infringement
of
plaintiff’s
copyright,
and



3. Napster
was
also
liable
for
vicarious
infringement
of
plaintiff’s
copyright
(Brannen,


2008).


With
simply
words
A&M
accused
Napster
not
of
violating
copyright
itself,
but
of


contributing
to
and
facilitating
other
people’s
infringement.


On
the
other
hand,
Napster
defined
itself
as
a
search
engine
and
claimed
that
many


peers
used
it
in
order
to
hear
sample
music
before
they
buy
the
actual
CD.
Furthermore,
the


defense
of
Napster
was
based
on
the
following
three
major
points:


1. The
Audio
Home
Recording
Act
of
1992,


2. The
Digital
Millennium
Copyright
Act
(DMCA)
of
1998,
and


3. Misuse
of
copyright
and
implied
license.


To
be
more
specific,
Napster
used
the
Audio
Home
Recording
Act
that
protects
users


on
the
grounds
of
non‐commercial
use,
and
especially
the
case
of
Sony
vs.
Universal


 Intellectual
Property
&
Copyrights,
Research
Paper,
10


Studios,
which
is
best
known
as
the
Betamax
case.
Napster
stated
that
it
was
a
service
to
be


used
for
“space
shifting”
of
sound
recordings
and
Napster
referred
to
the
case
of
Sony
vs.


Universal
Studios
where
television
shows
were
recorded
to
be
viewed
at
a
later
time


(“Sony
Corp.
of
America
vs.
Universal
City
Studios
Inc.”,
1984).
However,
Napster
did
not


only
move
content
into
a
more
usable
format,
but
also
held
copies
so
that
files
could
be


shared
among
Napster’s
users.



 Moreover,
based
on
the
DMCA
that
protects
Internet
Service
Providers
(ISPs)
on
the


grounds
of
“safe
harbor”
provisions,
Napster
stated
that
is
was
used
as
a
service
for
users


to
sample
music
before
they
purchased
an
entire
album.
Although,
the
District
Court
stated


that
if
Napster
was
used
only
to
sample
music
files
it
would
only
need
to
require
limited


usage
of
songs
and
not
the
entire
song
or
album
giving
the
capability
to
users
download
the


MP3
files
(“A&M
Records,
Inc.
vs.
Napster,
Inc.,”
2001).



 Furthermore,
Napster
stated
that
since
the
launch
of
Napster,
music
sales
were


increased.
Though,
the
District
Court
stated
that
Napster
did
not
provide
enough
evidence


to
support
that
notion
and
that
the
plaintiff’s
presented
an
incredible
amount
of
evidence


that
Napster
actually
caused
harm
to
overall
music
sales
(Crews,
2001).


However,
in
July
of
2000,
the
District
Court
for
the
Northern
District
of
California


decided
that
Napster
was
guilty
for
the
above
three
infringements.
Napster
was
not


satisfied
with
this
outcome,
hence,
it
appealed
to
the
U.S.A.
Court
of
Appeals
for
the
Ninth


Circuit,
which
on
February
12,
2001,
confirmed
the
District’s
Court
decision
(“A&M


Records,
Inc.
vs.
Napster,
Inc.,”2001).



To
be
more
specific,
the
Ninth
Circuit
Court
of
Appeals
confirmed
that
Napster
was


liable
for
repeated
infringements
of
copyright
law
since
the
users
uploaded
and


 Intellectual
Property
&
Copyrights,
Research
Paper,
11


downloaded
copyrighted
music.
In
other
words,
Napster
provided
to
users
the
chance
to


listen
and
transfer
music
without
paying
any
royalties
to
music
industry,
which
is
illegal


and
is
beyond
the
means
of
fair
use.
Regarding
the
purpose
of
use,
the
Court
decided
that


the
use
of
music
was
not
transformative.
To
illustrate,
songs
were
in
their
original
form
not,


for
instance,
a
parody
(“A&M
Records,
Inc.
vs.
Napster
Inc.,”2001).



Moreover,
peers
were
using
Napster
for
their
commercial
benefit.
The
Court


justified
this
decision
not
based
on
the
fact
that
peers
would
sell
the
songs,
but
based
on


the
fact
that
they
“repeated
and
exploitative
copying,”
and
hence,
they
saved
money
from


paying
royalties
to
the
music
industry.
Further,
regarding
the
amount
of
work
used,
the


Court
found
that
Napster
was
liable
for
“wholesale
copying”
which
is
against
fair
use.


Another
factor
of
fair
use,
as
these
are
specified
in
Section
107
of
the
Copyright
Act,
is
the


effect
on
the
market.
On
this
issue
the
Court
concluded
that
Napster
negatively
affected


music
industry
since
music
industry
lost
sales
(Crews,
2001).


In
2001,
the
Napster
case
was
settled,
thus,
Napster
had
to
pay
$26
million
to


creators
and
copyrighters
for
using
their
music
without
authorization
and
another
$10


million
for
future
licensing
royalties.
In
the
following
year,
Napster
had
to
deal
with
severe


financial
difficulties.
In
the
spring
of
2002,
Napster
tried
to
convert
its
free
service
to
a


subscription
service
where
users
would
pay
$4.95
a
month.
However,
Napster
had


significant
trouble
obtaining
licenses
to
distribute
major‐label
music.
In
April
of
the
same


year,
the
assets
of
Napster
were
about
$8
million,
while
its
liabilities
were
slightly
over


$100
million
(“Swan
song:
Bankruptcy
for
Napster,”
2002).
In
May
2002,
Napster


announced
that
Bertelsmann,
a
German
media
firm,
bought
it
for
$85
million.
In
June
of
the


same
year,
Napster
filed
for
Chapter
11
bankruptcy
in
order
to
be
protected
by
the
take


 Intellectual
Property
&
Copyrights,
Research
Paper,
12


over
from
Bertelsmann.In
September
2002,
an
American
bankruptcy
judge
blocked
the
sale


to
Bertelsmann
and
forced
Napster
to
liquidate
its
assets
under
Chapter
7
of
the
U.S.


bankruptcy
laws
(“Napster’s
high
and
low
note”,
2000).


Conclusion


Napster
still
exists,
but
it
operates
under
a
new
structure
and
a
new
policy.
Today


Napster’s
operations
are
both
legal
and
ethical.
At
Napster’s
official
web
page,
under
terms


and
conditions,
members
must
sign
a
legal
contact,
which
states
the
standards
of
using
this


software.
Among
these,
one
can
see
the
age
requirements.
Also,
at
the
description
of
service


it
is
clearly
stated,
that
the
service
is
only
for
personal,
non‐commercial
and
non‐

transferable
use.
Moreover,
permanent
download
is
only
available
when
members
have


purchased
the
song
(“Napster
subscription
service
and
music
store
terms
and


conditions,"2008).
On
September
15,
2008,
Napster
Inc.
and
Best
Buy
Co.
informed
the


public
that
they
agreed
to
merge
(“Best
buy
to
acquire
Napster”,
2008).


To
conclude,
we
believe
that
Fanning’s
idea
for
creating
this
software
was


innovative
and
highly
creative.
However,
it
lacked
the
legal
and
ethical
base
it
should
have


in
order
to
successfully
protect
intellectual
property
rights
of
creators.
In
fact,
the
structure


of
the
software
made
it
inevitable
to
protect
these
rights,
as
peers
were
free
to
download


and
extensively
use
music
files
without
paying
royalties
to
the
music
industry.
Finally,
we


consider
that
Napster,
as
it
functions
today,
not
only
protests
these
rights,
but
also


promotes
music
itself
and
music
industry
since
it
gives
the
chance
to
users
to
listen


numerous
music
samples
which,
later,
they
can
buy.
At
the
same
time,
they
can
have
access


to
older
or
rare
songs
that
cannot
be
easily
found.


But
most
importantly,
intellectual


property
rights
of
creators
are
respected
and
protected
by
all
means,
as
they
should.



 Intellectual
Property
&
Copyrights,
Research
Paper,
13


CASE
STUDY
II:
Metro‐Goldwyn‐Mayer
Studios,
Inc.
vs.
Grokster,
Ltd


Introduction


Led
by
Metro‐Goldwyn‐Mayer
Studios,
Inc.
(MGM),
28
major
entertainment


companies
sued
Grokster,
a
P2P
file
sharing
service
for
music
and
movies,
for
intellectual


property
and
copyrights
infringements.
Though
it
seems
that
Metro‐Goldwyn‐Mayer
Inc.


(MGM)
vs.
Grokster,
LTD
case
has
many
similarities
with
the
previous
case,
as
we
will


discuss,
they
have
significant
differences.
In
fact,
Grokster’s
operations
are
different
in


structure
than
Napster’s,
leading
justices
to
a
dilemma
on
whether
Grokster’s
operations


were
illegal
or
not.
This
case,
like
A&M
Records,
Inc.
vs.
Napster,
Inc.,
went
to
the
Court
of


Appeals
and
finally,
to
the
Supreme
Court
which
decided
that
Grokster
was
liable
for


copyright
infringements.
In
the
next
sessions,
we
will
discuss
Grokster’s
operations,
the


legal
issues,
and
finally
our
conclusions.





Grokster’s
Operations


Grokster’s
operations,
in
contrast
with
Napster,
did
not
use
a
centralized
file‐sharing


network,
in
fact;
Grokster
was
more
sophisticated
software.
The
main
characteristics
of


Grokster
are
that:


1. It
does
not
have
access
to
the
source
code
for
the
application,


2. It
uses
FastTrack
networking
technology,
which
Grokster
does
not
own.




3. At
the
start
page
users
see
advertisements
that
are
retrieved
by
Grokster’s
client


software.



To
better
illustrate
Grokster’s
operations,
we
should
explain
the
FastTrack


networking
technology.
FastTrack
is
more
dynamic
than
P2P.
This
network
technology


consists
of
nodes
and
supernodes.
Node
is
“an
end
point
on
the
internet,
typically
a
user’s


 Intellectual
Property
&
Copyrights,
Research
Paper,
14


computer,”
while
supernode
“is
a
node
that
has
a
heightened
function,
accumulating


information
from
numerous
other
nodes”
(United
States
District
Court,
2003).
The


individual
node
is
free
to
select
its
supernode
status.
For
example,
based
on
its
own
needs


and
the
network’s
availability,
the
node
could
change
from
node
to
supernode,
and
vice


versa.
The
one‐nodes
are
gathered
together
around
a
supernode.
The
user
has
to
connect


to
a
root
supernode,
which
then
will
direct
the
user
to
supernodes.
Once
users
are


connected
to
the
supernode,
they
can
search,
locate,
and
finally
download
the
desired
file,


from
other
users’
computer.
As
Samson
mentions,
“Many
of
the
"root
supernodes"
are,


however,
operated
by
Kazaa
BV/Sherman,
which
licenses
its
Kazaa
software
to
Grokster”


(Samson,
2004).



Moreover,
users
can
transfer
files
using
Grokster,
but
in
fact,
Grokster
has
neither


ownership
nor
control
over
these
files.
The
procedure
of
locating
and
connecting
to
a


supernode
is
totally
independent
from
Grokster.
In
Appendix
C,
there
is
a
graphical


representation
of
Grokster,
and
a
comparison
with
Napster.



Legal
Issues


In
October
2001,
Metro‐Goldwyn‐Mayer
Studios,
Inc.
along
with
several
major


music
and
movie
firms
sued
Grokster
with
the
accusation
of
contributory
and
vicarious


copyright
infringement.
The
companies
complained
that
Grokster
was
acting
illegally
and


that
music
and
movie
industry
were
losing
significant
profits
due
to
Grokster’s
operations


(Samson,
2004).
On
the
other
hand,
defense
supported
its
arguments
using
the
Audio
Home


Recording
Act,
and
to
be
more
specific
the
Betamax
case
(Sony
vs
Universal
Studios).
In
the


MGM
vs.
Grokster
case,
the
court
rejected
the
accusation
of
MGM.
The
reasoning
of
this


 Intellectual
Property
&
Copyrights,
Research
Paper,
15


decision
was
that
“file‐sharing
software
could
be
used
for
legitimate
purposes,
and
as
such


was
protected
under
the
1984
Betamax
ruling”
(“The
Betamax
Case”,
n.d.).



To
be
more
specific,
in
the
Betamax
case
the
court
decided,
in
1984,
that
VCR


manufacturer
“was
not
liable
for
creating
a
technology
that
some
customers
may
use
for


copyright
infringing
purposes,
so
long
as
the
technology
is
capable
of
substantial
non‐

infringing
uses”
(McGuire,
2005).
The
logic
behind
this
decision
was
simple:
electronic


firms
should
not
be
accused
if
their
products
could
be
used
to
commit
piracy.



Moreover,
Grokster
was
not
liable
since
there
was
no
central
server,
and
therefore,


it
had
neither
the
right
nor
the
ability
to
control
over
its
users
(“MGM
v.
Grokster,”
n.d.).
On


the
other
hand,
entertainment
industry
proved
that
90%
of
the
daily
illegal
downloading


was
happening
through
Grokster.
Also,
Grokster
was
earning
profit
through
advertising


because
people
used
this
software
to
illegally
download
music
and
movies.
Grokster
was
an


“infringement
dependent”
business,
that
its
earnings
were
depended
on
copyright


infringement.
Though
the
both
arguments
were
strong
enough,
Court’s
decision
was
in


favor
of
Grokster.
It
is
true
that
the
music
and
movie
firms
were
not
satisfied
by
this


decision,
and
went
to
the
Ninth
Circuit
Court
of
Appeals.
However,
Grokster
also
won
this


case
for
the
same
reasons.



Furthermore,
the
case
went
to
the
Supreme
Court
in
2005.
The
Supreme
Court


unanimously
decided
that
Grokster
is
liable
for
inducing
copyright
infringement.
The
final


decision
of
the
Court
was,
“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
3rd
party
action,
is


liable
for
the
resulting
acts
of
infringement
by
3rd
parties
using
the
device,
regardless
of


 Intellectual
Property
&
Copyrights,
Research
Paper,
16


the
device’s
lawful
uses.”
(“Case
Archives”,
n.d.).
After
this
decision,
Grokster
had
to
pay


$50
million
to
the
recording
industry
and
was
also
forced
to
shut
down
its
operation


(“MGM
v.
Grokster,”
2003).
The
Court
did
not
reexamine
the
Betamax
case,
nor
made
any


decisions
regarding
technology
companies
and
their
products.
However,
it
added
one


doctrine,
which
called
“inducement”
and
regards
copyright
infringement
liability
(“The


Betamax
case”,
n.d.).





Conclusion


Metro‐Goldwyn‐Mayer
Inc.
vs.
Grokster,
Ltd
was
a
complicated
case,
since
courts’


decisions
were
contradictory.
We
believe
that
the
main
issues
in
this
case
are
two.
The
first


one
is
whether
Grokster
was
liable
for
copyright
infringement,
and
the
second
is
whether


decisions
like
the
above,
hurt
creativity
and
technological
innovation.
It
is
true
to
say
that


the
outcome
of
Betamax
case,
gave
the
chance
to
other
companies
to
produce
CD
recorders,


music
players,
and
digital
video
recorders,
without
the
fear
that
they
promote
copyright


infringement.
However,
Supreme’s
Court
decision
made
electronic
industry
to
believe
that


it
will
block
the
innovation
of
devices
like
iPod.
One
solution
to
this
unpleasant
situation


would
be
the
introduction
of
new
regulation
or
even
the
arrest
of
individual
pirates.
We


support
Supreme’s
Court
decision
but
we
suggest
that
further
regulation
regarding
this


issue
should
be
issued
in
order
to
protect
technology
innovation
and
creativity.


 Intellectual
Property
&
Copyrights,
Research
Paper,
17


ETHICAL
ISSUES


The
purpose
of
this
paper
is
to
examine
intellectual
property
and
copyrights
by


studying
two
cases.
So
far,
we
have,
in
depth,
analyzed
the
legal
aspects
of
both
cases.



However,
our
study
would
be
incomplete
if
we
would
not
examine
the
ethical
aspects
of


this
issue,
since
we
already
know
that
legal
things
are
not
always
ethical
and
vice
versa.


The
ethical
aspects
will
be
discussed
in
the
following
paragraphs.





 Downloading
music
and
movie
files
using
the
methods
described
in
this
paper
is
not


only
illegal,
but
also
unethical.
It
is
true
to
say
that
creators
have
spent
effort,
time,
and


money
in
order
to
create
something
valuable
to
our
society.
Then,
they
publish
their
piece


of
art
in
order
to
get
credits
for
their
work,
and
of
course
to
earn
money.
Users,
by
illegally


downloading,
neither
give
credits
to
the
artists
nor
money.
In
our
opinion,
illegal


downloading
equals
theft.
We
would
not
exaggerate
if
we
further
compare
it
with
slavery,


meaning
that
creators
work
for
us,
but
we
do
not
reward
them.
It
is
totally
unacceptable
in


our
civilized
society
to
take
advantage
of
other
people’s
effort
and
creativity.




 Moreover,
it
is
unethical
because
illegal
downloading
does
not
hurt
only
artists,
but


the
global
economy
as
well.
Many
people
download
files
because
they
believe
that
famous


artists
are
already
rich
enough,
hence,
they
do
not
need
more
money.
Unfortunately,
they


do
not
consider
employees
in
the
industry
such
as
workers,
technicians,
and
economists.


Their
salary
and
their
career
are
totally
depending
on
sales.
Since
illegal
downloading


decreases
sales,
entertainment’s
industry
profits
decline
and,
hence,
people
lose
their
jobs.


In
other
words,
people
lose
their
jobs
and
society’s
welfare
suffers,
just
because
some


people
prefer
to
enjoy
other
people’s
work
without
paying
the
cost.






 Intellectual
Property
&
Copyrights,
Research
Paper,
18


Furthermore,
some
people
download
illegally
music
and
movies
in
order
to


financially
exploit
other
people’s
work.
To
illustrate,
some
people
download
the


copyrighted
files
and
then,
they
sell
them
at
a
lower
than
the
market’s
price.
This
is
even


more
unethical
and
immoral
since
they
exploit
other
people’s
work
and
creativity
without


compensating
them.
Instead,
they
illegally
make
money
for
themselves.
They
not
only
steal


money
from
the
entertaining
industry
but
from
the
government
as
well
since
they
pay
no


taxes.



To
conclude,
based
on
a
survey
by
the
Institute
for
Policy
Innovation
(IPI)
due
to


piracy
copyrighted
material,
economy
of
the
U.S.
losses
$58
billion
every
year,
373,375


U.S.’s
workers
lose
their
jobs,
worker’s
earning
is
decreased
by
$16.3
billion
every
year,


and
government
losses
$2.6
billion
in
tax
revenues
annually
(Fitch,
2007).



People,
and
mostly
students,
commit
this
crime
for
a
variety
of
reasons,
for
instance:


• It
is
free,


• It
is
easy,


• It
is
a
low
risk
crime,



• They
are
unaware
of
the
consequences
in
industry
and
in
the
society
as
a
whole,


• They
believe
that
everybody
else
does
it.


Government
and
entertainments’
industry
role
is
to
inform
citizens
about
the


consequences
of
this
crime.
Regarding
the
ethical
perspective
there
is
a
guideline
we


should
follow
in
order
to
be
sure
that
we
act
in
an
ethical
manner
and
will
guide
us
to
make


the
right
choice,
even
if
we
are
unaware
of
regulations
and
laws.
These
questions
as


Jennings
present
them
are:


• Is
it
legal?
Is
it
balanced?
How
does
this
make
me
feel?
(Blanchard
and
Peale)


 Intellectual
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19


• How
would
a
reporter
describe
my
action
on
the
front
page
of
a
newspaper?
(The


Front‐Page‐of
–the‐
Newspaper
Test)


• How
would
I
view
this
situation
if
I
stood
on
the
other
side?
Or,
would
I
feel


comfortable
to
discuss
with
my
parents
about
my
action?
(Laura
Nash
and


Perspective)


• Is
my
action
in
compliance
with
the
law?
What
are
the
consequences?
(The
Wall


Street
Journal
Model)
(p.45‐47).



From
our
perspective,
the
above
questions
should
lead
our
personal
and


professional
decisions.
















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20


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Appendix
A







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Appendix
B









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Appendix
C














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© 2008

Christopher Pappas