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E-Commerce News
Peer-to-Peer File Sharing and Domain Name Resolution
July 19, 2005
US SUPREME COURT ROCKS GROKSTER’S WORLD
On June 27 the United States Supreme Court delivered some bad news to Grokster and other distributors of peer-to-peer file sharing software –- they can be liable for copyright infringement when third parties use their systems.
The liability for copyright infringement arises when the distributor acts "with the object of promoting [the software's] use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement," according to the court’s unanimous opinion.
The software at issue -- programs distributed by Grokster and StreamCast Networks -- allows users to share files with one another, including copyrighted songs and movies. Various copyright holders sued under the Copyright Act, seeking damages and injunctive relief. They contended that the defendant distributors were secondarily liable for infringement because they knew and intended that the software would enable users to engage in infringing activity.
The case came to the Supreme Court from the Ninth Circuit Court of Appeals. That court had ruled in favor of Grokster and StreamCast, noting that the distributors could not be liable for contributory infringement without a showing that they had specific knowledge of and materially contributed to direct infringement. Vicarious infringement was not a possibility either, the appeals court said, without a demonstration that the distributors are able to block direct infringement by individual end users.
he Ninth Circuit’s decision relied heavily on the 1984 case of Sony Corp. of America v. Universal City Studios Inc. That case (which involved the betamax video recorder) had held that a distributor of a commercial product having substantial noninfringing uses cannot be liable for infringement unless the distributor actually knew of specific instances of infringement and did not take action to prevent such conduct.
The Supreme Court vacated the Ninth Circuit's opinion, finding that this case "is significantly different from Sony," because "evidence of words and deeds going beyond distribution as such shows a purpose to cause and profit from third-party acts of copyright infringement." According to the Court, the argument for imposing indirect liability in this case is "a powerful one, given the number of infringing downloads that occur every day" using the distributors' software.
The Sony case did not displace all theories of secondary liability or "foreclose rules of fault-based liability," the court said. The question is the distributor’s intent. Thus, "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, is liable for the resulting acts of infringement by third parties."
In the case of Grokster and StreamCast, the court found an inference of such intent, noting that the "unlawful objective is unmistakable." First, both companies announced their intent to replace the file sharing system deemed infringing in A&M Records Inc. v. Napster, and to tap former Napster users as their market. Second, neither company developed or sought to develop filtering devices or other means to minimize infringement. Third, both companies’ profit depended on sales of advertising space and directing ads to the computer screens of their software users. Thus, "the more the software is used, the more ads are sent out and the greater the advertising revenue becomes." In this sense, the court explained, "the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing."
The copyright holders also showed the requisite actual infringement, the court said. The record showed that about 90 percent of the files available for file sharing are copyrighted works -- "evidence of infringement on a gigantic scale."
The sheer volume of the infringement, coupled with the companies’ announced intent to profit from it, apparently made the case an easy one for the court, given that the opinion was unanimous.
AMERICAN EAGLE GOES 1 FOR 2 IN UDRP PROCEEDINGS
Apparently, using the letter "s" can get you in trouble. On June 22, a National Arbitration Forum (NAF), recently convened under the provisions of the Uniform Domain Name Resolution Policy (UDRP), found that the domain name americaneaglestores.com was confusingly similar to the complainant's American Eagle Outfitters' registered trademark, was used in bad faith to point to sites offering goods that competed with American Eagle, and must be transferred to American Eagle.
But a separate case, decided by a different NAF panelist on similar facts June 3, held that americaneaglestore.com, with a singular "store," was not confusingly similar to the American Eagle Outfitters registered mark, and the domain in the singular was not transferred. Huh?
The panelist for the plural mark, americaneaglestores.com, found that the name was confusingly similar to complainant's registered mark, American Eagle Outfitters. The addition of the word "stores" to the dominant features of the mark did not sufficiently differentiate the domain name from the complainant's, as the dominant feature, American Eagle, was shared and the word "stores" simply described a business, the panelist found.
In the previous case, (involving the singular "store") the panelist said that the use of only a component of the full mark was sufficient to distinguish the two names. As the two names were not confusingly similar, that panelist did not continue on to discuss the bona fide use and bad faith elements of the UDRP.
In the plural case, the panelist found that linking to third-party sites offering clothing in direct competition with American Eagle, was not a use in connection with a bona fide offering of goods or services. The Respondent never came forward with a viable alternative supporting its use of the mark.
Finally, the panelist found that using the domain name to point Internet users to competing sites "constitutes disruption and is evidence of bad faith registration and use pursuant to Policy ¶4 (b) iii." The panelist inferred that respondent received click-through fees for diverting Internet users to competing sites, and registered the domain name with actual or constructive knowledge of complainant's rights in the mark, American Eagle Outfitters, evidencing bad faith registration and use. As a result, the panelist ordered that the domain should be transferred to the American Eagle.
It’s tough to reconcile the two decisions, although the decision in the "plural" case seems much more sensible.
If you have questions about any of the above information, please contact Jack Greiner at 513-629-2734 or jgreiner@graydon.com.
This Newsletter is a periodic publication of Graydon Head & Ritchey LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own advisor concerning your situation and any specific legal question you may have.