Intellectual Property & Copyrights Research Paper


 


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
Property
&
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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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References
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Jennings, M. (2006). Business: its legal, ethical, and global environment. 622-626. McGuire, D. (2005). At a glance: MGM v. Grokster. The Washington Post. Retrieved October 22, 2008, from http://www.washingtonpost.com/wpdyn/content/article/2005/05/03/AR2005050301028.html
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Spencer, A. (2000). Napster’s Shawn Fanning: The teen who woke up web music. Business Week. Retrieved October 20, 2008, from http://www.businessweek.com/ebiz/0004/em0412.htm Swan song: bankruptcy for Napster. (2002). Retrieved October 20, 2008, from CBS News http://www.cbsnews.com/stories/2002/06/03/tech/main510891.shtml The Betamax case. (n.d.). Retrieved October 22, 2008, from http://w2.eff.org/legal/cases/betamax United States Copyright Office. (2006). Copyright Basics. Retrieved October 27, 2008, from http://www.copyright.gov/circs/circ1.pdf United States Copyright Office. (2006). Fair Use. Retrieved October 27, 2008, from http://www.copyright.gov/fls/fl102.html United States Copyright Office. (1998). The Digital Millennium Copyright Act of 1998. Retrieved October 20, 2008, from http://www.copyright.gov/legislation/dmca.pdf United States District Court. (2003). Metro-Goldwyn-Mayer Studios, Inc v. Grokster, Ltd., et.al. Retrieved October 22, 2008, from http://fl1.findlaw.com/news.findlaw.com/hdocs/docs/mgm/mgmgrokster42503ord.pdf United States Patent and Trademark Office. (2005). What is a copyright? Retrieved October 26, 2008, from http://www.uspto.gov/go/pac/doc/general/#patent United States Patent and Trademark Office. (2005). What is a patent? Retrieved October 26, 2008, from http://www.uspto.gov/go/pac/doc/general/#patent World Intellectual Property Organization.(1997). Introduction to intellectual property: theory and practice (1997). Retrieved September 29, 2008, from Google Book




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Woellert, L. (2004). Why the Grokster case matters. Business Week. Retrieved October 22, 2008 from http://www.businessweek.com/magazine/content/04_52/b3914038_mz011.htm World Intellectual Property Organization. (n.d.) What is intellectual property? Retrieved September 27, 2008, from http://www.wipo.int/freepublications/en/intproperty/450/wipo_pub_450.pdf
 World Intellectual Property Organization. (n.d.) What is patent? Retrieved September 27, 2008, from http://www.wipo.int/freepublications/en/intproperty/450/wipo_pub_450.pdf World Intellectual Property Organization. (n.d.) What is copyright? Retrieved September 27, 2008, from http://www.wipo.int/freepublications/en/intproperty/450/wipo_pub_450.pdf 
 





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Appendix
A
 








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Intellectual
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Intellectual
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 Appendix
B






 





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Appendix
C
 



 
 











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© 2008 Christopher Pappas