Of flea markets and file swapping

Could the Napster case turn on a little-known copyright ruling involving swap meets?

Topics: Copyright, Intellectual Property,

The second season of Napster-related legal filings officially kicked off last Friday when lawyers for the file-swapping phenomena once again staked out their ground, this time making their case (downloadable PDF file) to the nation’s Ninth Circuit Court of Appeals. Napster’s nemesis, the Recording Industry Association of America, will answer by Sept. 12.

What’s curious about the highly publicized legal showdown, as it steams toward a conclusion, is that the case seems to be turning on a relatively little-known copyright ruling.

Early on, two acts of Congress — the Audio Home Recording Act (AHRA), and the Digital Millennium Copyright Act (DMCA) — as well as a landmark Supreme Court case (the so-called Betamax ruling) received the most attention, with observers convinced those cases would be central to Napster’s legal saga. Instead, as the court filings pile up it’s become clear a more obscure ruling about flea markets has emerged as the crucial precedent at play.

In January 1996, the same Ninth Circuit Court of Appeals ruled on Fonovisa Inc. vs. Cherry Auction Inc., deciding in favor of Latin music giant Fonovisa, which had sued the owners of a California flea market for turning a blind eye to pirated music being sold by its vendors. By not acting to rein in the counterfeiters, the court ruled Cherry Auction was guilty of vicarious and contributory copyright infringement (i.e. knowing and abetting the copyright crime), the exact same charges the RIAA is leveling against Napster.

So it should have come as no surprise when the RIAA made Fonovisa a cornerstone of its case, arguing in its June 12 injunction brief, (downloadable PDF file) “Napster’s conduct happens to occur on the Internet, but the law of contributory and vicarious infringement is no less applicable to an Internet-based company than any others-such as the swap meet owner in Fonovisa … and plainly applies to Napster’s conduct.” What may be surprising to date is how warmly that argument has been embraced by the court.

Legal experts say it’s ironic that the once-overlooked Fonovisa is suddenly in the spotlight. “Five or six years ago vicarious and contributory copyright infringement was the real backwater of copyright law,” reports Mark Radcliffe, Internet attorney and partner at the Palo Alto, Calif., firm, Gray Cary Ware & Freidenrich. “But now because the Internet gives people such power to exchange files, suddenly it’s become a hot issue. And Fonovisa is the case people have to rely on.”

Back in March 1993 Fonovisa sued Cherry Auction of Fresno, Calif., asserting that Cherry Auction was knowingly renting booths to vendors selling counterfeit Fonovisa records. How did Cherry Auction know? Law enforcement had made seizures at its flea market and the local sheriff had informed Cherry Auction that counterfeiting activities were continuing. Yet the company had refused to cooperate with the sheriff by supplying the identities of known counterfeiters.

In 1994, U.S. District Judge Robert Coyle dismissed the case, ruling that Fonovisa had no standing under the law to hold Cherry Auction responsible for any illegal activity of its vendors. But in its 1996 reversal, a three-judge panel for the Ninth Circuit Court of Appeals ruled that Cherry Auction, well aware of Fonovisa’s complaints, could have policed the illegal activity if it had wanted to, and that the company benefited financially from letting the music pirates operate at the open market. “A swap meet cannot disregard its vendors’ blatant trademark infringements with impunity,” wrote Judge Mary Schroeder.

The Fonovisa case addresses two crucial elements of the current Napster showdown: claims of vicarious and contributory copyright infringement. Vicarious revolves around a financial benefit gained from the infringement. In Fonovisa, the court found that even though Cherry Auction did not receive a percentage of money from all the pirated music sold (instead it received a flat rental payment from the vendors), the company did benefit through admission, parking and concessions fees, all of which were arguably inflated because consumers flocked to the site for the drastically reduced price of counterfeit music. Therefore, it reaped a “financial benefit,” according to Schroeder.

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As for contributory infringement, the court ruled Cherry Auction was guilty since it had the right to terminate any of its vendors’ leases, including the counterfeiters, but chose not to. Therefore, it “materially contributed” to the pirates’ illegal sales.

In its notice for preliminary injunction, RIAA lawyers cited Fonovisa again and again, suggesting, “Napster essentially is an Internet swap meet, more technologically sophisticated but in many ways indistinguishable from the swap meet owners in Fonovisa.” In their response, (downloadable PDF file) lawyers for Napster moved to minimize Fonovisa’s relevance, insisting, “The shoe simply does not fit … Commercial vendors who buy space at a swap meet are not anything like the individuals who use Napster.”

U.S. District Court Judge Marilyn Hall Patel disagreed. In her ruling granting the injunction (which has been stayed by the Court of Appeals pending further arguments), Patel, making the Fonovisa case central to her decision, wrote “Defendant’s material contribution is still analogous to that of the swap meet in Fonovisa.” Connecting the two, the judge wrote, “The swap meet provided support service like parking, booth space, advertising and clientele. Here, Napster supplies the proprietary software, search engine, servers and means of establishing a connection between users’ computers. Without the support services defendant provides, Napster users could not find and download the music they want with the ease of which defendant boasts.”

As an independent observer, attorney Radcliff thinks Napster’s team “didn’t spend enough time on Fonovisa” at the District Court level.

Instead, Napster attorneys, led by David Boies, focused much of their energy on arguing that the file-sharing service was immune to prosecution thanks to the DMCA, the AHRA and the Betamax case.

The Digital Millennium Copyright Act of 1998 created four safe harbors for Internet service providers so they would not be liable for all the information that flowed through them. However, Patel was quick to rule that Napster was not a “mere conduit” through which information passed, and, therefore, could not qualify for any of the safe harbors.

Next, Napster lawyers turned to Sony vs. Universal, otherwise known as the 1984 Betamax case, in which the Supreme Court ruled VCRs were legal because even though they allowed users to copy television programs, the manufacturer in question, Sony, was not liable because the machines were a “staple article of commerce … capable of commercially significant non-infringing uses.” In other words, consumers could use VCRs not just to pirate copyrighted material, but to simply tape television shows that they might otherwise miss (i.e. “time-shifting”). That would qualify as a significant non-infringing use.

Napster’s team argued its new artists program for instance, where users could find unknown acts not signed with any labels, qualified as just such an exemption. Again, Patel disagreed: “The court finds that any potential non-infringing use of the Napster service is minimal.” She also pointed out, “In Sony, the defendant’s participation did not extend past manufacturing and selling the VCR,” compared to Napster, which “maintains and supervises an integrated system that users must access to upload or download files.”

As for the Audio Home Recording Act, Napster argued its users were simply making private music copies, not unlike fans who tape an album for a friend or family member, and that AHRA protected such use. But in a footnote to her written ruling, Patel shrugged off the AHRA argument as “perplexing” and “irrelevant.”

That leaves Fonovisa. In their latest court papers filed Friday, Napster’s lawyers forcefully argue that Patel erred when she relied so heavily on Fonovisa. “The District Court’s reliance on Fonovisa was misplaced … Napster has nothing approaching the knowledge or control of the operator of a commercial flea market. Commercial vendors who buy space at a swap meet are not anything like the individuals who use Napster.”

Now it’s up to the Ninth Circuit Court of Appeals to decide whether or not a flea market, of all things, seals Napster’s fate.

Eric Boehlert, a former senior writer for Salon, is the author of "Lapdogs: How the Press Rolled Over for Bush."

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