Almost a decade after the major labels launched their legal assault on Napster, courts are still writing the rules of the road for the music business's digital future.
Companies can't set out to build a business based on their users' infringement of copyright, courts had already ruled. But the precise meaning of that dictate remains in doubt. What steps must sites take to combat infringement? What are the proper penalties for those who infringe? This year, courts inched toward resolution of these questions, giving labels, publishers and artists a bit more certainty as they decide whom to work with and whom to sue.
Below are 2009's top five cases that will shape the future of the music business.
UMG RECORDINGS V. VEOH NETWORKS
In September, a federal judge in Los Angeles ruled decisively against Universal Music Group in the label's copyright suit against video-sharing site Veoh.com. UMG had argued to the court that Veoh was liable for copyright infringement by encouraging users to upload videos, which Veoh translated into the proper format, organized and categorized, then ultimately streamed to millions of Web surfers -- all without paying copyright owners. But the court held that Veoh qualified for a safe harbor under the 1998 Digital Millennium Copyright Act, because the site followed a policy of promptly taking down videos upon notification from UMG and kicking repeat infringers off the site.
In the pre-Internet world, the burden was always on the distributor to obtain proper licenses before exploiting a copyrighted work. But the ruling in the Veoh suit dealt a significant blow to copyright owners' efforts to maintain total control. Under the court's interpretation of the DMCA, a Web-based company can enlist its users to upload unlicensed works, and it's up to the copyright owner to issue takedown notices -- sometimes multiple times. If upheld on appeal, the decision represents a major shift in power from copyright owners toward online companies that rely on user-generated content.
CAPITOL RECORDS V. THOMAS-RASSET; SONY BMG MUSIC ENTERTAINMENT V. TENENBAUM
Of the more than 17,000 individuals the major labels targeted for downloading and sharing songs through peer-to-peer networks, only Jammie Thomas-Rasset and Joel Tenenbaum fought all the way to trial. They both lost badly. A Minneapolis jury socked Thomas-Rasset with a whopping $1.9 million verdict for infringing 24 songs, and a Boston jury ordered Tenenbaum to pay $675,000 after he admitted to infringing 30 works.
The labels announced in late 2008 that they would stop initiating new suits against individual file sharers, so more such trials seem unlikely. But the enormous size of these verdicts could have a lasting impact on all copyright owners who litigate or even threaten lawsuits. The awards are under serious attack as unconstitutionally excessive, and in one or both cases, the court could take the unprecedented step of ruling that the Constitution limits copyright statutory damages. Since such a determination would deprive copyright owners of a powerful tactic, it would likely make the enforcement of their rights more complicated and more expensive. Depending on the outcome of post-trial motions and appeals, the labels' victories against Thomas-Rasset and Tenenbaum could prove Pyrrhic.
SWEDEN VS. THE PIRATE BAY
It wasn't your average legal proceeding -- it was part trial, part spectacle. And the case against the operators of the Pirate Bay, the world's most popular access point to the BitTorrent file-sharing network, was odd to U.S. legal observers for another reason: It combined a criminal case brought by the government of Sweden with a civil copyright action pressed by major record labels, movie studios and game publishers. But the result was familiar to that of similar fights in the United States against piracy facilitators like Napster, Grokster, Aimster, TorrentSpy and Usenet.com: a verdict for the plaintiffs and harsh punishment -- a year in prison and an award of $3.5 million in damages -- for the four individual defendants.
But as with the earlier victories, the practical import of the case is harder to pin down. Yes, it's another clear statement that facilitation of piracy is illegal. But the Pirate Bay's servers have already migrated several times to other countries, users can easily migrate to other similar sites, and appeals will drag on for years. The case is a stark reminder that even big legal victories don't necessarily translate into big reductions in copyright infringement. And there are lots of other Pirate Bay wannabes ready to step into the now-convicted defendants' shoes.
BRIDGEPORT MUSIC V. UMG RECORDINGS
If anyone still doubts that recording artists must obtain proper licenses before incorporating samples of others' works into songs, the U.S. Court of Appeals for the Sixth Circuit cleared up that confusion November 4. That's when the court issued a decision upholding a jury verdict of $88,980 against Universal for sampling George Clinton's lyric Bow wow wow, yippie yo, yippie yea and the word dog from Atomic Dog in a 1998 song called D.O.G. in Me by R&B group Public Announcement.
Universal had contended that the sampling of the famous musical phrase was a fair use for which a license or payment wasn't required. But the jury didn't buy that argument, and the court of appeals held that the jury's verdict was not unreasonable. The Sixth Circuit's ruling -- not to mention more than 500 similar sampling lawsuits filed by publisher Bridgeport -- sends a clear message to artists and labels: If you want to sample, first get a license. And don't expect the fair use defense to protect you.
ARISTA RECORDS V. USENET.COM
In 2005, copyright owners achieved one of their most significant legal victories, when the Supreme Court held in MGM v. Grokster that peer-to-peer infringement facilitators could be held liable for inducing their users to infringe. But the Grokster decision didn't wipe out piracy, and its strong endorsement of the inducement doctrine hasn't resulted in a slew of subsequent court victories for labels and studios. Nonetheless, a federal court's June 30 decision in Arista Records v. Usenet.com was another setback for sites that seek to build a business based on users' copyright infringement.
Among the factors the court cited as supporting liability were Usenet's overwhelming use of the service for infringement, the fact that the site advertised the availability of infringing works and the technical assistance it provided to users seeking pirated material. The court also noted that Usenet could have, but refused to, employ filters to block downloads of infringing material. Though Usenet may be a relatively small and obscure corner of the Internet, the ruling could still pressure other questionably legal online services to take concrete steps to combat user piracy. And the court's opinion will be cited for years to come by copyright owners seeking to shut down more visible, and harmful, piracy-facilitating sites.