HOLLYWOOD WINS BIG ON FILE SHARING.

Byline: Lisa Friedman Washington Bureau

WASHINGTON - The Supreme Court delivered Hollywood a resounding victory Monday, ruling unanimously that online file-sharing companies that enable people to download music and movies can be held responsible for copyright piracy.

The music and entertainment industry hailed the decision as a major triumph in their estimated $3.5 billion battle against global piracy. The next challenge, they said, will be to encourage more people to legally download from sites such as iTunes and Napster. They also vowed to aggressively continue pressing lawsuits against file-swappers.

``The Supreme Court sent a strong and clear message that businesses based on theft should not and will not be allowed to flourish,'' said Dan Glickman, president of the Motion Picture Association of America.

Added Mitch Bainwol, chairman of the Recording Industry Association of America: ``There is no more ambiguity.''

Acknowledging that the ruling will only contain, not end, illegal movie and music piracy, Bainwol noted that legal downloading from services that charge fees is becoming an ever-expanding business.

``It's time for parents to move and encourage their kids to do it the right way.''

The case of MGM v. Grokster will now go back to a lower court to determine whether Grokster and the Woodland Hills-based Morpheus parent company StreamCast Networks induced copyright infringement.

The Supreme Court's decision overturned a 9th Circuit Court of Appeals ruling that peer-to-peer software developers were not liable for any copyright infringement committed by people using their products on the grounds that the products could also be used for legitimate purposes and the developers had no direct ability to stop the illegal acts.

``One who distributes a device with the object of promoting its use to infringe copyright is liable for the resulting acts of infringement by third parties using the device, regardless of the device's lawful uses,'' Justice David Souter wrote for the court.

The Supreme Court concluded that the unlawful objective of Grokster and StreamCast was ``unmistakable.'' Justices cited the P2P companies' open courting of former Napster users, which they said showed an ``intent to bring about infringement,'' as well as the fact that companies did not attempt to develop filtering tools to reduce piracy.

P2P firms and high-tech experts predicted the ruling will lead to a torrent of lawsuits that could crush technology innovation.

Peer-to-peer network operators such as Grokster and Morpheus, meanwhile, predicted dire consequences for technology innovation. Still, company leaders insisted, file-swapping is here to stay and is unlikely to be driven underground.

Those companies and others such as Kazaa, Gnutella and eDonkey began cropping up after the Supreme Court shut down the file-sharing startup Napster, and have thrived despite the availability to legal downloading.

Richard Taranto, who argued the Grokster case before the Supreme Court, called Monday's ruling ``chilling'' for the industry.

``It says to the Intels and the other of the world, We have a multifaceted standard that you can't in advance be terribly sure how it will apply to you.''

And Fred von Lohmann, senior staff attorney with the Electronic Frontier Foundation, said the decision ``is going to unleash a new era of uncertainty among America's innovators.''

By focusing on what intentions companies have to commit copyright infringement, von Lohmann said, it opens the door for lawyers to demand access to scores of engineering notes, marketing memos and other documents from firms targeted for lawsuits.

``That's a very expensive threat for companies to face,'' he said.

Monday's announcement comes six months after the Motion Picture Association of America, following in the footsteps of the music industry, began suing Internet users for stealing movies online. Monday's decision is likely to give the MPAA even greater power to sue the networks.

Jay Cooper, chairman of the West Coast entertainment practice at Greenberg Traurig in Los Angeles and a signatory to one of the briefs on behalf of the movie studios, dismissed the notion that Monday's ruling would cripple innovation.

``What they ought to do is do what Napster did, which is to say, 'we're going to go legal,''' he said of the P2P networks. Of the ruling, Cooper said, ``What it does is encourage people to get into legitimate downloading.''

Glickman and Bainwol said they hope that's the case.

``We have a lot of work to do,'' Glickman said. ``The ubiquity of the Internet confused a lot of young people. The decision speaks with such clarity and precision that it should have a very powerful impact.''

Reps. Howard Berman, D-Van Nuys, and Adam Schiff, D-Pasadena, said they don't see the need for any new legislation to curb P2P networks. But, they said, backers of the entertainment industry in Congress will be on the defense against any attempts to weaken the ruling.

P2P operators, Berman said, ``may try to come to Congress to get us to overturn copyright law or smash a loophole in it so large you could drive a truck full of pirated CDs.''

Discounting concerns among file-sharing operators that the court's ruling was vague when it came to defining ``intent,'' Berman said, ``There's nothing to clarify. Their objective was illegal, their conduct was illegal, they did this to profit from illegal file-sharing.''

Lisa Friedman, [phone]

lisa.friedman(at)langnews.com