JUDGE RULES FILE-SHARING SOFTWARE COMPANIES NOT LIABLE FOR INTERNET PIRACY.

Byline: Beth Barrett and Brent Hopkins Staff Writers

A federal judge ruled Friday that two companies providing computer file- sharing software did not violate copyright laws because they can't control whether users pirate music and videos - unlike the high-profile Napster case.

U.S. District Judge Stephen V. Wilson's granting of summary judgments in favor of Grokster Ltd. and StreamCast Networks Inc., which distribute Morpheus peer-to-peer software, was a major setback to motion picture studio and record company plaintiffs fighting to stop free distribution of pirated digital entertainment. The decision does not apply to the popular Kazaa network, owned by Sharman Networks Ltd.

Record labels declined to comment, deferring to the Recording Industry Association of America. The group's chairwoman and chief executive officer, Hilary Rosen, pledged to appeal and to continue attempts to stamp out the services.

``Businesses that intentionally facilitate massive piracy should not be able to evade responsibility for their actions,'' she said in a statement. ``We disagree with the District Court's decision that these services are not liable for the massive illegal piracy that their systems encourage and we will immediately appeal to the 9th Circuit Court of Appeals.''

Wilson's 34-page ruling concluded that the two defendants only provided the software and assistance in using it, and unlike the popular Napster were not themselves a necessary part of the file-sharing system.

Once the software was running, the defendants could not control whether or not files were pirated, unlike Napster which provided ``the site and facilities'' for infringement to take place, he wrote.

``If either defendant closed their doors and deactivated all computers within their control, users of their products could continue sharing files with little or no interruption,'' Wilson wrote.

``If Napster deactivated its computers, users would no longer be able to share files through the Napster network.''

Wayne Rosso, president of Grokster, which is based in Nevis, West Indies, told The Associated Press the company was vindicated.

``We are not pirates,'' Rosso said. ``This is teaching the record companies and the movie companies a lesson ... They need to rethink their business model.''

Even though the ruling will be appealed, industry experts saw the decision as a commanding victory for the networks.

``Grokster, Morpheus and similar platforms will get a free ride unless the Appeals Court reverses it or the states or Congress pass new laws,'' said Joanna Glasner, a business reporter with Wired News.

``It's unlikely that will happen right away, so they can operate for a while. During the Napster ruling, the language left open the door for other services with a different interface like (Grokster and Morpheus). Napster had an index of songs, so it was easy for the recording industry to say 'Hey, how can you claim you don't know about it?' With Morpheus, they deliberately designed it to stay out of that.''

The ruling came a day after the RIAA won a separate court case against Verizon, forcing the broadband provider to turn over the names of two users accused of running file-sharing networks. Though RIAA expressed dissatisfaction with the overall outcome of Friday's decision, it found some bright spots, specifically the court's placing of responsibility on the consumer.

``Obviously we're disappointed and plan to appeal, but there are parts we find gratifying,'' an RIAA spokesman said. ``There are some users of ... all those other networks that confuse the liability of the network and the illegality of the activity. Whether the network's legal or not, you're still committing illegal copyright infringement.''

Film studios referred questions to the Motion Picture Association of America, whose representatives did not return calls seeking comment.

The ruling specifically cited a 1984 case in which the movie industry sued Sony Corp. for selling video cassette recorders, even though Sony generally knew they could be used to copy movies. The court rejected the argument, saying the recorders had many other, legal uses.

The Grokster and StreamCast file-sharing software, likewise, has ``substantial noninfringing uses,'' such as distributing movie trailers, free songs or other noncopyrighted works, he wrote.

The industry argued that Grokster and StreamCast's Morpheus includes optional screens for pornographic files, and that it could ``just as easily screen out copyrighted song titles.''

But Wilson said the companies still would be in no position to police the system.

``Defendants provide software that communicates across networks that are entirely outside defendants control,'' he wrote.

Industry plaintiffs argued that the two companies, like Napster, did ``facilitate'' the exchange of copyrighted files, and had knowledge of copyright infringement.

Plaintiffs, the ruling said, pointed to documents suggesting that both companies marketed themselves as ``the next Napster,'' that executives performed searches for copyrighted song titles or artists, and that the industry sent them ``thousands of notices,'' regarding the alleged infringements.

But Wilson agreed with the companies' argument that the notifications were meaningless without a means to stop the illegal copying.

``Plaintiffs' notices of infringing conduct are irrelevant if they arrive when defendants do nothing to facilitate, and cannot do anything to stop, the alleged infringement.''

Wilson, however, concluded that legislation might be warranted to reduce the likelihood the software is used unlawfully.

``The court is not blind to the possibility that defendants may have intentionally structured their businesses to avoid secondary copyright infringement, while benefiting financially from the illicit draw of their wares.''