NETCOM RULING SETS OFF SIRENS : SETTLEMENT THRUSTS COPYRIGHT DEBATE INTO SPOTLIGHT.

Byline: P.J. Huffstutter Daily News Staff Writer

On-line service providers insist they are not responsible for policing the Internet for copyright violations.

Yet that's exactly what happened when the Church of Scientology settled an 18-month copyright dispute this month with Netcom On-Line Communication Services, one of the nation's largest Internet access companies.

Though neither party will discuss details of the settlement, Netcom has announced it will investigate all future complaints over copyright issues. While exploring these cases, Netcom will either remove the challenged material or deny subscribers access to it.

This move has forced Internet service providers to rethink their role in light of an ambiguous copyright law. Are they publishers? Utilities? Or both?

Traditionally, service providers have patterned themselves after utilities, like the telephone and the electric company.

``In the course of an interactive medium like the Internet, you can't be held responsible for what is put on line by hundreds of thousands of millions of users,'' said Sara Fitzgerald, a spokeswoman for the on-line trade group Interactive Services Association. ``You can't be an editor for everyone.''

That attitude could shift in light of Netcom's newly installed protocol for reporting copyright infringements.

Neither the protocol nor the settlement between Netcom and the church establishes a legal precedent, says Eugene Volokh, a professor at the UCLA Law School. ``But inside these big Net companies, people are noticing that even Netcom is making some concessions. Like it or not, Netcom is setting a standard in this industry.''

Few on-line services are willing to discuss the case. Spokesmen for America Online, CompuServe and Prodigy declined to comment.

``I'd hate to be the next target of the Church of Scientology's lawyers, so I hate to verbalize my views,'' said David Holub, president of Sausalito, Calif.-based Whole Earth Networks. ``Obviously, we sympathize with the on-line provider. In the situation where the content ruffles someone's feathers, you can find yourself in the middle of a courtroom. That can be intimidating.

``Right now, I can say we are 100 percent Scientology free.''

Secret teachings

The Netcom-Scientology conflict dates to July 1994, with the start of the Usenet newsgroup alt.religion.scientology. The forum soon became a popular soap box for current and former churchgoers.

The legal battle erupted when people began posting passages about secret teachings - information the Church of Scientology claimed was copyrighted. The posters insisted they were making ``fair use'' of the writings, which is allowed under U.S. copyright law.

The church disagreed. In 1995, the church filed a battery of suits, claiming that a former church official used Netcom and a bulletin board operated by Tom Klemesrud of North Hollywood to post protected material.

``(The material) was taken out of context and misportrayed,'' said Janet Weiland, vice president of the church.

Attorneys for Netcom declined to comment.

Concerns over copyright issues have peaked with the popularity of the World Wide Web, which has given individuals the power to become publishers.

Part of the problem, experts say, is most Net users don't understand what is protected by copyright. Nearly everything commercially produced is covered. Much of this material is considered to be ``intellectual property'' - an idea in a form that can be sold, transferred or otherwise distributed - and is usually protected by copyright, patent or trademark laws.

In the case between Netcom and the Church of Scientology, the disputed material was a 17-page transcript of confidential lectures by founder L. Ron Hubbard.

``You have to educate the people that a lot of these things belong to someone else,'' Fitzgerald said. ``That CD cover? That picture in a magazine? That review in the newspaper? That painting on the cover of a greeting card? You can't just build your home page around these things and think everything's OK.''

Enforcement rare

But there are gray areas in the on-line arena.

Most of the potential copyright violations relate to the entertainment industry, which is reluctant to alienate young Net-savvy consumers over insignificant financial losses.

Record companies, for example, often look the other way when fans build Web sites using bootlegged property.

Also vulnerable to copyright infringement is the software market, where programs are pirated by the thousands.

Though law enforcement monitors transactions within the United States, it is nearly impossible to track the numerous electronic exchanges across the borderless Internet.

So far, few on-line copyright infringement cases have gone to court, particularly ones where an outside party is at fault.

In 1993, Playboy Enterprises successfully sued the operator of a small Florida computer bulletin board because a subscriber had uploaded copies of the magazine's erotic pictures.

And Sega Enterprises won a 1994 case against a California bulletin board system where users were encouraged to buy and trade pirated copies of the company's video games.

According to Volokh, there were three probable outcomes with the Netcom case. The company:

is liable for any copyright infringements, no matter what.

is not liable, and the fight should remain between the person who posted the material and those who own the copyright.

is not liable unless they know about the problem, or have some reason to know about it.

``By setting up a protocol for its customers, Netcom is taking the third position,'' Volokh said. ``I think it's a good position, but it does have its drawbacks.''

Like excessive enforcement. Netcom's protocol sends a dangerous, if unofficial, message to the on-line community, says Klemesrud, who operates the Los Angeles Valley College bulletin board system.

He suggests that Netcom's removal of on-line information ``on the basis of a simple complaint, before it's been proved true'' violates a person's freedom of speech.

``What's to prevent the church, or any other large organization for that matter, to call a service provider and say, `Hey, we want you to adopt the same policy that Netcom did. If you don't, we'll sue you until you're broke,' '' Klemesrud said.

``What's to prevent me from saying, `Hey, I own that. Pull it off.' At that rate, nothing will be safe on line.''

It's important for service providers to appease their customer base, said Stanton McCandlish, an on-line activist with the civil libertarian organization The Electronic Frontier Foundation.

``It's one thing to respond to a subscriber; it's another thing to bow down to the wishes of an outside company,'' McCandlish said.

Attorneys do anticipate that the number of copyright infringement complaints will likely increase if service providers offer a convenient way to do it.

``No one package of information is significant to Netcom. And no one package of information should be that significant to any large Internet service provider,'' said Rex Heinke, a Los Angeles-based media law attorney. ``The easiest and most profitable thing to do in any case is to take the information off line.''

RULES OF THE NET

Netcom's procedures for challenging improper postings:

Notify Netcom and the posting party of the alleged violation, asking the poster to remove the information and tell Netcom where the information is located on line.

Prove the claim to Netcom, and provide with a copyright or trademark registration number; a copy of the work; or a good-faith certificate that a significant portion of the work has been copied.

The posting party can give Netcom a response to the accusations.

While Netcom is investigating the complaint, the company will temporarily remove or deny access to the material, to protect the rights of all involved.

If Netcom concludes that the complaint is legitimate, it will continue to deny access to the material. If not, it will restore access.

Groups offering on-line arbitration

The case between Netcom and the Church of Scientology inspired the creation of the Virtual Magistrate Project.

Founded by members of the American Arbitration Association and the Cyberspace Law Institute, the project offers dueling parties access to a neutral, on-line third party. Arbitrators collect e-mail statements from all parties and offer a ruling in three days.

The group, which has only handled one case since its inception this year, focuses specifically on disputes involving Net users and computer system operators.

``In a medium where everything happens immediately, why should a legal dispute take months or years to resolve?'' asked David Post, co-director of the Washington, D.C.-based law institute. ``I think it will take a while before people are comfortable with on-line arbitration.

``Until then, I think you're going to see lots of little local magistrates popping up, like Netcom's new protocol for complaints, and resolving these disputes.''

CAPTION(S):

Photo, 2 Boxes

Photo: Tom Klemesrud disagrees with Netcom's decis ion to pull postings regarding the Church of Scientology.

Phil McCarten/Daily News

Box: (1) RULES OF THE NET (See text)

(2) Groups offering on-line arbitration