What do LimeWire, Napster, Kazaa, and Isohunt all have in common?

LimeWire now joins the ignoble club of  sites and services around the workd that have been found liable for inducing, contributing to, or authorizing massive online copyright infringement. Other well known sites and services found liable on these and other secondary liability or criminal theories include Napster, Aimster, Grokster, Kazaa, Pirate Bay, Mininova, Usenet.com, Newzbin, and Isohunt.

Courts around the world have not tolerated or been willing to countenance online businesses whose core business model involves profiting from facilitating online copyright infringement. The most recent example is LimeWire.

The recording industry just won a major copyright piracy lawsuit in the US against LimeWire, one of the most popular remaining p2p music file sharing services in the US. In the decision released May 11, 2010, a New York District court ruled that LimeWire was liable for the massive infringements facilitated by its services based on inducement, vicarious liability, common law copyright infringement, and unfair competition principles.

The evidence in the case established that 93% of files made available over LimeWire were protected or highly likely to be protected by copyright, and thus not authorized for free distribution through LimeWire. 98.8% of the files requested for download through LimeWire were found to be copyright protected or highly likely copyright protected.

The court held there was “overwhelming evidence that LimeWire engaged in purposeful conduct that fostered infringement” to support liability based on inducement. According to the court the evidenced showed that “LimeWire has engaged in purposeful conduct that fostered infringement, with the intent to foster such infringement. LimeWire  distributes its software LimeWire, and (1) is aware that LimeWire’s users commit a substantial amount of copyright infringement; (2) markets LimeWire to users predisposed to committing infringement; (3) ensures that LimeWire enables infringement and assists users committing infringement; (4) relies on the fact that LimeWire enables infringement for the success of its business; and (5) has not taken meaningful steps to mitigate infringement.”

The evidence showed that LimeWire was making substantial revenues from the infringements it fostered. From 2004 to 2006, LimeWire’s annual revenue “grew from nearly $6 million to an estimated $20 million”.  This growth “depended greatly on LimeWire users’ ability to commit infringement through LimeWire.” By 2003, LimeWire boasted that around two million users accessed the program every month.

The evidence also revealed that LimeWire had not implemented in a meaningful way any of the  technological barriers and design choices that are available to diminish infringement through file-sharing programs, such as hash-based filtering, acoustic fingerprinting, filtering based on other digital metadata, and aggressive user education. The court held, following an earlier decision in the MGM Studios, Inc. v. Grokster, Ltd.  545 U.S. 913 (2005) case, that “Failure to utilize existing technology to create meaningful barriers against infringement is a strong indicator of intent to foster infringement.” According to the court, although a defendant “is not required to prevent all the harm that is facilitated by the technology, it must at least make a good faith attempt to mitigate the massive infringement facilitated by its technology.”

The court found LimeWire vicariously liable the infringements of its users based on substantial evidence that LimeWire “had the right and ability to limit the use of its product for infringing purposes, including by (1) implementing filtering; (2) denying access; and (3) supervising and regulating users.” It did not exercise “any meaningful supervisory control over LimeWire users’ infringing activity, or provided a legitimate reason for its failure to do so.” The evidence also established that LimeWire possessed a direct financial interest in users’ infringing activity. LimeWire users were drawn to LimeWire because the program permitted infringement. LimeWire “profited from its ability to attract infringing users, including through increased advertising revenue and increased sales of LimeWire Pro and authorized music.”

The next step in the case is a hearing on June 1 to schedule the future proceedings in the case. These  are likely to be hearings on the scope of injunctive relief and damages.

The case is significant for a number of reasons. LimeWire is one of the biggest remaining P2P networks still operating in the U.S. Others were either shut down after litigation or, like BearShare and eDonkey, went out of business after reaching settlements with copyright owners.

The case also demonstrates the effectiveness of US law in being able to shut down sites and services that are used predominantly for infringing purposes. The case follows other similar US rulings including rulings in the Napster, Aimster, Grokster, Usenet.com and Isohunt cases.

The court’s ruling on the need for file sharing sites to take meaningful steps to mitigate infringement facilitated by its technology shows that courts are moving in lockstep with many governments in pushing online service providers to cooperate and act in good faith to reduce infringements facilitated by their sites, services, or technologies.

The decision will likely have positive benefits in Canada as LimeWire is a popular p2p technology used for music sharing in this country. The ruling may result in a shift in downloading habits of millions of users who had relied on LimeWire to get music for free, to paying services.

What’s next? Pirate Bay’s appeal of the landmark ruling against it is scheduled to be heard this fall. Meanwhile, Isohunt and its Canadian founder Gary Fung, after being found liable for infringement in the US, await their fate as a US district court judge deliberates on the scope of the permanent injunction to be made against them.

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