What Is Grooveshark?: A Look at the Evolution of File Sharing and Licensing

My journey through file sharing and digital downloading has been kind of a strange one.  I had Napster back in the day, then switched to Morpheus.  I think I had Limewire in college, but I can’t exactly remember.  Even in those days, it took FOREVER to download a song (or god FORBID a movie), and you never knew what you were actually going to get at the end of the day (i.e. is that really An American Tail or Debby Does Dallas??  Fuck it, it’s free, right?!).  My junior year, Napster came back as a legit subscription service and worked out a couple of licensing agreements with a bunch of Universities – my now alma mater, University of Miami (aka “THE U”), was one of those schools. 

I stuck to Napster like white on rice – I absolutely loved being able to stream any music I wanted for a small monthly fee.  In fact, when I was in college, Napster was FREE to UM students; I just loved it so much, I started paying the measly $12.95/month after I graduated to keep the features.  To this day, I am still a Napster subscriber, and the price has gone down.  Now, it’s only $15 every three months AND you get 15 free credits for tracks.  It’s cheap, it’s easy, and they have a great catalogue.  Plus, I’m in control.

I didn’t jump on the iTune bandwagons until I got my iPhone in…. god, I’m so embarrassed to say this… November 2009.  I never owed an iPod; I always have third party MP3 players because iPods were compatible with Napster (they are now).  I’m going to say it – I honestly don’t like iTunes.  I think the only thing it offers is mild convenience, esp with my iPhone (or the iPod Touch), you can get your music instantly, but only if you pay for it each time.  Napster “feels” more free to me.  Sure, I can’t instantly grab music on my MP3 player on the go, but I can stream it from up to 5 PCs at a time, and, honestly, that’s mostly where I listen to my music.

I think the fact that people want a lot of music but they don’t want to pay for that music (or feel like they’re paying for it) has given rise to this kind-of “customized” radio services like Pandora.  Because you can interact with the genome and “refine” it by adding variety and thumbing up or down certain songs to refine your taste.  I actually have friends that spent months refining their genomes to get the “perfect” station.  It’s fun!  It’s kind of like building a CD collection – it takes time and effort.  Remember how rewarding that used to be?  All their shiny cases lines up in a row, sorted alphabetically, or (if you’re daring) maybe by genre or cover art.  But I digress.  My point is that people still take pride in their music selections, and Pandora feeds that need.

But what if I crave MORE customization?  What if I crave “on demand” content all the time?  The music I want when I want it.  None of this “you can only interact with the genome up six times an hour.”  I want music without boundaries!  And I want to be free!  Well, industry folks say, you can’t have it for free.  As my old music business professor used to say: “when music is playing, someone is paying.”  Advertising just doesn’t cut the mustard for the licensing fees (plus, users hate commercials… yet still don’t want to pay for music.  Have you guys ever heard the expression ‘you can’t have your cake and eat it too’??)

Enter Grooveshark.  They say… why yes, you CAN have your cake and eat it too.  We’ll even BAKE your cake and handle all the liabilities and law suits when it poisons someone!  Ta da!  Grooveshark has taken a similar approach to Limewire and Grokster – “Come and get us.”   However, unlike Limewire and Grokster, Grooveshark preemptively offered music as an enticement for the majors to garner licensing deals with them.  Lots of indies are on board, but the real meat and potatoes (and what their success depends upon) are the major label releases.

Well, their plan has worked…. Kind of.  In ’09, EMI inked a licensing deal with Grooveshark licensing their entire catalogue under undisclosed terms.  Did EMI take equity?  What kind of licensing fees is Grooveshark paying?  Where is their leverage here??  Ooh… the contract deets are KILLING ME!!  But it appears that Grooveshark is leading the way in a new(er) approach to copyright licensing.  Give the people what they want, and when Big Daddy sees people love it, offer them a piece of the pie.  If the Copyright Act isn’t working for digital downloading (and, in many instances, it’s not), private contract seems to be the way to go.  Innovation can’t be stopped, so we need to contract around it.  All’s fair in music and war, I suppose.                

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The Helping Hand: The Limewire Case and Secondary Liability in Copyright Infringement

In a precedent-setting ruling, the U.S. District for the Southern District of New York has found both Limewire and its sole owner, Mark Gorton, “vicariously liable” for copyright infringement on a myriad of sound recordings.  You can read the full decision here, but for those of you less-inclined to spend a substantial amount of time reading 59-pages of legal jargon, I’m going to try and break it down for you.

First of all, let’s take a look at the different levels and types of copyright infringement.  The most common is direct infringement, where the person is held liability for actually committing the act of infringement themselves.  This is theory behind the RIAA cases that are suing consumers; it is the consumers that are either (or in some cases, both) uploading or downloading music from illegal peer-to-peer music sharing networks.  It does seem over the top for the RIAA to sue individuals for literally millions of dollars – the phrase “you can’t get blood from a stone” comes to mind – but it’s the one of the easier copyright claims to prove, and there are substantial statutory damages if you do.  They are capped at $175K PER infringement – that means not only per SONG, but also per upload or download.  Now I’m sure you can see how those ridiculously high verdicts are coming down.  Is it equitable?  Of course not.  However, the law allows for that as long as the RIAA can prove the person actually did the copying… which is pretty easy once their hard drive is seized.  So that’s direct infringement.

But the real meat is what’s going on with the companies “allowing” the file sharing, but they’re not doing the actual up or downloading.  So how are they being held liable?  Secondary infringement. 

After the Grokster case, there are actually now three theories of secondary liability that content owners can hang their hats on – the first is “contributory liability,” that is, when someone (or something, in the case of a company) knows or should know that infringement is occurring and that person is inducing or contributing to that (direct) infringement.  For example, let’s take the topic of my last blog entry, GirlTalk.  Let’s just assume for a second that DJ GirlTalk’s fair use defense failed; he would be directly liable for unlicensed samples, because he’s doing the actual creating.  His label, Illegal Art, could be held secondarily liable under contributor infringement for encouraging GirlTalk to use samples, supplying him with samples or the facilities to record his music, etc. (DISCLAIMER: I have no idea what GirlTalk’s relationship with his label is, and I am merely throwing possibilities out there.  I am not stating that ANY of this is fact).  Actually, depending on who owns the masters, they might actually be directly liable as well.   

However, it’s more likely that peer-to-peer file sharing networks will be held liable under the second theory of secondary liability – “vicarious liability.”  Unlike contributory infringement, vicarious liability does not require that the secondary infringer knew or even should have known about the infringement.  Instead, the two-prong test requires that the infringer 1) has the “right and ability” to exercise control over the direct infringers (and did not); and 2) they had a financial interest in the resulting infringement.  This claim is most about the connection between the direct infringer and the secondary infringer; not the actual act of infringement.

The third claim arose in the Grokster case, where the court held that the defendants “induced” direct infringement by distributing a device with the “object of promoting its use to infringe copyright, as shown by a clear expression or other affirmative steps taken to foster infringement.”  Unlike contributory infringement, the secondary infringer here must purposefully be inducing infringement for their own benefit and has taken “affirmative steps” to foster infringement.

This is exactly the snag that Limewire hit in their case.  A couple important things to note that Limewire did not before we get into what Limewire did do.  First, the court stressed that merely making the recordings available online, whether they were infringing or not, was not enough to hold Limewire liable for either direct or secondary infringement.  While Limewire’s program alone might be enough to meet the “inducement” standard, the company really shot themselves in the foot by coming up with a “Conversion Plan,” which encouraged users to join the site for free (and upload or download files illegally) so that Limewire could convert these users into paid subscribers and promote sales in their online.  In this plan, they also acknowledged that most of their users were infringers. In fact, there was a folder found at the Limewire offices labeled “Knowledge of Infringement.” Um…. OOPS. 

At first blush, it may seem that Limewire actually had a plan to stop infringement, and yes, that was part of the plan.  However, in order to execute it, they needed to promote more infringement first… and wouldn’t you know…that’s against the law.  They had a whole plan on college campuses that was designed to appeal to “Napster-banned colleges,” and was related to “file-sharing and getting free MP3’s.”  But it doesn’t stop there.  Limewire worked to make improvements to their software which would make it easier for users to locate unauthorized digital music, and its success was clearly dependent on these users.

Gorton himself was actually found liable as well, which surprised me at first, given the so-called “corporate veil” that is supposed to protect shareholders of a company.  However, I guess there is precedent in NY law to hold a person liable if they hold the majority of a company and are involved in its day-to-day decisions and activities.  Scary thought for those operating small companies! 

So what does this all mean for the future of file sharing and copyright?  As usual… TBD.  Grokster set a strong precedent against file sharing networks that is clearly being taken seriously.  It seems that the technicalities of “breaking up” a file-sharing company across jurisdiction isn’t working, and the company can’t avoid liability even if they don’t actively induce infringement; because the standard now includes new grounds for secondary liability, the pool of defendant will only expand.  There is still a slight caveat here, though – the court noted that (at least for summer judgment), Limewire could not be held liable for contributory infringement because they weren’t exercising meaningful control over their users.  So it looks like if you just stand back and mind your business and let the money come to you, you could fight a claim of secondary infringement.  Given that the law in these circumstances has been very broadly interpreted against infringers, though, I doubt this will last long. 

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