Despite the recent Supreme Court ruling in MGM v. Grokster favoring the recording industry over makers of music downloading services, copyright infringement is likely to continue.
Recording companies sued Grokster for encouraging users of its peer-to-peer services to download copyrighted songs without paying for them. Grokster had argued that it was not liable for the actions of consumers using the service, but the Supreme Court said otherwise.
In the opinion, Justice David Souter wrote, “We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement.”
Observers expect that technology firms will change their ways to satisfy the court opinion. Marc Freedman, chief executive officer of RazorPop, a peer-to-peer services company, has taken note of the decision. In RazorPop’s latest TrustyFiles software release, the firm takes the Grokster point to heart. Upon installation the first thing users see is a warning against using the software for infringement. “The message is simple, direct, and unavoidable to ensure that we are not inducing our users according to the Supreme Court ruling,” Freedman contends.
Following Grokster, recording industry lawyers are expected to focus on technology companies like RazorPop. But copyright lawyers are also likely to continue pursuing individual users who engage in online piracy. Recording companies have already sued hundreds of individuals over file sharing and observers believe they will continue this strategy.
In the U.S. alone, the number of people swapping media files rose from nearly 3 million in 2003 to more than 6 million this year, according to BigChampagne, the Nielsen/NetRatings of file sharing.
Even before the Grokster ruling, Freedman’s company recognized that its subscribers could be targeted by recording industry lawsuits. So TrustyFiles began offering what it calls copyright infringement insurance as part of its subscription service. The coverage says it protects against potential lawsuits by the Recording Industry Association of America. The insurance is capped at $5,000 per subscriber, which the firm says is above the typical RIAA settlement.
Copyright infringement insurance can be found in commercial general liability policies but the TrustyFiles product promises to protect individual consumers.
The idea of copyright infringement insurance for individuals is not a new one, “it’s just a bad one,” according to Earnest Miller, a fellow of the Information Society Project at Yale Law School. “It’s all smoke and mirrors and a seemingly desperate attempt for attention.”
Miller said it should not be possible to obtain insurance against the penalties for committing an unlawful act.
TrustyFiles is not the only party looking to shield users from the wrath of the recording industry. An organization known as the P2Pfund is promoting the concept of music-lovers pooling their money into a fund that could be used to fight lawsuits and pay damages. P2Pfund also promises to distribute some of the funds to artists.
Avoid willful acts
Miller isn’t crazy about this idea either.
“There is a reason that insurance companies generally try to avoid covering willful or intentional acts–they would quickly go out of business. All such a system would do would be to reward the RIAA for initiating even more lawsuits because when they hit a defendant with this proposed insurance they could go for the jackpot,” he pointed out.
The RIAA could simply refuse to settle until targeted individuals reveal the extent of their insurance, Miller explained.
“When a civil suit is filed, you must voluntarily disclose, prior to a discovery request, any insurance you have that might cover the potential claims,” he said.
“Nothing I am aware of prevents the RIAA from insisting on a settlement that takes into account the amount of insurance coverage, including insisting on damages beyond the covered amount.”
The insurer could fight the lawsuit, but that might be a recipe for disaster. “The minimum statutory damages for each infringement is $750, and the RIAA has been claiming at least 1,000 acts of infringement for those they are currently going after, which means $750,000 in damages, minimum,” Miller said. “The statutory maximum for each infringement is $30,000, which translates into $30 million for 1,000 infringing files. The lawyers for the insurance company could fight the case–which would be very expensive–but would be highly likely to lose. On top of this, the RIAA would almost certainly be awarded lawyer’s fees as well.”
Another problem is that having coverage could make defense of inadvertent infringement very difficult: “I would imagine that purchasing such insurance is more likely to be considered evidence of willful infringement, which means damages of up to $150,000 for each infringing file.”
Not a bad idea
While Miller is convinced copyright infringement coverage for individuals is a bogus idea, Dan Fingerman, associate at the law firm Mount & Stoelker in San Jose, Calif., thinks there is some merit behind it. “I find the idea intuitively appealing, and I think (Miller’s) criticisms are answerable,” he said.
Fingerman notes that insurers may have trouble finding out who is covered under a policy. He also believes that disclosure is not required in all policies as Miller contends.
“The language of the rule plainly contemplates insurance policies that will pay judgments against a litigant, not settlements,” Fingerman said. Most insurance policies will pay out for both, he added. “In this particular market, however, RIAA has repeatedly stated to the press that it wants to settle its claims against file sharers, and no claim against an individual file sharer has yet gone to trial, let alone to judgment.”
An insurance policy could be written to insure against settlements but not judgments, thereby sidestepping the disclosure issue, he said.
Fingerman also believes Miller is wrong about the likelihood of this kind of insurance being considered evidence of willful infringement. He said it’s not clear why this would be more suspicious than other kinds of coverage. “Do courts view doctors’ and lawyers’ purchase of malpractice insurance as evidence of negligence or willfulness?” He further notes that the federal rule on evidence prohibits admission of evidence of liability insurance for this purpose.
Fingerman said he would buy the insurance if the price were right and the problems were worked out. He called this debate “a good first step to solving them.”
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