WASHINGTON - The Supreme Court gave the entertainment industry a new legal weapon against Internet piracy, deciding yesterday that companies that actively encourage people to download free copies of music or movies can be held liable for their users' illegal acts.
The unanimous decision sets a new standard for distinguishing legitimate innovators from those who deliberately profit from online bootlegging. And it marks the first big copyright decision of the Internet era. But its actual impact on Internet piracy will be limited, some analysts said, because large online sources of illegal music and movies will remain unscathed.
The justices could have made a far more significant impact on consumer electronics and computer and high-tech companies had they granted the studios and major record companies' wish list of changes to copyright law. And although some companies and consumer advocates said the decision gives Hollywood too much power, others praised the court for striking the right balance between protecting copyrights and encouraging technological innovation.
"The green light to develop cool and new technologies is still there," said Markham Erickson, executive director of a high-tech trade group.
The justices did not actually decide the entertainment industry's claims against two file-sharing companies, StreamCast Networks Inc. of Woodland Hills, Calif., and Grokster Ltd. of Nevis in the West Indies. Instead, they sent the case back to U.S. District Court in Los Angeles to reconsider the studios and music companies' motion for summary judgment.
Still, the court buttressed the entertainment industry's campaign to stop people from bootlegging music and movies online.
"This decision was meant to underscore what is right and what is wrong, what is legal and what is illegal by all of society's basic norms. And the court did that today," said Andrew Lack, chief executive of Sony BMG Music Entertainment.
The main dissent came from technology advocates aligned with StreamCast and Grokster, who argued that the ruling only muddied the legal waters for innovators. They complained that the decision would discourage small companies from developing new digital products, mainly because they cannot afford to defend their intentions in court.
The battle over file-sharing began in 1999, when the original Napster network made it simple for people to copy songs for free from each other's computers. The major record companies and music publishers sued Napster for copyright infringement within months of its debut, and the 9th Circuit Court of Appeals in San Francisco held in early 2001 that the company was liable for its users' piracy.
After Napster's demise, millions of users flocked to file-sharing programs distributed by Grokster, StreamCast and others. Unlike Napster, these companies did not maintain the indexes needed to find files on users' computers; instead, they designed their software to form self-sustaining file-swapping networks.
The new file-sharing programs generated revenue by pumping advertisements and intrusive software onto users' computers. To the music labels and film studios, this was doubly offensive - the file-sharing companies were helping people copy songs and movies for free, and they were milking advertisers for access to a huge audience of infringing users.
Asheesh Laroia, a senior at the Johns Hopkins University, said he was disappointed by the ruling. But it is unlikely to affect the habits of people his age, said Laroia, 19.
"People who download will continue to download illegally. I think the ruling will have a more subtle influence: It will impact the progress of the technology for file-sharing."
But Bryan Burkert, owner of the Sound Garden in Fells Point, thinks it will have a broader effect.
"It's very difficult for any group to compete with [products people get for] free, and as a retailer selling movies and music, we've had to compete with free," he said.
"I don't care what everybody has said. All the fraternity boys who say they're going to do it anyway? There aren't going to be any places to go to and do it on a massive scale."
The Los Angeles Times is a Tribune Publishing newspaper. Sun staff writers William Wan and Chris Kaltenbach contributed to this article.