Staggering Damages in LimeWire Case Translate “Peer-to-Peer” to “Fear-to-Peer”

Recently, another digital music storehouse, LimeWire, reached an agreement to shell out a large sum of money in the amount of $105 million after being found liable for copyright infringement.  The popular online file sharing service, as of 2009, had nearly 50 million subscribers who were able to exchange, trade, and share various content in their libraries, including music and movies, via LimeWire’s peer-to-peer network (p-2-p).  Although some content exchanged may have been works in the public domain, others were copyrighted works traded without permission from copyright holders, something that major record labels and music trade group R.I.A.A. (the Recording Industry Association of America) were not pleased about.  The R.I.A.A., composed of music industry executives and recording artists, seeks to support and promote “the creative and financial vitality of the major music companies.”  Therefore, in carrying out these objectives, the R.I.A.A. has been on the frontlines with record labels in their fight against piracy, taking on companies such as LimeWire.

Despite the fact that the settlement agreement is a lofty toll, it barely dents the amount that the plaintiffs initially sought.  The suit, filed in 2006, alleged that LimeWire had unlawfully obtained and provided access to approximately 9,000 sound recordings for which the plaintiff record companies are the copyright holders.  The plaintiffs set out to gain $150,000 per pirated song, totaling a staggering $1.4 billion in potential damages.   But this judgment, and the potential to have to pay out such a large sum in damages, if found liable, did not come without warning.  The music industry has expressed its disdain for file sharing on multiple occasions, taking on and winning against other major p-2-p service providers such as Napster in 2001, and Kazaa in 2005 (settlement for $115 million), just a year before LimeWire was found liable.

Helping the music industry achieve this victory was the 2005 landmark Supreme Court decision, MGM v. Grokster, initiated by the music business’s close cousin, the film industry.  In that case, defendants Grokster and StreamCast Networks provided a similar p-2-p networking service for the exchange of digital content, including film and music recordings.  The Court found that the service provided by the defendants was “prominently employed…[for] sharing copyrighted music and video files without authorization” from copyright holders.  Although files exchanged via the network were not stored centrally on a database computer or server owned by the defendant companies, but directly from one subscriber to another, the defendants were found liable for copyright infringement for distributing the software that enabled infringing activities. The Court found that the defendants had “voiced the objective that [users of their p-2-p software] use it to download copyrighted works,” and they had thus taken “active steps to encourage infringement.”  These findings ultimately led to the Court’s holding 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 by third parties. By analogizing to Grokster, the U.S. District Court in Manhattan held that LimeWire was liable for its users’ infringing uses, despite the potential non-infringing uses of the service and software, and permanently enjoined the company which had been unjustly enriched by encouraging piracy.

Record companies ultimately hope that such large monetary damages will serve as a stronger deterrent which will enable companies to again reap better sales in music, which allegedly began to decline following the popularity and advent of file sharing and consequently, the digital downloading of music illegally.  However, companies like LimeWire argue that they are not the sole cause of the music industry’s commercial impotence, noting other issues such as the sale of bootlegged music and recent music retailer bankruptcies.  Despite who may or may not be responsible for the music industry’s retail problems, the Grokster and LimeWire decisions help buttress rights-holders’ protection in the music industry to copyrighted works because of the potential for companies to be held liable for third party infringement, effectively thwarting legitimate arguments for the promotion of p-2-p software and services.

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*  Matthew McClellan is a third-year law student at Wake Forest University.  He is president of the Student Bar Association, as well as a member of the National Trial Team and Sports and Entertainment Law Society.  He holds a Bachelor of Arts in Media Studies Communication from the College of Charleston.  Upon graduation in May 2012, Mr. McClellan intends to either practice criminal law as a prosecutor, or work in the entertainment industry practicing intellectual property and entertainment law.