Editor’s note: Amalie L. Tuffin is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.The Senate Judiciary Committee is currently considering the “Inducing Infringements of Copyright Act of 2004,” informally known as the Induce Act.

The Induce Act, introduced by Senator Orrin Hatch, who is the chair of the Committee, and co-sponsored by a bipartisan set of prominent Senators including Senators Frist, Daschle, Clinton and Graham, is intended to make changes to US copyright law to address issues of copyright infringement raised by peer-to-peer (P2P) networks as well as other file-swapping or copying technologies.

The provisions of the Act have created a huge amount of controversy. On the one hand, the Act is staunchly supported by the Recording Industry Association of America (RIAA) and other entertainment industry groups, as these are the industries that are being hurt because of the widespread use of file-swapping technologies. On the other hand, the technology and communications industries have bitterly denounced the bill as a massive threat to technological innovation; they have been joined in this protest against the bill by a number of conservative groups, such as the American Conservative Union and the Heritage Foundation, as well as consumer organizations such as the Consumer Union and the Electronic Frontier Foundation.

As a result of this controversy, the Senate Judiciary Committee has twice delayed its vote on the bill in the past few weeks and is now scheduled to take it up again during the Senate’s short post-election session in November.

Remember Betamax?

A key component of copyright law is set forth in the landmark 1984 Supreme Court decision in Sony Corp. v. Universal City Studios, Inc. In the Betamax case, as the Sony decision is known, the Supreme Court held that Sony, the maker of the Betamax VCR, could not be held secondarily liable for the copyright infringement by Betamax users who used the VCRs to make infringing copies of copyrighted television broadcasts. The rational for the decision was that the Betamax VCR had “substantial noninfringing uses” and thus it was legal to sell. This rule has been used to protect the legality of all sorts of copying technologies, as long as these technologies also have the requisite substantial noninfringing uses. These technologies would include such common items as iPods and MP3 players, writable CDs and DVDs and the equipment to make them, file-swapping technologies etc.

The Induce Act was written primarily in response to a federal District Court case out of California known as Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd., decided in April 2003 and upheld by the 9th Circuit Court of Appeals this past August. The Grokster court, ruling in a case addressing the P2P networks operated using both Grokster’s and Streamcast Networks’ file-swapping software, decided that, because the defendants had proven that their software had substantial noninfringing uses (one example given being the swapping of music files where the copyright owners had given permission), they could not be held liable for copyright infringement.

The Grokster court differentiated this case from the Napster cases because, unlike in Napster (where Napster itself controlled a central index of files available to be exchanged), the Grokster defendants had no direct ability to stop infringing acts by the users of their software, as their software works strictly on a P2P basis, with no central repository of information controlled by the defendants. Because of this inability to control the acts of their users, the Grokster court ruled that defendants could not be held secondarily liable for the infringing acts of such users. It is notable, however, that the District Court decision in the case did state that further legislative guidance would probably be advisable. Senator Hatch heeded this call with the Induce Act.

The stated intent of the Induce Act is to make parties that intentionally induce others to commit copyright infringement liable for the copyright infringement committed by the people that they have induced to violate copyright law. The Act’s main target is the companies that produce file-swapping software that make it easy for people to illegally swap copyrighted files, such as songs or video clips, but many observers are deeply concerned that the bill’s language is too broad and will make the manufacturers of legitimate technology, such as iPods and MP3 players, liable as inducers. This concern is absolutely legitimate.

Vauge, broad language

The language of the bill, as currently pending before the Senate Judicial Committee, is extremely broad. It provides that any person who “intentionally induces” any violation of copyright law is directly liable as a copyright infringer. The term “intentionally induces” is defined as “intentionally aids, abets, induces, or procures, and intent may be shown by acts from which a reasonable person would find intent to induce infringement. . . .”

Such a vague and broad definition would make the parameters of the law difficult to define; how would a start-up company determine what a hypothetical “reasonable person” might think about its technology and business plan? This is part of why so many observers are worried that the Act, if passed, would stifle creativity, innovation and competition in America’s technology industry.

A number of alternate drafts of the Induce Act have been proposed in response to both these concerns and to Senator Hatch’s public willingness to consider alternative language on which all sides to the controversy could agree. Lawyers and lobbyists for the RIAA and other interested groups have engaged in discussions trying to reach agreement on an alternative draft of the bill, but to no avail.

At the request of some of those involved, and even though the register of copyrights has publicly endorsed the current version of the bill, the Copyright Office itself has submitted a proposed alternate draft of the bill to the Committee for its consideration. Revised versions have been prepared and circulated by the Committee’s own staff. Finally, numerous technology and consumer organizations, as well as private individuals, have proposed revised language for the bill. As yet, however, no language that is reasonably satisfactory to each of the entertainment industry, the technology industry, and consumer and watchdog groups has emerged.

The Induce Act, if passed in the current form or in several of the proposed forms, would have a dramatic effect on US copyright law as it would effectively nullify the Betamax decision — a decision that is credited by most observers with helping to foster technological innovation in this country. Accordingly, interested readers should keep an eye on the news over the next several weeks. It is likely that additional versions of the bill will be proposed before the Senate Judicial Committee is next scheduled to consider the Induce Act in November, and Senator Hatch is determined to ensure that the Committee act on the bill at that time.

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Amalie L. Tuffin concentrates her practice in the representation of entrepreneurial and technology-based businesses, focusing on corporate, taxation and securities matters. Questions or comments can be sent to atuffin@d2vlaw.com