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Intellectual Property Update: LimeWire, CEO Lose Copyright Battle
By Owen J. Sloane and Rachel M. Stilwell
A federal court ruled last week that LimeWire, one of the most popular online file sharing systems, and its former chairman, Mark Gorton, were collectively liable for inducing widespread copyright infringement and engaging in unfair competition. Granting summary judgment in favor of record company plaintiffs including Arista, Sony BMG, UMG, Virgin, Warner Brothers, Interscope, Motown, and Capitol, the Court found that LimeWire had intentionally encouraged its users to infringe copyrighted works. LimeWire’s software, once downloaded to a computer, can be used to locate and download files stored on other user’s computers.
In granting summary judgment to record label plaintiffs, the United States District Court for the Southern District of New York accepted evidence presented by plaintiff record labels that 98.8% of files that users attempted to download through LimeWire were either protected by copyright law (or highly likely to be protected by copyright law), and that the labels had never granted LimeWire any licenses to distribute their recordings.
The Court found that LimeWire’s internal communications regularly acknowledged that its users regularly shared copyrighted and unlicensed music through the software. The Court also noted that from 2004 to 2006, LimeWire’s annual revenue grew from $ 6 million to $20 million, and that this growth “depended greatly on LimeWire users’ ability to commit infringement through LimeWire.”
U.S. District Court Judge Kimba Wood pierced LimeWire’s corporate veil and ruled that Gorton, who was also LimeWire’s sole director, was personally liable for infringement, explaining that “an individual, including a corporate officer, who has the ability to supervise infringing activity and has a financial interest in that activity, or who personally participates in that activity is personally liable for infringement.” Damages for willful infringement can be as great as $150,000 per infringement. In this case, there were over 3000 recordings infringed.
Judge Wood ruled that LimeWire’s “failure to mitigate infringing activities” was itself evidence of inducement. LimeWire owned several filtering technologies enabling the company to identify digital files that contain copyrighted content and block users from downloading such files, but LimeWire did not implement that technology out of fear of losing its customers to rival peer-to-peer services that allowed infringing activity. LimeWire used its filtering technology, but only to prevent LimeWire users from sharing digital recordings purchased from the LimeWire online store. Noted Judge Wood, “This selective filtering further demonstrates LW’s knowledge of infringement-mitigating technologies and the company’s intentional decision not to employ any such technologies in a way that meaningfully deters LimeWire users’ infringing activities.”
This aspect of the ruling may finally provide an incentive for operators of online networks to take affirmative steps to combat infringing activity. This is particularly true in light of the fact that Gorton, LimeWire and LimeWire’s parent company, Lime Group, could be collectively liable for damages of up to $450 million.
The Court also granted in favor of the labels’ unfair competition claims, on the basis that LimeWire used misappropriated copies of the labels’ recordings in order to compete against the plaintiffs’ own legitimate use of the same recordings.
Copyright owners may not be able to prevent LimeWire’s users from quickly switching to other peer-to-peer software providers. For example, the Pirate Bay, which was found guilty of inducing copyright infringement in a Swedish court last year, still encourages its users to “download music, movies, games, software and much more” through more modern BitTorrent technology. However, because the plaintiff copyright owners will be entitled to injunctive relief ordering LimeWire to disable its software if LimeWire does not voluntarily disable its software, Judge Wood’s decision will likely sink a peer-to-peer service that was used by nearly sixty percent of the people who download recordings in 2009. In light of the fact that Gorton was held personally liable for infringements that could result in a vast award of damages, Judge Wood’s ruling may finally strike fear in those who make their living by encouraging online copyright infringement, while thumbing their noses at the law.
For the decision in Arista Records LLC et al v. Lime Group et al, U.S. District Court, Southern District of New York, No. 06-05936, click here.
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