License to Steal

Catherine Lewan has a familiar tale of woe. She used Kazaa, a popular peer-to-peer (P2P) software, to allegedly download and upload copyrighted songs. That activity led to seven major record labels suing her for copyright infringement in April 2006. Six months later, the Chicago Pilates instructor settled the case for thousands of dollars.

That would be the end of the story if Lewan was like most of the people the recording industry sued. But Lewan was different. She struck back at an unexpected target: the company that distributes Kazaa, Vanuatu-based Sharman Networks.

She filed a class action suit in December 2006 against Sharman, seeking damages on behalf of all Kazaa users whom the recording industry had sued. The suit alleges Sharman engaged in deceptive marketing by telling consumers the software was legal, even though the company knew its customers would use the software to illegally download and upload copyrighted works.

If certified, thousands of Kazaa users could join Lewan as plaintiffs. And if she wins the suit, Sharman could face millions of dollars in damages.

Because of this suit, a lot of companies are taking a second look at how they market themselves and their products on the Web.

"It has big implications for all companies doing business online," says Denise Mroz, a copyright attorney in the Philadelphia office of Woodcock Washburn.

Conflicting Messages

Kazaa was once one of the world's most popular types of P2P software. At its peak, a hundred million computer users around the world had installed the program, enabling them to share untold numbers of copyrighted songs with each other. And Sharman made money--lots of money--by selling online ads that were displayed to these users.

Kazaa's Web site touted the software's ability to provide "free" downloads of music and proclaimed the software was legal. These statements would be accurate if downloaders used Kazaa to share songs that musicians and recording companies had agreed to offer for free. However, most users were not downloading public-domain songs. The vast majority of activity on Kazaa was from users downloading songs copyrighted by musicians and recording companies that had no intention of giving away their products for free.

Lewan claims Sherman knew this use of Kazaa would be illegal, but falsely claimed the software was legal.

"[Sharman] deceived people into using the product so the membership of the network would increase, so the amount they could charge for advertising increased, and they made a fortune off it," says Charles Mudd Jr., the Chicago attorney representing Lewan.

Lewan claims thousands of Kazaa users relied on Sharman's misrepresentations that Kazaa provided free and legal downloads when they used the software, and as a result these users wound up being sued for copyright infringement and incurring significant legal costs. This conduct, she claims, constitutes fraud, deceptive trade practices and negligence.

Sharman declined to comment on the lawsuit, but many copyright experts say that the strength of Lewan's case may depend on the end user license agreement (EULA), a contract of adhesion that all Kazaa users had to accept when downloading the free software.

Lewan's complaint makes no mention of the agreement she and other Kazaa users accepted upon installing the software, and at press time, Sharman had yet to respond to the suit.

Enforcement Challenge

There is nothing particularly controversial about EULAs, which generally pop up on your computer screen when you install new software. Users are supposed to read the terms of the EULA and then click on the "agree" button. Used by major software vendors and online service providers, EULAs are often lengthy and filled with legalese.

If, as seems likely, Sharman's EULA stated that Kazaa's users must not use the software to commit infringement, that could provide a powerful defense for Sharman. If users violated the terms of service to commit infringement, Sharman can't be held responsible. A EULA, however, isn't always enforceable. The courts have held that users are bound by a EULA only if its terms are displayed clearly and prominently enough.

"The issue is whether the [disclaimer] is so buried in fine print that a reasonable person wouldn't be able to find it and understand it," says Roman Silberfeld, a litigator in the Los Angeles office of Robins, Kaplan, Miller & Ciresi.

How prominently must a EULA be displayed? At a minimum, the agreement must be reasonably accessible to users who are looking for it. For instance, the courts have repeatedly ruled a EULA is enforceable if users can view it when they click on a link in an expected, but not prominent place on a Web page (such as the "terms of service" link placed in small type at the bottom of many Web pages).

Companies, however, have good reasons for forcing their users to actually see their EULAs.

"The more prominent the EULA, the more likely it will be upheld," Mroz says. "The best is when a user must see it and click through it to get the service."

The marketing statements made on Kazaa's Web site could add an additional wrinkle to the case. If the overall message to users was misleading, the EULA's fine print may not be enough to protect the company.

"A court may not allow Sharman to say in big letters on its Web site that using Kazaa is legal but say in the EULA's small print that some uses of Kazaa may not be legal," Mroz says.

Keeping Promises

This has many companies that produce hardware or software that consumers can use to copy or distribute copyrighted works concerned.

"Companies would have to make sure they don't put out a product that facilitates infringement," says Stanley Pierre-Louis, a copyright attorney in the New York office of Kaye Scholer who previously served as senior vice president of the Recording Industry Association of America.

The suit also is likely to push many companies doing business online to re-evaluate their marketing messages.

"There is a trend for a lot of companies to oversell their products," Pierre-Louis says. "This suit is likely to get those companies to rethink their actions."

As a result, companies need to provide adequate disclaimers about what their products do and don't do and conspicuously note that their products should not be used to violate copyright laws.

Mroz agrees. "If Lewan is successful, people will have to look at what they are selling and what they are promising to consumers," she says. "Basically, what Lewan is saying is that you promised me something and you didn't deliver."

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Steven Seidenberg

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