Reversing a series of decisions in favour of the Recording Industry Association of America (RIAA), the Washington, D.C., court said copyright law did not allow the group to send out subpoenas asking Internet service providers for the identity of file-swappers on their networks without a judge's consent.
"We are not unsympathetic either to the RIAA's concern regarding the widespread infringement of its members' copyrights, or to the need for legal tools to protect those rights," the court wrote. "It is not the province of the courts, however, to rewrite (copyright law) in order to make it fit a new and unforeseen Internet architecture, no matter how damaging that development has been to the music industry."
While it is a blow to the recording industry, Friday's decision is unlikely to derail the RIAA's ongoing lawsuits against hundreds of individual file swappers. The ruling focuses on the unconventional subpoena power that the organisation had claimed in order to seek ISP subscribers' identities and does not address the legality of the lawsuits that have already been filed.
File-swappers are generally anonymous on peer-to-peer networks, identified only by an Internet Protocol (IP) address assigned by their ISP. But names and addresses of subscribers can be determined by reviewing ISP records, which can connect IP addresses to individual accounts.
Even if the court's decision is ultimately upheld against appeals, the RIAA still will have the power to identify and sue file-swappers.
The big difference, though, is this: the RIAA would have to file a "John Doe" lawsuit against each anonymous swapper, a process that would be considerably more labour-intensive and time-consuming. That in turn could limit the number of people the association has the resources to pursue.
"It is a pretty big setback," said Evan Cox, a copyright attorney with law firm Covington & Burling. "At the end of the day, it's a practical issue. It's mostly going to mean considerable extra expense and a fair amount of additional paperwork and formality."
The RIAA said it would continue its lawsuits against individual swappers, even if it is not able to use the subpoena power. An RIAA executive said this new "John Doe" process would be more intrusive for individuals, not less, since the organisation would no longer be able to contact potential lawsuit targets and settle before filing an official suit. For several months, it has been sending letters to suspected file-swappers after obtaining their identities from ISPs and offering a settlement instead of going to court.
"This decision is inconsistent with both the views of Congress and the findings of the district court," RIAA President Cary Sherman said in a statement. "It unfortunately means we can no longer notify illegal file sharers before we file lawsuits against them to offer the opportunity to settle outside of litigation. Verizon is solely responsible for a legal process that will now be less sensitive to the interests of its subscribers who engage in illegal activity."
The appeals court's decision comes after the RIAA sued 382 individuals alleged to have offered copyrighted music for download through file-swapping services such as Kazaa, and settled with 220 people for amounts averaging about $3,000 (£1701) apiece. Many of those settlements had been made before suits were filed, the organisation has said.
Most of the legal challenges to the RIAA's strategy have focused on the subpoena process used to obtain identities, rather than on the copyright lawsuits themselves.
The DMCA factor
Since the beginning of last year, the RIAA has cited provisions in the Digital Millennium Copyright Act as the legal basis of its subpoena strategy. The subpoenas were used to get ISPs to reveal the identities of anonymous subscribers who, the RIAA alleged, were infringing copyrights by swapping files over peer-to-peer networks.
Unlike traditional subpoenas issued by law-enforcement organisations, these were requested by a private group and were not attached to an ongoing lawsuit -- factors that immediately drew criticism from civil rights groups.
Verizon, the first ISP to receive several such subpoenas, challenged them immediately, saying they were unconstitutional. A lower court ruled in favour of the RIAA earlier this year, setting the stage for the hundreds of lawsuits it subsequently filed. SBC Communications, Charter Communications and the American Civil Liberties Union have also filed their own, separate challenges to the procedure.
Verizon welcomed Friday's court decision, saying it would help protect the privacy of people on the Internet.
"Today's ruling is an important victory for Internet users and all consumers," Sarah Deutsch, a Verizon associate general counsel, said in a statement. "The court has knocked down a dangerous procedure that threatens Americans' traditional legal guarantees and violates their constitutional rights."
The appeals court did not talk about constitutionality or privacy in its decision Friday, but said only that Congress had not drafted the DMCA to apply to peer-to-peer networks.
The 1998 law came out of a bitter Congressional battle between copyright holders and telecommunications companies over liability for online infringement. The conflict ended in a compromise, which said that ISPs would not be held liable for communications that simply passed through their infrastructure, as opposed to stored on their servers or networks.
Using similar reasoning, the court said the law's subpoena provisions did not apply to peer-to-peer networks, since the copyrighted material was never stored on an ISP's network, but was transferred directly between users' computers.
"This certainly underscores what ISPs have said from the beginning," said Fred von Lohmann, an attorney for the Electronic Frontier Foundation, a civil liberties group that has been critical of the RIAA's strategy. "This was not the deal that was struck in the DMCA. Peer-to-peer (networks) did not exist when the DMCA was being drafted, and Congress did not have this kind of subpoena factory in mind."
The decision is likely to spark a new round of political skirmishing over copyright policy, although the RIAA did not say whether it would lobby Congress for a change in the law. Indeed, in its decision Friday, the court said Congress may want to revisit the issue with the new technology in mind.
"The stakes are large for the music, motion picture, and software industries and their role in fostering technological innovation and our popular culture" the court wrote. "It is not surprising, therefore, that even as this case was being argued, committees of the Congress were considering how best to deal with the threat to copyrights posed by P2P file-sharing schemes."
