A few years ago, RapidShare and Megaupload were often mentioned in the same breath as the two "evils" of the internet, according to the MPAA. However, a few interesting things happened. First, Rapidshare won a series of lawsuits both in Europe and the US, that found its service to be legit. The company also went on something of a big time charm offensive, hiring a DC lobbyist to improve its image with politicians, as well as being much more proactive with the press. Finally, in the last few months, it's made even more efforts to stop its service from being used for infringing purposes.

The latest thing, though, seems particularly silly. At a conference, the company's Chief Legal Officer, Daniel Raimer, appears to be throwing links sites under the bus by claiming that they're the real problem, and storage sites shouldn't be lumped in with linking sites.

The thing is, both kinds of sites have both legal and illegal purposes, and it's silly and counterproductive for one kind to blame the other kind. Storage sites have perfectly reasonable uses, and RapidShare has been bending over backwards to be a good player in that space. But a user-generated site that includes links to content also can have perfectly legitimate and legal uses, and it seems particularly silly to assume otherwise. From a legal standpoint, both kinds of sites should have reasonable protections against infringement (though that doesn't always appear to be true once things get to court). But, even then, storage sites probably even have less of a reasonable claim under copyright law, because actual copies (reproduction rights) and distribution could potentially be attributed to them (though, clearly, they have reasonable claims of safe harbors). With links sites, they neither store nor transmit the content, and it's difficult to see how they infringe on any of the key rights associated with copyright, even outside of the basic safe harbors.

A few years back, Megapuload and Rapidshare were often discussed in the same breath as the "big" cyberlockers for sharing content. However, over the last couple years or so, Rapidshare has made a concerted effort to make it clear that its service is not designed for sharing infringing works, and to make it more and more like a Dropbox-type offering. If you look at the cyberlockers that the MPAA complains about these days, Rapidshare is no longer on the list and is rarely discussed. The company has bent over backwards to show that it's a "good guy" in the space, and shouldn't be accused of being a "rogue site." Of course, that hasn't stopped some of the lawsuits. Following a confusing, mixed ruling in one, there's now been another confusing and mixed ruling at the federal Supreme Court in Germany.

The ruling basically found that RapidShare is not liable for uploads directly, but if it's told of an infringing file, it should have a system in place to prevent that file from being uploaded back into the service. It sounds like the courts are magically deciding that if you host any kind of user-generated content, you have to have a filter in place that consistently blocks content once it's been indicated as infringing. That seems problematic for a few reasons. First, the context of a file being uploaded matters a great deal. As we've seen with Viacom, one person's infringing upload may be the same company's attempt at viral marketing. Doing a full-on block may block legitimate content. Furthermore, the context of the usage seems to matter quite a bit. A short clip with commentary could be fair use, but also could be blocked under such a system. Requiring a filter could also be quite expensive.

On top of that, Rapidshare is focusing more on personal backup, and there are lots of cases where a personal backup isn't infringing, but the system the court is requiring could block such uses. While the judge apparently dismissed this concern because of Rapidshare's name ("The service is called RapidShare and not RapidStore... and that says it all.") that's really troubling. Just because the company is called "RapidShare" it does not mean that's all the company can do. Lots of companies change over time, and it's a little crazy for a judge to hold them to exactly what their original name says.

Either way, the court has sent the case back down to the lower court to determine if Rapidshare had successfully blocked repeat infringement, so this case is far from over...

We noted right after the US government shut down Megaupload, that it was creating massive chilling effects on all sorts of online cloud businesses -- leading some to already turn off useful services that consumers and businesses relied on.

It appears that process is continuing. Last week, Paramount's VP of "Content Protection," Alfred Perry, made a ridiculous and childish presentation in which he effectively put criminal targets on the backs of five companies, and suggested that they were all no different than Megaupload, and that the government was coming for them next: I find it amusing, by the way, that they've dropped RapidShare from the list. The company, which does offer the same basic services and gets a ton of traffic, has actually been one of the only cyberlockers who has hit back against Hollywood where it counts: with Washington DC lobbyists. RapidShare, of course, has also been found legal by multiple courts, because it follows the basic precepts of the DMCA and takes down infringing content when it discovers it. But the thing is, many (if not most) of the other sites on this list do the same thing.

The end result, however, is that the five sites on the list have been forced to go on the defensive hoping to avoid criminal prosecution with the federal government twisting everything they do to present it in the worst possible light.

MediaFire fired back at Perry, pointing out that the company is a large legitimate company run by reputable entrepreneurs, and one that has always worked with the MPAA and RIAA to stop the spread of infringing content. Similarly, PutLocker has fired back, telling TorrentFreak that Perry's comments were defamatory:

In any other industry, a person making this type of statement could be sued for libel. Funny how that works,” PutLocker Operations Officer Adrian Petroff told TorrentFreak.

“PutLocker takes a strong stand against copyright infringement and in the past year and a half we have taken down hundreds of thousands of infringing files and blocked the accounts of hundreds of repeat offenders,” adds Petroff. “PutLocker always cooperates with copyright holders and law enforcement agencies at home and abroad to uphold the rights of content producers and distributors alike.”

But the chilling effects here are very, very real. Two of the other five sites on the target list have now effectively made themselves useless for sharing legitimate files worldwide -- one of the key use cases for cyberlockers. FileServe and Wupload have turned themselves into pure backup services, rather than file sharing services, to avoid the risk of criminal prosecution.
Now, critics of these sites will rejoice in these two sites shutting down a useful feature. They'll insist that this proves either that they're "winning" the battle, or that these sites are somehow admitting that they were facilitating infringement. But that's a dangerous misreading of the situation. Were these sites used to infringe? Absolutely. But so was the VCR. So was radio. So were photocopying machines. So were DVRs. So were computers. The fact is that innovation leads to breaking down the old rules by enabling something new and useful.

And that's the real key here. Perry and the rest of the Hollywood legacy "content protection" crew freak out about 41 billion page views. What they ignore is that the reason there were 41 billion page views was because these sites were offering something useful that people wanted. But Perry isn't in the business of recognizing what the market wants. His very job title makes it clear that his job is holding back the tide. It's about "content protection" in a world where content can't be protected. If Paramount were run by execs who actually had vision and understood innovation, they'd see 41 billion pageviews and their eyes would light up at the massive opportunity. Just imagine what you could do with 41 billion pageviews? And, if you were a company like Paramount and could offer your content up legally, you'd have a huge head start over the cyberlockers. If anything is criminal here, it's the incredible shortsightedness of Paramount's execs, to spit in the face of consumers and a massive business opportunity for themselves.

Even worse, they're doing so by simply declaring innovative websites guilty of criminal charges, despite no actual charges being filed, no trial, no evidence and no chance for these companies to make their case. From a legal standpoint, this is despicable. It's standard operating procedures for a flailing, out of touch, anti-visionary company, however. It's just too bad that the world is letting a company like Paramount (and its parent company, Viacom) get away with such practices.

A few weeks back, there were reports floating around claiming that a high regional court in Germany had ruled against Rapidshare, which some thought went against earlier rulings that had found the company's model legal in both Europe and the US. Considering that Rapidshare is quite frequently compared to Megaupload (despite some significant differences), these cases are pretty important. When I saw that announcement a couple weeks ago, I also heard from some people in Germany who said to wait until the full ruling was out before assuming that the news making the rounds -- which was being pushed by the entertainment industry -- was accurate. Indeed, now that the details have come out, the ruling is much more mixed, and is mostly a victory for Rapidshare. It effectively says that Rapidshare's business is legal -- and this comes from a German court that has a history of suggesting that service providers need to be copyright cops.

In this case, that is the one questionable part of the ruling. While the court does not say that Rapidshare needs to police uploads, it does say that the company needs to police external links to the site and then disable the files if they are obviously infringing. This doesn't make much sense if you think about it. It seems odd that Rapidshare should be forced to monitor what third party users on fourth party sites are doing, and then take action based on that. But, it appears the company may appeal that part. And, for the time being, a ruling that acting as a hosting provider/cyberlocker is legal is an important and useful ruling, in a court not known for handling copyright cases very well.

The company Perfect 10 has a long history of filing ridiculous copyright infringement lawsuits, and losing nearly every single time. For a rather detailed look at Perfect 10's standard operating procedure, you really owe it to yourself to read the countersuit filed by Rapidshare last summer, which detailed all sorts of claims against the company -- including that its entire reason for being is to find companies to sue for copyright infringement, and that it even hopes to spread its copyright images as widely as possible, in order to have more targets to sue. The company is also famous for not actually using official takedown procedures, and filing obviously faulty takedown notices. And the thing is, Perfect 10 seems to lose in court pretty consistently. In almost every case that we're aware of, the judge ends up smacking down Perfect 10 in the end. Apparently, the company just can't get enough legal losses, as it's now suing cyberlocker site MegaUpload, and making all the usual claims. Given that the court has (so far) been siding with similar cyberlocker Rapidshare over Perfect 10, you have to wonder if this will just be yet another legal loss.

Of course, Perfect 10 has been useful in some ways. The various rulings against it in lawsuits have set useful precedents (mainly in the 9th Circuit) concerning how thumbnails and embedded files are not directly infringing. The lawsuits have also helped show that search engines shouldn't be liable for what they find. In other words, Perfect 10's lawsuits tend to be so ridiculous that they help demonstrate the ridiculous logical conclusions of arguments regularly used in other copyright infringement lawsuits. Thankfully, however, Perfect 10 has been so aggressive with its lawsuits that it has helped provide strong precedents and defenses for those sued in other cases, under circumstances that might not be quite as extreme. So while we roll our eyes at each new Perfect 10 lawsuit, it should be recognized that these lawsuits have created a decent framework for recognizing that secondary and contributory liability for copyright infringement has limits.

While the entertainment industry has declared RapidShare to be one of the worst of the worst websites when it comes to copyright infringement, it's notable that the site continues to rack up legal victories. We've covered how it's been vindicated in lawsuits in the US and in Europe, where it's been noted that the site takes down infringing content when made aware of it, and has plenty of non-infringing uses (and users).

Now there's yet another ruling in favor of RapidShare, this time in Germany, where the Higher Regional Court of Dusseldorf ruled (again) that RapidShare takes "sufficient measures" to stop copyright infringement, in a case brought by Atari. Similar to Viacom in its lawsuit against YouTube, Atari suggested that RapidShare should be required to install a proactive filter, but the court said such a requirement would be unreasonable, since it might also block legitimate works.

Of course, with the US pushing for laws like COICA and standing behind questionable domain name seizures based on faulty evidence, it seems like this, once again, shows how unreasonable it is to simply listen to the RIAA or MPAA and accept their word as clear proof of infringement. As the courts are showing here, just because some industry rep claims a site is the "worst of the worst," it doesn't mean it's actually violating the law.

Europe-based RapidShare has been taking a lot of heat lately from the entertainment industry, which has tried hard to prove that the company is one of the "worst" operators out there when it comes to file sharing. Earlier this year, RapidShare was listed as one of the five sites that the Congressional "anti-piracy caucus" considered to be the worst offenders of copyright infringement, based almost entirely on complaints by the RIAA and MPAA. Of course, Rapidshare serves plenty of legitimate purposes as well -- and the company has been known to fight back against charges of copyright infringement and win, both in the US and in Europe, where courts have noted that simply acting as a hosting provider, which responds to takedown requests, takes away the liability.

The company also has been known to hit back at those who accuse of it of being complicit with copyright infringement, and its latest move is to try to counter all that lobbying by the RIAA and the MPAA by hiring the giant DC-based lobbying firm Dutko (which, admittedly, has been having its own problems lately.

Of course, just hiring a lobbying firm isn't likely to change things by itself. You can bet that the RIAA and MPAA are spending a hell of a lot more on lobbying against RapidShare. But it really is a sign of the times that a European company feels the need to hire lobbyists just to explain to US politicians that setting up web servers that host content is not automatically about copyright infringement.

Over the last few months, we've watched as the entertainment industry has started to turn its legal guns on digital locker sites, like Rapidshare, as being "the new front" for unauthorized distribution of works. They've even been able to get US politicians to condemn Rapidshare as being one of the "most notorious" sites out there. There's just one eensy weensy problem: courts around the globe keep finding what Rapidshare does to be perfectly legal. RapidShare is just a digital locker, has no index or search engine, and is pretty active in trying to stop infringement on its site. In May, a US court rejected a request for an injunction against Rapidshare, which followed a German appeals court basically saying the same thing. Now there's been another ruling in Germany that, once again, says that Rapidshare is legal, and notes that it "takes all reasonable measures to prevent movies from being distributed."

To some extent, I find this amusing. The entertainment industry has kept suing anyone doing anything they don't like, rather than spending any real effort adapting. So each new generation of tools used for file sharing responds to the legal rulings, trying to make sure they don't run afoul of what got the previous generation. Sooner or later, that meant that these sites would pass all the legal checkboxes -- even if they can still be used for unauthorized infringement. So where does that leave the entertainment industry? They could have spent all this time perfecting new business models and adapting -- and done so in a way that embraced what people were doing. Instead, they've bullied their way around, pissed off tons of people, and helped define exactly how one can build a system that isn't guilty of contributory infringement, that will still be used for unauthorized file sharing.

Over the years, we've covered Perfect 10's various lawsuits against all sorts of companies it accuses of copyright infringement for having some connection to images from old Perfect 10 magazines. For example, it's sued pretty much every search engine for hosting thumbnails of images that others scanned. It's also sued payment processors of paywall sites. To date, Perfect 10 has lost nearly all of these lawsuits. Its latest loss was against Rapidshare, where it failed to get an injunction against the site, after the court pointed out that Rapidshare is just a locker and doesn't even provide a search engine for people to find stuff. Also, quite damaging to Perfect 10's case was its failure to actually inform Rapidshare where the infringing content existed, or use the established process for asking content to be taken down.

Now it looks like Rapidshare has struck back. Eric Goldman points out that Rapidshare has countersued Perfect 10, directly claiming that the company is a "copyright troll." They don't mince words:

Perfect 10 Is A Copyright Troll that Does Not Operate A Real Business

Perfect 10 is a copyright troll that does not operate a real business and instead seeks to foster the spread of infringing copies of works that it owns over the Internet in order to entrap and shakedown websites and services where copies of its images may randomly end up.

Perfect 10 does not have the employees or attributes of a legitimate business. Today, Perfect 10 is essentially a paralegal service masquerading as a porn company. It is run by its founder, Norm Zada, out of his Beverly Hills home with the help of full and part time employees who are paid primarily to troll the Internet looking for (but not removing) allegedly infringing copies of Perfect 10 images for use in existing or potential future litigation and to draft declarations and other papers.

Perfect 10 is so litigious that Judge Matz of the Central District of California, before whom a number of Perfect 10 cases had been consolidated, has made it clear to Perfect 10 that it should not file any more lawsuits, which is why it filed this suit in the Southern District of California even though this district has no connection to the parties or the underlying claims.

From there, the filing goes on to make fun of Zada and his plans for Perfect 10 and his inability to copy Hugh Hefner's path to success in the porn publishing world -- suggesting that Perfect 10's problems in business had a lot more to do with the way the company was set up and run, rather than any online infringement:

From the start, Perfect 10's business model did not make business sense. Its Perfect 10 magazine (now defunct) was never competitively priced and therefore never garnered a large circulation. It featured less content at higher prices than competitive magazines. Similarly, Perfect 10 had little or no display advertising, which is a major source of revenue for magazines. Ultimately, perfect 10 could not compete with better run, better known publications that had ample advertisements.

The filing then goes on to suggest that Zada jumped on copyright infringement lawsuits as a business model, rather than as a method for protecting content:

Zada came to see litigation as a profit center, where the more Perfect 10 images were infringed online, the more money he and Perfect 10 could earn in settlements extracted through litigation or merely the threat of litigation. Accordingly, Perfect 10 does little or nothing to deter infringement, including exercising self-help or implementing other measure that legitimate copyright owners use to minimize online infringement, preferring instead to tacitly encourage the spread of its images as widely as possible over the internet.

There's a lot more along those lines, as the filing details how Perfect 10 seemed to go out of its way to make it more difficult for Rapidshare (and others) to remove the content it claimed was infringing -- points made by the judge in the original ruling rejecting the injunction request.

All of this is somewhat entertaining, but what is the actual legal claim? Rapidshare claims that these activities have caused harm to Rapidshare by forcing it into expensive litigation while also harming its reputation. So it's accusing the company of violating a California "unfair business practices" law -- which seems worryingly vague. Then there's a common law "unfair competition" claim, which also seems a bit vague. Unfortunately, as ridiculous as Perfect 10's lawsuits have been, I'm not convinced Rapidshare really has a legal leg to stand on in the countersuit. Either way, you can see the full filing below:

Earlier, we wrote about the ruling against Perfect 10 in its attempt to get a temporary restraining order on Rapidshare. As we mentioned at the time, the only details we had were based on Rapidshare's press release, that obviously presented it in the best possible light to Rapidshare. Thankfully, Christopher Harbin alerted us in the comments that he's posted a copy of the ruling and written up his own analysis. First, here's the ruling: From the initial statements about the ruling from Rapidshare, saying that it could not be infringing since it was just the host, I had naturally assumed that the court found that Rapidshare was protected by the DMCA's safe harbors. But that is not the case. In fact, the court basically tosses out Rapidshare's safe harbor claim, because Rapidshare (bizarrely) has never set up an official DMCA agent -- which is necessary to qualify for the safe harbors. I would guess that Rapidshare's excuse for not doing so is that it's not based in the US, but if it's going to deal with lawsuits in the US, it's crazy not to have set up a DMCA agent (a very simple process).

That said, there are some interesting things (not all good) in the ruling. There were a few things that helped Rapidshare here. First, is that it does do things to takedown content it believes to be infringing. Second (and perhaps most interesting) is the fact that it does not index or promote the content stored on its service by itself. Since most file sharing services include a search engine aspect, the court concludes that this is a key element of suggesting that Rapidshare is not liable for direct infringement. That's an interesting ruling that could answer the question I've asked before about whether or not it actually is possible to create a site that allows for sharing of files that does not run afoul of the Grokster inducement rules.

The other thing that helps Rapidshare is that, despite being involved in a whole bunch of copyright cases, it still appears that Perfect 10 is somewhat incompetent in understanding copyright law and availing itself of tools to deal with infringement. In this case, Perfect 10 didn't send Rapidshare the specific links where infringing content existed. It just sent the company a bunch of files, but Rapidshare had no way to match those files to ones hosted in users' lockers. Even then Rapidshare still did try to find as many of the images as possible, even going so far as to do Google searches, and delete them. On top of that, Rapidshare has a tool that lets content owners indicate if certain files are infringing. Perfect 10 chose not to use that.

The one part of the ruling that I found troubling, however, is that the court did say that, even without being alerted to what's infringing, Rapidshare did have "specific knowledge" of infringing works on the site. This is a key point of dispute in the Viacom/YouTube case, where Google makes the argument that there's no way for it to know which works are really infringing and which are there on purpose. Yet, in this case, the court says that the service provider does have specific knowledge:

Thus, it appears that specific knowledge of direct infringement may exist even where an operator does not have information that would allow it to search its contents and distinguish infringing from non-infringing materials. Here, RapidShare received notice of hundreds of copyrighted Perfect 10 images that were found on its servers. The Court therefore concludes that RapidShare had actual, specific knowledge of direct infringement.

Basically, it says that because Perfect 10 alerted Rapidshare to infringing content, then Rapidshare has "specific knowledge." That wasn't enough to meet the full inducement standard, so isn't a huge issue here, but that logic seems wrong to me. If that's all it takes to create "specific knowledge," then lots of user-generated content sites could be in trouble. So, if you want to cause trouble for any UGC site, you just upload content, and then alert the site that there is infringing content on the site, but don't tell them where it is or how to find it. I don't see how that's "specific knowledge" at all, but the court felt otherwise.

Finally, while I appreciate Christopher's analysis of the ruling, I have to disagree with his first two points. He doesn't understand why not having a search engine matters:

Although Rapidshare does not index its files, it basically punts indexing to third-party websites. It’s trivial to find infringing material hosted on Rapidshare and other file-hosting sites and I’m not sure why dicing up storage and indexing into separate entities which obviously have a symbiotic relationship should be able to avoid liability.

I think that's a slight misread of the ruling. It's not saying that Rapidshare gets to avoid all liability. It's just that it takes away Rapidshare's direct infringement liability, because it is not, in fact, setup to make it easy for people to find that content. The fact that others have made it easier to find that content should not be blamed on Rapidshare.

Second, Christopher notes:

I'm not at all convinced that in all cases plaintiffs should be forced to ferret out all infringement on a defendant's website. As the law stands right now, copyright holders have to employ an army of people to constantly monitor defendant's site for infringement.

To which the obvious response is, why should that burden fall on the defendants? If it takes plaintiffs "an army of people," it would actually take the defendants significantly more than that, complicated by the fact that the defendant has no way of knowing if the content has been uploaded legitimately or is an infringing copy.