Los Angeles Daily Journal Serving the Los Angeles Legal Community Since 1888 Wednesday, December 13, 1995 Page 1 (continued on Page 5) - "Netcom Ruling Now Viewed as Defense Victory" ---------------- Infringement Issues By James Evans, Daily Journal Staff Writer SAN FRANCISCO -- It's called the Netcom decision, and it horrified Internet users and providers when issued Nov.21 by Judge Ronald M. Whyte from the U.S. District Court for the Northern District of California in San Jose. In the ruling, Religious Technology Center v. Netcom On-Line Communications Services, Inc., 95-20091, Whyte denied a summary judgment motion by Netcom to be dismissed from the copyright infringement suit filed against it and two other defendants by the Church of Scientology. While some lawyers initially expressed fear the ruling could disastrously increase the liability of Internet access providers, many now say they see the decision largely a victory for the defense, and a setback for the Church of Scientology. Named in Suit San Jose-based Netcom, the nation's largest Internet provider, was named a defendant in the suit with Dennis Erlich, a former Scientology minister and active critic of the church, and Tom Klemesrud, operator of Clearwood Data Services, an electronic bulletin board (BBS). Erlich was a subscriber to Klemesrud's BBS, which in turn subscribed to Netcom for access to the Internet. Erlich posted on the bulletin board internal church documents that the church claims are copy- righted and are trade secrets. Whyte, while excusing the defendants from direct copyright infringement and vicarious liability, ruled that allegations of contributory infringement were triable because both Netcom and Klemesrud had been notified by the church that infringement was occurring. The church quickly issued a press release labeling the opinion "a precedent-setting ruling certain to increase access providers' responsibility for what their subscribers place on the Internet . . ." The release quoted Los Angeles sole practitioner Helena Kobrin, who represents the church, as very happy because Whyte had strengthened intellectual property protection in the digital era. 'Cyber Terrorism' "This decision has shown that the courts will not tolerate cyter terrorism and sends a clear message to BBS operators that when notified of illegal copyright infringement, they have a responsibility to act or be found as a contributor to the infringement," she continued. The media tended to embrace that perspective, partly because Netcom, for various reasons, did not respond immediately to requests for comment. But intellectual property lawyers, who view the case as important in the evolution of a legal issue about which little case law exists, say Whyte has so narrowed the liability question that the defendants have an excellent chance of proving they did not have sufficient knowledge to prevent the postings of the material. "Judge Whyte correctly concluded that Internet service providers and BBS providers can't be directly liable where there is no volitional act," said Carla Oakley, a partner at San Francisco's Morrison and Foerster who represents Dennis Erlich. "It's a very important and key decision." Daniel A. Leipold, a partner at the Orange office of Glendale's Hagen- baugh & Murphy and counsel to Klemesrud, also sees Whyte's opinion as favorable. "A finding of direct infringement would have been devastating to access providers," he said. "It would have been nice for the [Internet] industry to get 100 percent of everything it wanted, and instead it got 95 percent. It didn't get anything shut off, and it got the case significantly narrowed." Leipold added that Whyte also denied the church's request for an injunction against Netcom and Klemesrud because the church failed to prove any infringement, which weakens the plaintiff's case. "This is not gloom and doom for Internet providers," he said. "The ideal scenario would have been for the court to find that the Internet is a gigantic newspaper with no editor and every user is a contributor. "But the court didn't find that, so providers got less than ideal. But there are measures being debated in Congress that are more restrictive than this decision [a House-Senate committee on Wednesday agreed on a ban on "indecent" material on the Internet]. "The court said if you know something infringes and you had notice of it, then you can be held liable," said Leipold. "That seems reasonable, but that's not strict liability or direct infringement." He said Whyte also appeared to create a more expansive fair use defense for providers than that afforded Erlich. "One of the important elements in the fair use defense is what portion of the work was copied. "Whyte offered an extremely broad analysis of the fair use defense, and he will apply that interpretation to the providers' defense," Leipold said. Mark Radcliffe, a partner at Palo Alto's Gray Cary Ware & Freidenrich and the co-author of a book on multimedia copyright lay, said Whyte's elimination of direct infringement was important, and seemed to deviate from a traditional application of copyright law. "I like the result," he said. "I like that [Whyte] introduced intention into direct infringement. "That analysis is attractive from a policy point of view, but it's not really the way direct infringement has been interpreted in the past. The position of most case law is that infringement is absolute." Radcliffe said the case will be watched closely by the on-line industry because third-party responsibility strikes at the core of the Internet. The outcome, if it favors the church, could be an enormous blow to interaction among Internet users and specifically on the rapidly growing World Wide Web. "The interactivity of the Web opens a Pandora's Box for Web site owners," Radcliffe said. "[Copyright infringement] is a very difficult issue because what you want to do commercially could have huge legal risks." Copyright infringement suits could boil down to a definition of knowledge, he said. "What is knowledge, when do you have knowledge and what do you do when you have knowledge?" he said. Martin Perlberger, a Los Angeles entertainment lawyer, said the significance of Whyte's ruling is more psychological than legal at the moment because of the attention it will draw to the liability boundaries of Internet "common carriers," like Netcom. "Obviously, one should not be able to stifle an adversary on the Internet by falsely claiming there is copyright infringement, while, on the other hand, one should not be left without recourse for contributory copyright infringement by virtue of the bookstore analogy, when the analogy to a publisher would be more appropriate in the circumstances," he said. Netcom also finally weighed in with a raction, saying the decision was a "major victory," and that the company's position will be upheld at trial. Leipold agreed. "I'm optimistic, but it may be a tough and bitter fight," he said. "Scientology is the T-Rex of litigation, so it will be vicious, mean and nasty. But I don't see the facts lining up on their side."