Table of Contents

I. Introduction

Anyone exposed to television or print media is familiar with the enormous benefits the Internet is supposed to bring to the public. Recent advances in the area of content delivery promise the public access to creative and factual works unimaginable in the past. There are "bumps" on the Information Superhighway however as the same technology that holds out such promise to the public also threatens copyright owners with the specter of low cost, user friendly copying and distribution capabilities. Copyright owners are seeking strict measures to counter potential copyright infringements in cyberspace, potentially strangling the new medium in the cradle.

Strict adherence to the letter of copyright law can have the perverse effect of prohibiting the public's access to new media technology apart from the intended restrictions on unlicensed copying. As technological innovation creates new opportunities for the distribution of copyrighted works, copyright litigation can have the effect of shutting down these channels, thwarting the very goals copyright is meant to further. In the past, the Copyright Act has been interpreted in such a manner as to allow new mediums to develop despite copyright litigation. Although the Copyright Act was not written with photocopiers, cable television, videotape recorders or computers in mind, it has somehow adapted to these new technologies and preserved a workable balance between the competing interests.

An example to illustrate this premise comes from the struggle over the VCR. Although videocassette manufacturers did not themselves engage in unlawful copying of copyrighted material, as intermediaries with deep pockets they were the subjects of copyright litigation when Hollywood came to enforce their intellectual property rights. This litigation was external to the relationship between the movie moguls in Hollywood who owned copyrights in movies and television shows, and the videocassette tapers in their homes. Hollywood, in choosing to go after the channels of distribution, might have closed off a whole technology to the public, notwithstanding the fact that many people were not engaged in the unlawful taping of copyrighted material. In this case, a closely divided Supreme Court decided that home taping was "fair use" and did not prohibit the manufacture of videocassette recorders.

Copyright law is based on the premise that to encourage the production of artistic works, property rights must be given to the creators of those works. Copyright law is therefore a balance of interests between the public for whom the law is meant to benefit, and the artists who, in the view of the framers of the United States Constitution and the Congress, should be given an adequate incentive to produce new work. The effects of copyright law therefore, must always be judged according to the ultimate goal of the Copyright Act: to encourage the creation of new works and to disseminate those works to the public. With these premises in mind, it seems important to examine the instances where strict enforcement of the Copyright Act works against the policy goals the Act is meant to further. Understanding how the judiciary, legislature and even the private sector can mitigate these problems will insure that new mediums are allowed to develop notwithstanding copyright litigation.

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II. Internet Service Providers and Copyright Externalities

Third parties distributing a copyright owner's material on the Internet are often either judgment proof or impossible to locate due to the distributed nature of Internet publishing. In traditional media infringement situations, copyright owners have avoided pursuing end users because the real threat to a copyright's value and the potential sources of big infringement judgments have come from the intermediaries between content creators and end users. Examples of typical litigation targets include publishers, motion picture producers and record producers. This practice of pursuing intermediaries can be expected to continue in the Internet environment as a third party copier will often be difficult to locate, lacking in funds and ineffective in terms of halting an unwanted distribution of information once it is uploaded to an ISP.

The Copyright Act can be construed to require a strict liability standard when copies are automatically made on a network, holding an ISP directly liable for its customers¹ infringing activities. Strict liability is a legal term meaning that someone does not have to be at fault in order to be liable for the particular violation of the law. According to the copyright lobbyists' reading of the Copyright Act, an Internet Service Provider (ISP) may be directly liable for the copyright infringements of its subscribers when its servers make automatic copies to fulfill common network practices. Liability would attach regardless of whether the ISP was aware that its subscribers were committing copyright infringement.

The copyright externalities associated with holding an ISP responsible for its subscribers infringing activity would be disastrous. Essentially, an ISP would have to detect infringing copyrighted works on its network and delete them before its subscribers could use its system to copy and distribute them. This is of course an impossible task as digital information is expressed as ones and zeroes which bear no relation to whether a work is copyrighted or not. Furthermore, an ISP has no way of determining in advance whether a transmission of a particular work is fair use, authorized or is in fact copyright infringement.

It does not take a very fertile imagination to envision the consequences of such a state of affairs. The sheer cost (if possible) of monitoring every transmission on an ISPs server would be prohibitively expensive. Furthermore, an ISP would have to hire a team of intellectual property attorneys to determine whether a particular transmission is fair use under the Copyright Act (even more expensive). This is not to mention the privacy implications of turning ISPs into "copyright police", examining every piece of e-mail or web page for potential infringing material. If these external consequences of enforcing the Copyright Act did not force ISPs out of business, it would at least raise the price of Internet access well beyond the prices we currently enjoy today, limited the mediums efficacy as an educational tool. At this point, the reader should pause and recall the reason why the Copyright Act was drafted in the first place: to encourage the creation of creative works and to disseminate those works to the public. Will forcing ISPs to shut down their operations encourage the development of the Internet?

In order to understand the theory under which an ISP may be held responsible for its users activities, it is necessary to examine the procedure of "caching" as utilized by Internet Service Providers. Caching is a vital part of an ISP's operation because it addresses the "bandwidth" problem currently constraining the World Wide Web. In order to meet the increasing demands placed on the limited infrastructure which comprises the Internet, ISPs cache. In the Internet context, caching means "the copying of a web page, made incidental to the first access to the page, and storage of that copy for the purpose of speeding subsequent access." Caching reduces the bandwidth load on the Internet backbone, fiber optic trunk lines, and the ordinary telephone system delivering information to the home user. Caching also reduces the computational load on file servers which hold the content available on the Internet. Without caching, the Internet would grind to a halt as computers and the networks linking them together attempted to fulfill the redundant functions that caching eliminates.

The strict liability component of the Copyright Act comprises the real issue in analyzing the consequences copyright litigation may have on the development of the Internet. At first glance, an ISP's caching of protectable expression seems to constitute a "textbook" example of copyright infringement. In fact, the first cases to examine these issues did in fact hold Bulletin Board Systems (BBS) liable for copyright infringement, making the "parade of horribles" outlined above a distinct reality.

Playboy Enterprises, Inc. v. Frena 839 F. Supp. 1552 (M.D. Fla. 1993) involved a BBS operator whose system allowed users to upload and download Playboy's copyrighted photos. Clients of the BBS were initiating the procedure which resulted in the infringing copies. The court found the BBS operator liable for direct infringement notwithstanding the fact that it may have been unaware of the copyright infringement. "Intent or knowledge is not an element of infringement, and thus even an innocent infringer is liable for infringement". The Playboy court's reading of the Copyright Act's strict liability component is certainly a defensible one in terms of a strict reading of the Copyright Act, however, the external effects of such a holding on the Internet militate towards a different standard for ISPs.

III. Judicial Responses to Copyright Externalities

In Religious Technology Center v. Netcom On-Line Communications Services, Inc. 907 F. Supp. 1361 (N.D. Cal. 1995), an ISP was not liable for direct infringement where its Usenet server made copies incidental to its role in disseminating information on the Internet. The 9th Circuit directly opposed the Playboy court's strict reading of the Copyright Act by creating a new "doctrine" which would release ISPs from liability for the copying done on their systems. The Netcom case is an example of the judiciary looking beyond "textbook" application of the Copyright Act and examining the underlying policy goals. The court noted that Netcom did not initiate any copying, it merely provided a system which automatically created copies to facilitate the operation of its network. The Netcom court made the observation that to hold Netcom liable for copyright infringement would result in the liability of every Usenet server in operation. While the court recognized that copyright is a strict liability statute, "there should still be some element of volition or causation which is lacking where a defendant's system is merely used to create a copy by a third party."

The Netcom court criticized Playboy's holding that a BBS can be held directly liable for public distribution of the plaintiff's works. The lack of causation on the part of the BBS was cited for the proposition that no direct liability should result for intermediaries, "[o]nly the subscriber should be liable for causing the distribution of plaintiff's work, as the contributing actions of the BBS provider are automatic and indiscriminate." Netcom essentially involved the same network functions as Playboy; the Netcom court simply looked beyond the simple application of the law and took the development of the new medium into account. The Netcom explicitly stated that Playboy does not stand for the proposition that an ISP can be held directly liable for a clients uploading and downloading of infringing material where infringing copies are incidentally made on the ISP's servers.

The Netcom court was in effect taking into consideration the copyright externalities that would result from a finding of infringement for ISPs. Considerations such as the possibility of shutting down ISPs due to copyright liability seems to have given the Netcom court incentive to "work around" the strict liability component of the Copyright Act and find a causation component where none seemed to exist prior to that decision. The Netcom decision reflects a judicial trend that may prove deferential to the Internet as a medium worth preserving. The following quotation from Reno v. ACLU (the case that struck down the Communications Decency Act as unconstitutionally vague) reflects the importance of the new medium and the fact that the judiciary may take account of this perceived importance in their decisions regarding the Internet: "This domestic caching server, rather than the original foreign server, will send the material from the cache to the subsequent receivers, without placing a demand on the trans-oceanic cables. This shortcut effectively eliminates most of the distance for both the request and the information and, hence, most of the delay. The caching server discards the stored information according to its configuration (e.g. after a certain time or as the demand for the information diminishes). Caching therefore advances core Internet values: the cheap and speedy retrieval of information.

The Netcom Court's decisions continue to hold ISPs liable under contributory and vicarious liability theories. Liability under these theories might dovetail nicely with a legislative response clarifying when an ISP must remove allegedly infringing content before facing liability. Academics have argued that contributory and vicarious liability correspond more closely to the ISPs role in the dissemination of information on the Internet as they require knowledge of the infringing activity before an ISP can be held responsible. This approach eliminates the necessity for ISPs to act as "copyright police." A legislative solution to the problem of ISP liability would be similar to the cable industry's experience with copyright litigation. First the judiciary refuses to strictly enforce intellectual property law in the face of a developing medium, followed by the legislature implementing rules to insure the survival of the medium. Legislative acquiescence to this point of view may be the result of increased lobbying dollars available to an industry allowed to mature by the judiciary, or it may reflect legislative agreement with the judiciary regarding the importance of the new media.

IV. The Fledgling Cable Industry

The Netcom court's policy oriented view that an ISP should not be held directly liable for copyright infringement suggests a comparison between the copyright problems inherent in the developing cable industry in 1968 and the business of being an Internet Service Provider in 1997. The Netcom court's holding that Netcom did not present the necessary causation for a finding of infringement of the reproduction right seems analogous to the Teleprompter and Fortnightly courts' finding that cable television systems did not fulfill the same "performance" and "display" functions of broadcast systems. In both instances the courts were reluctant to enforce a strict reading of the Copyright Act which would effectively eliminate the new delivery mechanisms in the absence of an effective licensing system. A brief history of the emergence of cable and the resulting copyright battle illustrate the similarities between the judicial response to cable and the Internet.

Cable arose in the 1950's in response to broadcast television's limitations in reaching remote or hilly locations. Throughout the 1950's and early 1960's, the copyright consequences of cable television did not receive much attention as the commercial significance of the new medium, and its effect on the rights of copyright holders, had not been fully realized. The FCC studied the emergence of cable television in 1959 and found "no present basis for asserting jurisdiction or authority over CATV's, except as we already regulate them under part 15 of our rules with respect to their radiation of energy." Report and Order in Docket 12443, 26 FCC 403 (1959).

Cable soon caught the attention of copyright owners however as the medium gained acceptance and began delivering copyrighted content to a wider audience. Under a strict reading of the Copyright Act, it seemed clear that cable operators were infringing the copyrights of the program creators. United Artists Television Inc. brought suit against Fortnightly Corporation alleging that Fortnightly, a cable company, had infringed its right to "perform...in public for profit" (non dramatic literary works) and to "perform...publicly" (dramatic works). Fortnightly Corp. v. United Artists Television, Inc., 392 U.S. 390, 395 (1968).

The Supreme Court, applying a "functional test", found that cable operators were the functional equivalent of television viewers rather than the equivalent of broadcasters and thus were not infringing the copyrights of the television program owners: "The function of CATV systems has little in common with the function of broadcasters. CATV systems do not in fact broadcast or rebroadcast. Broadcasters select the programs to be viewed; CATV systems simply carry, without editing, whatever programs they receive. Broadcasters procure programs and propagate them to the public; CATV systems receive programs that have been released to the public and carry them by private channels to additional viewers. We hold that CATV operators, like viewers and unlike broadcasters, do not perform the programs that they receive and carry." Fortnightly.

The court's finding that cable systems did not fulfill the same function as broadcast stations seemed a rather strained interpretation of cable as a content delivery medium. In addition to the intuitive sense that cable performs a similar "function" as broadcast, cable operators soon developed original programming to air alongside the re-transmitted broadcast programs. As cable gained in popularity and financial strength, the "protective" ruling that cable was not infringing broadcast television's copyrights was soon overruled in congress with the passage of the 1976 Copyright Act.

Under the current version of the Copyright Act, unlicensed interceptions and cable transmissions of broadcast television signals constitute copyright infringement. The trade off which has allowed cable television to prosper has come in the form of a compulsory licensing system. Cable can intercept and transmit any broadcast signals as long as they pay a pre-determined licensing fee to the broadcasters. The compulsory license deal was crucial because without it cable would have to negotiate licenses from broadcast television as well as the copyright owners of the individual programs. This would be prohibitively expensive as broadcast television would have welcomed the opportunity to eliminate competition by holding out for high license fees.

In cable television's situation, the judiciary allowed the industry to develop without copyright liability which would have surely killed or hindered the new medium. When cable developed the lobbying power to stand on its own, a legislative compromise was adopted which allowed for the continuing, long term growth of the medium. This is a similar to what is happening in the Internet situation. The Netcom decision is fulfilling the same role for the Internet as the Fortnightly case did for cable. The courts are reaching beyond traditional copyright jurisprudence to allow a new communication medium to develop. Although it seems that many legislators favor the Internet, a new development in the private sector is insuring that the new medium will be heard on Capitol Hill.

V. Telephone Company Intervention

Telephone companies play an important role in the analysis of ISP copyright liability due to the effects recent case law may have on traditional telephony services such as voice messaging. The Playboy holding, finding BBS operators liable for the infringements of their subscribers, should equally apply to the voice mail services offered by telephone companies. In addition, telephone companies are now providing Internet services themselves, giving them ample incentives to oppose legislation which would increase ISP copyright liability.

Although there is no explicit exemption in the Copyright Act for telephone companies, they have traditionally avoided copyright liability for the acts of their customers. The U.S. Register of Copyrights in 1965 recognized that a telephone company's "purely intermediate transmissions should be exempt, but that an express exemption is not necessary to exclude them." The advent of digitally reproduced works radically changes this analysis as copies made by the telephone network should now constitute copyright infringement under MAI Sys. Corp. v. Peak Computer, Inc., and Playboy Enterprises, Inc. v. Frena. According to MAI, infringing content on a medium such as voice mail would constitute a "copy" under the Copyright Act. Under the strict liability standard for direct liability espoused in Playboy, the telephone company should be held directly liable for the copying done by their voice mail equipment even though they do not initiate the copying.

Telephone companies have never been challenged for the copyright infringements of their customers, probably due to the unsuccessful efforts of those seeking to hold them liable in the defamation context. These cases have regarded telephone companies as "common carriers" and have thus held them to a "know or have reason to know" standard of liability as opposed to the strict liability standard litigants are seeking to impose on ISPs in the copyright context."

This general "understanding" that telephone companies should not be liable for the infringements of their subscribers is based on an equitable argument which takes into account the responsibilities of a common carrier. It seems unfair to hold a common carrier liable for the infringements of others when they must hold open their services to the general public whose infringing activities they cannot control. This argument has no basis in the Copyright Act however, as the automated copying done by a telephone company providing messaging services and the copying done by an ISP providing Internet access appear to constitute the same legal issues.

The Copyright Act exempts passive carriers that exercise no control over the recipients of their service, basically providing no more than fiber-optic cables and other infrastructure. The idea is that these services are common carriers and do not deliver to the end user. Internet Service Providers exercise control over the intended recipients of their transmissions in that they are subscriber services which charge fees to the end user, taking them out of the passive carrier category. In Netcom, the court explicitly stated that "[n]etcom does not fall under this statutory exemption, and thus faces the usual strict liability scheme that exists for copyright." Telephone companies are in the same situation as they obviously exercise control over the intended recipients of their transmissions. If this analysis is combined with the Playboy holding, there is no basis in the Copyright Act to suggest that a telephone company should not be held directly liable for infringing content automatically copied and distributed on its voice mail system.

In addition to the liability questions drawing the telephone companies¹ interests into line with the ISPs, telephone companies themselves are rapidly becoming major players in the Internet delivery market. ISPs that don't own their own networks are at a serious disadvantage to larger telephone companies in that they cannot control or reduce connection costs, one of their main expenses. The 1996 financial figures for public ISPs show heavy losses and high operating costs. Even the larger ISPs such as Netcom or PSINet are posting losses in the 50 million dollar range. Telephone companies are offering Internet service themselves as well as buying smaller ISPs. The consolidation trend makes sense as telephone companies can take advantage of economies of scale in owning large networks. ISPs bring expertise in network management, infrastructure and positioning in local markets to the table, making them ideal acquisition targets. As telephone companies gain interests in the Internet delivery market, their lobbyists have not been far behind in seeking legislation that would exempt ISPs from copyright liability. In addition, the fear that recent case law and legislative initiatives may apply to traditional telephony services has further aligned the interests of ISPs with that of the telephone companies, insuring a vigorous opposition to legislation that would increase the liability of either.

VI. Legislative Initiatives

Legislation under consideration in the House and Senate last year would have clarified the copyright status of works transmitted over the Internet in digital form. These legislative initiatives were the product of the U.S. Commerce Department's White Paper, "Intellectual Property and the National Information Infrastructure." The main thrust of the legislation is to amend the copyright laws to clarify that copyright liability attaches when a work is reproduced and distributed by "transmission." One of the main barriers to its passage was the dispute between copyright holders and ISPs (now represented by the telephone companies) over the status of computer networks whose function is to act as "mere conduits" for the transmission of copyrighted material.

The White Paper and its implementing legislation (H.R. 2441) favored strict liability as the standard to judge automatic copies made on ISPs' machines. Passage of these bills would have resulted in the copyright problems outlined in the introduction of this paper. In a rather bizarre twist, a partnership not anticipated by the drafters of the legislation has aligned the telephone companies with the ISPs, creating a lobby strong enough to match resources with Hollywood on Capitol Hill.

Although the legislation died in committee, the "committee print" of an omnibus bill which included all of the provisions of H.R. 2441 offered "safe harbor" provisions for Internet Service Providers. The bill would have added a new Section 512 to the Copyright Act which would have limited the liability of Internet Service Providers. The new section would have insulated ISPs for infringements arising "solely out of the provision of local exchange, trunk line, or backbone services, including network components or functions necessary to the carriage of material contained in electronic communications." ISPs would not be liable for "carriage of material" that "does not involve the generation or alteration of content, but may include processing, intermediate and transient storage, and other functions necessary for the operation of the network."

The telephone lobby influence can also be found protecting ISP interests on the international scene. In what many considered an "end-run" around the legislative process, U.S. officials sought to change intellectual property law at the international level with the hopes that implementing legislation would be approved domestically. The issue of temporary copies and service provider liability was hotly debated at the recent World Intellectual Property Organization (WIPO) conference in Geneva. Proposed Article 7(1) would have held every copy of a protected work potentially infringing: ³[t]he exclusive right accorded to authors of literary and artistic works in Article 9(1) of the Berne Convention of authorizing the reproduction of their works shall include direct and indirect reproductions of their works, whether permanent of temporary, in any manner or form.²

In the end, Article 7 was dropped from the agenda and not included in the final treaty. A non-binding resolution regarding temporary copying was adopted by the Committee however: ³[t]he reproduction right, as set out in Article 9 of the Berne Convention, and the exceptions permitted thereunder, fully apply in the digital environment, in particular to the use of works in digital form. It is understood that the storage of a protected work in digital form in an electronic medium constitutes a reproduction within the meaning of Article 9 of the Berne Convention.² In addition to the resolution regarding temporary copying, another non-binding resolution sought to clarify the copyright liability of telephone companies: ³[i]t is understood that the mere provision of physical facilities for enabling or making a communication does not in itself amount to communication within the meaning of this Treaty or the Berne Convention.²

The resolutions are non-binding so they will have no effect on U.S. law. What the two resolutions do illustrate however, is a lack of consensus as to what constitutes ISP liability and a real battle brewing between copyright holders and the telecommunications infrastructure that will deliver Internet access. While a new version of these copyright reforms is sure to arise in the 105th Congress, we can hope they will resemble the legislation which proposes an immunity for ISPs when their customers infringe copyrights.

VII. Fair Use

Fair Use is an equitable rule developed by the courts and now codified in the Copyright Act. The purpose of the rule is to balance the rights of authors to control the dissemination of their works, with the rights of the public to freely access and exchange ideas. The four factors courts traditionally consider in a fair use analysis are 1) the purpose and character of the use, 2) the nature of the copyrighted work, 3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole and 4) the effect of the use upon the potential market for or value of the copyrighted work. The doctrine of fair use merits discussion here as it is often the first line of defense in avoiding copyright liability which would have an inhibiting effect on innovative content delivery mediums. In order to point out the way in which courts can use fair use to arrive at a finding of non-infringement, I will analyze the caching problem using a fair use analysis.

A. The purpose and character of the use

An Internet Service Provider's activities would be considered a commercial use for fair use purposes. "Netcom's use of plaintiff's works is to carry out its commercial function as an Internet service provider. Such a use...is clearly commercial." Commercial use has traditionally been considered presumptively unfair and weighs against a copyright defendant.

Commercial use is not dispositive however, the court will consider all of the relevant facts to determine whether the purpose and character of the use fits within the fair use rationale. In particular, the courts "are free to consider the public benefit resulting from a particular use notwithstanding the fact that the alleged infringer may gain commercially." Sega v. Accolade, 977 F. 2d. 1510, 1521 (9th Cir. 1992). In Sega, the defendants had reverse engineered Sega game cartridges in order to make competing games compatible with Sega's game console. The identification of the unprotectable functional aspects of the code allowed other gaming manufacturers to enter the market and create new works, a state of affairs the Copyright Act was intended to promote. While the defendants were involved in a strictly commercial undertaking, the Sega court found that the benefits of increased competition in the market outweighed this factor.

Copying which relieves congestion on the Internet fits neatly into the Sega court's rationale for overcoming the presumption of unfairness that attends the commercial use of copyrighted content. Every URL points to, or references, a distinct server on the Internet. Reducing the amount of requests sent to a particular server reduces the computational load on that server while decreasing the amount of bandwidth used on the Internet generally. "Brown-out" is one of the greatest obstacles hindering the public's acceptance of the Internet. Caching and other network functions create social benefits by reducing traffic on the Internet and creates private benefits by expediting user access time.

In addition to the social benefits provided by caching, an ISP does not cache in order to exploit the content of the copyrighted work. The Netcom court drew a distinction between appropriation of the content of a copyrighted work to gain financially and copying done to achieve another result. Netcom had programmed their Usenet servers to copy in order to facilitate the dissemination of Usenet postings. The court found that Netcom had not copied in order to gain financially from the copyrighted material itself, therefore the character of the use operated in Netcom's favor.

The Netcom court observed that "there is no easy way for a defendant like Netcom to secure a license for carrying every possible type of copyrighted work onto the Internet." Due to the fact that no licensing scheme was in place, the court noted that Netcom's actions should not be seen as "profiting from the exploitation of the copyrighted work without paying the customary prices. ISPs are obviously in a similar situation, it would be virtually impossible for them to license all of the content available on the Internet. This reasoning allows a new medium to grow until a licensing or other mechanism for compensating copyright owners can develop. Without the doctrine, everyone losses as copyright owners would never find themselves with new distribution mechanisms for their content.

B. The nature of the copyrighted work

An ISP caching content to facilitate access to the Internet does not differentiate according to the nature of the copyrighted work. Whether a work is a collection of facts or an original, creative work is not a factor the caching algorithm takes into account and thus the nature of the copyrighted work should not be determinative in the fair use analysis. The Netcom court agreed with this interpretation of an ISP's use of copyrighted works; "because Netcom's use of the works was merely to facilitate their posting to the Usenet, which is an entirely different purpose than plaintiffs' use...the precise nature of those works is not important to the fair use determination." This point relates back to the first fair use factor, the purpose and character of the use. An ISP's use of the copyrighted work is entirely different than the use protected by the Copyright Act. The ISP does not seek to profit from the content of the copyrighted work but merely copies to increase network speed.

C. The amount and substantiality of the portion used in relation to the copyrighted work as a whole.

100 % use of a copyrighted work will not defeat an otherwise valid fair use defense. If an ISP is to accomplish the socially useful purpose of improving Internet access to its subscribers as well as relieving the Internet of needless traffic, its servers must make complete copies to fulfill the caching function. This reality was recognized in the Netcom case as "[n]etcom had no practical alternative way to carry out its socially useful purpose."

In Sony v. Corp. of America v. Universal City Studios Inc., 464 U.S. 417 (1984), mentioned in the introduction of this paper, defendant Sony was absolved of contributory liability because its Betamax was capable of substantial non-infringing uses. The Betamax, like the proxy server, must make complete copies to fulfill its purpose. In an interesting turn of events since the Sony decision, the wide spread use of VCR¹s has opened up a whole new market which Universal has profited handsomely from: the rental and sale of videocassettes.

D. The effect of the use upon the potential market for or value of the copyrighted work.

Where a plaintiff provides a web page accessible to the public over the Internet, caching will not have an adverse effect on the demand for the original. Caching provides a mechanism through which the public can view the plaintiff's work, it does not replace the work. This argument depends on the ability of the proxy server to allow the content server to accurately reflect the amount of hits the original would receive in the absence of caching.

If a proxy server cannot "give back" hits it receives that would normally be recorded by the content server, this factor would probably weigh against a finding of fair use. In the advertising model currently employed on the Internet, the market for the original is the attention of people viewing advertisements. Web sites depend on hit counts to attract advertising dollars. The market consists of the public's attention and caching lowers the amount of traffic recorded on a web site. Diverting hits that a site would normally receive damages the market for the copyrighted work. If an ISP can return accurate page impressions to the original content server, the harm to the copyright owner will be virtually eliminated, providing a strong fair use defense.

VIII. Conclusion

Successive delivery technologies have challenged the Copyright Act to preserve the balance between copyright owners and the public whom the copyright monopoly is meant to benefit in the first place. Internet technology is the latest deliver mechanism to disturb this balance as the marginal costs to copy a work have basically been reduced to zero. The desire to hold intermediaries liable for copies necessary for the operation of the Internet is a predictable reaction to this new threat to copyright holders.

The courts are the first line of defense against copyright externalities which would have an inhibiting effect on the growth of new content delivery mediums, often utilizing the fair use doctrine to preserve the copyright balance. In the Internet's case, The liability question boils down to the courts¹ treatment of the strict liability aspect of the Copyright Act. While this question will probably be dealt with through legislation, the Netcom decisions provides a workable solution in the mean time. The Netcom ruling holds ISPs potentially liable for contributory and vicarious liability while absolving them of direct liability for their subscribers' copying activities.

The Internet's experience with copyright litigation is similar to the cable industry's in that the judiciary has provided a loose interpretation of the Copyright Act, allowing the industry a chance to counteract the copyright lobby in Washington. This solution avoids the radical consequences of holding ISPs directly liable for their subscribers activities while giving the legislature time to implement a measured response to the new technology. The alignment of the telephone companies' interests with those of the ISPs insures that there will be a powerful counterpoint to the copyright holders¹ position on Capitol Hill.