A recent Federal Court ruling has left the online streaming service Grooveshark in critical condition.  On September 29th, 2014, the Southern District of New York, in an opinion delivered by Judge Thomas P. Griesa, found the Florida-based company guilty of copyright infringement, concluding an action brought against it in joint suit by nine of the major record labels.  Damages are estimated to amount to anywhere in between 4 million and 840 million dollars, a payout that would likely not only drain the company of its existing assets but extend to the pockets of chief officers Sam Tarantino and Josh Greenberg.  Grooveshark’s attorneys subsequently stated their client’s respectful disagreement with the Court’s ruling and announced their intent to move forward with an appeal.

Notable in the Court’s decision was that the infringement violation was found to be the result of internal employee uploads of unlicensed material to the main Grooveshark song bank.  Grooveshark is an online streaming service that depends upon user uploads of third party content: at its peak in 2011, Grooveshark boasted a user community of over 35 million members internationally.  The content in question in this dispute amounted to just short of six thousand songs, an insubstantial figure compared alongside the total number of unlicensed recordings available through Grooveshark’s worldwide collective file share.  The Court thus draws a line for third-party file-sharing legality between internally and externally generated content: that that comes from within is prohibited, while that that comes from without is not.  This is consistent with the so-called “safe harbor” provision of the Digital Millenium Copyright Act (DMCA), 17 U.S.C. § 512 (Online Copyright Infringement Liability Limitation Act, or OCILLA), which exempts internet intermediaries from copyright liability for uploads of unlicensed content by third parties.

Grooveshark, along with other notable third-party upload driven giants (e.g., YouTube), has long defended the legality of its services by claiming to operate within the statutory limits of the DMCA.  It seems strange that after winning several high profile litigation battles under this pretense, the company would fall to an obvious mistake outside the scope of DMCA legal loopholes and firmly categorized within illegal territory. Evidence revealed upon discovery indicates that in 2007, Grooveshark co-founder Joshua Greenberg mandated employees, via a company wide email, to upload content from their personal download libraries or risk falling afoul of management.  The effort suggests that in the company’s inception phase, Grooveshark’s founders recognized their inability to create a successful “music locker” out of the content at their current disposal, so they consciously opted to create an audience-worthy system via illegitimate internal uploads.

The Court perhaps seeks to reinforce the delicate balance reflected in the OCILLA and weigh the protective interests of the music industry with the modern day realities of a global digital user community accustomed to the constant availability of free streamed music.  By specifically pinning Grooveshark’s violation on internally uploaded content, the Court reaffirms OCILLA provisions dictating that liability is never lost when the internet-intermediary knows of the illegality of its content.  This message will likely discourage the growth of music distribution services through illegitimate means and force fledging companies to either pay directly for content or abandon their efforts entirely (a model adopted to stunning success by Spotify, although much to the dismay of the musical artist community).  At the same time, it perpetuates the existence of online streaming communities that rely on third party uploads and employ only scant safeguards against the distribution of unlicensed materials (copyright owners may request, and site managers must comply with, formal removal of content they contend to be infringing).

In fact, by failing to change the legal paradigm of the DMCA “safe harbor,” the Southern District has seemingly legitimized services that exacerbate the financial circumstances of musical artists, so long as those services pay, however miniscule, for their content.  Perhaps the Court hints at the impossibility of reverting to an old model of monetary compensation for musical recordings. Maybe it sees the options split between growing third party file sharing companies—and likely facilitating the distribution of unlicensed material—or growing new distribution companies that pay for content, though such payments are paltry compared to before.  In the wake of the Judge Griesa’s decision, the message is clear: it’s still safe to start a digital music streaming platform. Just make sure you do it within the proper legal loopholes.

Daniel Funt is a J.D. candidate, ’16, at the NYU School of Law.