The decision against Streamcast (RIAA Wins Against Morpheus) highlights the crippling of innovation that has and will continue to result from broad governmental and legal intervention in technology development. Streamcast invested millions of dollars to perfect the Neo P2P file sharing network. That was two years ago. No new substantial networks have been developed since.

In "MGM v. Grokster: More Bad News for Innovators" Fred von Lohmann comments on the Streamcast decision and what it portends.

He pulls out the following excerpt from the court ruling:

Thus, Plaintiffs need not prove that StreamCast undertook specific actions, beyond product distribution, that caused specific acts of infringement. Instead, Plaintiffs need prove only that StreamCast distributed the product with the intent to encourage infringement.

He writes:

This is a remarkably broad statement, and is at odds with the Supreme Court's view that an intent to encourage infringement must be accompanied by "clear expression or other affirmative steps" beyond the mere distribution of a product.

Here's the nightmare scenario for innovators: if you distribute a product that can be used for infringement, copyright owners sue and seek in discovery to comb through every document in your company (emails, customer support records, engineering notes, etc.) looking for anything that looks like evidence of bad intent. If the lawyers find anything (how well-trained is your level 1 customer support staff? did your engineers have copyright debates in email? how did they test the product?), they will argue that intent + distribution = inducement. Even if you never advertised or publicly encouraged infringing uses.

And don't forget, discovery is expensive. It cost SonicBlue $3 million per quarter in legal fees in the ReplayTV suit.

So yesterday's ruling is one more reason to suspect that secondary liability rules in copyright are out of balance and chilling innovation.