Yesterday (April 12), a judge for the United States District Court in Manhattan ruled that popular peer-to-peer file trading service Limewire was liable for copyright infringement. The decision was similar to the 2005 ruling against Grokster — both cases found the services in question guilty of “inducing” copyright infringement.

Judge Kimba Brown’s summary judgement against Limewire certainly made the major labels happy, but what, exactly is the basis for the decision?

To help make the case for infringement, the major labels presented evidence gathered by statistician Dr. Richard Waterman, whose examination of a random sample of 1,800 Limewire files showed that 93 percent were copyrighted and likely unlicensed by Limewire. Using this same sample, he also examined how many times users sought to download this material. The result? Approximately 98.8 percent of requested downloads were for copyrighted material.

From there, Judge Brown had to decide whether Limewire was “inducing” users to download unauthorized content. In a review of internal Limewire documents, she concluded that the company was indeed aware of the infringement taking place on their service. Moreover, her opinion states that Limewire did little to prevent the situation.

Limewire does operate its own legitimate music download store, and actually takes steps to ensure that material purchased there is not easily shared on its own network. The company apparently hasn’t applied the same diligence to other material, however — the bulk of it, as Dr. Waterman’s data shows, is not licensed for free peer-to-peer distribution. In her opinion, Judge Brown also referenced internal communications between Limewire employees and users “that plainly relate to unauthorized sharing of digital recordings through LimeWire.”

Limewire owner and CEO Mark Gorton is also on the hook for the infringment. However, we won’t know what the damages will look like until a “status conference” on June 1. Limewire has vowed to carry on, but it remains to be seen how their business model will be adjusted to reflect this decision, or whether it will be appealed. (We’re assuming it will be.)

Some groups have advised the court to consider that cases decided on the basis of “inducement” may have a chilling effect on innovation around “dual use” technologies, meaning those services, apps and devices that could be used to commit infringement, but also have perfectly legitimate uses.

Back when the Supreme Court decided that sites like Grokster could be held liable for encouraging users to engage in unauthorized filesharing, FMC issued a statement that said the following:

FMC believes the Grokster ruling may establish an important middle ground position. In emphasizing the liability for individuals and entities who encourage unauthorized distribution of creative works, the Court has reinforced and upheld the Sony Betamax judgment, finding that technology itself is not at fault. Important questions remain about the more specific contours of the copyright-infringement inducement doctrine. As litigation proceeds, artists must be protected from infringement but also from the power of copyright aggregators who could exercise de facto control over future innovation. We are hopeful that this decision lays the groundwork for fostering both protection and innovation.

We pretty much think the same thing now. It’s crucial that artists’ intellectual property is protected, but we need to balance that need with the continued ability to innovate. Back when the original Napster was shut down (and even when the Grokster case was decided), there weren’t a lot of fully licensed digital music services. Now there are, due in large part to the innovation that can occur on open technological platforms like the internet. It’s our hope that the future of music brings a legitimate digital music marketplace where musicians are compensated and fans can access the music they want. And we’ll keep pushing for it.

What do you think about this decision?