In a decision that could have far-reaching implications for future lawsuits by the record industry involving peer-to-peer networks, the judge who was hearing the Jammie Thomas case has thrown out the decision in that case, effectively declaring a mistrial, saying he now believes he was wrong to have instructed the jury that simply “making available” copyrighted files was enough to find Thomas guilty of copyright infringement. In the original case, the judge said that it was not necessary to show that anyone had actually download the files, but he now believes that this was wrong, and that actual distribution must be shown, not just that the files were available:

The Court’s examination of the use of the term “distribution” in other provisions of the Copyright Act, as well as the evolution of liability for offers to sell in the analogous Patent Act, lead to the conclusion that the plain meaning of the term “distribution” does not including making available and, instead, requires actual dissemination.

As the Electronic Frontier Foundation describes, this is effectively the exact argument that the EFF and others made after the original ruling. But that’s not all: the judge also takes pains in his decision to implore the goverment to reconsider the egregious financial penalties that are attached to such offences in the law, penalties that saw Thomas ordered to pay more than $200,000 for just 24 copyrighted files:

While the Court does not discount Plaintiffs’ claim that, cumulatively, illegal downloading has far-reaching effects on their businesses, the damages awarded in this case are wholly disproportionate to the damages suffered by Plaintiffs. Thomas allegedly infringed on the copyrights of 24 songs—the equivalent of approximately three CDs, costing less than $54, and yet the total damages awarded is $222,000—more than five hundred times the cost of buying 24 separate CDs and more than four thousand times the cost of three CDs.

Bravo to Judge Davis on both counts.

Reproducing copyrighted images without permission is an infringement of copyright law — everybody knows that. But what about a search engine that shows you thumbnailed versions of those images? Is that infringement too? According to U.S. District Court Judge Howard Matz, yes it is. The judge just ruled in a case involving Perfect 10, a provider of “adult” images, that Google’s image search effectively infringed on the company’s copyright over those images, just by displaying the tiny thumbnail versions of those photos.

There were actually a couple of different issues being considered in the case, as described by my friend Paul Kedrosky. One was whether the displaying of thumbnails represented infringement, and another was whether displaying the entire image on a third-party website (which had acquired the image illegally) constituted “secondary” infringement. The judge found that there wasn’t enough evidence to conclude that Google infringed in a secondary way — although he did say that he found it interesting that Google ran AdSense ads on many of the infringing sites, which he said changed the nature of the relationship with these “third-party” infringers.

However, he did find that Google had infringed on the company’s copyright simply by generating thumbnails, in part because Perfect 10 sells thumbnail-sized photos to cellphone users, and therefore Google’s behaviour might potentially eat into this market. That, among other things, disqualified the search company in the judge’s mind from being excused of copyright infringement by the “fair use” principle, which allows other parties to make use of copyrighted content in a limited way, provided they don’t either make money from it or cause the copyright holder to lose money.

How this will affect Google’s image search remains to be seen. But the courts are clearly interested in how the search company’s business affects copyright, and this decision could be the first of many — given the unfavourable attention that Google has already gotten from book publishers and newspaper owners.

While browsing my RSS feeds using the Ajax-y goodness of netvibes, I came across a post made by Toronto-based venture capitalist Rick Segal, who is a partner with J.L. Albright Ventures — a VC group that has investments in Q9 Networks, Nuvo Networks and FUN Technologies (which just sold control to Liberty Media for $195-million). The post was a response to one from Fred Wilson, another VC based in New York City, who was writing about peer-to-peer networks and the music industry and how the two should get together in the interest of serving customers such as himself.

Rick took Fred to task for saying that he had no problem with downloading music if he couldn’t find it somewhere legally, and said this made him a lost customer rather than a thief. Rick said this was disingenuous, however, and used this metaphor: “The clerk went in the back room, I couldn’t wait so I took the candy bar but if the guy had been at the counter I would have gladly paid for it. Extreme example? Yes, but it is to make the point. Let’s just call it what it is.” In other words: theft.

But is Rick right? I don’t think so — and the U.S. Supreme Court agrees with me. In a ruling in 1985, they specifically said that copyright infringement is not the same as theft because the “thief” does not “assume physical control over copyright, nor does he wholly deprive its owner of its use.” In other words, the candy-bar example — not to mention the entire concept of music “piracy” — tries to take legal concepts that pertain to physical objects and apply them to creative works that have no physical attributes, in the sense that they cannot be “taken” the way a candy bar can be taken.

In the case of someone like Fred downloading music, the only loss that can be shown (and then only theoretically) is the loss of a potential customer. Some copyright experts have even argued that downloading should fall under the “fair use” provisions of copyright law, the same way listening to the radio does. In any case, I would have to disagree with Rick and argue that Fred is right to say he is more of a lost customer than a thief. A copyright infringer, perhaps, but not a thief.