It’s tempting to see the U.S. Supreme Court’s Grokster decision as technology’s loss and copyright’s gain, but that analysis misses the mark. In fact, despite having just been handed a powerful new tool to prop up a tottering business model, the entertainment industry could well wind up the biggest loser.

The high court on Monday threw out a summary judgment ruling in favor of Grokster and StreamCast Networks, ordering the companies back to trial on charges of so-called secondary copyright infringement.

That seems like a big win for Metro-Goldwyn-Mayer Studios and other plaintiffs, which now stand a good chance of shutting down both contested services and bringing new lawsuits against other peer-to-peer companies. But, by helping maintain the status quo, the ruling could further delay the death of the old way of doing things and postpone the birth of new strategies that successfully build on unstoppable peer-to-peer technologies.

Grokster and StreamCast had won favorable rulings twice before when lower courts determined that both have substantial legitimate uses in addition to obvious illegitimate ones. Both the trial court and 9th Circuit U.S. Court of Appeals granted them safe harbor from secondary infringement under broad interpretations of a seminal opinion from the 1980s dealing with the liability of VCR makers, known as the Betamax case.

Following Monday’s decision, Grokster and StreamCast may now be held liable if they can be shown to have distributed a device “with the object of promoting its use to infringe copyright.”

The decision scales back Betamax by offering a lower standard of protection for technology innovators: MGM must merely show the companies intended to woo copyright infringers in order to win. What counts as evidence of wrong intent? The high court mentions advertising as one clear-cut example, but generally leaves this crucial question unanswered.

The high court acted with restraint, resisting calls from the entertainment industry to add tough new restrictions to Betamax. In a concurring opinion, three justices hinted that the court may well have to revise the Betamax standard, a position that three other justices challenged in a second concurrence.

Regardless of what eventually happens with Betamax or what standards a trial court crafts in the Grokster case, the court immediately handed the entertainment industry a powerful tool for attacking peer-to-peer networks at the source.

The ruling effectively says that peer-to-peer software makers may be found liable for assisting in the infringement that takes place on their networks. This will almost certainly open the floodgates to more litigation, uncertainty and fear of developing new peer-to-peer products in the United States.

Even if companies have not promoted infringement in obvious ways, plaintiffs could still tie them up in litigation and costly discovery in search of damning e-mails–actions that could drain the coffers of thinly financed start-ups but barely dent the resources of the motion picture and music industries.

The high court did a lot of things right in Grokster. But defending the rights of copyright holders in the face of disruptive new technologies does not demand protecting outmoded ways of selling products. It’s time for the entertainment industry to accept the inevitable and stop trying to use the courts to put a leash on unpredictable new technologies.

In the end, the business model in the entertainment industry is going to change, and these companies can either find a way to insert themselves into the new order, or risk finding themselves frozen out forever.

More here.