(FORTUNE Magazine) – Should technology companies be held liable when consumers use their products to violate copyrights? No, the Supreme Court said in 1984, when it ruled that the Sony Betamax videocassette recorder had substantial noninfringing uses that outweighed occasional illegal copying.

But that was before digital technology and the Internet. On March 29 more than two dozen entertainment companies (including Warner Bros. Entertainment and New Line Cinema, which are owned by Time Warner, FORTUNE's parent) will plead for a reinterpretation of the Betamax case. In MGM v. Grokster, Hollywood is targeting Grokster and StreamCast, which allow Internet users to search for and download perfect copies of music, movies, and software stored on the computers of millions of Grokster and StreamCast users.

Unlike the VCR, the studios argue in their petition, these networks are "breeding grounds for copyright infringement of unprecedented magnitude." Two lower courts have disagreed, ruling that the services must be tolerated to avoid stifling technological innovation. The Electronic Frontier Foundation, which represents StreamCast, argues that if the court rules for Hollywood, the makers of modern devices, including TiVo digital video recorders, Apple's iPod, and even web browsers and search engines, could be held liable for their customers' actions. Who would invest under those conditions? The high court is expected to decide the case by the end of July. -- Peter H. Lewis