So what is the the reasoning behind EFF's argument that running Kazaa and "transmitting" files to other users isn't "distribution" under the Copyright Act? Why make the argument in Elektra v. Barker? How might the argument affect the outcome in that case, or in other cases?
As mentioned earlier, when looking at cases where copyrighted materials have been put (by someone) in a publicly-accessible place on a server, and downloaded by others, some courts (most notably the district court in Religious Technology Center v. Netcom, 907 F.Supp. 1361 (NDCal 1995)) have characterized the transaction as being initiated or caused by the downloader, not the host of the files. So the downloader may violate the reproduction right, but the host does not directly infringe. If the Barker court were to accept such a view, then Barker herself could escape liability for infringing "distributions" or "transmissions" of music files from her PC to others. And it's not clear that her "hosting" of files for others to download could be characterized as violating other exclusive rights under Section 106, like public performance or digital audio transmission. But she'd still be on the hook for any downloads she made from other people's computers. (However, proving that the copies sitting on her PC are themselves infringing might be more difficult -- she might own the CDs, or she might have borrowed them, or something.) So it's possible that confining her liability to the items she downloaded could affect damages, as she'd be liable for X number of downloads, rather than X files times Y number of downloads by others. Even so, because of the availability of statutory damages (which could dwarf the likely amount of actual damages), it would hardly matter to Barker's liability in the end.
A more useful result of prevailing on the argument, from EFF's perspective, might be a reinforcement of the Netcom decision, i.e. a reiteration of earlier holdings like Netcom that web hosts aren't liable for infringing distribution when they host infringing content that gets downloaded by others, at least where the web host doesn't exercise editorial control over the files being hosted. This is actually a difficult argument to win on in Barker, since whoever controlled Barker's machine would have been the one who actually selected all the MP3s that were hosted on her PC through Kazaa. But this would be a good rule for lots of other web hosts outside the P2P context, who could worry less about liability for things like infringing posts to chatboards they host. EFF's prevailing on this argument might help search providers in cases like Perfect 10 v. Google. On the other hand, Congress already addressed web host liability to some extent in the DMCA (the 511-512 notice and takedown portion), and it's not particularly likely that courts will be willing to fashion their own liability rules when Congress has spoken directly to the issue (which is not to say that the DMCA completely resolves the issue of provider liability -- far from it.)
Interestingly, a conclusion that "transmitting" files via Kazaa doesn't amount to "distribution" for copyright purposes would seem to have significant more implications for criminal copyright cases than for the RIAA and MPAA's civil lawsuits against downloaders. Under 17 U.S.C. Sec. 506, criminal sanctions for infringement only apply to infringement by reproduction or distribution (at least where there's no money being made -- there can be misdemeanor penalties for infringement of other rights under 106 where it is done "for purposes of commercial advantage or private financial gain"). So a P2P user has to infringe "by reproduction or distirbution" and that infringement has to involve "1 or more copies" with a total retail value of over $1000 (within a 6 month period) in order to be criminal. To be a felony, it's got to involve 10 or more copies with a combined value over $2500. That's a pretty tall order to prove in most run-of-the-mill P2P cases, but it would be especially tough if the only infringement that counted was the defendant's own downloading -- and not the copies she distrib ... er ... the copies that were transmitted to others. There may be plenty of P2P users who've downloaded over $2500 worth of movies and music in the past 6 months, but proving it is tough, since Kazaa and eDonkey don't generally keep really good records of a user's downloads.
Even under the new criminal provisions in the "Family Entertainment and Copyright Act" from last year, which were designed to target online piracy of movies and music before their commercial release, criminal sanctions don't kick in unless a person infringes by "distribution, by making the work available on a computer network accessible to members of the public." 17 U.S.C. Sec. 506(a)(1)(C). (Incidentally, in what looks like the first prosecution under this new law, two guys were indicted today for posting some Ryan Adams songs on a fan site before they were commercially released.)