Notes & Comment
Vol. 2004, No. 7
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Peer-to-Peer Networks and Copyright Infringement
Continuing to grapple with a “quicksilver technological environment" characterized by the internet and copyright law, the U.S. Court of Appeals for the Ninth Circuit has just handed down an important decision governing peer-to-peer file-sharing network software. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. , No. 03-55894 (August 19, 2004), available at www.ca9.uscourts.gov (opinions tab, search by name or case number). The ruling acknowledged that same court's Napster decisions from a few years ago, but, unlike Napster , found no copyright violations by two developers and distributors of peer-to-peer file-sharing network software.
Napster vs. Grokster
Any music fan (or parent with teenage children) knows about sharing music files over the internet. Napster, Inc. was the pioneer and provided both network software and file-sharing server facilities that helped users index, download and swap music files over the internet. This made Napster an early target of those who objected to its file-swapping technology and, after losing high profile copyright infringement litigation, Napster and its business model disappeared into the sunset.
Rising to take Napster's place were several other forms of peer-to-peer file-sharing that employed very different business and technology models. Grokster, Ltd. ("Grokster") and StreamCast Networks, Inc. ('StreamCast') introduced two such post- Napster peer-to-peer network file-sharing technologies. Unlike the Napster model, which was a "centralized" file-sharing proprietary technology that used network software, maintained and indexed files on its servers and had the ability to control infringing material on its network, the "Grokster" model is "decentralized" and only supplies the peer-to-peer network file-sharing software that allows individual computers to swap files stored on their own computers. Grokster and StreamCast do not maintain or index files on servers; their open source software, available as a download, allows individuals to swap titles among themselves.
Building on their successful takedown of the Napster business model, copyright owners also challenged the "Grokster" technology. In Metro-Goldwyn-Mayer, Inc. vs. Grokster, Ltd., they advanced the argument that, like Napster, the "Grokster" software constituted indirect contributory and vicarious copyright infringement. The trial court granted partial summary judgment to the defendants and the plaintiffs appealed. The Ninth Circuit affirmed the trial court 3-0, rejecting indirect copyright infringement theories against the peer-to-peer file-sharing network technology distributed by Grokster and StreamCast.
The Copyright Infringement Issues
The copyright statute (17 U.S.C. §101, et seq .) provides liability for direct infringement, meaning the unauthorized reproduction, distribution, performance or display a copyrighted work, or the preparation of a derivative work based upon it. Under common law, one can also be liable for indirect copyright infringement by contributing to another's direct infringement or by vicariously helping another's direct infringement. Thus, there are three levels of copyright infringement liability: direct and indirect (contributory and vicarious). Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. only involved claims of indirect copyright infringement.
The parties apparently agreed -- and for purposes of this case the Ninth Circuit did not question -- that an individual's use of peer-to-peer file-sharing network software amounts to a direct copyright infringement by that individual. Instead, the issue was whether Grokster and StreamCast had contributed to such direct infringement, or was vicariously liable for it.
Contributory Infringement
The Court set forth the three elements to any claim of contributory copyright infringement: (i) direct infringement by the primary infringer, (ii) knowledge of the infringement, and (iii) material contribution to the infringement. The only elements litigated here were the "knowledge" and "material contribution" issues.
Knowledge. Knowledge of infringement comes in two possible flavors: constructive knowledge and reasonable knowledge . Constructive knowledge can be shown if the defendant's product is not capable of substantial or commercially significant non-infringing uses -- in other words, the only thing it can really be used for is to infringe a copyright. If, however, the product has substantial or commercially significant non-infringing uses, "constructive knowledge" cannot be imputed and the plaintiff must show that the defendant had reasonable knowledge of specific infringing conduct. In Grokster , the Court found that the peer-to-peer file-sharing network could be and was used to swap authorized files or files that weren't subject to copyright in the first place. Therefore, constructive knowledge couldn't be imputed to Grokster and StreamCast. Nor was there sufficient evidence of reasonable knowledge of specific infringing activity, mainly because the software was distributed prior to any infringing activity and, once downloaded, the two software companies couldn't control what peer-to-peer users did with it. In short, there was insufficient evidence of "knowledge" to support a claim for contributory copyright infringement.
Material Contribution. The Court focused here on a "site and facilities" requirement, holding that a contributory infringer must supply some material support to the primary infringer. Napster, for example, provided the software, maintained files on its servers and policed usage. The decentralized peer-to-peer file-sharing technology in Grokster , by contrast, offered no such "site and facilities." (One wonders why making peer-to-peer network software available in the first place isn't enough to establish the "material contribution" element; the Court seemed to require a type of "brick and mortar" too, and glossed over whether distribution of such software was enough).
Vicarious Infringement
The three elements of a claim for vicarious copyright infringement are: (i) direct infringement, (ii) direct financial benefit to the defendant, and (iii) the right and ability to supervise the infringers. Here, the only element litigated was the right and ability to supervise.
The Court held that, in the context of this particular technology, there was no right or ability to supervise the infringing conduct. The peer-to-peer file-sharing network software was downloadable and after that, the defendants were basically out of the picture. There were no licenses or registration requirements between Grokster and StreamCast and their respective users. Unlike the Napster technology, which provided an "integrated service" and enabled Napster to regulate usage of its network, the "Grokster" technology didn't enable them to block infringing conduct. In short, said the Court, there was no "monitoring and supervisory" relationship between the defendants and their users like that which had supported claims of vicarious infringement in the past.
Summary and Conclusion
Affirming the trial court's grant of partial summary judgment against the copyright owners, the Court held, on the one hand, "in the context of this case, the software design is of great import", and on the other hand, the peer-to-peer file sharing technology at issue "is not simply a tool engineered to get around the holdings of [ Napster ]". Still, the Ninth Circuit's rulings on file-sharing software technology are consistent only if one acknowledges that the file-sharing software's form and substance mean everything. Like the Grokster and StreamCast peer-to-peer file-sharing software designs themselves, the Court's Grokster decision is indeed a work around of its Napster holdings.
From the outset of the opinion, where they described the case as the latest in "a continuing series of lawsuits between the recording industry and distributors of file-sharing computer software", to their conclusion that "we live in a quicksilver technological environment with courts ill-suited to fix the flow of internet innovation", it was clear this Ninth Circuit panel didn't buy the plaintiffs' contributory or vicarious copyright infringement theories at work in this case: "[I]t is prudent,” they wrote, "for courts to exercise caution before restructuring liability theories for the purposes of addressing specific market abuses, despite their apparent present magnitude."
© Matthew Joseph 2004. Law Offices of Matthew Joseph, San Mateo, California, practices in the areas of intellectual property licensing, commercial real estate leasing, and corporate and business transactions. No legal advice is intended by the information provided herein and recipients should independently consult counsel before taking any action related to this subject matter.