Notes & Comment
Vol. 2005, No. 6
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Copyright
MGM v. Grokster: Curtains for Free P2P Music?
As the curtain lowered on its 2004-2005 term, the U.S. Supreme Court issued a long anticipated internet-copyright decision in Metro-Goldwyn-Mayer Studios Inc., et al. v. Grokster, Ltd., et al. (No. 04-480 (June 27, 2005)). In a rare unanimous opinion, the Court ruled that peer-to-peer ("P2P") file-sharing technology which "encourages" copyright infringement (such as free music downloads) and is, in essence, "good for nothing else", can be held liable for contributory copyright infringement when others use it for infringing purposes.
The Facts and the Background
We have previously discussed the Ninth Circuit’s August 2004 Grokster opinion, the decision under review by the Supreme Court here. In that case, the Ninth Circuit held that the Grokster and StreamCast P2P file-sharing networks could not be liable for copyright infringement. The Ninth Circuit’s reasoning was largely based on Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984), a landmark Supreme Court decision holding that Sony’s VCR device could not be held liable for contributory copyright infringement, even though Sony knew it was being used for infringing purposes, because the VCR device was capable of substantial non-infringing uses.
Grokster and SteamCast create and distribute file-sharing software that allows individual users to communicate directly with each other over the internet to identify and exchange files for free, including music and other copyrighted works. Over 100 million copies of their P2P software have been downloaded by individual users worldwide and "billions" of files are shared across the two P2P networks each month. This level of activity, the Supreme Court wrote, made "the probable scope of copyright infringement… staggering."
The defendants were sued by a group of large entertainment companies on the theory that they were secondarily liable (so called "contributory infringement") for infringements by people using their P2P software technology. As noted, the Ninth Circuit had ruled in favor of the defendants, concluding that their P2P technology had substantial non-infringing uses under the standard of Sony Corp. of America v. Universal City Studios, Inc. The Supreme Court reversed, holding 9-0 that this particular P2P technology could be liable for contributory copyright infringement.
Secondary Copyright Infringement Liability
The copyright statute (17 U.S.C. §101, et seq.) only prohibits "direct" copyright infringement. For example, neither side disputed that people using the Grokster and StreamCast P2P software to swap and download music for free were engaged in direct copyright infringement.
In other contexts, common law has expanded liability to also cover "indirect" or "secondary" copyright infringement. This might be described as conduct by third parties which "contributes" to the violation (by intentionally inducing or encouraging direct infringement by others), or third parties who are "vicariously" liable for it (by profiting from another’s direct infringement while having an ability to stop or limit it and declining to do so). At issue in Grokster was the entertainment industry’s effort to extend secondary infringement liability to developers and distributors of that P2P software; to make them liable for the "billions" of direct infringements each month committed by people swapping music by using their P2P software.
The Competing Legal Values
In briefs submitted and statements offered by both sides during the run-up to Court’s Grokster decision, the parties staked out seemingly irreconcilable views of copyright law. The entertainment industry and its supporters maintained that copyright is a sacred legal value; indeed, a constitutional right designed to encourage creative endeavors which is under attack and needs protection, particularly in the internet age. Technologies such as free music-sharing P2P networks, the argument goes, are a slippery slope leading to the steady erosion of copyright as a meaningful intellectual property asset.
Grokster, StreamCast and their supporters, on the other hand, argued that technology advancement was an equally important value; that cases such as Sony Corp. of America v. Universal City Studios, Inc. had carved careful exceptions to copyright law permitting new technologies (like the VCR) to be developed and emerge, even if they had infringing uses. P2P file-sharing technology, they suggested, was but the latest in a series of important technology developments that could (and would) be squelched if the Supreme Court imposed secondary infringement liability on their developers.
The Supreme Court acknowledged tension between these two values, but seemed to view them as false choices in this case. Clearly more concerned about the purpose and infringing use of the defendants’ technology "especially by the young," and by the volume of that usage and "indications…that [such P2P technology] is fostering disdain for copyright protection," the Court was less persuaded that imposing secondary liability here would stifle technological development.
Sony Corp. of America v. Universal City Studios, Inc., Justice Souter wrote for the Court, does not limit secondary liability in a case like this, not where there is evidence of Grokster’s and StreamCast’s intent to encourage direct copyright infringement and to profit from that: "[W]here evidence goes beyond a product’s characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, [the Sony rule] will not preclude liability." In other words, the maker of a useful product that, incidentally, can also be used for infringing purposes might be immune from liability (Sony), but the manufacturer of a product that might have non-infringing uses could be subject to liability if the evidence shows the product is "good for nothing else" except infringement, and the manufacturer actively encourages infringing uses and profits from them (Grokster).
Sony and a New Theory of Secondary Copyright Infringement Liability
While finding that the P2P file-sharing networks at issue could be liable, the Court was extremely mindful not to disturb the continuing usefulness of Sony, a rule that requires copyright to yield to some new technologies.
Borrowing principles from patent law (as it did when adopting Sony in 1984), the Court introduced a new inducement theory of secondary copyright infringement liability. Recognizing the need both to respect copyright and promote continued technological advance, the Court struck a balance:
"[O]ne who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties…[M]ere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as offering customers technical support or product updates, support liability in themselves. The inducement rule, instead, premises liability on purposeful, culpable expression and conduct, and thus does nothing to compromise legitimate commerce or discourage innovation having a lawful purpose."
Conclusion
The Supreme Court’s decision in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd. proved groundbreaking as expected, but the result was reached in a manner that perhaps few anticipated. Battle lines had been drawn from the very start and had hardened since then: choose copyright or technology development, but the two cannot be reconciled.
Reconciliation is exactly what the Court achieved. Alarmed by the scope of direct infringement enabled by free P2P file-sharing networks like Grokster and StreamCast and by signs of growing indifference to copyright, a unanimous Court came down firmly on the side of copyright owners. But the Justices also acknowledged the need -- the importance, really -- of not foreclosing development of new technologies, even things like P2P file-sharing networks.
It achieved that balance by (1) revalidating the primacy of copyright, even in the age of the internet, (2) reaffirming the Sony rule that requires copyright to yield to some types of new and useful technology, and (3) installing a new rule of secondary copyright liability for manufacturers who intentionally induce copyright infringement by others and profit from that, a rule which prevents them from claiming Sony is always a free pass to develop products that purposefully help to violate someone's copyright.
Some will argue that this new theory of secondary copyright infringement applies in all copyright cases. We would submit, however, that the Grokster "inducement" theory of secondary liability is intended to distinguish only between new technologies immune to copyright infringement liability under Sony, and new technologies not subject to that immunity. In our view, Grokster is a clarification of Sony and is not meant to be a generic expansion of secondary copyright liability.
© Matthew Joseph 2005. 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.