P2P Filesharing - The Supreme Court Speaks in MGM v. Grokster
Note: access to an entire paper written on this subject is available here: GOOGLE BOOK SEARCH, BITTORRENT AND COPYRIGHT LAW
Normative Summary
While both Napster and Aimster were found liable for contributory copyright infringement, the circuit courts had two different tests that emerged to determine whether the defendant had the requisite knowledge required by the second element of the “staple article of commerce” doctrine adopted from patent law in Sony. In the Ninth Circuit, drawing heavily on Napster’s centralized architecture the bright line test required the prosecution to show that 1) the defendant had reasonable knowledge of specific infringing conduct, and 2) the defendant failed to act to prevent the distribution of infringing works. In the Seventh Circuit, the court would apply Posner’s balancing test that would weigh the evidence including 1) percentage of noninfringing to infringing use, 2) whether the defendant “invited” infringement (e.g. in its documentation and tutorials), and 3) whether defendant took steps to eliminate infringing uses.
Procedural History
In Grokster, the music and motion picture industries brought an action seeking an injunction against two distributors of P2P software, Grokster and StreamCast (hereafter “Grokster”), under a theory of contributory infringement. This was the first time the Ninth Circuit was presented with a P2P copyright case involving technologies with decentralized architectures, different from Napster’s centralized index server approach. The District Court granted summary judgment in favor of Grokster saying it was not liable. In upholding summary judgment, the Ninth Circuit followed its analysis in Napster and applied its interpretation of the Sony doctrine to the knowledge requirement of contributory infringement. It therefore applied the tests from Sony and Napster and found that since Grokster was capable of substantial, commercially viable noninfringing uses, MGM had the burden of showing that the Grokster had reasonable direct knowledge of specific infringing conduct. The court held that, given the decentralized nature of Grokster’s product, the prosecution failed to show that Grokster had this direct knowledge. Therefore, the court held that Grokster was simply a distributor of software and that they did not materially contribute to the copyright infringement of their users. Having a decentralized technical architecture seemed to be the key for the software distributors to be able to escape liability. In addition to eliminating Grokster’s knowledge of direct infringement, it also prevented Grokster from having the ability to supervise or monitor how their end users were using the tool.
Supreme Court
Majority Opinion
When Grokster reached the Supreme Court, many believed the Court would use the case to decide the appropriate test for determining whether the knowledge element of the staple article of commerce doctrine requiring knowledge of direct infringement. The Ninth circuit’s more technology friendly approach stated that a distributor of software would only be held liable for contributory infringement if it had reasonable knowledge of specific infringement and that this knowledge does not exist with a decentralized P2P architecture. On the other hand, the Seventh Circuit’s more copyright holder friendly balancing test gave the court more discretion in weighing the pros and cons of the technology against the detriment of the copyright infringement. Which approach would the Supreme Court adopt?
Rather than answering this question, the majority opinion of the Supreme Court avoided the question altogether and decided the case by using another principle of patent law – the inducement theory. Under the inducement theory, the Court held that a software distributor that promotes the use of its tool to infringe copyright “as shown by clear expression or other affirmative steps taken to foster infringement” is liable for the resulting infringement of their users. Therefore, the Court held that the Ninth Circuit’s granting of summary judgment was inappropriate because they did not address whether Grokster took affirmative steps to induce its users to commit copyright infringement. The Court laid out the test under the inducement theory stating that a company is liable for contributory infringement if they 1) intend to bring about infringement, 2) by distributing a device suitable for infringing use, and 3) actual infringement occurred. The Court reconciled this new rule with the protection Sony provided under the staple article of commerce doctrine by saying that Sony dealt with the narrower issue of whether there is “a claim of liability based solely on distributing a product with alternative lawful and unlawful uses, with knowledge that some users would follow the unlawful course.” Rather, in Grokster the Court was addressing whether there is a claim when there is actual intent and affirmative steps taken to encourage copyright infringement.
The majority opinion rejected the Ninth Circuit’s interpretation of Sony that “whenever a product is capable of substantial lawful use, the producer can never be held contributorily liable for third parties’ infringing use…even when actual purpose to cause infringing use is shown…unless the distributors had specific knowledge of infringement at a time at which they contributed to the infringement, and failed to act upon it.” Rather, the Court held that the rule in Sony does not require courts to ignore evidence of the distributor’s intent. The majority opinion then applied this new inducement test to the facts in Grokster. Given that Grokster clearly distributed its product and that there was fairly substantial evidence that users used the software to commit actual infringement, the only element of the inducement rule the Court addressed at length was whether Grokster took affirmative steps to encourage its users to commit copyright infringement. The Court noted a number of areas that suggested that Grokster had induced infringement including 1) advertising and instructing how to infringe, 2) targeting former Napster users known to infringe, 3) failing to take steps to prevent infringement, 4) profiting from infringement, and 5) simply distributing a tool capable of infringement. Regarding advertising, the Court said that advertising an infringing use or instructing how to engage in an infringing use can show an affirmative intent that the product be used to infringe and can expose the software distributor to liability. The Court held that Grokster was not merely a passive recipient of information about infringing use. Rather, it voiced the objective that recipients use it to download copyrighted works, and took active steps to encourage infringement. The Court noted that Grokster distributed an electronic newsletter containing links to articles promoting its software’s ability to access popular copyrighted music.
The Court also discussed Grokster’s similarity to Napster, a tool used for infringement. Internal e-mails said they wanted to be positioned to capture the flood of Napster’s users that would be “actively looking for an alternative.” Furthermore, the CTO of Streamcast even said one of their goals was to “get in trouble with the law and get sued.” The Court even said the similarity of their product names was evidence of their intent to profit off of their users infringement. Regarding preventing infringement, the court noted that Grokster had made no attempt to use filtering technology to help discourage copyright infringement. According to the Court, this evidence underscored Grokster’s intentions to have their users commit copyright infringement. And finally, the Court noted that Grokster’s revenue stream was generated by advertising. Therefore, given that a large number of Grokster users (90%) were using the tool to commit copyright infringement, the Court found that Grokster was profiting based on its users infringement. It had “translated demand for copyrighted materials into dollars.”
Based on all this evidence the Court held that Grokster’s unlawful objective was “unmistakeable.” By contrast, Sony did not try to profit from unlawful taping, it did not intend for its users to unlawfully tape shows, and Sony did not take affirmative steps to encourage its users to use VCRs to infringe copyrights.
The copyright holders wished that the Court had held that P2P technologies were all tools of infringement that had not reached the necessary level of substantial noninfringing uses required under Sony. Grokster, on the other hand, wanted the Court to uphold the Ninth Circuit’s decision that by nature of the decentralized architecture it had successfully avoided having the requisite knowledge of infringing activity required for contributory liability. By deciding the case using an intent-based inducement theory of contributory infringement, the majority opinion avoided this question of when a technology fails to exhibit sufficient potential for lawful uses and therefore imputes on the distributor the direct knowledge of infringement required under the staple article of commerce doctrine. Therefore, the message from the majority seems to be that under the inducement theory you must show by the defendant’s own actions and statements that his unlawful purpose disqualifies him from claiming the protection under Sony. That is, clear evidence of intentional inducement trumps, even in situations where the technology may have substantial noninfringing uses. However, the majority declined to address the conflict about when knowledge of infringement may be imputed to a P2P software distributor saying that it would “leave further consideration of the Sony rule for a day when that may be required.” While all nine justices signed on to the majority opinion, Ginsburg and Breyer both wrote separate concurrences in which they both touched on this issue. In his concurrence, Ginsburg effectively argued for the Seventh Circuit’s approach to determining the knowledge component that would require the court’s to employ a balancing test and would give them more discretion to protect copyright holders. In his concurrence, Breyer basically attacked Ginsburg’s opinion as not doing enough to protect technological innovation. He argued for something closer to the Ninth Circuit’s narrower test.
Ginsburg’s Concurrence
In Ginsburg’s concurrence, he argued that the inducement theory could lead to liability and therefore was an additional tool to protect copyright holders. However, the primary purpose of the concurrence was to say that the Ninth Circuit erred in granting summary judgment to the claim of contributory copyright infringement based on product distribution alone. In addition to addressing whether Grokster was liable under the new inducement theory, Ginsburg believed the court should reconsider whether summary judgment was appropriate for contributory infringement under the traditional test of substantial non-infringing uses under Sony. Under Ginsburg’s approach, liability could be predicated on inducing infringement or simply by distributing a product used to infringe copyrights if the product is not capable of substantial, commercially significant non-infringing uses. She argued that Grokster had not made a sufficient showing of substantial non-infringing use to qualify for summary judgment, saying that there was only “anecdotal evidence” of the P2P technologies being used for non-infringing uses. Therefore, Ginsburg argued for a balancing test more in line with Posner’s recommended balancing test in the Seventh Circuit’s Aimster decision. Ginsburg stated that determining whether there were “substantial” non-infringing uses could only be done by comparing the number or percentage of infringing use to the non-infringing uses.
Breyer’s Concurrence
Breyer’s concurrence, on the other hand, while agreeing with the majority about the potential liability under the inducement theory, disagreed vehemently with Ginsburg’s concurrence saying that the court should reconsider granting summary judgment for contributory infringement under the rule in Sony. Therefore, Breyer thought the Ninth Circuit got it right when it granted summary judgment on the issue of whether Grokster’s product was capable of substantial noninfringing uses. Breyer saw the deeper issue in this case being whether the Court should modify the Sony standard to broaden the scope of contributory copyright infringement claims as Ginsburg suggests. Breyer argued that MGM failed to demonstrate the need to modify Sony and that modifying Sony would impose significant additional risks on technological innovation. Breyer argued that Grokster passes the Sony test because it is “capable of” substantial non-infringing uses. Examples of these non-infringing uses included sharing 1) authorized copies of music from artists like Wilco, Pearl Jam, Dave Matthews, and John Mayer, 2) free electronic books and other works from online publishers, 3) public domain and authorized software such as Winzip, and 4) licensed music videos and television and movies that are distributed via digital video packaging with the permission of the copyright holder. Breyer said it was important that Sony asked whether the product was “capable of” substantial non-infringing uses. The language, he argued, suggested that a court could look at the reasonable prospect of expanded legitimate users over time. Therefore, the tool does not even require substantial non-infringing uses in the shortterm if it appears that there is a reasonable prospect for there to be substantial non-infringing uses in the future. Therefore, Breyer argued that as more and more uncopyrighted material becomes available in digital form, it is reasonable to assume that lawful P2P sharing will become more prevalent. He argued that these non-infringing uses would be likely to increase for sharing things like 1) general research information, 2) public domain films, 3) historical recordings and digital education materials, 4) personal photos, 5) licensed movies and music files, and 6) news broadcasts. For Breyer, determining whether to modify the rule from Sony, as he understands it, requires assessing whether the modification would weaken the protection of technology so much as to outweigh the new copyright-related benefits. He argued that the rule in Sony is very clear and that it rightly recognizes that the goal is not to discourage or control the emergence of new technologies, particularly ones like P2P technology that help disseminate information and ideas more efficiently and broadly. He argued that the “capable of” language in Sony is forward looking and doesn’t confine the analysis of liability to a static interpretation of the product’s existing uses. Therefore, it protects technologies that may have undeveloped future markets. Moreover, he believes the Sony rule is good because it recognizes that judges don’t have specialized technical ability to answer questions about the feasibility or commercial viability of different products. He used the example of filtering technology which Grokster argued would be very difficult and inefficient to create and implement and which MGM claimed would be very easy to do. Under Sony, Breyer believes the judge wouldn’t necessarily have to decide these types of technical questions. Moreover, Breyer argues that using a balancing test like the one proposed in Ginsberg’s concurrence would significantly weaken the law’s ability to protect new technology. To employ Ginsberg’s balancing test, defendants would potentially have to provide detailed evidence of their business plans, profitability estimates, projected feature development cycles and more in order to prove that the benefits of eventual potential lawful uses of the technology outweigh any shortterm issues of copyright infringement. Inventors and entrepreneurs would be subject to potential lawsuits and extensive trials whenever they create and distribute any sort of technology that could be used to infringe copyrights. These inventors would have no way to predict how the courts would weigh the values of infringing versus noninfringing uses. This risk and uncertainty, according to Breyer, would slow down the development of new technologies.
Finally, Breyer argued that in order to decide to modify the Sony rule to better protect copyright holders from the infringements taking place in P2P networks, MGM had to show that the benefits to better protection of copyrights clearly outweighed this weakening of technological innovation. Breyer found that the evidence did not make out a very strong case for changing the rule in Sony. He argued that it was unclear how much revenue to the copyright holders had decreased as a result of the infringement. Furthermore, he argued that part of the role of copyright protection is to ensure that there are adequate incentives to produce creative works and that there was good reason to believe that any decrease in production of creative works under the Sony rule was not substantial. In particular, revenue flowing to musical artists from performances and other sources would remain stable even if the entire CD market was replaced by P2P distribution. He went so far as to say that it would be “silly” to think that music, “a cultural form without which no human society has existed”, will go away because of P2P technology. In fact, Breyer quoted surveys saying that 70% of musicians thought that P2P technology was a minor threat to no threat at all to creative industries. Moreover, Breyer argued that copyright holders had other avenues they could pursue to reduce infringement of their works. For example, they could go after the direct infringers of the copyrights. Breyer quoted statistics showing that when copyright holders pursued these types of lawsuits they had a significant deterring effect. Moreover, the copyright holders could be proactive in developing new technology that would help reduce unlawful infringement. For example, new technologies like “digital watermarking” and “digital fingerpringing” could be used to encode information into files that could help prevent their misuse. Additionally, Breyer quoted evidence that people were willing to pay for P2P style services that sold music over the internet. He argued that many consumers that initially appreciated the convenience of a service like Grokster are now migrating to lawful services in which the cost is worth the benefit of additional convenience and flexibility without the risks of engaging in unlawful infringement. And finally, Breyer argued that courts are less well suited than Congress to attempting to balance the competing interest that inevitably arise with new, emerging technologies.
