Grokster's and StreamCast's “unlawful objective is
unmistakable,” wrote Justice David H Souter, delivering the opinion
of the court in a unanimous decision that has delighted the
entertainment industry.
Background
The case dates back to 2001, when the entertainment industry
filed a copyright infringement action against two file-sharing
service providers – StreamCast Networks Inc., the company behind
the Morpheus file-sharing software, and Grokster Ltd.
The lawsuit accused the two firms of providing the means for
millions of people to illegally copy and share copyrighted music,
software and films over the internet. But the claim was dismissed
by the Ninth Circuit Court of Appeals in August last year on the
grounds that, while the companies provide the software used by
file-sharers to swap illegally-copied digital files, the software
can also be used for legitimate purposes.
This followed a 1984 Supreme Court decision on Sony's Betamax
video recorder. Sony had been accused of infringing TV and movie
studios' copyrights. But Sony won that case because the machine had
significant non-infringing uses. since recording a TV programme to
watch it later, known as 'time-shifting,' was deemed to be a fair
use.
Yesterday's ruling
MGM and others in the recording industry appealed Grokster's
Court of Appeals victory to the Supreme Court. Many expected the
case to focus on the Sony ruling, possibly even to overturn it. But
the Supreme Court decided not to focus on the possible infringing
and non-infringing uses of the file-sharing software. Instead, it
concentrated on the actions of the Grokster and StreamCast.
It found that the Court of Appeals had made an error by
interpreting the Sony ruling to mean, “that whenever a product is
capable of substantial lawful use, the producer can never be held
contributorily liable for third parties’ infringing use of it”.
“Nothing in Sony requires courts to ignore evidence of intent if
there is such evidence,” said the Court, which then refused to
consider the Sony case any further. It is enough to note, argued
Justice Souter, that the Court of Appeals misunderstood the Sony
ruling – "and to leave further consideration of the Sony rule for a
day when that may be required."
Justice Souter continued: “We hold that one 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.”
He then clarified the degree of intent necessary:
“mere 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
promise.”
He added: "The classic instance of inducement is by
advertisement or solicitation that broadcasts a message to
stimulate others to commit violations."
This was the downfall of Grokster and StreamCast. Evidence
showed that, unlike Sony's promotion of the Betamax VCR, the P2P
companies "acted with a purpose to cause copyright violations by
use of software suitable for illegal use."
The Court pointed to the two companies' efforts to supply
services to former Napster users, a community that, since the
demise of Shawn Fanning's original service was, in the words of
Justice Souter, "deprived of a mechanism to copy and distribute
what were overwhelmingly infringing files". He said this effort
indicated "a principal, if not exclusive, intent on the part of
each to bring about infringement."
The opinion went on to note that neither company attempted to
develop filtering tools or other mechanisms to diminish the
infringing activity using their software; and that with StreamCast
and Grokster making their money by selling advertising space,
directing ads to the screens of computers that use their software,
"the commercial sense of their enterprise turns on high-volume use,
which the record shows is infringing."
"This evidence alone would not justify an inference of unlawful
intent," wrote Justice Souter, "but viewed in the context of the
entire record its import is clear."
"The unlawful objective is unmistakable," he concluded.
The case has been sent back to the District Court which must
reconsider MGM's motion for summary judgment. If MGM succeeds, the
issue of damages will arise. The Supreme Court acknowledged that
this will be a tricky issue due to the inexact calculation of
infringing use.
Reactions to the ruling
The music industry hailed the ruling. According to Mitch
Bainwol, Chairman and CEO of the Recording Industry
Association of America:
"With this unanimous decision, the Supreme
Court has addressed a significant threat to the US economy and
moved to protect the livelihoods of the more than 11 million
Americans employed by the copyright industries. The Supreme Court
has helped to power the digital future for legitimate on-line
businesses – including legal file sharing networks – by holding
accountable those who promote and profit from theft."
There was support from the software industry too. According to
Business Software Alliance President and CEO Robert Holleyman, the
decision “reaffirms the need for balance between innovation and
deterring piracy.”
"We are gratified that the opinion ensures that persons
intentionally and actively engaged in encouraging others to
infringe, 'inducing infringement,' can be held liable under the law
for their acts. The application of this new standard should make a
real and positive difference in combating on-line piracy," he
added.
But Fred von Lohmann of the Electronic Frontier Foundation
(EFF), which supported Grokster and StreamCast in the appeal, said:
“Today the Supreme Court has unleashed a new era of legal
uncertainty on America's innovators.”
The EFF described the decision as creating a new theory of
copyright liability that measures whether manufacturers created
their wares with the "intent" of inducing consumers to
infringe.
It means that inventors and entrepreneurs will not only bear the
costs of bringing new products to market, but also the costs of
lawsuits if consumers start using their products for illegal
purposes, said the EFF.
"The newly announced inducement theory of copyright liability
will fuel a new generation of entertainment industry lawsuits
against technology companies,” warned Lohmann. “Perhaps more
important, the threat of legal costs may lead technology companies
to modify their products to please Hollywood instead of
consumers."
According to Peter Jamieson, General Counsel of the UK's music
industry body, the British Phonographic Industry, the real
significance of the judgment is that it paves the wave for the
launch of legal peer-to-peer networks.
"The record industry has never been opposed to new technology,"
he said. "What we have been against is people taking music without
permission. Unfortunately the growth of illegal file-sharing
networks has acted as a disincentive for companies to invest in
legal services. With the rule of law now made clear, this should
allow all kinds of new legal services – including P2P – to develop
and grow. That has to be good news for artists, for the record
industry – and for the consumer."
