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On June 27, 2005, the United
States Supreme Court handed down its decision in MGM v. Grokster. That case
involved an appeal from the Ninth Circuit by MGM, various record labels and
other content owners of an adverse decision in their attempt to hold Grokster
and other peer-to-peer network companies liable for copyright infringement. MGM
and the other content owners had initially filed a lawsuit against Grokster and
other peer-to-peer network technology companies to hold them liable for damages
resulting from their supplying the technology that enabled users to trade online
copyrighted works. The Ninth Circuit, upholding the District Court’s finding,
held that the technology companies could not be held either vicariously liable
or liable for contributory copyright infringement. In coming to its conclusion,
the Ninth Circuit interpreted the Sony v. Betamax case in holding that
the distribution of a commercial product capable of substantial noninfringing
uses could not give rise to contributory liability for infringement unless the
distributor had actual knowledge of specific instances of infringement and
failed to act on that knowledge. Because the Ninth Circuit found the technology
company’s software to be capable of substantial noninfringing uses and because
respondents had no actual knowledge of infringement resulting from the
software’s decentralized architecture, the court held that they were not
liable. (The architecture of the defendant’s file trading network is an open
network. That is, it does not have a central server like the old Napster
network but rather uses nodes and supernodes; computer systems that are owned by
users of the software and have no relationship to the defendants.) The Ninth
Circuit also held that the defendants did not materially contribute to their
user’s infringement because the users themselves searched for, retrieved and
stored the infringing files, with no involvement by respondents beyond providing
the software in the first place. Finally, the court held that the defendants
could not be held liable under a vicarious infringement theory because the
defendants did not monitor or control the software use and had no agreed upon
right or current ability to supervise its use and had no independent duty to
police infringement
The Supreme Court stated that the Ninth Circuit read the Sony case too
broadly. Instead, the Supreme Court stated that the test for contributory or
vicarious liability revolves around the intent of the defendant, namely did the
defendant distribute its device with the object of promoting the devices used to
infringe the copyrighted works of third parties, as shown by clear expression on
other affirmative steps taken to foster infringement. If the defendant goes
beyond mere distribution with the knowledge of third party action, the
distributor is liable for the resulting acts of an infringement by third parties
using the devices, regardless of the devices lawful uses.
What will this decision really do in the way of advancing the
entertainment industry’s fight against illegal file trading, and how does this
affect the growth of new technology? Numerous pundits claim to have the
answer. However, human nature being what it is, I fail to see how anyone can
predict the long term ratifications of this decision. As a practical matter I
believe that if a company creates a product with the primary intent that it be
used for an illegal purpose, the company should be held liable. If Grokster and
the other defendants built a business model that depended on and encouraged
users to engage in illegal file trading, then they should be held liable.
Representing record labels, television production companies, and other
content owners, I understand how piracy affects their bottom line. However, if
illegal activity is an incidental byproduct to an otherwise productive and
beneficial technology that is a cost of societal advancement that content owners
have to bear.
The problem with the Grokster decision is how does one establish a
company’s principal intent? Unfortunately, unless the Company makes an express
statement the only way is through litigation. While I don’t think that the
Grokster decision is death knell for new technology as some pundits declare, I
do see how, as a result of this decision litigation can be used to slow or quash
the growth of new technology. This is a real possibility; especially when we
are dealing with the entertainment industry. I have found that some
entertainment industry companies are reluctant to venture outside of their known
safety zone. They’re reticent to try new things that challenge or disrupt their
existing business model. From a business perspective, I can understand this.
Nobody likes to have their bottom line affected. However, technological growth
depends on innovative people pushing boundaries. I would hate to see the
Grokster decision slow technological advances that can, in the long run, be
beneficial to all of us.
