Interpreting Court's 'Grokster' Ruling In Light of 'Napster' Case Precedent

To be liable for contributory infringement, a party must have knowledge of a directly infringing activity and materially contribute to the infringing activity. Under Sony Corp. of America v. Universal City Studios Inc., 464 U.S. 417, 104 S. Ct. 774 (1984), constructive knowledge of infringing activity from technology that also has substantial non-infringing uses isn't enough to impose liability. Rather, under Napster, contributory infringement occurs only if a defendant has actual knowledge of specific infringement at a time at which the defendant contributes to the infringement and then fails to act upon the knowledge. The Grokster court pointed out several substantial noninfringing uses of the defendants' file-sharing programs, including searching public domain materials and distributing movie trailers.

In Napster, the appeals court found actual knowledge based on a document by a Napster founder citing the need to be ignorant of users' names and Internet addresses because 'they are exchanging pirated music,' and on notifications Napster had received from the Recording Industry Association of America of more than 12,000 infringing files on Napster's system. But in the Grokster case, 'a massive volume of similar evidence' was insufficient to establish actual knowledge because 'Plaintiffs' notices of infringing conduct are irrelevant if they arrive when Defendants do nothing to facilitate, and cannot do anything to stop, the alleged infringement.' The district court acknowledged that 'it is undisputed that Defendants are generally aware that many of their users employ Defendants' software to infringe copyrighted works.' But the district court added that the fundamental issue was 'whether actual knowledge of specific infringement accrues at a time when either Defendant materially contributes to the alleged infringement, and can therefore do something about it.'

The Ninth Circuit had determined that Napster materially contributed to infringement by providing support services for its users. This included software, servers, search engine and means for enabling users to interact with each other. That Napster kept a central list of files on users' computers made it 'the axis of the file-sharing network's wheel. When Napster closed down, the Napster file-sharing network disappeared with it,' the Grokster court noted. 'Thus, here,' the Grokster court continued, 'the critical question is whether Grokster and StreamCast do anything, aside from distributing software, to actively facilitate ' or whether they could do anything to stop ' their users' infringing activity.'

Grokster offers users a start page and includes advertisements but has no centralized network for file sharing. And even though Grokster users are aided by supernodes, which collect information from other users' computers, file sharers currently connect to supernodes independent of Grokster, the district court emphasized. Unlike Grokster, StreamCast has access to the source code for its Morpheus file-sharing program, but is more decentralized than Grokster and uses no supernodes. For the district court, a key distinction between Napster and the Grokster defendants was that 'neither Grokster nor StreamCast provides the 'site and facilities' for direct infringement.' Routine, non-specific technical assistance that Grokster and StreamCast give its users didn't create the infrastructure necessary to establish material contribution to infringement, the district court concluded.

To find various liability, a defendant must receive a direct financial benefit and have the right and ability to supervise the infringing conduct.

But the district court noted on this issue that while Napster was able to supervise its users' conduct, the Grokster defendants lacked control over their file-sharing networks.

Clearly, the direct infringement findings in both Napster and Grokster give entertainment companies solid ground for taking legal action against file-sharing consumers. This is bolstered by the federal district court rulings in Washington, DC, that Internet service providers can be required under the Digital Millennium Copyright Act to reveal the names of infringing customers, In re: Verizon Internet Services Inc., 240 F. Supp. 2d 24 (2003); In re: Verizon Internet Services Inc., 03-MS-0040 (April 14), and by the recent quick settlements by four college students sued by the record industry for digital downloading operations. Record companies are also pursuing the novel strategy of suing venture capitalists that fund file-sharing technology. (Universal Music and EMI have sued Napster investors Hummer Winblad Venture Partners in Los Angeles federal court seeking $150,000 per infringement, plus punitive damages ' a total amount that would exceed Hummer Winblad's original investment. UMG Recordings Inc. v. Hummer Winblad Venture Partners, 03-2785.)

But much of the effort to stop what appears to be unstoppable free file-sharing remains in the court of public opinion. However, a sampling of press editorials following the Grokster decision shows a public consensus in favor of the district court's ruling. Criticizing the entertainment industry's effort to stop the new technology, the Memphis Commercial Appeal wrote, for example, 'If we had listened to the potentially affected businesses at the time, we wouldn't have videocassette recorders, copying machines, tape cassettes or video cameras. It's not too much of a stretch to say if we had listened to vaudeville, we wouldn't have movies.'

The recent ruling by the U.S. District Court for the Central District of California upholding the distribution of decentralized peer-to-peer file-sharing software has made the entertainment industry's legal battle to eliminate the free exchange of content over the Internet seem even more insurmountable. Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., 01-08541. While industry executives tout a silver lining in District Judge Stephen V. Wilson's finding that consumers commit direct copyright infringement by using such technology, this nevertheless is the first major ruling against the entertainment business on the file-sharing issue. The odds on the entertainment industry prevailing on appeal are tight because the district court relied primarily on distinguishing the Ninth Circuit's holding in A & M Records Inc. v. Napster Inc. , 239 F.3d 1004 (2001). But a close look at Grokster provides some useful ideas for the entertainment industry to consider in its fight.

The plaintiffs in the consolidated case included film studios, record companies and music publishers who alleged that the active defendants Grokster and StreamCast Networks Inc., both of which offer free decentralized peer-to-peer file-sharing software, were liable for contributory and vicarious copyright infringement. The defendants moved for summary judgment to dismiss the case. (StreamCast also moved for further discovery on whether the music publishers owned the song copyrights in question, but the district court denied the motion on the ground that it was undisputed that the publishers owned at least some of those copyrights.)

The district court noted the challenge in applying existing laws to new technology. But the court quickly found direct infringement by consumers. (To reach the contributory and vicarious infringement claims, a district court must first determine whether users are guilty of direct infringement.) In the Napster case, the appeals court had used a traditional fair-use analysis to conclude that the digital retransmission of works didn't constitute a 'transformation' for fair-use purposes. Citing Napster, the Grokster district court simply noted that many Grokster and StreamCast software users make unauthorized copies of copyrighted media files and thus commit direct infringement.

To be liable for contributory infringement, a party must have knowledge of a directly infringing activity and materially contribute to the infringing activity. Under Sony Corp. of America v. Universal City Studios Inc. , 464 U.S. 417, 104 S. Ct. 774 (1984), constructive knowledge of infringing activity from technology that also has substantial non-infringing uses isn't enough to impose liability. Rather, under Napster, contributory infringement occurs only if a defendant has actual knowledge of specific infringement at a time at which the defendant contributes to the infringement and then fails to act upon the knowledge. The Grokster court pointed out several substantial noninfringing uses of the defendants' file-sharing programs, including searching public domain materials and distributing movie trailers.

In Napster, the appeals court found actual knowledge based on a document by a Napster founder citing the need to be ignorant of users' names and Internet addresses because 'they are exchanging pirated music,' and on notifications Napster had received from the Recording Industry Association of America of more than 12,000 infringing files on Napster's system. But in the Grokster case, 'a massive volume of similar evidence' was insufficient to establish actual knowledge because 'Plaintiffs' notices of infringing conduct are irrelevant if they arrive when Defendants do nothing to facilitate, and cannot do anything to stop, the alleged infringement.' The district court acknowledged that 'it is undisputed that Defendants are generally aware that many of their users employ Defendants' software to infringe copyrighted works.' But the district court added that the fundamental issue was 'whether actual knowledge of specific infringement accrues at a time when either Defendant materially contributes to the alleged infringement, and can therefore do something about it.'

The Ninth Circuit had determined that Napster materially contributed to infringement by providing support services for its users. This included software, servers, search engine and means for enabling users to interact with each other. That Napster kept a central list of files on users' computers made it 'the axis of the file-sharing network's wheel. When Napster closed down, the Napster file-sharing network disappeared with it,' the Grokster court noted. 'Thus, here,' the Grokster court continued, 'the critical question is whether Grokster and StreamCast do anything, aside from distributing software, to actively facilitate ' or whether they could do anything to stop ' their users' infringing activity.'

Grokster offers users a start page and includes advertisements but has no centralized network for file sharing. And even though Grokster users are aided by supernodes, which collect information from other users' computers, file sharers currently connect to supernodes independent of Grokster, the district court emphasized. Unlike Grokster, StreamCast has access to the source code for its Morpheus file-sharing program, but is more decentralized than Grokster and uses no supernodes. For the district court, a key distinction between Napster and the Grokster defendants was that 'neither Grokster nor StreamCast provides the 'site and facilities' for direct infringement.' Routine, non-specific technical assistance that Grokster and StreamCast give its users didn't create the infrastructure necessary to establish material contribution to infringement, the district court concluded.

To find various liability, a defendant must receive a direct financial benefit and have the right and ability to supervise the infringing conduct.

But the district court noted on this issue that while Napster was able to supervise its users' conduct, the Grokster defendants lacked control over their file-sharing networks.

Clearly, the direct infringement findings in both Napster and Grokster give entertainment companies solid ground for taking legal action against file-sharing consumers. This is bolstered by the federal district court rulings in Washington, DC, that Internet service providers can be required under the Digital Millennium Copyright Act to reveal the names of infringing customers, In re: Verizon Internet Services Inc., 240 F. Supp. 2d 24 (2003); In re: Verizon Internet Services Inc., 03-MS-0040 (April 14), and by the recent quick settlements by four college students sued by the record industry for digital downloading operations. Record companies are also pursuing the novel strategy of suing venture capitalists that fund file-sharing technology. (Universal Music and EMI have sued Napster investors Hummer Winblad Venture Partners in Los Angeles federal court seeking $150,000 per infringement, plus punitive damages ' a total amount that would exceed Hummer Winblad's original investment. UMG Recordings Inc. v. Hummer Winblad Venture Partners, 03-2785.)

But much of the effort to stop what appears to be unstoppable free file-sharing remains in the court of public opinion. However, a sampling of press editorials following the Grokster decision shows a public consensus in favor of the district court's ruling. Criticizing the entertainment industry's effort to stop the new technology, the Memphis Commercial Appeal wrote, for example, 'If we had listened to the potentially affected businesses at the time, we wouldn't have videocassette recorders, copying machines, tape cassettes or video cameras. It's not too much of a stretch to say if we had listened to vaudeville, we wouldn't have movies.'