Stakes Rise As U.S. Supreme Court Hears Downloading Showdown

The Supreme Court appeared wary on March 29th of punishing peer-to-peer downloading services like Grokster for copyright violation, in spite of arguments by a lawyer for the recording and movie industries that they amount to “a gigantic infringement machine.”

An hour of spirited oral arguments in the case MGM Studios Inc. v. Grokster Ltd., 125 S. Ct. 1605 (U.S., 2005) played out before a courtroom packed with intellectual property lawyers and entertainment industry representatives.

Justices showed a remarkable degree of familiarity with the download technology, with Justice David Souter ' who still does not use a personal computer ' speaking easily of iPod downloads.

But the Court was clearly divided, with several justices expressing frustration over the dearth of factual findings about the magnitude of copyright infringement in the case. The fact that the dispute was appealed only after a summary judgment ruling in favor of Grokster made it appear possible that the Court might put off a ruling by remanding it to lower courts to develop the record.

But there was no disputing that several justices expressed concern that shutting down or punishing downloading might keep Grokster or future software innovators from developing a market for noninfringing uses ' a market that might not emerge until after the illegal uses establish the software's brand.

Justice Antonin Scalia likened Grokster to the inventor of the Xerox photocopying machine, who, Scalia said, surely must have known that his initial cash flow would come from customers making illegal copies. Such innovators would be reluctant to create new products, Scalia said, if the high court laid down a rule that would allow copyright suits to shut them down “right out of the box.”

But other justices also fretted that the millions of illegal downloads cited by the entertainment industry have created a business founded on illegality.

“You want to say that unlawful uses can be used as startup capital” for a new company, Justice Anthony Kennedy said to Grokster lawyer Richard Taranto of Washington, DC's Farr & Taranto.

Donald Verrilli Jr. of Jenner & Block, arguing on behalf of the entertainment industry, set the tone by asserting that Grokster and companies like it had established their businesses solely on a foundation of intentional and knowing copyright infringement. “It's not just seed money, it's the whole business.”

By using Grokster software, computer users can download songs and movies for free from other computers ' rather than from the kind of centralized sources that got predecessor Napster shut down for copyright infringement.

“The scale of the whole thing is mind-boggling,” said Verrilli, who said the software had enabled 2.6 billion illegal downloads a month and had drained 25 percent of the industry's revenue since “the onslaught” of Grokster several years ago.

But prominent in the minds of the justices was the Court's 1984 Sony Corp. v. Universal City Studios Inc. decision, which allowed the development of VCRs because they had “substantial” legal uses in addition to copyright-infringing applications.

“Conceptually, there are really excellent noninfringing uses” for downloading, said Justice Stephen Breyer, including the distribution of works in the public domain.

Verrilli emphasized another part of the test for infringement: Whether there is “active encouragement” of illegal uses. He said evidence of inducement is abundant in the case, though his adversary Taranto later said there was “not one bit of evidence” that Grokster encouraged illegal uses.

Acting Solicitor General Paul Clement also argued on the side of the entertainment industry, though he came across as more willing to tolerate new technologies, if their legal uses approached 50% – rather than the 10% or less that is assumed in the Grokster case. He urged the Court to develop a standard that is “very forgiving of new technologies.”

Taranto, representing Grokster, said there were “large and growing” noninfringing uses for the technology, and that the Sony ruling covered and protected Grokster. He also said that Grokster had not encouraged infringement because the technology operates without a “chaperone.”

Scalia countered that Grokster's more-decentralized method of downloading had been developed “solely to get around” the Napster ruling.

Taranto acknowledged that was one reason, but said there were others, including cost. Picking up on the justices' concerns about stifling innovation, Taranto said Grokster was an example of a new technology that should not be shut down by the courts but should be regulated, if at all, by Congress after weighing competing interests.

“The world of music and video distribution is changing,” Taranto said, “and making use of this extremely innovative tool.”

The Supreme Court appeared wary on March 29th of punishing peer-to-peer downloading services like Grokster for copyright violation, in spite of arguments by a lawyer for the recording and movie industries that they amount to “a gigantic infringement machine.”

An hour of spirited oral arguments in the case MGM Studios Inc. v. Grokster Ltd. , 125 S. Ct. 1605 (U.S., 2005) played out before a courtroom packed with intellectual property lawyers and entertainment industry representatives.

Justices showed a remarkable degree of familiarity with the download technology, with Justice David Souter ' who still does not use a personal computer ' speaking easily of iPod downloads.

But the Court was clearly divided, with several justices expressing frustration over the dearth of factual findings about the magnitude of copyright infringement in the case. The fact that the dispute was appealed only after a summary judgment ruling in favor of Grokster made it appear possible that the Court might put off a ruling by remanding it to lower courts to develop the record.

But there was no disputing that several justices expressed concern that shutting down or punishing downloading might keep Grokster or future software innovators from developing a market for noninfringing uses ' a market that might not emerge until after the illegal uses establish the software's brand.

Justice Antonin Scalia likened Grokster to the inventor of the Xerox photocopying machine, who, Scalia said, surely must have known that his initial cash flow would come from customers making illegal copies. Such innovators would be reluctant to create new products, Scalia said, if the high court laid down a rule that would allow copyright suits to shut them down “right out of the box.”

But other justices also fretted that the millions of illegal downloads cited by the entertainment industry have created a business founded on illegality.

“You want to say that unlawful uses can be used as startup capital” for a new company, Justice Anthony Kennedy said to Grokster lawyer Richard Taranto of Washington, DC's Farr & Taranto.

Donald Verrilli Jr. of Jenner & Block, arguing on behalf of the entertainment industry, set the tone by asserting that Grokster and companies like it had established their businesses solely on a foundation of intentional and knowing copyright infringement. “It's not just seed money, it's the whole business.”

By using Grokster software, computer users can download songs and movies for free from other computers ' rather than from the kind of centralized sources that got predecessor Napster shut down for copyright infringement.

“The scale of the whole thing is mind-boggling,” said Verrilli, who said the software had enabled 2.6 billion illegal downloads a month and had drained 25 percent of the industry's revenue since “the onslaught” of Grokster several years ago.

But prominent in the minds of the justices was the Court's 1984 Sony Corp. v. Universal City Studios Inc. decision, which allowed the development of VCRs because they had “substantial” legal uses in addition to copyright-infringing applications.

“Conceptually, there are really excellent noninfringing uses” for downloading, said Justice Stephen Breyer, including the distribution of works in the public domain.

Verrilli emphasized another part of the test for infringement: Whether there is “active encouragement” of illegal uses. He said evidence of inducement is abundant in the case, though his adversary Taranto later said there was “not one bit of evidence” that Grokster encouraged illegal uses.

Acting Solicitor General Paul Clement also argued on the side of the entertainment industry, though he came across as more willing to tolerate new technologies, if their legal uses approached 50% – rather than the 10% or less that is assumed in the Grokster case. He urged the Court to develop a standard that is “very forgiving of new technologies.”

Taranto, representing Grokster, said there were “large and growing” noninfringing uses for the technology, and that the Sony ruling covered and protected Grokster. He also said that Grokster had not encouraged infringement because the technology operates without a “chaperone.”

Scalia countered that Grokster's more-decentralized method of downloading had been developed “solely to get around” the Napster ruling.

Taranto acknowledged that was one reason, but said there were others, including cost. Picking up on the justices' concerns about stifling innovation, Taranto said Grokster was an example of a new technology that should not be shut down by the courts but should be regulated, if at all, by Congress after weighing competing interests.

“The world of music and video distribution is changing,” Taranto said, “and making use of this extremely innovative tool.”