<b>Commentary:</b> 'Unanimous' Vote In Grokster Has Split Views

The future direction of digital technologies was on the line when the U.S. Supreme Court heard arguments in March over peer-to-peer (P2P) file-sharing software. And few were predicting that the justices would easily reach their decision. Given the difficult copyright law and policy issues in the case, it seemed highly unlikely that the justices could all agree. But 3 months after oral arguments, the court surprised many observers by issuing a unanimous decision ' at least as to the main holding. Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., 125 S. Ct. 2764 (2005).

In its opinion, the Supreme Court clearly focused the test for copyright infringement liability on the subjective question of the purpose of the software's distribution ' an approach that better comports with basic notions of fairness than that of the courts below. But read together, the plurality opinion and two concurring opinions raise a new set of disquieting questions.

The plaintiffs ' motion-picture studios, recording companies, songwriters and music publishers ' who sued Grokster and StreamCast Networks Inc., in California federal court, alleged that the defendants were liable for two types of secondary copyright infringement: Contributory infringement, where a defendant induces or materially contributes to direct infringement with knowledge of that direct infringement; and vicarious infringement, where a defendant profits from direct infringement and has the right and ability to supervise the direct infringer.

The defendants conceded that most users of their software downloaded copyrighted files, but contended that the defendants themselves were protected from liability by the Supreme Court's 1984 decision Sony Corporation of America v. Universal City Studios Inc., 464 U.S. 417, 104 S. Ct. 774 (1984) (the Betamax case). In Sony, the court refused to impose liability for secondary copyright infringement on distributors of Betamax videotape recorders, who supplied the means to infringe with knowledge that some users would infringe, because the recorders were also capable of “substantial” or “commercially significant” noninfringing uses.

Under the Betamax rule, the trial court granted summary judgment in favor of Grokster and StreamCast. The U.S. Court of Appeals for the Ninth Circuit affirmed, finding that Sony required reasonable knowledge of specific acts of infringement, as well as a failure to act on that knowledge, before a distributor of a commercial product capable of substantial noninfringing uses could be found liable for contributory infringement. Grokster and StreamCast lacked the requisite knowledge and material contribution. The Ninth Circuit and the trial court also agreed that the defendants' distribution of their software didn't give rise to vicarious infringement.

The Grokster plaintiffs petitioned the U.S. Supreme Court for certiorari, contending that there was a split between the Ninth Circuit's reading of the Betamax decision and the Seventh Circuit's 2003 decision in In re Aimster Copyright Litigation, 334 F.3d 643 (7th 2003.) (Aimster was another variety of P2P software.)

Justice David Souter's opinion for the unanimous Supreme Court was limited to the inducement theory and didn't even consider vicarious liability. Shifting the focus from the objective issue of software design to the subjective issue of the defendants' intent in distributing the software, the court found that the Ninth Circuit had erred in its application of the Betamax ruling. The exception to secondary infringement liability articulated in the Betamax decision, Souter wrote, was limited to cases of products capable of substantial non-infringing uses where intent to cause infringement was imputed only from the distribution or design of the product with knowledge that it is used for infringement. The Betamax safe-harbor rule was not applicable to cases where there was evidence of an actual purpose to cause infringement.

The court found ample evidence of such intent on the part of Grokster and StreamCast. After the “notorious file-sharing service” Napster was sued for facilitation of copyright infringement by its users, Grokster and StreamCast both sought, through promotion and marketing, to attract the business of former Napster users. Neither company tried to develop filtering tools or other means to limit infringement by users of its P2P software. And the defendants' business model, which derived its profits from selling advertising space rather than the software itself, depended on having a large number of users.

So the Grokster case was remanded for trial. Given Souter's assessment of the evidence of unlawful intent as “unmistakable,” it seems unlikely that the trial court will ultimately rule in favor of the defendants on this issue.

Justices' Splinter Groups

But the nine justices split into three groups on the question of whether liability could be imposed without active inducement. Three justices (Souter, Antonin Scalia and Clarence Thomas) didn't speak to the question of whether there was a triable issue on the Betamax standard because the court's analysis of active inducement was sufficient basis for the reversal of summary judgment.

In the first concurring opinion, however, Justice Ruth Bader Ginsburg, joined by Chief Justice William Rehnquist and Justice Anthony Kennedy, found that the Sony standard wasn't satisfied. There was insufficient evidence that the defendants' software was capable of substantial or commercially significant noninfringing uses. Ginsburg chastised the trial court for the inaccurate statement that it was “undisputed that there are substantial noninfringing uses of the defendants' software.” She also criticized the courts below for failing to see how “markedly” Grokster differs from the Betamax ruling: The Betamax users were primarily engaged in the fair use of “time-shifting” (that is, recording TV shows at home to watch at a more convenient time). There was no commensurate finding of fair use of Grokster's or StreamCast's software. Moreover, the evidence of noninfringing uses of the software was scanty ' and far inferior to the plaintiffs' evidence that the software was “overwhelmingly used to infringe,” wrote Ginsburg. If the trial court didn't find against Grokster and StreamCast on summary judgment based on active inducement, Ginsburg emphasized that the Ninth Circuit should reconsider, on a fuller evidentiary record, this aspect of Betamax.

In a separate concurring opinion, Justice Stephen Breyer, joined by Justices John Paul Stevens and Sandra Day O'Connor, strongly disagreed with Ginsburg's analysis, which he viewed as too strict an interpretation of Sony. Breyer found that Grokster's software was capable of substantial or commercially significant noninfringing uses. According to Breyer, Sony establishes a clear rule allowing courts to find contributory infringement only where a technology with dual uses “will be used almost exclusively to infringe copyrights” or where the technology's distributors actively induce infringement. This rule gave rise to the correct policy balance, Breyer wrote, between giving effective force to copyrights and protecting entrepreneurs as they introduce new products.

Under the Grokster ruling, the focal issue for determining active inducement has shifted from software design to “statements or actions directed to promoting infringement.” This seems right. To impute a subjective intent by looking only at an objective design while disregarding the purpose underlying that design seems to violate basic principles of common sense and fairness. But the shift in focus also leaves unanswered questions about evidence, the future fate of Sony and the practical impact on technological innovation.

Souter's opinion was clear that mere knowledge that a product may be put to infringing uses is insufficient to establish active inducement. It also said that evidence that a defendant has advertised infringing uses or provided instruction on how to use a product to infringe would suffice. But what other types of evidence will support active inducement? Also, how much weight should be given to the supporting evidence that the court described as insufficient by itself to establish a claim ' that is, the failure to develop filtering or other tools to stop infringement, and reliance on a business model that profits from infringement?

The court's focus on subjective intent also leaves a big question mark over the fate of the Betamax ruling. Souter's opinion explicitly declined to revisit the Sony Betamax decision, despite the plaintiffs' urging that the court more narrowly interpret the Betamax requirement that a product be capable of significant noninfringing uses to gain safe harbor. The two concurring opinions that did address this issue effectively cancelled each other out.

How will the Grokster decision affect future technological innovation and the use of P2P software? It is possible, but far from certain, that the ongoing legal uncertainties will impede invention by raising fears of unpredictable litigation. The reaction of P2P users is equally difficult to predict. No one knows yet whether greater numbers of them will seek the safety of paid content services authorized by copyright owners, or whether they will flock to some new technology to download copyrighted files for free. Whether any such new technology can be developed, distributed and successfully evade a legal attack by the content industries is also open to question. The Supreme Court's Grokster ruling has done little to create certainty or predictability in this difficult area of the law.

The future direction of digital technologies was on the line when the U.S. Supreme Court heard arguments in March over peer-to-peer (P2P) file-sharing software. And few were predicting that the justices would easily reach their decision. Given the difficult copyright law and policy issues in the case, it seemed highly unlikely that the justices could all agree. But 3 months after oral arguments, the court surprised many observers by issuing a unanimous decision ' at least as to the main holding. Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd. , 125 S. Ct. 2764 (2005).

In its opinion, the Supreme Court clearly focused the test for copyright infringement liability on the subjective question of the purpose of the software's distribution ' an approach that better comports with basic notions of fairness than that of the courts below. But read together, the plurality opinion and two concurring opinions raise a new set of disquieting questions.

The plaintiffs ' motion-picture studios, recording companies, songwriters and music publishers ' who sued Grokster and StreamCast Networks Inc., in California federal court, alleged that the defendants were liable for two types of secondary copyright infringement: Contributory infringement, where a defendant induces or materially contributes to direct infringement with knowledge of that direct infringement; and vicarious infringement, where a defendant profits from direct infringement and has the right and ability to supervise the direct infringer.

The defendants conceded that most users of their software downloaded copyrighted files, but contended that the defendants themselves were protected from liability by the Supreme Court's 1984 decision Sony Corporation of America v. Universal City Studios Inc. , 464 U.S. 417, 104 S. Ct. 774 (1984) (the Betamax case). In Sony, the court refused to impose liability for secondary copyright infringement on distributors of Betamax videotape recorders, who supplied the means to infringe with knowledge that some users would infringe, because the recorders were also capable of “substantial” or “commercially significant” noninfringing uses.

Under the Betamax rule, the trial court granted summary judgment in favor of Grokster and StreamCast. The U.S. Court of Appeals for the Ninth Circuit affirmed, finding that Sony required reasonable knowledge of specific acts of infringement, as well as a failure to act on that knowledge, before a distributor of a commercial product capable of substantial noninfringing uses could be found liable for contributory infringement. Grokster and StreamCast lacked the requisite knowledge and material contribution. The Ninth Circuit and the trial court also agreed that the defendants' distribution of their software didn't give rise to vicarious infringement.

The Grokster plaintiffs petitioned the U.S. Supreme Court for certiorari, contending that there was a split between the Ninth Circuit's reading of the Betamax decision and the Seventh Circuit's 2003 decision in In re Aimster Copyright Litigation, 334 F.3d 643 (7th 2003.) (Aimster was another variety of P2P software.)

Justice David Souter's opinion for the unanimous Supreme Court was limited to the inducement theory and didn't even consider vicarious liability. Shifting the focus from the objective issue of software design to the subjective issue of the defendants' intent in distributing the software, the court found that the Ninth Circuit had erred in its application of the Betamax ruling. The exception to secondary infringement liability articulated in the Betamax decision, Souter wrote, was limited to cases of products capable of substantial non-infringing uses where intent to cause infringement was imputed only from the distribution or design of the product with knowledge that it is used for infringement. The Betamax safe-harbor rule was not applicable to cases where there was evidence of an actual purpose to cause infringement.

The court found ample evidence of such intent on the part of Grokster and StreamCast. After the “notorious file-sharing service” Napster was sued for facilitation of copyright infringement by its users, Grokster and StreamCast both sought, through promotion and marketing, to attract the business of former Napster users. Neither company tried to develop filtering tools or other means to limit infringement by users of its P2P software. And the defendants' business model, which derived its profits from selling advertising space rather than the software itself, depended on having a large number of users.

So the Grokster case was remanded for trial. Given Souter's assessment of the evidence of unlawful intent as “unmistakable,” it seems unlikely that the trial court will ultimately rule in favor of the defendants on this issue.

Justices' Splinter Groups

But the nine justices split into three groups on the question of whether liability could be imposed without active inducement. Three justices (Souter, Antonin Scalia and Clarence Thomas) didn't speak to the question of whether there was a triable issue on the Betamax standard because the court's analysis of active inducement was sufficient basis for the reversal of summary judgment.

In the first concurring opinion, however, Justice Ruth Bader Ginsburg, joined by Chief Justice William Rehnquist and Justice Anthony Kennedy, found that the Sony standard wasn't satisfied. There was insufficient evidence that the defendants' software was capable of substantial or commercially significant noninfringing uses. Ginsburg chastised the trial court for the inaccurate statement that it was “undisputed that there are substantial noninfringing uses of the defendants' software.” She also criticized the courts below for failing to see how “markedly” Grokster differs from the Betamax ruling: The Betamax users were primarily engaged in the fair use of “time-shifting” (that is, recording TV shows at home to watch at a more convenient time). There was no commensurate finding of fair use of Grokster's or StreamCast's software. Moreover, the evidence of noninfringing uses of the software was scanty ' and far inferior to the plaintiffs' evidence that the software was “overwhelmingly used to infringe,” wrote Ginsburg. If the trial court didn't find against Grokster and StreamCast on summary judgment based on active inducement, Ginsburg emphasized that the Ninth Circuit should reconsider, on a fuller evidentiary record, this aspect of Betamax.

In a separate concurring opinion, Justice Stephen Breyer, joined by Justices John Paul Stevens and Sandra Day O'Connor, strongly disagreed with Ginsburg's analysis, which he viewed as too strict an interpretation of Sony. Breyer found that Grokster's software was capable of substantial or commercially significant noninfringing uses. According to Breyer, Sony establishes a clear rule allowing courts to find contributory infringement only where a technology with dual uses “will be used almost exclusively to infringe copyrights” or where the technology's distributors actively induce infringement. This rule gave rise to the correct policy balance, Breyer wrote, between giving effective force to copyrights and protecting entrepreneurs as they introduce new products.

Under the Grokster ruling, the focal issue for determining active inducement has shifted from software design to “statements or actions directed to promoting infringement.” This seems right. To impute a subjective intent by looking only at an objective design while disregarding the purpose underlying that design seems to violate basic principles of common sense and fairness. But the shift in focus also leaves unanswered questions about evidence, the future fate of Sony and the practical impact on technological innovation.

Souter's opinion was clear that mere knowledge that a product may be put to infringing uses is insufficient to establish active inducement. It also said that evidence that a defendant has advertised infringing uses or provided instruction on how to use a product to infringe would suffice. But what other types of evidence will support active inducement? Also, how much weight should be given to the supporting evidence that the court described as insufficient by itself to establish a claim ' that is, the failure to develop filtering or other tools to stop infringement, and reliance on a business model that profits from infringement?

The court's focus on subjective intent also leaves a big question mark over the fate of the Betamax ruling. Souter's opinion explicitly declined to revisit the Sony Betamax decision, despite the plaintiffs' urging that the court more narrowly interpret the Betamax requirement that a product be capable of significant noninfringing uses to gain safe harbor. The two concurring opinions that did address this issue effectively cancelled each other out.

How will the Grokster decision affect future technological innovation and the use of P2P software? It is possible, but far from certain, that the ongoing legal uncertainties will impede invention by raising fears of unpredictable litigation. The reaction of P2P users is equally difficult to predict. No one knows yet whether greater numbers of them will seek the safety of paid content services authorized by copyright owners, or whether they will flock to some new technology to download copyrighted files for free. Whether any such new technology can be developed, distributed and successfully evade a legal attack by the content industries is also open to question. The Supreme Court's Grokster ruling has done little to create certainty or predictability in this difficult area of the law.