Inside <i>Grokster</i>

[Editor's Note: The Internet industry has had a little time to sit back and examine the U.S. Supreme Court's decision in the Grokster case (Metro-Goldwyn-Mayer Studio v. Grokster, 125 S. Ct. 2764 (2005)), pondering its true meaning and its impact on technology and software developers as well as the entertainment industry. (The other articles in this special 12-page issue serve as a nice summary of the decision as well as adding to the commentary.) In this virtual roundtable discussion, members of Internet Law & Strategy's Board of Editors and other Internet law experts chime in with their thoughts. I think you'll find these comments insightful and raise the issues that the industry faces in the wake of Grokster. I am very grateful to the participants for their generous contributions. We welcome your comments and further thoughts on the case and its ramifications. - Steven Salkin, Esq., Managing Editor]

Technology Companies and Software Distributors

Joseph V. Norvell (Chair, Copyright Practice Group, Brinks, Hofer, Gilson & Lione, Chicago; [email protected]): This decision involved peer-to-peer file sharing providers, but it will have much broader implications in the technology industry. Technology companies of all types that transfer digital data, including computer companies, data transfer providers and software companies, will need to review their products and policies to ensure that they are not exposed to potential liability for copyright infringement. The technology companies may appeal to Capitol Hill for more clarification to ensure they are insulated from liability.

Jeffrey D. Neuburger (Chair, Technology, Media and Communica-tions Department, Brown Raysman Millstein Felder & Steiner, New York; [email protected]): The iPod is safe under Grokster, but technology distributors that intentionally seek profit by encouraging infringing acts are not. The Court overturned the Ninth Circuit opinion that let the distributors of peer-to-peer file-sharing software off the hook for liability for copyright infringement by users of its software, concluding that the distributors had “a purpose to cause and profit from third-party acts of copyright infringement.” The Court aimed its opinion squarely, but also very narrowly, at the distributors, giving the distributors very little ability if any to avoid liability on remand. The Court took pains to carefully detail the specific actions by the distributors from which, the Court said, “a patently illegal objective” could be inferred. But on the other hand, the Court made it very clear that simply manufacturing and distributing technology that can be used for infringement is not enough to result in liability, if the traditional “Sony Betamax” test of a “substantial non-infringing use” is met. This gives content owners an important new avenue for protecting their intellectual property rights.

Cydney A. Tune (Chair, Copyrights Practice and Media & Entertainment Industry teams, Pillsbury Winthrop Shaw Pittman LLP, San Francisco; [email protected]): While the decision may result in increased litigation against technology companies, it is unclear to what extent companies will incur heightened liability. Other good news for technology companies is that the Court made clear that “mere knowledge” of the potential to infringe or of actual infringing uses is not enough to create liability. The Court focused on the conduct of the players, rather than on the technology, and a distributor would need to take active steps to encourage infringing uses or have a clear intent to induce infringement to be liable under this new theory. The decision was also helpful in that it provided guidance as to the type of conduct that can lead to liability for inducement of copyright infringement. Future decisions by lower courts should provide further guidance with respect to the type of conduct that can give rise to liability and the steps that a company can take to protect itself from liability.

Sean F. Kane (Drakeford & Kane LLC, New York; [email protected]): On the consumer electronics front the decision will not likely have a wide impact and most of these products should be in the clear. However, the Grokster case will likely cause certain manufacturers to play it safe in the future by ensuring that their advertising and primary appeal of their devices is not specifically to foster infringement. Moreover, certain manufacturers will likely modify devices to allow initial downloads, but to prevent further unlimited copying or require other coding to ensure that content is being consumed only by the original consumer.

John T. Aquino (Attorney, Consultant, Washington, DC; [email protected]): The decision does not restrict technology but focuses on the intent of the users, which is as it should be. The Court felt there was clear evidence of Grokster and StreamCast promoting infringement, and there seems to be. I think this is a very big deal. It's a wakeup call. It's a reality check. It says the copyright law is relevant and functioning. It says technology must work WITH the law and not hope it goes away.

Robert J. Ambrogi (Lawyer and Media Consultant, Rockport, MA; [email protected], blawg: www.legaline.com/lawsites.html): For companies involved in developing technology-based products and services, the immediate lesson of this case is to watch what you say. Focus on the product's legitimate commercial applications. A more troubling issue arises from between the lines of the Grokster decision ' that of whether a company is obliged to act when it suspects its product is being used for unlawful purposes. Here, the Court finds evidence of the companies' unlawful objectives in their failure to develop filtering tools or other mechanisms to reduce copyright infringement. This failure to act underscores the companies' intent, the Court said. However, the Court quickly adds, in a footnote, that a company's mere failure to act to prevent infringement, absent other evidence of intent, is not grounds for liability.

Lisa M. Tittemore (Co-chair, Copyright Practice Group, Bromberg & Sunstein LLP, Boston; [email protected]): The Supreme Court's decision in the Grokster case means that companies distributing products that may be used for copyright infringement by third parties seeking to avoid secondary liability should also take care to avoid making statements (including statements that are purely internal to the company) or taking action that could be seen as fostering infringement.

Tune: I agree that companies need to be careful to avoid making statements or taking actions that appear to encourage infringing uses of their products or technology. Of course, future decisions interpreting Grokster should shed further light on the factors used to determine whether there is liability for inducement of copyright infringement in any particular case, and provide further guidance regarding the steps that a company can take to protect itself from liability. In the meantime, there are other steps that can be taken when new technologies are created, to protect creators and distributors from potential liability. These include, for example, keeping excellent records during the invention and development process that make clear the lawful purposes for which the technology and/or product is intended. Companies should not promote potentially infringing uses of the technology or product, especially in their advertising. Reasonable steps to avoid or reduce infringing uses by third parties should be taken, if such steps are available.

Sony Case Comparisons

[Editor's Note: The references to the Sony case in these comments are to Sony Corp. v. Universal Studios Inc., 464 U.S. 417 (1984), also known as the Betamax case.]

Ambrogi: Unlike the Sony case, this is not a case about technology, per se. The court makes abundantly clear that the facts of this case take it beyond the characteristics of the product and instead focus on how the product was promoted. While Sony's marketing of its VCR technology focused on how it could be employed within the boundaries of fair use, these companies, the court said, actively promoted the use of their technologies for infringement.

Norvell: This is a tightening of the Sony Betamax case, where the Supreme Court held that sellers of VCRs were not liable for users' copyright infringement. Proponents of technology will see this a potential stifling of the technological development permitted by the Sony Betamax decision.”

John Delaney (Partner, Morrison Foerster, New York; [email protected]): The Supreme Court appears to dramatically narrow the reach of the “substantial noninfringement uses” holding in its landmark Sony case ' this aspect of the case is good news for entertainment companies but must be causing some anxiety among companies that manufacture computers and hand-held devices used to facilitate the unauthorized online distribution of movies and music.

Kane: Justice Souter, writing for a unanimous Court, made it very clear that the decision in Sony was not being revised by the Grokster opinion and is still an applicable rule of law. Therefore, the general rule that a manufacturer of a device that is “capable of commercially significant noninfringing uses” cannot be liable merely on the basis of distribution, continues to stand. However, the Court opined that nothing in Sony hampered it from looking to the intent of the distributing party to determine whether liability existed for promoting infringement under common law theories. The Court determined that the underlying evidence was sufficient to demonstrate that the Grokster defendants' intent of distributing the product was to promote and or induce copyright infringement by stepping in where Napster left off, failing to include software that filters or bars swapping of copyright protected materials and otherwise profiting from advertising revenue connected to infringing file swapping between individuals. All of these factors led the Court to opine 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.”

Aquino: The Grokster decision called to mind a recent television commercial for Sierra Mist Free in which a man is in a police station for having stolen a bottle of the soft drink. He's keeps saying, “But it says it's free!” Of course, millions of people utilizing Grokster, StreamCast, and Morpheus have been acting as if use of copyrighted material is free, and the Supreme Court, like the policeman in the commercial, said that that was a misreading. The real misreading, though, was, according to the Court, of Sony.

The unanimity of the Supreme Court's decision makes us wonder why anyone expected otherwise. But it was as if there was a great freight train of new technology bearing down too fast to stop, too fast for the law of copyright to hold it back, that was for sure. But the Supreme Court simply yelled, “Stop!”, asserting that copyright holds and rules.

“Nothing in Sony requires courts to ignore evidence of intent to promote infringement if such evidence exists,” the Court wrote, also indicating that it was not going to accept lip service that there were other non-infringing uses. The Court replied that “while there is doubtless some demand for free Shakespeare,” the evidence showed that the bulk of the use was “a function of free access to copyrighted material.” In a concurring opinion, Justice Ginsberg wrote that, unlike the situation for the Sony decision, there was no finding of fair use beyond anecdotal evidence of noninfringing uses.

Tune: I agree that new technologies will greatly affect this developing area of the law. Even today, the facts have shifted. File-sharing technology in the peer-to-peer world has evolved far beyond that which is used by Grokster and Streamcast. Independent, ad-free networks and facilitated multiple individual connections, like Bittorent, have been developed. These technologies make it extremely difficult to ascertain when files have been shared, which files have been shared, and who has done the sharing. Thus, while the Court in Grokster may have handed content owners something of a victory, it is questionable how useful this will be in the future as a practical matter.

Tittemore: The Supreme Court's decision in the Grokster case means that the Supreme Court's 1984 landmark decision in Sony lives to be interpreted (and perhaps reconsidered) another day. Many people hoped ' and others feared ' that the Grokster case would be the end of Sony. This did not happen.

Justice Ginsburg's concurring opinion suggests that, given a case with the right facts, she, Chief Justice Rehnquist and Justice Kennedy might reconsider Sony to require evidence sufficient “to demonstrate, beyond genuine debate, a reasonable prospect that substantial or commercially significant noninfringing uses were likely to develop over time.” Thus, it is possible that the Supreme Court might in the future interpret the Sony rule to make avoiding liability more difficult.

A Win for the Entertainment Industry?

Delaney: Although the Supreme Court's decision has remanded the case back to the Ninth Circuit for further proceedings, the Court's decision is undoubtedly a victory for the entertainment industries and a setback for peer-to-peer networking companies such as Grokster. The unanimous decision reinforces traditional copyright doctrine that, if one encourages or takes affirmative steps to help others infringe, one can be held liable for copyright infringement ' even if one did not directly engage in unauthorized copying.

This is a significant victory for the entertainment industries. Although the case is remanded for further proceedings, the issue on remand will be whether summary judgment should in fact be granted for the content providers. This is a crushing defeat for the Groksters of the world.

Kane: The result of this decision is somewhat unclear and may ultimately be a very hollow victory. In a nutshell, the Court did not say that file-sharing itself was a problem, but the way Grokster and StreamCast marketed it was. Some would advance that the P2P sharing industry was handed a win by the Court since the technology has not been struck down altogether, but others would see that the industry has suffered a potentially significant blow. The Court apparently found that the Sony factors did protect the underlying technology allowing the swapping of files, some of which were noninfringing; however, determined that the distributors had acted badly and intended to promote or induce infringement. This decision would seem to indicate that a distributor of P2P technology with a legitimate intent not to infringe others' rights would not be liable for third party infringing use of the technology. This being said, the Court failed to create a bright line test as to what is a “clear expression or other affirmative steps taken to foster infringement” which, as Justice Breyer stated in his concurring opinion, will potentially have a chilling effect on others creating or advancing file swapping and other possibly legitimate technologies for fear of future liability. Future litigations will necessarily turn on a case-by-case basis, not as to the nature of the technology but as to the business plans of the distributors. Therefore, “fair use” technology companies will be left with the burden of proving that their business plan is not founded on an intent to induce others to infringe, or otherwise to advertise and promote in a manner to sufficiently hide this intent. The courts may be swamped with determining these questions as Grokster will initiate a new era of uncertainty for technology innovators.

Richard S. Levick (President, Levick Strategic Communications, Washington, DC; [email protected]): My firm represented the music industry in the early days of Napster. At that time, the message was, “We're going after Napster because it is a business based on infringement. We do not approve of individual usage, but we would never take action against individual citizens.”

Of course, they changed that tune pretty dramatically. They realized that, if they were to win ' and they had every intention of winning ' even the people they sued would still buy their products. It's the entire music industry, after all.

Their aggressiveness was draconic, but it was effective. Grokster, it would seem to me, only justifies that aggressiveness and may possibly encourage more. The case is a victory for the music industry ' not because the ruling is absolutely clear as to its future implications ' but because the questions that Grokster leave open can fuel a lot of litigation. The music industry can afford that litigation and, I'll bet, prove with graphs that the litigation is a good investment in assuring renewed revenue.

I think the music industry has handled this entire issue just fine.

Getting Congress Involved

Delaney: I think that we're going to see this battle shift away from the courts and to Congress. The online distribution industry has increasing political clout, and the content industries have never been shy about seeking legislative redress for threats to their business. Look for Congress to get more involved in finding a solution that strikes the right balance between respect for intellectual property rights and online access to music and movies.

Tune: Some players, particularly those on the technology side of the debate, are advocating that Congress adopt a collective licensing system, similar to that used when licensing music for use on traditional radio. They believe that these licenses would remove the pressure and uncertainty from technology companies, while at the same time providing for compensation to the artists and copyright owners. It does not seem that legislation of this type, if adopted, would do away with the new “inducement” theory established by Grokster, at least to the extent that music files would be shared using software from entities that had not obtained such a statutory license and that were encouraging infringing activities.

Kane: On this point I have to respectfully disagree with Mr. Delaney. I believe the film and record industries' connections and political acumen will be used to keep the post-Grokster status quo or to lobby Congress to enact further copyright protections. I just do not see the P2P industry having the funding or influence to compete with the film and record juggernaut in this regard. Additionally, I find it very difficult to believe that Congress will be able to find a solution that would strike an appropriate balance of allowing free access to content while not severely undercutting copyright owner's protection.

Balancing Act

Tune: Overall, the Supreme Court appears to have attempted to take a balanced approach that takes into account the need to establish liability for those who induce massive copyright infringement while at the same time trying to avoid stifling new technological innovation.

The Grokster Decision Itself

Aquino: People who say that the decision was ambiguous and that they were looking for a clearer path may be shell-shocked. I don't see much ambiguity. The court said promoting infringement is wrong. Technology companies are going to have to be careful and police ALL advertising.

But what's wrong with that? It's time-consuming, it's expensive, but so is losing a copyright infringement case.

We'll see what the lower court does with this specific case on the facts, but the Supreme Court ruling itself is very important.

Tittemore: The Grokster decision is notable because of its unanimity, but it is also worth noting that Justice Ginsburg (joined by Chief Justice Rehnquist and Justice Kennedy) and Justice Breyer (joined by Justice Stevens and Justice O'Connor) wrote concurring opinions that make clear that had the Justices not been able to distinguish the Grokster case from the Sony case on the facts, there would not have been a unanimous decision, and Sony indeed may have been modified to reduce the “safe harbor” it provides.

Ambrogi: It is important to understand two key aspects of what this case did not do. First, it did not say that peer-to-peer technology is illegal or that file sharing is illegal. Second, it did not say that either Grokster or StreamCast violated the law ' that remains for the trial court to decide on remand. The one clear holding of this case is simply this: When a company actively promotes the use of its product for the purpose of infringing copyrights, it can be liable as a contributor to the infringement. The court expressly says that mere knowledge of infringing potential or even of actual infringing uses is not enough to subject a company to liability. Rather, the company's inducement of infringement must involve “purposeful, culpable expression and conduct,” the Court said.

Facts make or break a case. As the Supreme Court painted them in its opinion, the facts were not kind to Grokster or StreamCast. This was not a case of well-intentioned companies whose technologies were put to bad use by third parties. The Supreme Court made clear that, as it saw the facts, Grokster and StreamCast did not just provide the tools to violate the law, they aggressively encouraged the tools' unlawful use. The court described these companies as effectively having built their busi-ness plans around promoting their technologies for the precise purpose of copyright infringement.

The Court portrayed this as a case of copyright infringement on a massive scale in which these companies were knowing and active participants. The court seemed impressed by evidence from MGM that nearly 90% of the files available for download were copyrighted works. Working through the math, Justice Souter said that more than 100 million copies of the software were known to have been downloaded and billions of files shared, adding up to a scope of infringement he called “staggering.” In fact, according to Souter, Grokster and StreamCast conceded the infringement in most downloads.

But the facts most harmful to Grokster and StreamCast had to do with their encouragement of infringement. The Court found that, “from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement.” Among other evidence, the Court cited an internal e-mail from a StreamCast executive saying that the company was positioning itself to capture the anticipated flood of users after Napster's free service was shut down. Another e-mail, from the company's chief technology officer, said that the company's goal was to get in trouble with the law in order to get in the news.

The Marketing Angle

Levick: Grokster made a crucial early mistake by associating itself with Napster. Grokster was not in the business of facilitating file sharing, as was Napster, but its promotional materials showed copyrighted songs as examples of available files.

So you have to measure the language you use and the signals you're sending. We're a communications firm that works with lots of law firms, and we're constantly integrating legal and media strategies. We are constantly advising, in our articles and books, that crisis and litigation teams be peopled with both lawyers and communications professionals, and that those professionals must find a way to work together and balance their differing priorities.

Grokster underscores that need. It means that marketing people must now vet their messages with lawyers. It's an opportunity for lawyers to really tyrannize the marketers but they'll be doing their clients a grave disservice if they veto every promotional effort just to be absolutely on the safe side. These companies have got to find a balance between saying nothing and promoting theft in their marketing.

It's important to remember that Grokster was remanded to a lower court to decide if the company actually did induce theft and the company's lawyers are at least sounding pretty confident. But the point is, in many cases, there will still be arguments on both sides.

Win or lose, Grokster underscores the need for prophylaxis in marketing. On the other hand, former FTC Commissioner Michael Powell said (in The Seattle Times, June 28) that there is no way to determine from the Supreme Court's ruling at what point, if there is conspicuous high-volume thievery, a company will still face liability. It may, as I read Powell's comment, still need to prove that its marketing is not responsible for the epidemic or that it is not obliged to take additional steps to prevent infringement.

Grokster suggests a “don't ask, don't tell” marketing standard, but that may therefore change. Who knows, they may be forced in the future to both ask and tell.

From a marketing standpoint, new companies and new related industries face another challenge ' the Napster mystique. Paying even a nominal fee might not attract people who loved the iconoclastic chic of getting something for nothing, of a communal music. The spirit of rock music encourages that iconoclastic sensibility in the first place. Mozart-lovers might not balk at paying $5 per month to download. But hip-hoppers might balk.

Paid file sharing has a future if it can survive the potential legal burden, but here too there's an interesting marketing question. How can they attract the Napsterites without violating the [Sony] and Grokster standards?

It's interesting that nobody pays much attention to Napster in its legitimate incarnation. That's because it relinquished its bad-boy mystique.

Implications of the Case and
the Future of P2P

Delaney: The real story here is that, even before this decision, the P2P industry has already been moving away from the Grokster model of unauthorized music distribution toward business models that involve working with artists, record labels and music publishers to ensure a more satisfactory experience for consumers. Users of unauthorized P2P networks experience many frustrations ' “spyware” products being downloaded on their computers without their knowledge, viruses being introduced through corrupt files, poor sound quality, and so forth. Companies like SnoCap and Mashboxx are seeking to transform the P2P environment by creating so-called “filtered” P2P networks that are built upon respect for copyrights. And, like Apple's iTunes online store, the filtered P2P networks are establishing that one can compete with “free” if one offers a more reliable product and a higher-quality service ' consumers are willing to pay to avoid their hard drive crashing or their desktop being turned into a spam-generating zombie.

This is not to say that the unauthorized P2P networks will disappear ' they won't, and they will continue to make their case in the Ninth Circuit on remand. But, over time, as content providers increasingly partner with P2P companies seeking to work with the music and movie industries, I think that you will see the market providing an attractive alternative to consumers for authorized online content.

Susan Crawford (Assistant Professor of Law, Yeshiva University Benjamin N. Cardozo School of Law, New York; [email protected]): District courts will struggle with the language of Grokster and seek limiting principles.

It seems clear that mere distribution of technology alone is not contributory infringement, but the question is how much more than mere distribution is needed before inducement can be found.

There will be arguments that corporate statements of intent to encourage infringement are a necessary prerequisite to inducement claims. And, there also will be arguments that business plans need to be exclusively structured around the idea of encouraging infringement.

So both sides of this debate will see Grokster as a Rorschach test. The studios will claim that almost any corporate knowledge of infringement by users of the technology amounts to inducement liability. Technology companies will point to other language in Grokster saying mere knowledge can never be enough to constitute inducement and much more focused, express corporate acts are necessary.

Kane: I believe that Mr. Delaney and Ms. Crawford make valid points in that the Grokster decision's future is somewhat murky. As the current movement of the P2P industry toward a fee-based business model increases, this decision may have less and less specific impact on the current industry issues. Moreover, the lack of a clear distinction concerning what level or the specific nature of activity that may be deemed to contribute to infringement, is likely to result in more and more litigation until this issue is sufficiently defined. Additionally, I believe that Mr. Levick's likening the necessary analysis to that of false advertising is apt; since each set of facts and circumstances will need to be judged independently with no bright line test or factors to point to. All and all, I believe this decision has the unintended potential to allow a deep pocket copyright owner more leeway in filing a suit against an alleged infringer without the fear of incurring sanctions. Since the outcome of any litigation would need to be judged on a case by case basis depending on the specific facts, judge and jury, more individuals may use this tactic to keep small distributors busy and out of the market.

Levick: My perspective is marketing, media, and communications ' and, from that perspective, Grokster has decisive implications. In the last analysis, this case is all about marketing and communications, not technology.

Generally speaking, false advertising cases are in the same ballpark. But Grokster takes it to a new level. Now, it seems, all the marketing that file-sharing companies do in the future will likely be put under a legal spotlight.

The pharmaceutical industry, believe it or not, offers an instructive example. Labels on drugs are cut-and-dried and tailored to conform to regulatory criteria. No one reads them except professionals. Yet drug companies are constantly being challenged in court over the sufficiency of their labels.

Now imagine that those labels are actually read by every teenager in the country. Imagine the legal problems that arise when courts have to assess how those labels will be interpreted by those readers. That's something like what file-share companies may have to worry about in the future.

The Grokster decision may finally launch the fee-paid, copyright-kosher file-sharing industry that never did quite get launched in the aftermath of Napster. In fact, just 2 days after the Grokster ruling, Sony cut a deal with Mashboxx to provide paid sharing of its songs online. Remember too, even Napster resurrected itself as a legitimate music sales company.

But companies will wonder if the rewards justify the risk of legal challenges from competitors, the music industry, and the government. Will new related industries arise as a result of the decision? There could certainly be a new cottage industry for lawyers.

Some companies will go offshore and fly the Jolly Roger. Steve Jobs says his iTunes Music Store will pick up new business. That's interesting because Apple once infuriated entertainment companies with an ad campaign of “Rip, Mix, Burn.”

I think there might be a bifurcation between the pirates, on the one hand, and very large companies or smaller companies subsidized by bigger ones that can accept the legal risks as a cost of doing business.

Actually, what I really think is that, by the time the whole thing shakes out, some kind of new technology will render the case irrelevant from a business standpoint. Yet even if that happens, the marketing lessons implicit in Grokster are certainly worth learning.

It's interesting to me that none of the legal perspectives offered by these diverse experts resolve the issues that, as I pointed out, may not be resolvable along purely legal grounds. “Intent” will remain the fulcrum, and, based on that, the comments of the other participants encourage me in my belief that: 1) we will indeed see a new species of lawsuits in which intent is argued over in each particular case; 2) such ongoing litigation may be a burden for smaller companies that don't have collaborations with industry leaders to pay their legal fees; and 3) the underlying issue is indeed all about marketing and communications.

At the same time, I was intrigued by Professor Crawford's point that “[t]here will be arguments that corporate statements of intent to encourage infringement are a necessary prerequisite to inducement claims. And, there also will be arguments that business plans need to be exclusively structured around the idea of encouraging infringement.”

If future cases do require something as overt as a corporate statement of intent to induce, then, from a practical standpoint, Grokster may be less important than we now perceive. The ultimate question to be settled in the courts is: What are the minimum marketing standards necessary for compliance? If I understand Professor Crawford correctly, technology companies could in the future face no more difficult a marketing thres-hold than what is implicit in Sony. Grokster's subtle evocation of Napster in its ads, and an imputation that its business plan is “exclusively structured” around encouraging infringement, may in this case have gotten the company in trouble. But if such overt inducements are required by law in future situations, the Groksters of tomorrow may just have to be a wee bit more careful. If that's all they have to worry about, then the Supreme Court's decision is probably not a watershed.

Tittemore: The difficulty with the decision written by Justice Souter is that it does not advance the discussion of how the Sony case should be properly interpreted, which was hoped for in this decision, and its holding likely to be of little value in evaluating the more common situation where a product distributor is more discreet than Grokster and StreamCast. Given the way that the Court distinguished the Grokster and Sony cases on their facts, with the focus on the Grokster defendants' “inducement” of infringement by the users of their products, what the Court did can be understood, but we will have to wait for a case minus evidence of the defendant's intent to benefit from infringement to see if/how the Court will modify the Sony rule.

Tune: I agree that it is advisable for companies to work with their lawyers in developing their advertising content and other written materials. I hope, however, that we won't “tyrannize” our clients, but rather will work with them in a constructive and positive way.

[Editor's Note: The Internet industry has had a little time to sit back and examine the U.S. Supreme Court's decision in the Grokster case ( Metro-Goldwyn-Mayer Studio v. Grokster , 125 S. Ct. 2764 (2005)), pondering its true meaning and its impact on technology and software developers as well as the entertainment industry. (The other articles in this special 12-page issue serve as a nice summary of the decision as well as adding to the commentary.) In this virtual roundtable discussion, members of Internet Law & Strategy's Board of Editors and other Internet law experts chime in with their thoughts. I think you'll find these comments insightful and raise the issues that the industry faces in the wake of Grokster. I am very grateful to the participants for their generous contributions. We welcome your comments and further thoughts on the case and its ramifications. - Steven Salkin, Esq., Managing Editor]

Technology Companies and Software Distributors

Joseph V. Norvell (Chair, Copyright Practice Group, Brinks, Hofer, Gilson & Lione, Chicago; [email protected]): This decision involved peer-to-peer file sharing providers, but it will have much broader implications in the technology industry. Technology companies of all types that transfer digital data, including computer companies, data transfer providers and software companies, will need to review their products and policies to ensure that they are not exposed to potential liability for copyright infringement. The technology companies may appeal to Capitol Hill for more clarification to ensure they are insulated from liability.

Jeffrey D. Neuburger (Chair, Technology, Media and Communica-tions Department, Brown Raysman Millstein Felder & Steiner, New York; [email protected]): The iPod is safe under Grokster, but technology distributors that intentionally seek profit by encouraging infringing acts are not. The Court overturned the Ninth Circuit opinion that let the distributors of peer-to-peer file-sharing software off the hook for liability for copyright infringement by users of its software, concluding that the distributors had “a purpose to cause and profit from third-party acts of copyright infringement.” The Court aimed its opinion squarely, but also very narrowly, at the distributors, giving the distributors very little ability if any to avoid liability on remand. The Court took pains to carefully detail the specific actions by the distributors from which, the Court said, “a patently illegal objective” could be inferred. But on the other hand, the Court made it very clear that simply manufacturing and distributing technology that can be used for infringement is not enough to result in liability, if the traditional “Sony Betamax” test of a “substantial non-infringing use” is met. This gives content owners an important new avenue for protecting their intellectual property rights.

Cydney A. Tune (Chair, Copyrights Practice and Media & Entertainment Industry teams, Pillsbury Winthrop Shaw Pittman LLP, San Francisco; [email protected]): While the decision may result in increased litigation against technology companies, it is unclear to what extent companies will incur heightened liability. Other good news for technology companies is that the Court made clear that “mere knowledge” of the potential to infringe or of actual infringing uses is not enough to create liability. The Court focused on the conduct of the players, rather than on the technology, and a distributor would need to take active steps to encourage infringing uses or have a clear intent to induce infringement to be liable under this new theory. The decision was also helpful in that it provided guidance as to the type of conduct that can lead to liability for inducement of copyright infringement. Future decisions by lower courts should provide further guidance with respect to the type of conduct that can give rise to liability and the steps that a company can take to protect itself from liability.

Sean F. Kane (Drakeford & Kane LLC, New York; [email protected]): On the consumer electronics front the decision will not likely have a wide impact and most of these products should be in the clear. However, the Grokster case will likely cause certain manufacturers to play it safe in the future by ensuring that their advertising and primary appeal of their devices is not specifically to foster infringement. Moreover, certain manufacturers will likely modify devices to allow initial downloads, but to prevent further unlimited copying or require other coding to ensure that content is being consumed only by the original consumer.

John T. Aquino (Attorney, Consultant, Washington, DC; [email protected]): The decision does not restrict technology but focuses on the intent of the users, which is as it should be. The Court felt there was clear evidence of Grokster and StreamCast promoting infringement, and there seems to be. I think this is a very big deal. It's a wakeup call. It's a reality check. It says the copyright law is relevant and functioning. It says technology must work WITH the law and not hope it goes away.

Robert J. Ambrogi (Lawyer and Media Consultant, Rockport, MA; [email protected], blawg: www.legaline.com/lawsites.html): For companies involved in developing technology-based products and services, the immediate lesson of this case is to watch what you say. Focus on the product's legitimate commercial applications. A more troubling issue arises from between the lines of the Grokster decision ' that of whether a company is obliged to act when it suspects its product is being used for unlawful purposes. Here, the Court finds evidence of the companies' unlawful objectives in their failure to develop filtering tools or other mechanisms to reduce copyright infringement. This failure to act underscores the companies' intent, the Court said. However, the Court quickly adds, in a footnote, that a company's mere failure to act to prevent infringement, absent other evidence of intent, is not grounds for liability.

Lisa M. Tittemore (Co-chair, Copyright Practice Group, Bromberg & Sunstein LLP, Boston; [email protected]): The Supreme Court's decision in the Grokster case means that companies distributing products that may be used for copyright infringement by third parties seeking to avoid secondary liability should also take care to avoid making statements (including statements that are purely internal to the company) or taking action that could be seen as fostering infringement.

Tune: I agree that companies need to be careful to avoid making statements or taking actions that appear to encourage infringing uses of their products or technology. Of course, future decisions interpreting Grokster should shed further light on the factors used to determine whether there is liability for inducement of copyright infringement in any particular case, and provide further guidance regarding the steps that a company can take to protect itself from liability. In the meantime, there are other steps that can be taken when new technologies are created, to protect creators and distributors from potential liability. These include, for example, keeping excellent records during the invention and development process that make clear the lawful purposes for which the technology and/or product is intended. Companies should not promote potentially infringing uses of the technology or product, especially in their advertising. Reasonable steps to avoid or reduce infringing uses by third parties should be taken, if such steps are available.

Sony Case Comparisons

[Editor's Note: The references to the Sony case in these comments are to Sony Corp. v. Universal Studios Inc. , 464 U.S. 417 (1984), also known as the Betamax case.]

Ambrogi: Unlike the Sony case, this is not a case about technology, per se. The court makes abundantly clear that the facts of this case take it beyond the characteristics of the product and instead focus on how the product was promoted. While Sony's marketing of its VCR technology focused on how it could be employed within the boundaries of fair use, these companies, the court said, actively promoted the use of their technologies for infringement.

Norvell: This is a tightening of the Sony Betamax case, where the Supreme Court held that sellers of VCRs were not liable for users' copyright infringement. Proponents of technology will see this a potential stifling of the technological development permitted by the Sony Betamax decision.”

John Delaney (Partner, Morrison Foerster, New York; [email protected]): The Supreme Court appears to dramatically narrow the reach of the “substantial noninfringement uses” holding in its landmark Sony case ' this aspect of the case is good news for entertainment companies but must be causing some anxiety among companies that manufacture computers and hand-held devices used to facilitate the unauthorized online distribution of movies and music.

Kane: Justice Souter, writing for a unanimous Court, made it very clear that the decision in Sony was not being revised by the Grokster opinion and is still an applicable rule of law. Therefore, the general rule that a manufacturer of a device that is “capable of commercially significant noninfringing uses” cannot be liable merely on the basis of distribution, continues to stand. However, the Court opined that nothing in Sony hampered it from looking to the intent of the distributing party to determine whether liability existed for promoting infringement under common law theories. The Court determined that the underlying evidence was sufficient to demonstrate that the Grokster defendants' intent of distributing the product was to promote and or induce copyright infringement by stepping in where Napster left off, failing to include software that filters or bars swapping of copyright protected materials and otherwise profiting from advertising revenue connected to infringing file swapping between individuals. All of these factors led the Court to opine 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.”

Aquino: The Grokster decision called to mind a recent television commercial for Sierra Mist Free in which a man is in a police station for having stolen a bottle of the soft drink. He's keeps saying, “But it says it's free!” Of course, millions of people utilizing Grokster, StreamCast, and Morpheus have been acting as if use of copyrighted material is free, and the Supreme Court, like the policeman in the commercial, said that that was a misreading. The real misreading, though, was, according to the Court, of Sony.

The unanimity of the Supreme Court's decision makes us wonder why anyone expected otherwise. But it was as if there was a great freight train of new technology bearing down too fast to stop, too fast for the law of copyright to hold it back, that was for sure. But the Supreme Court simply yelled, “Stop!”, asserting that copyright holds and rules.

“Nothing in Sony requires courts to ignore evidence of intent to promote infringement if such evidence exists,” the Court wrote, also indicating that it was not going to accept lip service that there were other non-infringing uses. The Court replied that “while there is doubtless some demand for free Shakespeare,” the evidence showed that the bulk of the use was “a function of free access to copyrighted material.” In a concurring opinion, Justice Ginsberg wrote that, unlike the situation for the Sony decision, there was no finding of fair use beyond anecdotal evidence of noninfringing uses.

Tune: I agree that new technologies will greatly affect this developing area of the law. Even today, the facts have shifted. File-sharing technology in the peer-to-peer world has evolved far beyond that which is used by Grokster and Streamcast. Independent, ad-free networks and facilitated multiple individual connections, like Bittorent, have been developed. These technologies make it extremely difficult to ascertain when files have been shared, which files have been shared, and who has done the sharing. Thus, while the Court in Grokster may have handed content owners something of a victory, it is questionable how useful this will be in the future as a practical matter.

Tittemore: The Supreme Court's decision in the Grokster case means that the Supreme Court's 1984 landmark decision in Sony lives to be interpreted (and perhaps reconsidered) another day. Many people hoped ' and others feared ' that the Grokster case would be the end of Sony. This did not happen.

Justice Ginsburg's concurring opinion suggests that, given a case with the right facts, she, Chief Justice Rehnquist and Justice Kennedy might reconsider Sony to require evidence sufficient “to demonstrate, beyond genuine debate, a reasonable prospect that substantial or commercially significant noninfringing uses were likely to develop over time.” Thus, it is possible that the Supreme Court might in the future interpret the Sony rule to make avoiding liability more difficult.

A Win for the Entertainment Industry?

Delaney: Although the Supreme Court's decision has remanded the case back to the Ninth Circuit for further proceedings, the Court's decision is undoubtedly a victory for the entertainment industries and a setback for peer-to-peer networking companies such as Grokster. The unanimous decision reinforces traditional copyright doctrine that, if one encourages or takes affirmative steps to help others infringe, one can be held liable for copyright infringement ' even if one did not directly engage in unauthorized copying.

This is a significant victory for the entertainment industries. Although the case is remanded for further proceedings, the issue on remand will be whether summary judgment should in fact be granted for the content providers. This is a crushing defeat for the Groksters of the world.

Kane: The result of this decision is somewhat unclear and may ultimately be a very hollow victory. In a nutshell, the Court did not say that file-sharing itself was a problem, but the way Grokster and StreamCast marketed it was. Some would advance that the P2P sharing industry was handed a win by the Court since the technology has not been struck down altogether, but others would see that the industry has suffered a potentially significant blow. The Court apparently found that the Sony factors did protect the underlying technology allowing the swapping of files, some of which were noninfringing; however, determined that the distributors had acted badly and intended to promote or induce infringement. This decision would seem to indicate that a distributor of P2P technology with a legitimate intent not to infringe others' rights would not be liable for third party infringing use of the technology. This being said, the Court failed to create a bright line test as to what is a “clear expression or other affirmative steps taken to foster infringement” which, as Justice Breyer stated in his concurring opinion, will potentially have a chilling effect on others creating or advancing file swapping and other possibly legitimate technologies for fear of future liability. Future litigations will necessarily turn on a case-by-case basis, not as to the nature of the technology but as to the business plans of the distributors. Therefore, “fair use” technology companies will be left with the burden of proving that their business plan is not founded on an intent to induce others to infringe, or otherwise to advertise and promote in a manner to sufficiently hide this intent. The courts may be swamped with determining these questions as Grokster will initiate a new era of uncertainty for technology innovators.

Richard S. Levick (President, Levick Strategic Communications, Washington, DC; [email protected]): My firm represented the music industry in the early days of Napster. At that time, the message was, “We're going after Napster because it is a business based on infringement. We do not approve of individual usage, but we would never take action against individual citizens.”

Of course, they changed that tune pretty dramatically. They realized that, if they were to win ' and they had every intention of winning ' even the people they sued would still buy their products. It's the entire music industry, after all.

Their aggressiveness was draconic, but it was effective. Grokster, it would seem to me, only justifies that aggressiveness and may possibly encourage more. The case is a victory for the music industry ' not because the ruling is absolutely clear as to its future implications ' but because the questions that Grokster leave open can fuel a lot of litigation. The music industry can afford that litigation and, I'll bet, prove with graphs that the litigation is a good investment in assuring renewed revenue.

I think the music industry has handled this entire issue just fine.

Getting Congress Involved

Delaney: I think that we're going to see this battle shift away from the courts and to Congress. The online distribution industry has increasing political clout, and the content industries have never been shy about seeking legislative redress for threats to their business. Look for Congress to get more involved in finding a solution that strikes the right balance between respect for intellectual property rights and online access to music and movies.

Tune: Some players, particularly those on the technology side of the debate, are advocating that Congress adopt a collective licensing system, similar to that used when licensing music for use on traditional radio. They believe that these licenses would remove the pressure and uncertainty from technology companies, while at the same time providing for compensation to the artists and copyright owners. It does not seem that legislation of this type, if adopted, would do away with the new “inducement” theory established by Grokster, at least to the extent that music files would be shared using software from entities that had not obtained such a statutory license and that were encouraging infringing activities.

Kane: On this point I have to respectfully disagree with Mr. Delaney. I believe the film and record industries' connections and political acumen will be used to keep the post-Grokster status quo or to lobby Congress to enact further copyright protections. I just do not see the P2P industry having the funding or influence to compete with the film and record juggernaut in this regard. Additionally, I find it very difficult to believe that Congress will be able to find a solution that would strike an appropriate balance of allowing free access to content while not severely undercutting copyright owner's protection.

Balancing Act

Tune: Overall, the Supreme Court appears to have attempted to take a balanced approach that takes into account the need to establish liability for those who induce massive copyright infringement while at the same time trying to avoid stifling new technological innovation.

The Grokster Decision Itself

Aquino: People who say that the decision was ambiguous and that they were looking for a clearer path may be shell-shocked. I don't see much ambiguity. The court said promoting infringement is wrong. Technology companies are going to have to be careful and police ALL advertising.

But what's wrong with that? It's time-consuming, it's expensive, but so is losing a copyright infringement case.

We'll see what the lower court does with this specific case on the facts, but the Supreme Court ruling itself is very important.

Tittemore: The Grokster decision is notable because of its unanimity, but it is also worth noting that Justice Ginsburg (joined by Chief Justice Rehnquist and Justice Kennedy) and Justice Breyer (joined by Justice Stevens and Justice O'Connor) wrote concurring opinions that make clear that had the Justices not been able to distinguish the Grokster case from the Sony case on the facts, there would not have been a unanimous decision, and Sony indeed may have been modified to reduce the “safe harbor” it provides.

Ambrogi: It is important to understand two key aspects of what this case did not do. First, it did not say that peer-to-peer technology is illegal or that file sharing is illegal. Second, it did not say that either Grokster or StreamCast violated the law ' that remains for the trial court to decide on remand. The one clear holding of this case is simply this: When a company actively promotes the use of its product for the purpose of infringing copyrights, it can be liable as a contributor to the infringement. The court expressly says that mere knowledge of infringing potential or even of actual infringing uses is not enough to subject a company to liability. Rather, the company's inducement of infringement must involve “purposeful, culpable expression and conduct,” the Court said.

Facts make or break a case. As the Supreme Court painted them in its opinion, the facts were not kind to Grokster or StreamCast. This was not a case of well-intentioned companies whose technologies were put to bad use by third parties. The Supreme Court made clear that, as it saw the facts, Grokster and StreamCast did not just provide the tools to violate the law, they aggressively encouraged the tools' unlawful use. The court described these companies as effectively having built their busi-ness plans around promoting their technologies for the precise purpose of copyright infringement.

The Court portrayed this as a case of copyright infringement on a massive scale in which these companies were knowing and active participants. The court seemed impressed by evidence from MGM that nearly 90% of the files available for download were copyrighted works. Working through the math, Justice Souter said that more than 100 million copies of the software were known to have been downloaded and billions of files shared, adding up to a scope of infringement he called “staggering.” In fact, according to Souter, Grokster and StreamCast conceded the infringement in most downloads.

But the facts most harmful to Grokster and StreamCast had to do with their encouragement of infringement. The Court found that, “from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement.” Among other evidence, the Court cited an internal e-mail from a StreamCast executive saying that the company was positioning itself to capture the anticipated flood of users after Napster's free service was shut down. Another e-mail, from the company's chief technology officer, said that the company's goal was to get in trouble with the law in order to get in the news.

The Marketing Angle

Levick: Grokster made a crucial early mistake by associating itself with Napster. Grokster was not in the business of facilitating file sharing, as was Napster, but its promotional materials showed copyrighted songs as examples of available files.

So you have to measure the language you use and the signals you're sending. We're a communications firm that works with lots of law firms, and we're constantly integrating legal and media strategies. We are constantly advising, in our articles and books, that crisis and litigation teams be peopled with both lawyers and communications professionals, and that those professionals must find a way to work together and balance their differing priorities.

Grokster underscores that need. It means that marketing people must now vet their messages with lawyers. It's an opportunity for lawyers to really tyrannize the marketers but they'll be doing their clients a grave disservice if they veto every promotional effort just to be absolutely on the safe side. These companies have got to find a balance between saying nothing and promoting theft in their marketing.

It's important to remember that Grokster was remanded to a lower court to decide if the company actually did induce theft and the company's lawyers are at least sounding pretty confident. But the point is, in many cases, there will still be arguments on both sides.

Win or lose, Grokster underscores the need for prophylaxis in marketing. On the other hand, former FTC Commissioner Michael Powell said (in The Seattle Times, June 28) that there is no way to determine from the Supreme Court's ruling at what point, if there is conspicuous high-volume thievery, a company will still face liability. It may, as I read Powell's comment, still need to prove that its marketing is not responsible for the epidemic or that it is not obliged to take additional steps to prevent infringement.

Grokster suggests a “don't ask, don't tell” marketing standard, but that may therefore change. Who knows, they may be forced in the future to both ask and tell.

From a marketing standpoint, new companies and new related industries face another challenge ' the Napster mystique. Paying even a nominal fee might not attract people who loved the iconoclastic chic of getting something for nothing, of a communal music. The spirit of rock music encourages that iconoclastic sensibility in the first place. Mozart-lovers might not balk at paying $5 per month to download. But hip-hoppers might balk.

Paid file sharing has a future if it can survive the potential legal burden, but here too there's an interesting marketing question. How can they attract the Napsterites without violating the [Sony] and Grokster standards?

It's interesting that nobody pays much attention to Napster in its legitimate incarnation. That's because it relinquished its bad-boy mystique.

Implications of the Case and
the Future of P2P

Delaney: The real story here is that, even before this decision, the P2P industry has already been moving away from the Grokster model of unauthorized music distribution toward business models that involve working with artists, record labels and music publishers to ensure a more satisfactory experience for consumers. Users of unauthorized P2P networks experience many frustrations ' “spyware” products being downloaded on their computers without their knowledge, viruses being introduced through corrupt files, poor sound quality, and so forth. Companies like SnoCap and Mashboxx are seeking to transform the P2P environment by creating so-called “filtered” P2P networks that are built upon respect for copyrights. And, like Apple's iTunes online store, the filtered P2P networks are establishing that one can compete with “free” if one offers a more reliable product and a higher-quality service ' consumers are willing to pay to avoid their hard drive crashing or their desktop being turned into a spam-generating zombie.

This is not to say that the unauthorized P2P networks will disappear ' they won't, and they will continue to make their case in the Ninth Circuit on remand. But, over time, as content providers increasingly partner with P2P companies seeking to work with the music and movie industries, I think that you will see the market providing an attractive alternative to consumers for authorized online content.

Susan Crawford (Assistant Professor of Law, Yeshiva University Benjamin N. Cardozo School of Law, New York; [email protected]): District courts will struggle with the language of Grokster and seek limiting principles.

It seems clear that mere distribution of technology alone is not contributory infringement, but the question is how much more than mere distribution is needed before inducement can be found.

There will be arguments that corporate statements of intent to encourage infringement are a necessary prerequisite to inducement claims. And, there also will be arguments that business plans need to be exclusively structured around the idea of encouraging infringement.

So both sides of this debate will see Grokster as a Rorschach test. The studios will claim that almost any corporate knowledge of infringement by users of the technology amounts to inducement liability. Technology companies will point to other language in Grokster saying mere knowledge can never be enough to constitute inducement and much more focused, express corporate acts are necessary.

Kane: I believe that Mr. Delaney and Ms. Crawford make valid points in that the Grokster decision's future is somewhat murky. As the current movement of the P2P industry toward a fee-based business model increases, this decision may have less and less specific impact on the current industry issues. Moreover, the lack of a clear distinction concerning what level or the specific nature of activity that may be deemed to contribute to infringement, is likely to result in more and more litigation until this issue is sufficiently defined. Additionally, I believe that Mr. Levick's likening the necessary analysis to that of false advertising is apt; since each set of facts and circumstances will need to be judged independently with no bright line test or factors to point to. All and all, I believe this decision has the unintended potential to allow a deep pocket copyright owner more leeway in filing a suit against an alleged infringer without the fear of incurring sanctions. Since the outcome of any litigation would need to be judged on a case by case basis depending on the specific facts, judge and jury, more individuals may use this tactic to keep small distributors busy and out of the market.

Levick: My perspective is marketing, media, and communications ' and, from that perspective, Grokster has decisive implications. In the last analysis, this case is all about marketing and communications, not technology.

Generally speaking, false advertising cases are in the same ballpark. But Grokster takes it to a new level. Now, it seems, all the marketing that file-sharing companies do in the future will likely be put under a legal spotlight.

The pharmaceutical industry, believe it or not, offers an instructive example. Labels on drugs are cut-and-dried and tailored to conform to regulatory criteria. No one reads them except professionals. Yet drug companies are constantly being challenged in court over the sufficiency of their labels.

Now imagine that those labels are actually read by every teenager in the country. Imagine the legal problems that arise when courts have to assess how those labels will be interpreted by those readers. That's something like what file-share companies may have to worry about in the future.

The Grokster decision may finally launch the fee-paid, copyright-kosher file-sharing industry that never did quite get launched in the aftermath of Napster. In fact, just 2 days after the Grokster ruling, Sony cut a deal with Mashboxx to provide paid sharing of its songs online. Remember too, even Napster resurrected itself as a legitimate music sales company.

But companies will wonder if the rewards justify the risk of legal challenges from competitors, the music industry, and the government. Will new related industries arise as a result of the decision? There could certainly be a new cottage industry for lawyers.

Some companies will go offshore and fly the Jolly Roger. Steve Jobs says his iTunes Music Store will pick up new business. That's interesting because Apple once infuriated entertainment companies with an ad campaign of “Rip, Mix, Burn.”

I think there might be a bifurcation between the pirates, on the one hand, and very large companies or smaller companies subsidized by bigger ones that can accept the legal risks as a cost of doing business.

Actually, what I really think is that, by the time the whole thing shakes out, some kind of new technology will render the case irrelevant from a business standpoint. Yet even if that happens, the marketing lessons implicit in Grokster are certainly worth learning.

It's interesting to me that none of the legal perspectives offered by these diverse experts resolve the issues that, as I pointed out, may not be resolvable along purely legal grounds. “Intent” will remain the fulcrum, and, based on that, the comments of the other participants encourage me in my belief that: 1) we will indeed see a new species of lawsuits in which intent is argued over in each particular case; 2) such ongoing litigation may be a burden for smaller companies that don't have collaborations with industry leaders to pay their legal fees; and 3) the underlying issue is indeed all about marketing and communications.

At the same time, I was intrigued by Professor Crawford's point that “[t]here will be arguments that corporate statements of intent to encourage infringement are a necessary prerequisite to inducement claims. And, there also will be arguments that business plans need to be exclusively structured around the idea of encouraging infringement.”

If future cases do require something as overt as a corporate statement of intent to induce, then, from a practical standpoint, Grokster may be less important than we now perceive. The ultimate question to be settled in the courts is: What are the minimum marketing standards necessary for compliance? If I understand Professor Crawford correctly, technology companies could in the future face no more difficult a marketing thres-hold than what is implicit in Sony. Grokster's subtle evocation of Napster in its ads, and an imputation that its business plan is “exclusively structured” around encouraging infringement, may in this case have gotten the company in trouble. But if such overt inducements are required by law in future situations, the Groksters of tomorrow may just have to be a wee bit more careful. If that's all they have to worry about, then the Supreme Court's decision is probably not a watershed.

Tittemore: The difficulty with the decision written by Justice Souter is that it does not advance the discussion of how the Sony case should be properly interpreted, which was hoped for in this decision, and its holding likely to be of little value in evaluating the more common situation where a product distributor is more discreet than Grokster and StreamCast. Given the way that the Court distinguished the Grokster and Sony cases on their facts, with the focus on the Grokster defendants' “inducement” of infringement by the users of their products, what the Court did can be understood, but we will have to wait for a case minus evidence of the defendant's intent to benefit from infringement to see if/how the Court will modify the Sony rule.

Tune: I agree that it is advisable for companies to work with their lawyers in developing their advertising content and other written materials. I hope, however, that we won't “tyrannize” our clients, but rather will work with them in a constructive and positive way.