Copying and Sharing Recorded Music (The Dos and Don'ts of Copyright Law) Follow-Up: MGM vs Grokster

Laurence Borden returned to this subject in November 2005 (Vol.28 No.11):

On June 27, 2005, the Supreme Court issued a unanimous decision in MGM vs Grokster, reversing a decision by the Court of Appeals, which had ruled in favor of Grokster on the ground that the file-sharing technology at issue was capable of commercially significant noninfringing uses within the meaning of the Supreme Court's previous decision in Sony vs Universal Studios. Because the opinions of the Supreme Court and two lower courts, the District Court and the Court of Appeals, were based in large part on that earlier decision, a brief review of Sony is warranted (footnote 1).

Following the introduction by Sony of the Betamax videocassette recorder to the marketplace, Universal Studios sued Sony for copyright infringement. Universal claimed that while Sony itself was not infringing, it was contributing to infringement by its customers. The District Court ruled in favor of Sony, but this decision was overturned on Appeal. The case was ultimately heard by the Supreme Court, which decided (in a decision split 5–4) in favor of Sony, ruling that it could not be liable for contributory copyright infringement based on the sales of Betamax video recorders.

The Supreme Court decided that such liability could not be imposed if there existed commercially significant noninfringing uses for the Betamax. The Court decided that such uses did exist, as follows. First, the Supreme Court agreed with the District Court's finding that there existed a number of copyright holders who authorized the "time shifting" of their broadcasts. These copyright holders included but were not limited to "sports, religious, educational and other programming." Copying of these programs clearly constituted noninfringing use of the Betamax. Second, the justices ruled that unauthorized copying of broadcast material constituted fair use, provided that the time-shifting was for noncommercial use. Based on these two criteria, the Court ruled that the Betamax is capable of substantial noninfringing uses, and that Sony's sale of such devices did not constitute contributory infringement (footnote 2).

MGM sued Grokster and StreamCast for copyright infringement. The District Court granted Grokster's Summary Judgment motion, holding that while those individuals who used Grokster's and/or StreamCast's software to download copyrighted files had infringed MGM's copyrights, Grokster and StreamCast were not liable for copyright infringement. The District Court, and subsequently the Court of Appeals (which affirmed the District Court's decision), construed the Betamax decision to mean that those who distribute a product capable of substantial noninfringing uses could not be held liable for contributory infringement unless they knew of specific instances of infringement yet failed to act on that knowledge. The Court of Appeals found that the technology at issue was capable of significant noninfringing uses and that, due to the nature of their software, Grokster and StreamCast lacked actual knowledge of infringing uses. Moreover, the Appeals Court ruled that Grokster and StreamCast were not liable for vicarious infringement, because they did not control or monitor the use of their software and were not required to police infringement.

The case was eventually heard by the Supreme Court, which reversed the Court of Appeals. The Supreme Court justices explained that the Court of Appeals had incorrectly interpreted Sony vs Universal Studios to mean that "whenever a product is capable of substantial lawful use, the producer can never be held contributorily liable for third parties' infringing use of it. . . ." The Supreme Court explained that Sony was meant to preclude claims for contributory infringement based on only one theory: imputing intent to cause infringement solely from the design or distribution of a product capable of substantial lawful use, which the distributor knows is used for infringement. It was not meant to require courts to ignore evidence of intent to promote infringement, if such evidence exists.

Put another way, the fact that the products sold by Grokster and StreamCast Networks could be used for legitimate, noninfringing purposes did not provide an automatic safe haven from charges of copyright infringement. The justices explained that in cases in which the evidence "shows statements or actions directed to promoting infringement," the Sony rule will not preclude liability. It should be noted that the impetus for the justices' position was the existence of numerous documents that suggested that Grokster and StreamCast solicited and encouraged the use of their products for the unauthorized exchange of copyright-protected music and video.

For example, StreamCast encouraged the use of its system by beaming messages onto the computer screens of users of Napster-compatible programs. Grokster distributed an electronic newsletter that contained links to articles that promoted the ability of its software to access copyrighted music. In addition, both companies assisted those who requested help in locating copyrighted music. Based on this evidence, the Supreme Court stated that "Grokster and StreamCast, unlike the manufacturer and distributor in Sony, acted with a purpose to cause copyright violations by use of software suitable for illegal use." Accordingly, they reversed the Court of Appeals decision and sent the case back to the lower Court to be reconsidered in light of the Supreme Court ruling.

Many observers thought that the Grokster decision would provide some clarification of Sony, including the precise criteria for "significant" noninfringing use. The justices did not rule on that issue because their decision relied instead on Grokster's and StreamCast's having encouraged the use of their products for infringing purposes. But six justices nevertheless addressed the issue in two separate concurring opinions. Because the two opinions offered on Sony failed to reach the required majority, they are not binding. Of course, they do provide some insight as to where six of the justices stand on the issue (footnote 3). A definitive decision on Sony must await a subsequent majority opinion.

Based on the facts before them, three of the justices (footnote 4) ruled that Grokster's and StreamCast's products did not have significant noninfringing uses. The justices opined that the District Court had relied largely on declarations submitted by Grokster and StreamCast purporting to establish noninfringing uses. As noted by the Supreme Court justices, the evidence of authorized copyrighted works or public-domain works being shared through peer-to-peer networks was largely anecdotal, and sometimes obtained second-hand. (This situation differed significantly from Sony, in which the Court had ample trial evidence on which to rely.)

In the opinion of the justices, such declarations did not support the granting of summary judgment in light of the evidence offered by MGM, which they felt demonstrated "overwhelming use of Grokster's and StreamCast's software for infringement." As the justices explained, even if large numbers of noninfringing files are copied by Grokster and StreamCast software, these may represent only a small fraction of the total files being copied. Based on this, the justices felt that the evidence was insufficient to demonstrate—with reasonable certainty—substantial or commercially significant noninfringing uses of Grokster's and StreamCast's software. For this reason, they opined that the District Court should not have granted summary judgment to Grokster and StreamCast.

A contrary view was expressed by Justices Breyer, Stevens, and O'Connor (footnote 5). These justices noted that MGM acknowledged that approximately 10% of the files available on Grokster are noninfringing, a value quite similar to that in Sony. Additionally, the justices noted that this value might increase over time, an aspect deemed significant in Sony. As part and parcel of their opinion, they explained why the Sony decision serves its purpose effectively and should therefore not be modified (as MGM would like) or interpreted more strictly (as they feel Justices Ginsburg, Rehnquist, and Kennedy did in their opinion). Put succinctly, the justices feel that Sony's rule is clear, and provides entrepreneurs whose products have substantial noninfringing uses "with needed assurance that they will be shielded from copyright liability as they bring new technologies to market."

Concurrently, the Sony decision deters individuals from distributing products that are specifically intended for copyright infringement. For these reasons, these three justices feel that Grokster and StreamCast do have significant noninfringing uses. It should, however, be understood that this does not negate the main opinion of the Supreme Court regarding Grokster's and StreamCast's potential liability, based on having promoted their products for infringing uses.

All eyes will now be on the District Court as it reconsiders MGM vs Grokster in light of the Supreme Court decision, as that decision will likely have considerable impact on the future of peer-to-peer file sharing.

Footnote 1: I am grateful to Robert Grass, JD, for helpful discussions.

Footnote 2: Had the Supreme Court ruled otherwise, manufacturers of photocopying machines might be held liable were their machines to be used to make unlawful copies of copy-protected material. Ditto for makers of pens.

Footnote 3: After issuing these Opinions, Justice O'Connor announced her resignation from the Supreme Court and Chief Justice Rehnquist died.

Footnote 4: Justices Ginsburg and Kennedy and Chief Justice Rehnquist.

Footnote 5: The remaining three Justices did not offer opinions.