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On June 27, the Supreme Court ruled unanimously in favor of Metro-Goldwin-Mayer (MGM), agreeing that peer-to-peer file-sharing services such as StreamCast Networks and Grokster could be held responsible (read: be sued) if they encouraged their users to infringe copyrights. This will return the "MGM vs Grokster" case to a lower court, where it will be determined whether or not the P2P companies encouraged their users to violate copyright laws.

Justice David H. Souter wrote: "We hold 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."

The high court's ruling did not express an opinion on the legality of peer-to-peer technology itself, but rather focused on whether the networks offering the technology manifested "bad" intentions.

Record labels and movie studios are touting the decision as a slam-dunk victory, reflecting their view that Grokster and StreamCast were developed solely to circumvent their business model. Many technology advocates felt the decision fostered an "intentions" test that was impossible to adjudicate in all but the most blatant cases.

According to Jason Schultz of the Electronic Frontier Foundation (EFF), which defended StreamCast in the case, the decision didn't "lay out a clear line [one] that a startup or garage inventor would know whether they crossed or not." This lack of a clear standard, according to Fred von Lohmann, EFF's senior staff attorney, would permit courts to examine e-mails, marketing plans, and engineering notes in cases where companies were accused of designing "potentially infringing technologies."

Consumer Electronics Association (CEA) vice-president of technology Michael Petricone observed that the decision placed a burden of liability on American manufacturers and developers that did not equally apply to competing tech industries in China and India. The CEA supported Grokster and StreamCast, arguing that the entertainment companies wanted to overturn the 1984 "Betamax" decision, which would make many popular electronic devices such as MP3 players or video recorders illegal.

The plaintiffs argued that the Sony case held no parallels, since VCRs have a legitimate purpose—time-shifting television programs so they can be seen at a different time—and that P2P filesharing cannot claim such a legal use. This is ironic, since the entertainment industry's argument in the Betamax case was that time-shifting copyrighted television broadcasts did not represent a legitimate use.

According to Michael Merhej, founder of AudioGalaxy, the third-largest peer-to-peer music site on the web, the Grokster ruling's silver lining is that it doesn't "change or overrule the Betamax case, and I think that's what many people were concerned about. So companies who do legitimate business can still go to that Betamax ruling to make sure they don't break the law."

The Supreme Court definitely didn't see parallels to the Betamax case. Justice Souter wrote: "Although Sony's advertisements urged consumers to buy the VCR to 'record favorite shows' or 'build a library' of recorded programs, [...] neither of these uses were necessarily infringing."

Michael Weiss, StreamCast's CEO, is putting the best face possible on the decision. "We'll have another day in court," he told the New York Times. "Make that several days in court."