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One gray morning in March, the people in long lines outside the Supreme Court had come to hear oral argument in what promised to be a landmark case. The future direction of digital technologies was on the line in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd. 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 three months after oral arguments, the Court surprised many observers by issuing a unanimous decision — at least as to the main holding. On March 29, Grokster seemed headed more in the direction of chaos. Due to heightened security, the long lines that snaked out the front and side entrances moved at a glacial pace. Some senior government lawyers were panicking that they would not get inside in time. More than a few people ran from one entrance to another. Inside, the audience was wedged together on hard benches. I could barely move my arms. But once the justices made their traditionally dramatic appearance, the weight of the occasion and the importance of the issues calmed the room. Perhaps that same sense drove the justices to reach their splintered unanimity last week. Grokster was a dispute over distributing free peer-to-peer (P2P) software that enables users to directly share digital music and other content. The problem is that much of that content infringes other people’s copyrights. In its June 27 opinion, the 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. APPLYING SONY The Grokster case began when various entertainment industry plaintiffs, including motion picture studios, recording companies, songwriters, and music publishers, sued two distributors of P2P software, Grokster and StreamCast Networks Inc., in federal court in California. The plaintiffs did not claim that the defendants had directly infringed their copyrights. They 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 Grokster defendants conceded that most users of their Grokster and Morpheus software downloaded copyrighted files, but contended that they were protected from liability by the Supreme Court’s 1984 decision Sony Corporation of America v. Universal City Studios. 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 Sony rule, the trial court granted summary judgment in favor of Grokster and StreamCast. The court found that they were not liable because there was no evidence that they had actual knowledge of specific acts of infringement by their users at a time when they materially contributed to, or were in a position to do something about, that infringement. The court looked especially to the decentralized design of the defendants’ P2P software. The U.S. Court of Appeals for the 9th Circuit affirmed, focusing as well on the design of the P2P software. The 9th Circuit found 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 9th Circuit and the trial court also agreed that the defendants’ distribution of their software did not give rise to vicarious infringement. The Grokster plaintiffs petitioned the Supreme Court for certiorari, contending that there was a split between the 9th Circuit’s reading of Sony and the 7th Circuit’s 2003 decision in In re Aimster Copyright Litigation (Aimster was another variety of P2P software). Although the Court has repeatedly stated that it doesn’t like to grant certiorari from interlocutory appeals, it agreed to hear Grokster. A PURPOSE TO INFRINGE Justice David Souter’s opinion for the unanimous Court was limited to the inducement theory and did not 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 9th Circuit had erred in its application of Sony. The exception to secondary infringement liability articulated in Sony, Souter wrote, was limited to cases where intent to cause infringement was imputed only from the distribution or design of a product with knowledge that it is used for infringement but which product is also capable of a substantial noninfringing use. Sony‘s 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. ACTIVE DISAGREEMENT To repeat: All nine justices agreed that even if a defendant’s product satisfied the Sony standard of substantial or commercially significant noninfringing uses, the defendant could still be liable where it actively induced the infringement. And then they parted ways. 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) did not speak to the question of whether there was a triable issue on the Sony standard, since 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 was not satisfied. There was insufficient evidence that the Grokster and Morpheus 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 Sony: The Betamax users were primarily engaged in the fair use of “time-shifting” (that is, recording television 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 did not find against Grokster and StreamCast on summary judgment based on active inducement, Ginsburg emphasized that the 9th Circuit should reconsider, on a fuller evidentiary record, this aspect of Sony. 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. WHAT’S THE FALLOUT? Under Grokster, 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. Lawyers will be the first beneficiaries of Grokster, which is virtually certain to generate a flurry of litigation to hash out the new evidentiary questions. 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 Sony. Souter’s opinion explicitly declined to revisit Sony, despite the plaintiffs’ urging that the Court more narrowly interpret the Sony requirement that a product be capable of significant noninfringing uses to gain the safe harbor. The two concurring opinions that did address this issue effectively cancelled each other out. How will Grokster 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. Susanna Frederick Fischer is an assistant professor at the Catholic University of America’s Columbus School of Law, where she focuses on intellectual property, media, and cyberlaw.

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