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Lawyers with teenage children have probably heard of Grokster, a distributor of software that allows users to share music and video files through a peer-to-peer network. But now lawyers may be hearing from clients, not about Grokster itself, but about what the U.S. Supreme Court case by the same name could mean for their businesses. On June 27, the U.S. Supreme Court handed down a much-anticipated decision, Metro-Goldwyn Mayer Studios Inc., et al. v. Grokster, et al. The court unanimously reversed the 9th U.S. Circuit Court of Appeals and narrowed the safe-harbor provision established in Sony Corp. of America, et al. v. Universal City Studios Inc., et al. In Sony, also referred to as the Betamax case, the court created a safe harbor; it protected manufacturers from liability for contributory copyright infringement, if they sold a product that was capable of substantial non-infringing uses. In Grokster, to the consternation of teenage music fans everywhere, the court found that the safe harbor did not necessarily foreclose liability for actively inducing users’ infringement. Justice David Souter, writing for the majority, explained: The Sony rule bars courts from imputing culpable intent from the characteristics or uses of a distributed product, even if the distributor knows customers will use the product to infringe a copyright, but the Sony rule does not foreclose liability where there is evidence of “statements or actions directed to promoting infringement.” In other words, simply distributing software people can use to share copyrighted music or movies does not create a risk of liability, but promoting illicit sharing does. The Grokster court was careful to point out that a business’ mere knowledge of users’ potential or actual infringement, or the business’ commission of ordinary acts incident to product distribution, such as ordinary technical support and product updates, would not constitute inducing infringement. However, in Grokster, the court found ample evidence of statements and actions directed to promoting infringement: “The record is replete with evidence 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.” Souter wrote that defendants Grokster and StreamCast responded to users’ e-mail inquiries with information that would assist them in infringing copyrighted files. The marketing efforts of defendants encouraged former users of the defunct Napster system (which had been enjoined for infringing) to use their alternative systems. The defendants made no effort to use available technology to reduce infringement. Finally, defendants’ business models were based on generating advertising revenue based upon high-volume use of the system, of which about 90 percent was likely infringing use. Lawyers can use the foregoing facts, which supported a finding of inducement in Grokster, as a starting point for discussions with clients about the dos and don’ts for manufacturers and sellers of technology, when that technology is capable of legitimate and infringing uses. OPEN QUESTIONS Although the Grokster court unanimously found inducement to infringe, two opposing concurrences show that the court remains divided on various issues concerning whether judges should apply Sony’s safe harbor narrowly or broadly in cases where there isn’t any evidence of intent to induce infringement. Justice Ruth Bader Ginsburg would have provided even less protection to technology manufacturers, further constricting the Sony safe harbor. In a concurrence joined by Chief Justice William H. Rehnquist and Justice Anthony Kennedy, she said she would have found that the 9th Circuit also erred in upholding summary judgment in favor of the defendants on the contributory infringement question. This concurrence would have found that Sony permitted a finding of contributory infringement — even absent active inducement — where a manufacturer knows its product is overwhelmingly used to infringe. These concurring justices believed that the evidence in Grokster was sufficient to preclude granting the defendants’ summary judgment motion: About 90 percent of the files stored on the computers of those who used defendants’ peer-to-peer network were copyrighted, while the status of the remaining 10 percent was unclear. On the other hand, Justice Stephen Breyer’s concurrence would have offered more protection to technology manufacturers, expanding Sony’s safe harbor. The Breyer concurrence, joined by Justices John Paul Stevens and Sandra Day O’Connor, found the 9th Circuit’s exclusion of liability on a contributory infringement theory to be correct as a matter of law, notwithstanding evidence that 90 percent of the files were infringing. These justices would exclude liability unless “the product in question will be used almost exclusively to infringe copyrights,” which the justices apparently did not find in the facts presented. The question for lawyers, which the majority opinion and concurrences left open, is this: Absent evidence of intent to induce infringement, would a court impose liability if evidence shows that 90 percent of the uses are likely infringing but that 10 percent may be infringing or non-infringing? Another question is whether Grokster is a departure from Sony that could chill innovation — assuming it does go too far. Grokster merely clarifies that Sony did not extinguish the law of inducement, which has traditionally been a basis for imposing secondary liability for infringement. Grokster is more about the particular defendants’ behavior in actively encouraging their users’ infringement than it is about the potential for secondary liability on the part of manufacturers and providers of technology capable of non-infringing and infringing uses that do not actively encourage infringement. Such legitimate manufacturers and providers of technology products, even those widely used to infringe, have little to fear from Grokster. The Sony safe harbor remains sound after Grokster, but it is not a get-out-of-jail-free card. Under Grokster, a court will not turn a blind eye where manufacturers and distributors intentionally profit from infringement by purposefully inducing others to infringe. Lawyers representing businesses whose products are capable of infringing as well as non-infringing uses should tell their clients to avoid making statements and taking actions that courts can view as coming too close to the wrong side the inducement line. Lawyers representing copyright holders will look for such statements and actions as evidence of inducement. Theodore F. Shiells is partner in and Dustin M. Mauck is an associate with the intellectual property firm of Carr LLP in Dallas. Shiells has practiced intellectual property law exclusively since receiving his law degree from Hastings College of Law at the University of California in 1983. He received his undergraduate degree in mechanical engineering from the University of California in 1975. Mauck has practiced intellectual property law since receiving his law degree from Southern Methodist University Dedman School of Law in 2004. He received his undergraduate degree in electrical engineering, with a biomedical specialization, from SMU in 2000.

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