7.18 P2P cases: MGM v Grokster

Review the information in Section 4.9 on the Grokster case (‘Some P2P legal developments’) then click on the ‘Back’ button on your browser to return to this page.

In August 2004, the Appeal Court ruled in favour of Grokster and Streamcast. The court basically applied the Sony v Universal (1984 case) precedent and said the main question was:

whether a technology is merely capable of a substantial noninfringing use, not the proportion of noninfringing to infringing uses.

To be liable, the P2P company would have to have:

  1. knowledge of specific infringments

  2. at a time when it could do something about those infringements.

Note that the question of control over users' actions was key here again – Grokster couldn't be held liable for the actions of its users if it had no control over those actions.

The court also said that the P2P companies could not be required to redesign their technologies to a specification acceptable to the entertainment industry and force customers to update to the approved version. Ultimately the judges came down quite hard on the copyright owners' interpretation of the law:

As to the issue at hand, the district court's grant of partial summary judgment … is clearly dictated by applicable precedent. The Copyright Owners urge a re-examination of the law in light of what they believed to be proper public policy, expanding exponentially the reach of the doctrines of contributory and vicarious copyright infringement. Not only would such a renovation conflict with binding precedent, it would be unwise. Doubtless, taking that step would satisfy the Copyright Owners' immediate economic aims. However, it would also alter general copyright law in profound ways with unknown ultimate consequences outside the present context.

Further, as we have observed, we live in a quicksilver technological environment with courts ill-suited to fix the flow of internet innovation. The introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through well-established distribution mechanisms. Yet, history has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke machine, or an MP3 player. Thus, it is prudent for courts to exercise caution before restructuring liability theories for the purpose of addressing specific market abuses, despite their apparent present magnitude.

Indeed, the Supreme Court has admonished us to leave such matters to Congress.

The US Supreme Court heard the case at the end of March 2005 and decided in favour of the music industry in June 2005. The US Copyright Office has a page devoted to the Grokster case.

On the day of the decision I wrote:

A clear win for MGM and the studios and a clear loss for the P2P companies. No doubt there is significant gnashing of teeth about this amongst the anti-copyright expansion lobby, suggesting it undermines or kills the Sony v Universal "subtantial non-infringing use" test but it is not as bad for them as it might at first appear.

First of all, the court was ruling on whether the Court of Appeal for the 9th circuit were right to give a summary judgement against MGM, saying they couldn't sue the P2P companies for damages. On that they decided the 9th circuit was wrong to stop MGM from getting a substantive hearing. So the case now goes back down the chain to look at MGM claims for damages in detail.

Secondly, the Supreme Court focused heavily on the intentions of the Grokster and Streamcast in relation to the "staggering" scope of copyright infringement on their networks. They concluded that there was a lot of evidence to demonstrate that these two particular P2P companies not only distributed technologies "capable of substantial non infringing uses" (which I thought would have been ok under the Sony test but there is a disagreement amongst concurring justices on this 3v3 with 3 not commenting on the issue), but that they also acted to heavily promote copyright infringing activity amongst the users of their software. The CTO of Streamcast, for example, is on record with the statement "[t]he goal is to get in trouble with the law and get sued. It's the best way to get in the new[s]."

And this becomes the key to the Court crafting a new inducement rule, based on a similar rule in patent law, which will probably become known as the rule in MGM v Grokster. On page 19 of the decision, Justice Souter says the patent law inducement rule:

… is a sensible one for copyright. We adopt it here, holding that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression of other affirmative steps taken to foster infringement, is liable for the resulting act of infringement by third parties …

… mere knowledge of infringing potential or of actual infringing uses would not be enough her to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as offering customers technical support or product updates, support liability in themselves. The inducement rule, instead, premises liability on purposeful, culpable expression and conduct, and thus does nothing to compromise legitimate commerce or discourage innovation having a lawful purpose.

There are a lot of talking points in the decision but that's the key one. It adds up to a really bad decision for Grokster and Streamcast (moreso for the latter because Grokster at least sent emails to users warning them about infringing content), but not necessarily bad for other P2P companies.

The court clearly wanted to avoid scaring potential technology innovators and more or less strike that balance. Of course they have no control over how the decision will be presented, which will be crucial.

7.17 P2P cases: KaZaA in the Dutch Supreme Court

7.19 IPR enforcement, PIRATE and INDUCE