Articles

High Court Addresses Copyright Infringement In MGM v. Grokster

In a decision with potentially important consequences to all copyright owners and users, the U.S. Supreme Court today issued an opinion which addressed whether software providers may be held liable for copyright infringement where their programs are the platform which users use to swap copyrighted works. The case, Metro-Goldwyn-Mayer, Inc. v. Grokster, Ltd. (04-480), concerned a suit by petitioners MGM and other copyright holders against respondents Grokster and StreamCast Networks, Inc., both of which have developed and distributed software protocols that allow computer users to directly share electronic files. Grokster and StreamCast do not charge for their software; rather, they generate revenue by selling advertising space that appears on users’ screens when they use the programs. Moreover, because the files are transmitted from one user to another without passing through a central server, neither Grokster nor StreamCast was aware of the particular files (or their copyright status) its users were sharing. The copyright holders claimed that upwards of 90% of the material transmitted through these peer-to-peer networks was copyrighted and argued that the software companies were liable for their users’ infringement. A federal district court rejected that argument and granted summary judgment to respondents; the U.S. Court of Appeals for the Ninth Circuit affirmed.

In an opinion authored by Justice Souter, the Supreme Court unanimously vacated the Ninth Circuit’s decision and remanded the case for further proceedings. Justice Souter’s opinion focused first on the existence of evidence in the record that, in designing and marketing their software, both Grokster and StreamCast “took active steps to encourage infringement” of protected materials. For example, both companies touted their programs as replacements for the “notorious file-sharing service, Napster,” which was shut down by a similar legal action several years ago. Justice Souter then determined that the outcome of this case was not controlled by Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984), which held that VCR manufacturers were not liable for VCR owners’ independent acts of copyright infringement. Justice Souter took care to specifically reject the Ninth Circuit’s reading of Sony as “holding that distribution of a commercial product capable of substantial noninfringing uses could not give rise to contributory liability for infringement unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge.” Sony, he explained, did not involve “evidence of state or indicated intent to promote infringing uses,” and it neither created a blanket exemption from infringement liability “whenever the product is capable of substantial lawful use” nor “displace[d] other theories of secondary liability.” Justice Souter then identified the common-law principles attaching liability to “one who ‘not only expected but invoked [infringing use] by advertisement’” (quoting Kalem Co. v. Harper Brothers, 222 U.S. 55, 62-63 (1911)). Dubbing it the “inducement rule,” Justice Souter held “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” (emphasis added). Justice Souter then briefly reviewed the record evidence in this case, found it inconsistent with summary judgment in favor of respondents, and remanded the case for reconsideration of petitioners’ summary judgment motion and further proceedings. Justice Ginsburg, joined by the Chief Justice and Justice Kennedy, authored a separate concurring opinion. Justice Breyer also authored a concurring opinion, joined by Justices Stevens and O’Connor.

The import of the Court’s opinion is clear: Makers of copying technology applicable to copyrighted materials cannot by turning a blind eye insulate themselves from liability for users’ infringement. Moreover, the Court has taken a narrow view of its Sony decision, suggesting that its protection from secondary liability may not be as expansive as many had thought and emphasizing more flexible common-law theories of liability. Of particular interest to copyright holders and technology manufacturers alike, some courts may interpret Grokster as failing to provide exhaustive guidance as to how much “inducement” is enough to warrant liability; indeed, that potential ambiguity suggests it may be increasingly difficult to resolve these sorts of fact-intensive issues at the early stages of litigation.

This report was prepared by Mark Stancil, Esq., an attorney in the Appellate Section of the Litigation Department of Baker Bott’s Washington Office. Mark attended announcement of the Grokster opinion during the final announcement of U.S. Supreme Court opinions for this Term. Before joining Baker Botts, Mark clerked for Judge Ebel of the U.S. Court of Appeals for the Tenth Circuit (1999-2000) and for Chief Justice Rehnquist of the U.S. Supreme Court (2000-2001).

The materials in this document are made available by Baker Botts L.L.P. for informational purposes only and are not legal advice. The transmission and receipt of information contained in the document do not form or constitute an attorney-client relationship. Persons receiving the information in this document should not act upon the information without seeking professional legal counsel. The materials in this document may not reflect the most current legal developments, verdicts or settlements, and should not be considered an indication of future results. If these materials are inconsistent with the rules governing attorney communications in a particular jurisdiction, and the materials result in a client contact in such jurisdiction, Baker Botts may be prohibited from assuming representation of the client contact.

UNSUBSCRIBE: If you would like to be removed from this list and no longer receive updates, please click here.