Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.

Analysis

In the present action, the Copyright Owners allege that the Software Distributors are liable for contributory and vicarious copyright infringement under the federal copyright act, 17 U.S.C. §501-513, and consequently they are entitled to monetary damages and injunctive relief.  As a result, the question of direct copyright infringement is not at issue in this case; instead, the Copyright Owners contend that the Software Distributors are liable for the copyright infringement of the multitude of software users. 

There are three elements required to prove a defendant liable for contributory copyright infringement: (1) direct infringement by a primary infringer, (2) knowledge of the infringement, and (3) material contribution to the infringement. MGM Studios, Inc. v. Grokster, Ltd., No. 03-55894 at 11735 (9th Cir., 2004). The first element -- direct infringement -- is undisputed here.  With respect to the second element, the issue of knowledge is guided by the seminal case of Sony Corp. of America v. Universal City Studios, Inc. ("Sony-Betamax"). Id. In Sony-Betamax, the Supreme Court held that Sony's Betamax video tape recorders were capable of commercially significant noninfringing uses and therefore any knowledge of end user infringing activity could not be attributed to fact that Sony knew, in a general sense, that the recorders could be used for infringement. Id. In a subsequent case involving one of the original P2P file sharing networks, the Court construed Sony-Betamax to apply to the knowledge element of contributory copyright infringement.  Id..

To properly analyze the second element -- knowledge of infringement -- the Court must first determine what level of knowledge is required. Id. at 11736.If a product at issue is not capable of substantial or commercially significant noninfringing uses, then the copyright owner only has the burden to demonstrate that the defendant had constructive knowledge of the infringement. Id. Alternatively, if a product could be used for substantial or commercially significant noninfringing uses, then the copyright owner must demonstrate that the defendant had reasonable knowledge of specific infringing activities and failed to act on that knowledge to prevent further infringement. Id.

The Ninth Circuit found that the Software Distributors demonstrated their products had substantial or commercially significant noninfringing uses, and thus the Copyright Owners had the burden of proving that the Distributors had reasonable knowledge of infringing end user activity. Id. at 11737.  The time at which such "reasonable knowledge" is obtained is a significant factor in a court's decision. Id. at 11738. In the Ninth Circuit, the Copyright Owners were required to establish that the Software Distributors had "specific knowledge of infringement at a time at which they contributed to the infringement, and failed to act upon that information." Id. at 11739.

With regard to the third element, material contribution can be established by providing sites and facilities for infringement, coupled with a failure to stop specific incidences of infringement once knowledge of those infringements is acquired. Id. at 11740.  If the Software Distributors ware viewed as pure access providers, then their alleged failure to disable that access after acquiring specific knowledge of a user's infringement might be found to constitute material contribution.  Id. Alternatively, if the Software Distributors stored files or indices, then their failure to delete the offending files or offending index listings may constitute material contribution. Id. at11741. 

The Copyright Owners also claim that the Software Distributors are vicariously liable for copyright infringement, and must prove the following three elements: (1) direct infringement by a primary party, (2) direct financial benefit to the defendant, and (3) right and ability to supervise the infringers. Id. at 11742. The Ninth Circuit observed that the first two elements were undisputed in this case. Id. With regard to the third element, the Ninth Circuit contends that it does not appear from the evidence in the record that either software distributor has the ability to block access to individual users. In fact, Grokster nominally reserves the right to terminate access, while StreamCast does not maintain a licensing agreement with persons who download its P2P product. Id. at 11743.

Following the Software Distributors' victory in the Ninth Circuit and in the wake of the Supreme Court granting certiorari, StreamCast and Grokster filed briefs with the Court arguing that the Ninth Circuit correctly applied the clear rule set out in Sony-Betamax.  "StreamCast and Grokster File Supreme Court Brief," at www.itsecurity.com. Moreover, they argue that the Ninth Circuit's ruling is consistent with other federal rulings in peer-to-peer cases.  Finally, they opine that if copyright laws need to be adjusted in light of new peer-to-peer technologies, that is a job best left for Congress, rather than the courts. Id. In support of the Court heeding to the findings of the Ninth Circuit, Senior Electronic Frontier Foundation (EFF) staff attorney, Fred von Lohmann stated "there is no reason to revisit the unanimous ruling of the Ninth Circuit and insert judges into the design rooms of technologists across the nation." Id.

An even more pressing concern, however, is the manner in which a ruling in favor of the Copyright Owners could stifle new innovations in the technology. Michale Page, the Keker & Van Nest attorney who argued on behalf of Grokster, stated "[i]f the Supreme Court had gone the other way in Sony-Betamax, it would have made VCRs illegal." Michael Page, "Peer-to-peer Wins at 9^th Circuit," at www.therecorder.com. Page also argues that in light of Sony-Betamax, many people believe the Ninth Circuit's ruling will actually benefit the movie and music industries. Their reasoning is based on the logic that if VCR manufacturers had been viewed as contributory or vicarious infringers, the highly-profitable home video and rental businesses would not exist today. Id. Moreover, Page adds that "every time new technology comes along, studios first try to shut it down, and each time courts say ‘no you can't,' and each time, they turn around and figure out a way to make money." Id. 

In a similar vein, many in the technology industry are watching this case closely because should the Supreme Court ultimately find in favor of Copyright Owners, it could threaten hundreds of existing products. Moreover, "new products, and early funding, will die in the crib if the gear might be co-opted by people wishing to use it improperly." Jonathan Krim, "High-Tech Tension over Illegal Uses," Washington Post. For example, Elliot Frutkin, chief executive of Time Trax Technologies, argues that people will be less willing to innovate and put new things on the market or try out new things if there is such a high risk attached. Id. Consequently, major technology companies, including Microsoft, Google Inc., Yahoo Inc., and America Online Inc., contend that the Court should not base its decision on how much a product is used for immoral purposes; instead, they ask the Court to look at whether the software distributor actively encourages and assists users to steal copyrighted material, which is punishable under current copyright law. Id.

Arguments in favor of the Copyright Owners however, also rely heavily on comparisons with Sony-Betamax. For example, attorney Julie Hilden observed that "there's a big difference between VCRs and the software at issue here. At the time Sony-Betamax was decided, the average American use of his or her VCR was for time-shifting – that is, to record favorite television programs to be seen at a more convenient time." Julie Hilden, "The Case of MGM v. Grokster," at http://practice.findlaw.com/feature-0305.html. As explained by Hilden, VCRs did not involve the same concerns over lost profits and that time-shifting is a "classic instance of fair use exempt from the copyright law." Id. According to Hilden, when comparing Sony-Betamax and the current case, the most common use of the VCR was a legal one – time-shifting television shows -  whereas, the average, if not the overwhelmingly likely use of the P2P software distributed by Grokster, is an illegal one – the pirating copyrighted materials. Id. In fact, there is evidence demonstrating that nine out of ten users tend to use Grokster's P2P software in this type of illegal fashion. Id. 

There are those, like Hilden, who maintain that it would be unlikely for the Supreme Court to rule for the Software Distributors because the Court would most likely be uncomfortable with endorsing the wide-scale copyright infringement that is currently taking place on these networks. Id. Hilden further points out that the Court generally does not want to sanction lawless behavior, and in the current case, there is little uncertainty that P2P users are using the software to illegally distribute copyrighted material. Moreover, there are practical concerns about the effectiveness of suing individual users. Id.  Hilden also observes that the Court would probably feel just as uncomfortable to rule for the Copyright Owners because it is not the Court's job to censor technology, and render judgments on the limits of technology.  Id.