The following is an analysis of the U.S. Supreme Court’s June 27, 2005 decision in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, No. 04-480 (June 27, 2005) (the "Grokster" case).
Issue and Holding:
The decision of the Court was unanimous and was written by Justice Souter. The issue decided by the Court was as follows: Under what circumstances can the distributor of a product capable of both lawful and unlawful uses be liable for acts of copyright infringement by third parties using the product? Applying a theory of inducement of copyright infringement, the Court held that anyone who distributes a device with the intent of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for third party infringement. Slip op. at 1 and 19. Here, evidence of Grokster’s and Streamcast’s "words and deeds going beyond distribution as such shows a purpose to cause and profit from third-party acts of copyright infringement." Slip op. at 24.
Accordingly, the Court concluded that the district court should not have granted summary judgment in favor of Grokster and Streamcast, and that the Ninth Circuit Court of Appeals should not have affirmed the district court. Slip op. at 16-17, 23. The Supreme Court remanded the case to the district court. Slip op. at 24. Ordinarily, such a holding would lead to a trial on the plaintiffs’ (referred to herein as "MGM") copyright infringement claims, but MGM had also filed a motion for summary judgment. Because the Supreme Court concluded that Grokster’s and Streamcast’s "unlawful objective is unmistakable," Slip op. at 23, and that "[t]here is substantial evidence in MGM’s favor on all elements of inducement," Slip op. at 24, the Court stated that MGM’s motion for summary judgment should be considered by the district court when the case is remanded. Id. Because Grokster’s and Streamcast’s unlawful objective is unmistakable, the Court was effectively ruling that there are no genuine disputed issues of fact material to MGM’s motion for summary judgment, and therefore MGM’s motion, which seeks a judgment holding Grokster and Streamcast liable for copyright infringement, is likely to be granted. This will allow MGM to proceed on its claims for damages and injunctive relief. Slip op. at 23.
Facts:
Grokster and Streamcast distribute free software that allows computer users to share electronic files through peer-to-peer networks. The software allows users' computers to communicate directly with each other. There is no central server and Grokster and Streamcast are not involved in users’ acts of file sharing. Slip op. at 1. The peer-to-peer networks created by the software can be used to share any type of digital file, but the networks are primarily used to share copyrighted music and video files without the authorization of the copyright owners. Slip op. at 2. MGM commissioned a study that showed nearly 90% of the files available for download were copyrighted works. Slip op. at 4.
Importantly, Grokster and Streamcast conceded direct infringement by users of their software, and that they were aware that users use their software primarily to download copyrighted files. The companies also learned from time to time of their users' infringement directly from the users, when users sent emails to each company with questions about playing copyrighted movies they had downloaded. The companies responded to such inquiries with guidance. MGM also placed the companies on notice that 8 million copyrighted files could be obtained using their software. Slip op. at 9.
The Grokster and Streamcast software does not tell the companies when particular files are copied. Slip op. at 4. However, Streamcast’s software allowed users to search for "Top 40" songs, which were almost always copyrighted. Slip op. at 8. The Court noted that "a few searches using their software would show what is available on the networks the software reaches." Slip op. at 4. Thus, Grokster and Streamcast could have used their own software to check for infringing works made available for downloading on the networks created by such software. In fact, Streamcast apparently did perform such searches. The record showed that Streamcast’s executives monitored the number of songs by certain commercial artists available on the networks, and an internal communication indicated that they wanted to have a larger number of copyrighted songs available on their software’s networks than were available on other file-sharing networks. Slip op. at 8.
Both Grokster and Streamcast actively encouraged infringement. Slip op. at 5-6. Streamcast’s documents and promotional materials showed that it hoped to attract large numbers of former Napster users if that company was shut down by court order or otherwise, and that Streamcast planned to be the next Napster. Streamcast’s promotional materials showed copyrighted songs as examples of the kinds of files available through its software’s network. Slip op. at 8. Streamcast also introduced itself to some potential advertisers as a company "which is similar to what Napster was." Streamcast’s chief technology officer stated that "[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]." Slip op. at 6 - 8.
Importantly, the Court noted that even if Streamcast did not release these promotional materials to the public, they demonstrate its intent to encourage infringement. Slip op. at 7, n. 7. Under a different set of facts, a company might develop such materials but NOT distribute them. Its decision not to distribute them could mean that it does not want to encourage infringement. It is clear, however, that Streamcast wanted to encourage infringement, and therefore the Court viewed the development of such materials as supporting such intent, even if the materials were not distributed.
As evidence of Grokster’s intent to encourage infringement, the Court observed that Grokster’s software was called Swaptor, which incorporates the word "swap" (as used in phrases such as "swapping copyrighted files"), and ends in a suffix similar to "Napster’s" suffix. Swaptor inserted digital codes (probably metatags) into its website so that computer users using Internet search engines to look for "Napster" or "[f]ree filesharing" would be directed to Grokster’s website, where they could download the Grokster software, which could then be used to find and copy copyrighted files. Slip op. at 7. Grokster also sent users a newsletter promoting its software’s ability to provide particular, popular copyrighted files. Slip op. at 8.
The Court also noted that both Grokster and Streamcast stream advertising to users’ computers while the users are using the programs. As the number of users of each program increases, the value of the advertising increases. Slip op. at 8. This also shows that Grokster and Streamcast had access to their users’ computers and to the software after it was downloaded.
However, there was no evidence that either company made an effort to filter copyrighted material from users' downloads or otherwise impede the sharing of copyrighted files. Although Grokster appears to have sent emails warning users about infringing content when it received a threatening notice from the copyright holders, it never blocked anyone from continuing to use its software to share copyrighted files. Streamcast not only rejected another company's offer of help to monitor infringement, but blocked the Internet Protocol addresses of entities it believed were trying to engage in such monitoring of networks using its software. Slip op. at 8-9. Thus, Grokster and Streamcast made no effort to prevent their software from being used for infringing purposes, and even prevented the copyright owners from searching for infringement.
Contributory/Vicarious Infringement:
The Court stated that:
Slip op. at 12. However, instead of finding liability based on the theories of contributory infringement or vicarious liability as traditionally applied in the copyright field, the Court imported from the patent laws the concept of inducement of infringement and viewed it as a form of contributory infringement. Slip op. at 12-13 and n. 9. The Court stated that:
Slip op. at 12. The Court also observed that as "[w]e stated in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984), . . . 'the lines between direct infringement, contributory infringement and vicarious liability are not clearly drawn'." Slip op. at 12, n. 9. Accordingly, the Court ruled that:
Slip op. at 19 (see also Slip op. at 23, n. 13: "the distribution of a product can itself give rise to liability where evidence shows that the distributor intended and encouraged the product to be used to infringe").
where an article is "good for nothing else" but infringement, Canda v. Michigan Malleable Iron Co., supra, at 489, there is no legitimate public interest in its unlicensed availability, and there is no injustice in presuming or imputing an intent to infringe, see Henry v. A.B. Dick Co., 224 U.S. 1, 48, 32 S.Ct. 364, 56 L.Ed. 645 (1912), overruled on other grounds, Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 37 S.Ct. 416, 61 L.Ed. 871 (1917). Conversely, the [contributory infringement] doctrine absolves the equivocal conduct of selling an item with substantial lawful as well as unlawful uses, and limits liability to instances of more acute fault than the mere understanding that some of one's products will be misused. It leaves breathing room for innovation and a vigorous commerce. See Sony Corp. v. Universal City Studios, supra, at 442; Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176, 221, 100 S.Ct. 2601, 65 L.Ed.2d 696 (1980); Henry v. A.B. Dick Co., supra, at 48.
Slip op. at 15. Thus, where a product is good for no use other than infringement, an intent to infringe or to induce infringement may be presumed.
The Betamax Case:
The Court’s decision in the Grokster case does not change the ruling in the famous Sony Betamax case.
In Sony Corp. v. Universal City Studios, the Court addressed a claim that secondary liability for infringement can arise from the distribution of a commercial product. Slip op. at 13. The Betamax case dealt with a claim of liability based solely on distributing a product with alternative lawful and unlawful uses, with knowledge that some users would use the product for infringement. Slip op. at 23.
In the Betamax case, the Court found that time-shifting (i.e., taping a program for later viewing at a more convenient time) is a fair use, and that there was no evidence that Sony had encouraged infringing videotaping or had taken active steps to increase its profits from unlawful taping. Although Sony's advertisements urged consumers to buy the VCR to " 'record favorite shows' " or " 'build a library' " of recorded programs, neither of these uses was necessarily infringing. Slip op. at 13-14.
On those facts, with no evidence of stated or indicated intent to promote infringing uses, the only conceivable basis for imposing liability was on a theory of contributory infringement arising from [Sony’s] sale of VCRs to consumers with knowledge that some would use them to infringe. But because the VCR was "capable of commercially significant noninfringing uses," we held the manufacturer could not be faulted solely on the basis of its distribution.
Slip op. at 14.
However, the Court appears to have refined its ruling in the Betamax case. The Court agreed with MGM that the Ninth Circuit Court of Appeals misapplied Sony and applied its protection from liability far beyond the circumstances to which the case properly applies. According to the Supreme Court, the Betamax case protected Sony from secondary liability because it did not impute intent to cause infringement solely from the design or distribution of a product capable of substantial lawful use, even though Sony knew the product was used for infringement. However, the Ninth Circuit wrongly interpreted the Betamax case to mean that whenever a product is capable of substantial lawful use, the producer can never be held contributorily liable for third parties' infringing use of it. Slip op. at 16. Thus, the Court concluded, effectively, that the Betamax ruling provided one limited exception to contributory infringement, and that the decision "did not displace other theories of secondary liability." Slip op. at 16-17.
Sony 's rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law. Sony Corp. v. Universal City Studios, 464 U.S., at 439 ("If vicarious liability is to be imposed on Sony in this case, it must rest on the fact that it has sold equipment with constructive knowledge" of the potential for infringement). Thus, where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony's staple-article rule will not preclude liability.
Slip op. at 17.
Inducing Infringement
The Court essentially imported the common law of inducement into the body of copyright common law by stating that:
Slip op. at 18.
Liability for inducement has two elements: (1) intent to cause infringement and (2) actual direct infringement (in this case, evidence of actual infringement by software users, which Grokster and Streamcast conceded, Slip op. at 9). Slip op. at 23.
The Court stated that secondary liability for inducing infringement cannot be supported solely with "mere knowledge of infringing potential or of actual infringing uses," or "ordinary acts incident to product distribution, such as offering customers technical support or product updates." Instead, the inducement rule bases "liability on purposeful, culpable expression and conduct, and thus does nothing to compromise legitimate commerce or discourage innovation having a lawful" purpose. Slip op. at 19-20. According to the Court, the "classic instance of inducement is by advertisement or solicitation that broadcasts a message designed to stimulate others to commit violations." Slip op. at 20.
However, the Court stated that such a message need not be sent to users to support secondary liability for infringement. The Court ruled that:
Slip op. at 21.
The Court then identified three features of such of evidence of intent, which can also be viewed as factors for determining secondary liability for inducement in other situations.
- Each company showed itself to be aiming to satisfy a known demand for copyright infringement. Slip op. at 21. The Court found that Grokster’s and Streamcast’s efforts to supply software to former Napster users indicated a principal, if not exclusive, intent to cause direct infringement. Slip op. at 22.
- Neither company attempted to develop filtering tools or other mechanisms to reduce infringing uses of its software. Slip op. at 22. The Court noted, however, that in the absence of other evidence of intent, a court would be unable to find contributory infringement liability based only on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses. Slip op. at 22, n. 12.
- Streamcast and Grokster make money by selling advertising space, by directing ads to the screens of computers employing their software. The more the software is used, the more ads are sent out and the greater the
companies’ advertising revenue. Slip op. at 22.
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