The case of MGM (backed by MPAA and RIAA) versus the peer-to peer file sharing Grokster is one of the most important copyright infringement cases in recent times.  The case came about because MGM thought that both Grokster.com and StreamCast.com were liable for copyright damages due to their supposed encouragement of illegally sharing movies.  Both Grokster and StreamCast were actively marketing particular software that aided in the downloading of both pirated movie and songs.  The two sites targeted the earlier ruling in the Supreme Court 1985 Betamax as their defense.  The Betamax ruling asserted that VCR manufacturers are not responsible for a VCR users who copy movies illegally.  The Supreme Court ended up ruling against Grokster and StremCast, saying that they could not hide behind a the 1985 Betamax ruling because unlike the VCR companies, they were actively promoting file sharing.  The fact that the Supreme Court wholly disregarded a past copyright ruling is poignant, because previous rulings on copyright legislature are often factored heavily into new decisions.  Two other points make this case specifically interesting.  Firstly, the Supreme Court highlighted the fact that although file sharing tools have the ability to be used illegally, the file sharing software itself and the activity of file sharing is not considered to be illegal.  Secondly, they state that the manufacturers of the specific file sharing products cannot be held responsible for how users choose to proceed once they have access to the software.  The one exception is when the manufacturer actively promotes or encourages infringement.  Ironically, it seems that although Hollywood thought that they scored hugely in this case, file sharers actually profited from this case as, ultimately, it was decided that file sharing itself is not illegal.

    For more than 20 years, the copyright industry, the public, and others involved in creating and preserving works have followed the Sony Corporation of America v. Universal City Studios case which “found that a distributor cannot be held liable for users' infringement so long as the tool is capable of substantial non-infringing uses” (under the Ninth Circuit).  Meaning that as long as the technology is capable of performing techniques that do not infringe any copyright laws, the distributor cannot be held responsible for what users do.  On the other hand, if a device was sole purpose was to perform illegal procedures, the distributor could in fact be held, at least somewhat, responsible.  Therefore, when the case of MGM v. Grokster was brought to court, official had to follow the example.  In this specific case, “twenty-eight of the world's largest entertainment companies brought the lawsuit against the makers of the Morpheus, Grokster, and KaZaA software products, aiming to set a precedent to use against other technology companies (P2P and otherwise).”  Interestingly, the court sided with StreamCast Networks, “the company behind the Morpheus peer-to-peer (P2P) file-sharing software,” thus not giving Hollywood what they “wanted – a veto over technological innovation.” 

            The ever changing technology and subsequent copyright laws are seriously affecting producers, consumers, and the market. Many of these cases are so technical and delicate, that it has become inevitable that someone is going to be unhappy with the outcome.  The trick for copyright officials is to try and set some standard that applies to all devices, all copyright infringements, and all users and distributors. In an ideal world, this could all be possible.  In the meantime, everyone involved must work with what they are given and find a way to revive the media industry against copyright pirates. 

     In this case the software company known as Grokster along with other companies distributed free software that allowed users to share files between their computers. The software was not intended for illegal downloading but users mainly used the software to download copyrighted files. The software companies knew that this illegal file-sharing was going on and they encouraged it through computer ads. A large group of entertainment companies headed by Metro-Goldwyn-Mayer Studios (MGM) sued Grokster and the other software companies for violation of the Copyright Act. They said that the software companies were intentionally distributing the software so that users could infringe works that had been copyrighted. The district court along with the Ninth Circuit court ruled in favor of Grokster and the software companies stating that the software could have been used lawfully therefore they were not liable for what users chose to do with it.

     Were the software companies liable for infringement? In my opinion they were liable. The fact that the software companies were encouraging consumers to continue to buy and use their product even though a great number of them were using the product for the wrong purpose makes them partially responsible for the user's actions. The encouragement by the companies was only a way for them to get more consumers and thus make more profit.

     The case went to the Supreme Court and they ruled in favor of MGM Studios and the entertainment companies that the software companies were liable for the infringement acts of their users. The court said that although the Copyright Act did not make someone liable for another's infringement, secondary liability applies. The fact that the software was so widely used makes it difficult to deal with each individual infringer therefore the secondary source, the software companies, must be liable.   

     This case shows a pretty advanced form of piracy in music software. The fact that the court system was able to use secondary source liability to persecute the software companies shows the attempts of the court system to keep up with the advancement of piracy in order to fight it.  

This article is short, but it is a contemporary reaction to the Grokster decision, and the worries expressed in it (almost a year and a half ago) are still very relevant today. Currently, products like TiVo and Slingbox are being called guilty of “place-shifting.” This phrase is similar to the “time-shifting” ideology of the Sony case, which was then considered to be a fair use. With technology like TiVo or Slingbox, the general consensus is that it is not just time that is being shifted, but the place where one watches as well. For example, the Slingbox connects to a television set and then gives the owner the option of watching whatever is broadcast on that television on their laptop even if they are in a different city or state. Thus far, this has not been said to be illegal, but, as this article suggests, a law suit may not be far off on the horizon.

This article quotes from an article in the Hollywood Reporter, which explicitly asked for technology to be incorporated in to the Slingbox product that “will respect copyright.” In other words, it almost sounds as if Hollywood is asking for Slingbox to include a filter. One of the reasons that Grokster was found to be guilty was because there was no filtering mechanism used in the technology. However, the court explicitly stated that the lack of filtration system alone would not be enough to find guilt but would be additional evidence in a situation where other factors led to the appearance of guilt.

And therein lays the biggest part of the dilemma: Slingbox and TiVo and other Me2Me file-sharing has not been said to be illegal, but it has also not been legally ruled as being fair use either. Therefore, as this article asks, if these companies “lose on fair use, are they automatically liable for inducement?” Although many people may be inclined to say no, the Grokster decision may actually make it so they would be liable for inducement. Additionally, these technologies are already being called out for not having filtration systems, which will only come back to haunt them – as it did with Grokster and Napster before it – and may contribute to their being found guilty if they are ever brought to trial.

Before the Grokster ruling, these sorts of companies would only have to have proved that “any substantial use of their product” was non-infringing, however now they may be expected to prove that “every” use of their product is non-infringing. This might be over-exaggerating the situation, but it does illustrate what sort of effect the Grokster decision might have in the future. And, seeing as how now, in the winter of 2006, which are a year and a half into the future since this article was written, it seems that this claim of a future chilling effect is really more accurate than innovators and digital media inventers would’ve liked to admit at the time.

In this article, Andrew Beckerman-Rodau asks whether the Grokster ruling was really a good decision or simply judicial activism. Judicial activism refers to the practice of a court not interpreting the law as it already exists but rather legislating from the bench and creating new legal interpretations. Beckerman-Rodau writes that the Grokster decision rightly recognizes “the conflicting goals which had to be balanced: protecting intellectual property to promote creative activities; and, the importance of not impeding creative and innovative conduct.”

Overall, Beckerman-Rodau also writes that the Grokster decision “does not represent a novel interpretation of the law. Rather, it is consistent with the underlying principles of intellectual property law and it is based on established unfair competition theory which is supported by existing precedent.”

The article begins with “an overview of the decision,” first looking at the facts of the case. Then it discusses what the court did decide – the application of the inducement theory – and what it did not decide – the ramifications of the Sony decision in this context. Then it goes on to deal with the underlying policy considerations of the case. In both Sony and Grokster the same conflicting policy concerns are raised, which deal with “the underlying policy of promoting creativity and innovation by granting property protection for the results of such activity versus withholding such property protection to avoid impeding technological developments.” Beckerman-Rodau states that “copyright law exists to provide benefits to the public, not to maximize economic benefit flowing to a creator.” The Grokster decision went in favor of the content holders, those looking to reap the maximum economic benefit.

The article continues by looking at the application of the new inducement theory. First, it looks at the iPod, stating that although the device has illegal uses and Apple is aware of the potential for infringement the knowledge alone is not enough to hold them liable. The fact that Apple has provided iPod owners with a legal model for acquiring music, iTunes, only further helps Apple avoid liability. Secondly, the article looks at the legality of DVRS – meaning digital video recorders such as Tivo. Again, this service does not encourage users to engage in illegal activity and does not intend for infringing activities to be its primary usage.

Finally Beckerman-Rodau concludes with a recommendation for the lower courts’ application of the Grokster decision. He writes that a good way to balance the concerns of chilling innovation with the concerns of allowing infringement to occur “would be to require sufficient proof of intent to meet the clear and convincing evidence standard for inducement liability. This would avoid chilling innovation because inducement liability would only apply in situations where it is obvious that a product is being distributed with the clear intent that it be used for infringing activity. Additionally, this heightened standard would not affect the ability of a copyright owner to sue direct infringers.”

Whether courts will take this sort of advice is yet to be determined, but Beckerman-Rodau clearly states that the court, in this instance, was not legislating from the bench and instead codifying “preexisting judicially recognized doctrines” in order to make a ruling in contentious legal territory. As Beckerman-Rodau suggests, online copyright liability is an area of law that is only beginning to come into the forefront of legal decision making and liability discussions and will be debated long into the future.

The full effect of the Grokster case is still yet to be determined. The case itself is important in current discussions of copyright law because of the way the Inducement Doctrine was used in reference to copyright. The case is also significant because it touched on the highly contentious issue of when and to what extent a distributor can be held liable for the infringement of individual users.

The case itself did not just concern Grokster, but also Morpheus, KaZaA and StreamCast. 28 of the world's largest entertainment companies brought a lawsuit against them, hoping to establish a new precedent to be used against other technology companies mostly in the realm of, but not limited to, peer-to-peer file-sharing networks.

Originally in the case, the Ninth Circuit court ruled that the companies responsible for distributing Grokster and the other services could not be held liable for the violations of its users because of precedent of the Sony ruling, which found that distributors could not be held liable for the infringing activities of its users so long as the tool was capable of substantial non-infringing uses. However, the Supreme Court set aside this ruling. The Court did not overturn the Sony Doctrine, but it did not re-interpret it either. Instead, the Court chose to turn to the Inducement Doctrine. Now, in addition to the uncertainty regarding contributory infringement and vicarious liability, innovators must also contend with the problems of inducement.

The court’s holding stated that “for the same reasons that Sony took the staple-article doctrine of patent law as a model for its copyright safe-harbor rule, the inducement rule, too, 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 or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties."

In the final decision, the Supreme Court found the defendants guilty of inducement for three main reasons. First, the companies showed that they were “aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users.” The court looked at the companies’ internal communication and found several documents that made “constant reference” to the model and practice of Napster. Secondly, MGM was able to show that none of the company’s attempted to develop filtering tools or other mechanisms to diminish the infringing activity, which the Supreme Court felt underscored “Grokster’s and SteamCast’s intentional facilitation of their users’ infringement. (The Ninth Circuit looked at the lack of such tools as “irrelevant” because the companies “lacked an independent duty to monitor their users’ activity.”) Additionally, though, the Supreme Court decision stated that “in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial non-infringing uses. Such a holding would tread too close to the Sony safe harbor.” Thirdly, the Court concluded that the companies’ selling advertising space was further evidence of unlawful objectives. The court stated that “the more the software is used, the more ads are sent out and the greater the advertising revenue becomes. Since the extent of the software's use determines the gain to the distributors, the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing."

This article is written by the Center for Democracy and Technology, a non-profit interest group that “seeks to promote free expression, privacy, and individual liberty on the open, decentralized internet.” This document “outlines the limits on the scope of secondary copyright liability,” looking at the Grokster decision, the landmark decision in Sony Corporation of America v. Universal City Studios, Inc. (1984), and patent law precedents relating to inducement liability. The goal of this investigation is to make sure that "secondary liability for copyright infringement does nothing to compromise legitimate commerce or discourage innovation having lawful promise.’” The Grokster case and the Sony decision can obviously be looked at be looked at individually, but this article does a nice job of synthesizing the information and explaining how they impact each other.

The article focuses on the new implications of the “inducement test,” what repercussions the situation has for the Sony rule and what this all means for vicarious liability. The article focuses on one key difference in clarification between the Grokster and Sony decisions. The language in the Grokster decisions "suggests that the Sony test focuses on 'substantial' non-infringing uses, not 'commercially significant' non-infringing uses." With Grokster, the emphasis was certainly placed on the commerical uses of the site. Monetary gains became one of the most significant factors of the case, not just ethical or legal implications. Certainly the internet is just as much a business as any other commerical frontier in the world, but more and more - especially illustrated with the Grokster decision - financial viability is the determining legal decision making. For example, today YouTube is currently seen as protected by the safe harbor provison, although some of the content being posted on YouTube today was possibly (or probably) also availible on Grokster. YouTube has been able to position itself not only in a safe harbor in a legal sense, but also in a financial sense by teaming up with companies who own many of the copyrighted works that are being infringed.

Of course the Sony case was also motivated by money, but more than ever before the current world of the web and the sites that are allowed to function within its borders are completely a function of their monetary potential for copyright holders. Grokster was taken to court because it posed a threat to the financial success of copyright holders. YouTube poses a similar threat as well, but thus far has been able to keep in partnership with the people who would be taking them to court in the first place.