A Briefing On Public Policy Issues Affecting Civil Liberties Online from The Center For Democracy and Technology
(1) Supreme Court Rules Grokster can be Held Liable For Inducing Infringement
(2) Lower Court Rulings on Grokster Remain Crucial
(3) Congressional Implications and the Overall Digital Copyright Debate
The Supreme Court on Monday issued its much-anticipated decision in MGM v. Grokster, a case with major implications for innovation and content protection online. The question in the case was whether Grokster and Streamcast, two providers of peer-to-peer (P2P) file-sharing products, can be held liable when people use their software to infringe copyright. The Court held that the P2P services could be liable, but only based on their efforts to encourage unlawful activity, not simply for creating or distributing a piece of technology. This ruling preserves the crucial principle -- much broader that the specific P2P issues raised in this case -- that a provider of technology that has lawful uses will not be held responsible simply because people use the technology for unlawful purposes.
The case pitted entertainment industry interests against many in the technology and Internet industries. Movie studios and record companies sought to shut down Grokster and Streamcast, on the ground that the predominant use of their software (allegedly, 90 percent of the files traded on the systems) involves the illegal trading of copyrighted material, and that the business models of the two companies appears to depend heavily on these infringing uses. However, the 9th Circuit Court of Appeals had previously held that Grokster and Streamcast could not be held liable, relying on the pivotal 1984 Sony Betamax case, which held that VCR manufacturers were not liable for illegal copying by their customers.
The legal principles established in that case have been essential to fostering the climate of innovation that produced many of the most commercially successful and socially valuable technologies of the past two decades. Hundreds of copying technologies, including everything from the iPod to the Internet itself, can be potentially misused for infringement. If every inventor of the past 20 years had been forced to prove that their nascent products could never be used illegally, many of our favorite products may never have made it out of the laboratory. The court rightfully recognized in 1984 that the act of creating and distributing new technology must be protected.
CDT filed a friend of the court brief in the Grokster case, and was one of several parties urging a balanced approach that would hold the P2P companies liable for their actual bad behavior, but not for merely providing a technology that some (or even most) people choose to misuse.
The Court's ruling took exactly such an approach. In a unanimous 9-0 ruling, it stated that Grokster and Streamcast could be liable for "purposeful, culpable expression and conduct" aimed at inducing users to engage in infringement. At the same time, it refused to neuter the innovation-friendly rule from the 1984 Sony Betamax decision.
The Court's decision generally has been reported as a big victory for the movie and music companies. But in CDT's view, the picture is more complicated. For example, the Court declined to adopt the main theories for liability urged by the entertainment industries, or to radically scale back the Sony rule by holding that a technology vendor should be liable if their product is used primarily for infringing purposes.
The case now goes back to the trial court, to determine if Grokster and Streamcast engaged in the kind of culpable behavior that the Court said can give rise to liability. The Court strongly suggested that such evidence was available, pointing in particular to the P2P companies' efforts to recruit Napster's user base.
Technology companies and innovators, meanwhile, have some legitimate concerns that the Grokster decision will subject them to significant litigation risk. They fear that copyright holders will try to stifle new technologies by bringing -- or even just threatening -- costly lawsuits alleging inducement. The Grokster opinion cited the peer-to-peer companies' failure to modify their products to reduce infringement and an advertising-based business model that profits from infringement as corroborating evidence of their intent to induce. The risk to technology companies could be exacerbated if lower courts give undue weight to this language.
However, the Supreme Court's opinion suggests that inducement liability aims at true bad actors, rather than at technology. For example, the Court expressly stated that neither of the factors mentioned above -- design decisions or profit motive -- are sufficient to establish the bad intent necessary for liability. If the lower courts apply the decision appropriately, the risks to legitimate companies may be limited. In short, while the technology community should remain vigilant in tracking lower court interpretations of Grokster, the rule announced by the Court appears to leave substantial room for innovators with clean hands to develop and distribute new technology.
The Court's relatively middle-ground decision means that congressional action on the issue is much less likely in the near term. Last year, lawmakers pushed hard to pass legislation that would have made it unlawful to "induce" people to infringe copyright. The effort -- which ultimately collapsed toward the end of the legislative session -- was highly controversial, since in many versions of the legislation the definition of "inducement" was very broad and seemed to sweep in a lot of potentially legitimate behavior. While the inducement standard announced in Grokster may raise some of the same concerns, it has advantages over the most troubling legislative proposals.
For example, the Court placed a great deal of emphasis on bad intent, and demanded that the evidence include specific statements and actions that demonstrate such intent. Also, as mentioned earlier, the court said neither failing to modify a product to make it less capable of infringement, nor having a profit motive associated with infringement, offer a sufficient basis for inducement liability. Legislative activity on the subject will likely be shelved unless and until there is evidence of problems with the lower courts' application of the Grokster inducement rule.
Still, the digital copyright debate will continue on other fronts. While fining or shutting down Grokster could help send a strong message to Internet users and businesses about illegal copying, it will not eliminate P2P networks: the Grokster and Streamcast software has already been distributed to millions of users, and it is always possible for software developers to try to distribute new P2P software anonymously or from overseas. Moreover, the Internet and digital technologies will continue to make it possible for people to engage in large-scale unlawful copying through other means.
As this debate continues, CDT believes it is crucial to find ways to address online copyright infringement that respect the needs of creators, the interests of consumers, and the open architecture of the Internet. In the absence of balanced approaches, there is a real risk of harm not just to copyright holders, but to the public at large -- because responses to infringement could inappropriately target or restrict technology, innovation, and the ability of consumers to make new and transformative uses of digital content. The Grokster case helps highlight the risks, as some of the legal approaches advocated by the entertainment industries could have significantly chilled technological innovation. In the absence of more measured alternatives, future courts or congresses might be persuaded to follow such dangerous routes.
CDT has outlined a combination of steps -- involving enforcement, development of legal distribution outlets, and public education -- that we believe represent a sound approach to the issues raised in the digital copyright debate. The specific legal question in the Grokster case is important to the enforcement prong of that strategy. But successfully combating widespread copyright infringement and ensuring that creators get compensated, while also protecting Internet values and the creativity of end users, will require action on all three fronts.