Supreme Court Rules Grokster and Other File-Sharing Services May Be Sued For Actively Encouraging Copyright Infringement

Yesterday, the U.S. Supreme Court issued its opinion in Metro-Goldwyn-Mayer Studios v. Grokster, Ltd., a much-anticipated decision involving the question of whether and when entities that develop and distribute peer-to-peer (“P2P”) file-sharing software can be secondarily liable for the infringing acts of individuals using that software. The case arose in the context of a substantial number of individuals using P2P software to infringe copyrights by improperly sharing copyrighted material, including MP3 music files, over the Internet. In a unanimous decision authored by Justice Souter, the Court partially resolved the issue and remanded the case to the Ninth Circuit to consider imposing secondary liability on the P2P software developers, suggesting that the evidence supporting such secondary liability was “substantial.”

Background

The Grokster litigation began in 2003 when a California federal district court held that providers Grokster and StreamCast (the provider of Morpheus P2P software) were not secondarily liable for copyright infringement when an individual directly infringes copyrights by using defendants’ P2P software to share copyrighted material over the Internet. In 2004 the Ninth Circuit affirmed and copyright interests sought further review in the Supreme Court. When the Supreme Court granted certiorari last December, many industry observers thought the Court might re-evaluate its ruling in Sony Corp. of America, Inc. v. Universal City Studios, Inc., 464 U.S. 417 (1984)(“Sony”), which was the basis of the Ninth Circuit’s finding that technology providers were not contributorily liable for copyright infringement if the technology had substantial non-infringing uses.

The Supreme Court’s decision

At the oral argument in late March, the Justices’ questions avoided revisiting Sony and instead focused on the particular facts involving file-sharing in the pending case—particularly the huge number of files, including copyrighted music and movies, that are shared over the Internet using P2P software. Consistent with questioning during argument, the Court yesterday did not reverse Sony but instead distinguished it, 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.” The Court also explained that, when Sony developed the potentially infringing video cassette recorder (“VCR”), “[t]here was no evidence that Sony had expressed an object of bringing about taping in violation of copyright or had taken active steps to increase its profits from unlawful taping.” The court contrasted that with the apparent intent of software developers, noting that Grokster and StreamCast took “active steps to encourage infringement,” such as providing guidance to software users who emailed questions about playing copyrighted movies, marketing their software as an “alternative” to the earlier, centralized file-sharing service Napster, soliciting former users of Napster, failing to develop filtering tools, and selling advertising based upon the number of users of its software. The Court’s ruling clearly reflects its concern about the huge “number of infringing downloads that occur every day using StreamCast’s and Grokster’s software.”

In reversing the Ninth Circuit, the Supreme Court found that the court had “misapplied” Sony by reading it as limiting secondary liability beyond the circumstances of the case involving the VCR. Instead, the high court explained that Sony “did not displace other theories of secondary liability” for copyright infringement developed under common law. While noting that “mere knowledge of infringing potential or of actual infringing uses” and “ordinary acts incident to product distribution” such as technical support would not be enough to subject a distributor to liability,” the court ruled that “[e]vidence of ‘active steps . . . taken to encourage direct infringement’ . . . such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe, and a showing that infringement was encouraged overcomes the law’s reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use . . . .”. The Supreme Court looked at the record on summary judgment from the lower courts and found “evidence of infringement on a gigantic scale” and an “unlawful objective.”

The Court vacated the Ninth Circuit’s judgment and remanded the case for consideration of MGM’s motion for summary judgment, likely forecasting the eventual result by adding: “[t]here is substantial evidence in MGM’s favor on all elements of inducement.”

Please contact us with any questions you may have regarding the Grokster ruling or its application.