In 2004, the Ninth circuit heard the case Metro-Goldwyn-Mayer Studios Inc. v. Grokster; an appeal from the District court’s granting of motions for summary judgment by Grokster and StreamCast Networks and finding that their products include substantial non-infringing uses and therefore, under the decision in Sony Corp v. Universal City Studios (more commonly known as Sony-Betamax), do not constitute contributory infringement.#160 #160

The Motion Picture Studios and Recording Companies, in petitioning the Supreme Court for review of the Ninth Circuit’s decision, argue that the Ninth Circuit misread the holding of the Sony-Betamax case.#160 They claim that the Ninth Circuit’s decision emptied all meaning from Sony-Betamax’s concept of “commercially significant noninfringing uses.”#160 Specifically, the petitioners claim that the court did not attempt to ascertain whether there is a substantial market for a#160 non-infringing use of Grokster’s or StreamCast’s services that could commercially support their advertisement-dependent business.#160 #160The petitioners claim that this case presents the issue expressly left open in Sony-Betamax; whether noninfringing uses can be “commercially significant” when the defendant’s business depends on infringing uses and is not sustainable without them.

The Sony-Betamax case found the 1984 US Supreme Court facing the question whether the betamax video tape recorder subjected its manufacturer, Sony Corp., to contributory copyright infringement.#160 The court acknowledged that uses of the video tape recorder include acts of copyright infringement. However at least some of the uses by the public were noninfringing, such as time shifting or copying public domain works that were broadcast over the air.#160 Based on these non-infringing uses, the court found that Sony could not be held liable for secondary copyright infringement.#160 In#160 doing so, the court set forth a new standard for determining secondary copyright infringement when it held that:#160 ” the sale of copying equipment, like the sale of other articles of commerce do not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes.#160 Indeed, it need merely be capable of substantial noninfringing uses.”

The Ninth Circuit’s decision in Grokster relied on its interpretation of Sony-Betamax as set forth in#160 A&M Records v. Napster.#160 Namely, if a defendant could show that its product was capable of substantial or commercially significant noninfringing uses, then constructive knowledge of the infringement could not be imputed and there would be liability for contributory copyright infringement.#160 Grokster was able to show that 10% of its use was for a non-infringing purpose.#160 The Ninth Circuit found that this usage was “substantial” and, therefore, Grokster could not be liable for contributory copyright infringement.

The Movie Studios and Recording Companies contend that the Ninth Circuit misread or misapplied the Sony-Betamax test. They point to the Seventh Circuit’s decision in In re Aimster Litigation which held that a court must assess a system’s actual and probable potential infringing uses, and then must balance the costs and benefits to accommodate the interests of copyright holders in preventing infringement while protecting the right of the public to use products specifically for noninfringing uses.#160 #160While acknowledging that the Aimster system was capable of at least five different types of noninfringing uses, the court noted that the controlling issue was the ratio of legitimate use to unlawful use.#160

The Ninth Circuit specifically rejected the approach taken by the Seventh Circuit in deciding Grokster, stating that the Seventh Circuit has read Sony-Betamax differently.#160 In petitioning the United States Supreme Court for review, the Movie Studios and Record Companies claim there is a split between the Seventh and Ninth Circuit, that the Ninth Circuit is incorrect in its analysis, and that the Court should adopt the Seventh Circuit’s balancing test.

Grokster and StreamCast argue that the Movie Studios and Record Companies have misread Aimster, and that it does not apply to this case.#160 They point out that the Aimster court found that Aimster had failed to introduce any evidence whatsoever that its technology was capable of noninfringing uses and therefore could not avail itself of the Sony-Betamax defense.#160 Also, they point out that the Seventh Circuit made it clear that evidence of either “present or prospective” noninfringing uses would satisfy the requirements of Sony-Betamax.

However, the primary argument made by Grokster and StreamCast is that finding the proper accommodation between new technology and copyright is a task best left for Congress.#160 They point out that the primacy of Congress in our federal intellectual property system was at the heart of Sony-Betamax:#160 “In a case like this, where Congress has not plainly marked out a course, we must be circumspect in construing the scope of rights created by a legislative enactment that never contemplated such a calculus of interests.”#160 They point out that Congress has not failed to adjust copyright laws when faced with new technologies, and that Congress has the resources and institutional ability to weigh the competing concerns of the technology and copyright industries, as well as the interests of society in general.

During the last legislative session, various Senators sponsored the Inducing Infringement of Copyright Act of 2004.#160 This act was in direct response to the Ninth Circuit’s decision in Grokster.#160 #160Senator Hatch, one of the Bill’s main sponsors, asserted that the Bill is supposed to be “technology-neutral,” focusing instead on the circumstances under which the technology is deployed.#160 Second, the Bill should provide copyright owners with the ability to bring causes of action against#160 P2P services that enable massive copyright infringement, but also be adaptable to new, unforeseen technological developments.#160 Third, the Bill should not unnecessarily chill technology innovators, through fear of liability.#160 Finally, the Bill should not preempt the decision in Sony-Betamax and related common law doctrines with regard to secondary liability for copyright infringement.

This Bill has been the subject of much debate and lobbying.#160 The U.S. Copyright Office was invited to mediate the conflicting opinions and positions, and as a result of these consultations, the Copyright Office proposed a different version of the Bill.#160 At the close of the 108th Congress, the Bill was still in the Senate’s Judiciary Committee.

In granting certiorari to Grokster, the United States Supreme Court has taken on a number of issues.#160 It could decide to address the claimed split between the Circuits with regard to the standard for contributory infringement liability; this is the approach favored by the American Intellectual Property Law Association.#160 However, even if the Supreme Court decides that substantial non-infringing uses must be probable (7th Circuit) rather than requiring that a device be capable of substantial noninfringing uses (9th Circuit), this would not necessarily mean a reversal of the Grokster decision.#160 (The evidence inferred ten percent (10%) of Grokster’s product’s use was for a noninfringing purpose.)#160 The Supreme Court could also defer to Congress.#160 After all, the Betamax test is judge-made law; the Court could find that expanding its scope from analogue to digital is too far to stretch.