By Scott Hervey

On June 27, 2005, the United States Supreme Court handed down its decision in MGM v. Grokster.#160 That case involved an appeal from the Ninth Circuit by MGM, various record labels and other content owners of an adverse decision in their attempt to hold Grokster and other peer-to-peer network companies liable for copyright infringement.#160 MGM and the other content owners had initially filed a lawsuit against Grokster and other peer-to-peer network technology companies to hold them liable for damages resulting from their supplying the technology that enabled users to trade online copyrighted works.#160 The Ninth Circuit, upholding the District Court’s finding, held that the technology companies could not be held either vicariously liable or liable for contributory copyright infringement.#160 In coming to its conclusion, the Ninth Circuit interpreted the Sony v. Betamax case in holding that the distribution of a commercial product capable of substantial noninfringing uses could not give rise to contributory liability for infringement unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge.#160 Because the Ninth Circuit found the technology company’s software to be capable of substantial noninfringing uses and because respondents had no actual knowledge of infringement resulting from the software’s decentralized architecture, the court held that they were not liable.#160 (The architecture of the defendant’s file trading network is an open network.#160 That is, it does not have a central server like the old Napster network but rather uses nodes and supernodes; computer systems that are owned by users of the software and have no relationship to the defendants.)#160 The Ninth Circuit also held that the defendants did not materially contribute to their user’s infringement because the users themselves searched for, retrieved and stored the infringing files, with no involvement by respondents beyond providing the software in the first place.#160 Finally, the court held that the defendants could not be held liable under a vicarious infringement theory because the defendants did not monitor or control the software use and had no agreed upon right or current ability to supervise its use and had no independent duty to police infringement

The Supreme Court stated that the Ninth Circuit read the Sony case too broadly.#160 Instead, the Supreme Court stated that the test for contributory or vicarious liability revolves around the intent of the defendant, namely did the defendant distribute its device with the object of promoting the devices used to infringe the copyrighted works of third parties, as shown by clear expression on other affirmative steps taken to foster infringement.#160 If the defendant goes beyond mere distribution with the knowledge of third party action, the distributor is liable for the resulting acts of an infringement by third parties using the devices, regardless of the devices lawful uses.

What will this decision really do in the way of advancing the entertainment industry’s fight against illegal file trading, and how does this affect the growth of new technology?#160 Numerous pundits claim to have the answer.#160 However, human nature being what it is, I fail to see how anyone can predict the long term ratifications of this decision.#160 As a practical matter I believe that if a company creates a product with the primary intent that it be used for an illegal purpose, the company should be held liable.#160 If Grokster and the other defendants built a business model that depended on and encouraged users to engage in illegal file trading, then they should be held liable.#160

Representing record labels, television production companies, and other content owners, I understand how piracy affects their bottom line.#160 However, if illegal activity is an incidental byproduct to an otherwise productive and beneficial technology that is a cost of societal advancement that content owners have to bear.#160

The problem with the Grokster decision is how does one establish a company’s principal intent?#160 Unfortunately, unless the Company makes an express statement the only way is through litigation.#160 While I don’t think that the Grokster decision is death knell for new technology as some pundits declare, I do see how, as a result of this decision litigation can be used to slow or quash the growth of new technology.#160 This is a real possibility; especially when we are dealing with the entertainment industry.#160 I have found that some entertainment industry companies are reluctant to venture outside of their known safety zone.#160 They’re reticent to try new things that challenge or disrupt their existing business model.#160 From a business perspective, I can understand this.#160 Nobody likes to have their bottom line affected.#160 However, technological growth depends on innovative people pushing boundaries.#160 I would hate to see the Grokster decision slow technological advances that can, in the long run, be beneficial to all of us.