MGM v. Grokster

Citation: Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 75 U.S.P.Q.2d (BNA) 1001 (2005).

Factual Background
Early in its business life, StreamCast said that the company’s “goal is to get in trouble with the law and get sued [because that’s]. . . the best way to get in the news.” StreamCast accomplished that goal. It was sued by movie studios, record companies, songwriters and music publishers, all of whom alleged that StreamCast should be held liable for copyright infringements committed by users of the company’s peer-to-peer networking software. The lawsuit also named Grokster, Ltd. &mdash; a competing P2P software company &mdash; as a defendant.

StreamCast and Grokster enjoyed success on two other fronts as well. Their software was downloaded, installed and used by millions of people. And they won the first two rounds of the lawsuit filed against them by the copyright owners. Federal District Judge Stephen Wilson granted the defendants' motion for summary judgment. And in an opinion by Judge Sidney Thomas, the Ninth Circult Court of Appeals affirmed.

Supreme Court's Majority Opinion
In a unanimous decision by Justice David Souter, the Supreme Court ruled that Grokster and StreamCast may be liable for infringements committed by their users. They may be, the Supreme Court held, because “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 [[contributory infringement|infringement by third parties.”

The Court’s holding was characterized by Justice Stephen Breyer, in a concurring opinion, as one which “add[s] a weapon to the copyright holder’s legal arsenal.” This is why he may have said that: Grokster and StreamCast may be liable under the Court’s holding, even if their software is “capable of substantial or commercially significant noninfringing uses.” Some people &mdash; Grokster, StreamCast and the lower courts among them &mdash; read the Supreme Court’s 1984 decision in the Universal City v. Sony (Betamax) case as standing for the principle that if a device is “capable of substantial or commercially significant noninfringing uses,” then its distribution can never give rise to secondary copyright infringement liability, no matter what its distributor knows or intends.

Such a reading of the Sony case was incorrect, Justice Souter explained, because contributory copyright infringement liability results whenever someone “intentionally induc[es] or encourag[es] direct infringement.” In Sony, there was no evidence that Sony intended to promote infringement. The copyright owners argued that Sony’s intent should be inferred, because it sold VCRs with the knowledge that some buyers would use them to infringe.

But the Supreme Court rejected that argument in Sony. The Supreme Court ruled instead that because VCRs are “capable of commercially significant noninfringing uses,” it could not be inferred that Sony intended to induce or encourage infringement “solely on the basis of” the VCR’s design or sale. In other words, Justice Souter explained in the Grokster/StreamCast case, contributory liability for the sale of an item that has “substantial lawful as well as unlawful uses” requires “more acute fault than the mere understanding that some. . . products will be misused.”

On the other hand, Justice Souter added, “where an article is ‘good for nothing else’ but infringement. . . there is no legitimate public interest in its unlicensed availability, and there is no injustice in presuming or imputing an intent to infringe. . . .”

This meant the Grokster/StreamCast case could have turned on whether Grokster’s and StreamCast’s software has “substantial” lawful uses. The evidence showed that 90% of the works available on their P2P networks are copyrighted, and the copyright owners argued that the use of Grokster and StreamCast software to download the remaining 10% was not a “substantial” noninfringing use."

If the Supreme Court had agreed with the copyright owners’ definition of “substantial,” then, under Sony, it could have been presumed that Grokster and StreamCast intended their software to be used to infringe; and the two companies could have been held liable for contributory infringement on that basis. However, the Court declined to pursue the argument over the meaning of “substantial noninfringing uses.”

Instead, Justice Souter explained that although the Sony decision does not allow “imputing culpable intent. . . from the characteristics or uses of a. . . product,” Sony does permit courts to consider actual “evidence of intent if there is such evidence. . . .” Thus, where the evidence goes beyond a product’s characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony's staple-article rule will not preclude liability.”

That was how the Court came to the conclusion that Grokster and StreamCast may be contributorily liable for the infringements committed by users of their software, even if their software is “capable of substantial or commercially significant noninfringing uses.” This possibility highlights the central policy question raised by the case: how to balance the objective of “supporting creative pursuits through copyright protection” against the competing objective of “promoting innovation in new communication technology by limiting the incidence of liability for copyright infringement.”

Supreme Court's Concurring Opinions
Though the Supreme Court]’s opinion was unanimous, there were two concurring opinions that focused on an important issue the Court did not decide. The undecided issue was what constitutes a “substantial” noninfringing use. Justice Souter specifically said the Court would “leave further consideration” of that issue “for a day when that may be required.” That day could come in this very case, if, after remand, it is not proved that Grokster and StreamCast intended their software to be used to infringe copyrights and promoted its ability to do so. In that seemingly unlikely event, the question will arise once again whether under Sony, the distribution of Grokster and StreamCast software would be sufficient to find contributory infringement, on the grounds that the software is not “capable of substantial or commercially significant noninfringing uses.”

That question was addressed in conflicting concurring opinions by Justice Ruth Ginsburg (joined by Chief Justice William Rehnquist and Justice Anthony Kennedy), and by Justice Stephen Breyer (joined by Justices John Paul Stevens and Sandra Day O’Connor).

Justice Ginsburg argued that the record did not show that the Grokster and StreamCast software is capable of substantial or commercially significant noninfringing uses. “Even if the absolute number of noninfringing files copied using the Grokster and StreamCast software is large,” she reasoned, “it does not follow that the products are therefore put to substantial noninfringing uses and are thus immune from liability. The number of noninfringing copies may be reflective of, and dwarfed by, the huge number of files shared. . . . [T]here was evidence that Grokster’s and StreamCast’s products were. . . overwhelmingly used to infringe. . ., and that this infringement was the overwhelming source of revenue from the products. . . . Fairly appraised, the evidence was insufficient to demonstrate, beyond genuine debate, a reasonable prospect that substantial or commercially significant noninfringing uses were likely to develop over time.”

Justice Breyer disagreed. He argued that Grokster’s and StreamCast’s software is capable of substantial or commercially significant noninfringing uses, because 10% of the files downloaded over their P2P networks are noninfringing. “Importantly,” he said, "Sony also used the word ‘capable,’ asking whether the product is ‘capable of’ substantial noninfringing uses.” Justice Breyer acknowledged that Sony suggested that “a figure like 10%, if fixed for all time, might well prove insufficient.” But in his view, noninfringing uses of P2P networks are increasing, and “the foreseeable development of such uses, when taken together with an estimated 10% noninfringing material, is sufficient to meet Sony 's standard.”

Discussion
The Grokster/StreamCast case was a good one for those who place more weight on the objective of supporting creative pursuits through copyright. As Justice Souter put it: “The argument for imposing indirect liability in this case is. . . a powerful one, given the number of infringing downloads that occur every day using StreamCast’s and Grokster’s software. When a widely shared service or product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, the only practical alternative being to go against the distributor of the copying device for secondary liability on a theory of contributory or vicarious infringement.”

Grokster and StreamCast may be liable under the Court’s holding, because the evidence (submitted in connection with the parties’ cross-motions for summary judgment) showed that “from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement.” In addition to StreamCast’s statement that the company’s “goal was to get in trouble with the law,” Grokster sent users a newsletter “promoting its ability to provide particular, copyrighted materials.”

In addition to that evidence of “clear expression” by Grokster and StreamCast, the two companies also took “other affirmative steps” showing their intent to foster infringement.


 * Both companies sought to satisfy the demand of former Napster users for a free source of copyrighted works, after the Court of Appeals affirmed an order requiring Napster to shut down (unless it took certain actions it ultimately declined to take).


 * Both companies distributed their software for free and generated income only by selling advertising that is streamed to users while they are using the software. This was significant, because advertising is worth more as the number of users increases. “While there is doubtless some demand for free Shakespeare,” Justice Souter noted, the number of people who use the software “is a function of free access to copyrighted works. Users seeking Top 40 songs . . . or the latest release by Modest Mouse, are certain to be far more numerous than those seeking a free Decameron, and Grokster and StreamCast translated that demand into dollars.”


 * And neither company “made an effort to filter copyrighted material from users’ downloads or otherwise impede the sharing of copyrighted files.” Justice Souter explained that other types of evidence too would show an intent to encourage infringement. Advertising a device’s ability to be used for infringing uses would show such an intent, as would providing instruction on how a device could be used to infringe copyrights. (Mere customer support or device updates would not be enough, though, Justice Souter wrote.)

Because the Court found there was “substantial evidence” in favor of the copyright owners “on all elements of inducement,” the Court concluded that “summary judgment in favor of Grokster and StreamCast was in error” and it vacated that judgment. The Supreme Court said that “On remand, reconsideration of MGM’s motion for summary judgment will be in order.”