The Grokster Decision: Knowledge is Nothing without Power

June 30, 2003

The recent decision of the US District Court of California in the case of Metro-Goldwyn-Mayer Studios Inc., et al v Grokster Limited et al inevitably calls to mind, and invites comparison with, the decision in the Napster case decided by the US Ninth Circuit Court of Appeal in February 2001.

Napster, in operating a system which facilitated peer-to-peer transmission of MP3 files, was held liable for secondary copyright infringement. The Grokster platform achieved the same end result as the Napster system but achieved it by a different means. In deciding that the defendants in Grokster were not liable for secondary copyright infringement, the Court looked closely at the system they operated and the methods used to achieve the results. This was of central importance, as it related to the state of knowledge of and the degree of control possessed by the defendants.

The Two Systems

Users of the Napster system were required first to register with the Napster Web site, acquiring a user name and password, before then downloading Napster’s MusicShare software. If users wanted to make their MP3 files available on the Napster network they could do so by saving those files, in a format specified by the Napster software, into a directory on the user’s hard drive. Once they had done this and connected to the Napster system, the MusicShare software would verify the format of the file names and allow the uploading of the file names to the Napster server. Users looking for MP3 files to download could search using search functions provided by Napster. Transfers of MP3 files were then effected when the Napster software connected the requesting user to the “host” user via the Internet.

Napster’s role in the process of copying MP3 files was therefore central. Not only did it specify the file format, it held a central directory of file names, allowing requesting users to search by, for example, artist or song name. Napster also provided an integrated system which included server-side software, technical support and functions such as chat rooms. Most importantly, everything was controlled by Napster’s centralised servers.

The relevant “system” in the Grokster case crucially lacked the centralised quality of the Napster system, relying instead on a de-centralised system in which the Court ruled that the defendants did not occupy a controlling position.

The reference to “system” needs some clarification as there were actually two slightly different systems operated by defendants Grokster and Streamcast. Not much rests on the specifics of the differences but Grokster operated on a technology called FastTrack, whereas Streamcast operates on Gnutella open-source technology.

FastTrack is a de-centralised system which operates through a network of nodes (equivalent to end users) clustered around “supernodes”, which accumulate information from nodes and are the means by which information and connections are managed throughout the system. Nodes are automatically chosen as supernodes by the FastTrack software, such that one day a user’s node may be a supernode, the next day not. The selection of, and connection to, supernodes is automatic and is not influenced or controlled by Grokster. Neither does Grokster own or control the computers which, in a fluid and dynamic process, operate as supernodes.

The Streamcast system, operating on the Gnutella open-source network, is even more de-centralised than the Grokster system. There are no supernodes, or equivalents in the Streamcast system. Rather, the Streamcast software (called Morpheus) passes information requests from user to user until a match is found or the search request expires. Connection and transfers are made directly between users with no involvement from Streamcast.

The Court was satisfied that the Grokster and the Streamcast systems allowed users to connect to the networks and search, select and download files with “no material involvement of the defendant”.

The Case Against Grokster And Streamcast

The case was based on both contributory and vicarious copyright infringement. Each depends on primary infringement having taken place but, on the evidence, the Court was satisfied that the plaintiffs had established ownership of the copyright works and that unauthorised copying had taken place. The Court therefore focused its attention on the ways in which the respective systems operated and how they differed from the system operated by Napster.

Contributory copyright infringement relies on showing that the defendants had knowledge of the infringing activities and made a material contribution to (ie personally encouraged or assisted) the infringement. In citing the case of Sony Corporation of America v Universal City Studios Inc (1984), the Court made it clear that the knowledge required of the defendants is actual knowledge of specific acts of infringement. The constructive knowledge relevant to the Sony case is an insufficient basis for contributory copyright infringement. The fact that videotape recorders may be used for infringing uses is insufficient to render a defendant liable, particularly as the product is capable of “substantial non-infringing uses”.

In Grokster, the Court was much persuaded by the fact that the software which was distributed by the defendants could be used for legally distributing movie trailers, free songs and other non-copyrighted work. The defendant’s software was regularly used for searching for, and downloading, public domain material. Although there was not the same degree of compelling evidence relating to knowledge of infringing acts as there was in the Napster decision (in which damning internal memos and over 12,000 notifications of infringements from the Recording Industry Association of America were produced as evidence), the Court was nevertheless satisfied that the defendants in Grokster knew of infringing uses of their software. However, to be liable the defendants must have this knowledge at a time when they are able to do something about the infringing activities. If they were unable to prevent the infringement, they could not be said to be making a “material contribution” to the infringement. It was on this last point that the plaintiff’s claim for contributory copyright infringement foundered.

Using the example of Religious Tech Center v Netcam On-Line Communications Inc (1995) (where a landlord was held not to be liable for the infringing activities of his tenant after the lease had been granted and the tenant was in control), the Court held that at the time when the defendants had the material knowledge relating to infringement they had no ability to contribute to or control those infringing activities.

Whereas Napster occupied a central position in the system it operated, the Grokster defendants operated no such position in the de-centralised systems on which their software operated. Napster provided the “site and facilities” for infringement, whereas the defendants in Grokster were unable to do anything after distribution of their software to prevent the infringing activities. The Court observed that “If either Defendant closed their doors and deactivated all computers within their control, users of their products could continue sharing files with little or no interruption”.

In Grokster, the Court was “not blind to the possibility that defendants may have intentionally structured their businesses to avoid secondary liability for copyright infringement, while benefiting financially from the illicit draw of their wares”, but on the evidence, the Court was unable to find the defendant’s liable for contributory copyright infringement.

Vicarious Copyright Infringement

The plaintiff’s second claim was based on vicarious infringement, which lies where a defendant has a financial benefit in the infringing activities and has a “right and ability to supervise” that activity. For the purpose of this cause of action, knowledge of the infringing activity is irrelevant.

It was easy enough to satisfy the Court that the defendants in Grokster derived a financial benefit from their activities. The defendants have a huge user base and derived considerable revenues from advertising as a result, much of which arose from the “draw” for users based upon the prospect of trading and downloading copyrighted material. However it was on the second requirement of ability to supervise the infringing activity that the plaintiff’s claim failed. Whereas Napster’s centralised file sharing system was entirely under Napster’s day-to-day control and therefore fixed Napster with a duty to supervise, the software distributed by the Grokster defendants operated on networks (ie FastTrack and Gnutella) “entirely outside defendant’s control”.

Once the software had been distributed by the defendants, they were no longer in the position to supervise and control the infringing conduct. The initial version of the FastTrack software licensed to Grokster obliged Grokster to operate a registration service but this did not allow Grokster to block the site-sharing functions available to users. Later versions of the software did not require Grokster to keep a registration database of users. Although the plaintiffs sought to impose an obligation on the defendant’s to alter their software in order to minimise or eliminate infringing activities, the Court pointed out that the doctrine of vicarious copyright infringement imposed no liability on the defendants to alter their software in this way when they had no control over the user of the software.


On the basis of the existing legislation relating to secondary copyright infringement, the District Court of California had no option but to find Grokster and Streamcast not liable. They may have had the requisite degree of knowledge relating to infringement but the structure of the systems on which the software operated was sufficiently diffuse to escape the control over that system which would have fixed the defendants with liability.

In its concluding remarks, there is a sense that the Court felt constricted by the prevailing legislation and there is a reference to the need for Congress to ensure that the law keeps pace with changing technologies.

One might wonder whether the plaintiffs would have fared any better if they had targeted the operators of the systems, FastTrack or Gnutella, but the structure of those systems would almost certainly have ensured a similar outcome.

James Mitchell is an Associate in the IP and Technology Department at Maclay Murray Spens and is based in their London office: