US Supreme Court Ruling in MGM v Grokster

June 30, 2005

In a series of highly readable judgments, the US Supreme Court has examined the use of P2P software and the highly contentious ruling at a lower level which effectively exonerated the file-sharing networks for any liability in breaches of copyright. As was stated by Justice Souter in the lead judgment, the Court had to decide “under what circumstances the distribution of a product capable of both lawful and unlawful use is liable for acts of copyright infringement by third parties using the product”. The Court held 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 ruling does not mean that Grokster et al have lost as the case has been remitted to the lower court for it to decide whether there is sufficient evidence of fostering infringement – although, if the lower court reads the judgment, it may take the hint that the Supreme Court thinks that plenty of such evidence exists.

Laurence Eastham comments:

This is not necessarily a day of celebration for copyright owners. What makes the judgments particularly interesting is the emphasis placed, especially by Justice Breyer, on the continued applicability of Sony v Universal Studios (the Betamax case) – that case made it clear that where new technology is capable of legitimate and illegitimate use, the provider of the technology is not liable in US law for infringing use merely by virtue of providing the “weapon”. In Sony, users did indeed use the technology to tape shows in breach of copyright but there was substantial lawful use for time-shifting (ie watching programmes when convenient). Justice Breyer’s judgment includes the following: “When measured against Sony‘s underlying evidence and analysis, the evidence now before us shows that Grokster passes Sony‘s test – that is whether the company’s product is capable of substantial or commercially significant noninfringing uses.some number of files near 10% that apparently are noninfringing, a figure very similar to the 9% or so of authorized time-shifting uses of the VCR that the Court faced in Sony”. He characterises the Sony rule as clear, strongly technology protecting and forward looking and suggests that the history of subsequent litigation (and the lack of it) suggests that the rule has worked. he appears to endorse actions against file uploaders as being a more legitimate method of protecting copyright.

Thus a careful reading of the judgments may suggest that, far from this being a victory over file-sharing software promotors, this is a victory over those who promote breaches and that canny marketing of file-sharing technology (where there is at least a 10% legitimate use) can prosper – leaving the copyright owners to chase the spotty youths of the world for payment in respect of 90% illegitimate use.

But this inexpert view is not widely shared. The ruling that the file sharing software causes ‘contributory and vicarious copyright infringement’ under US law could have a major negative impact on companies which develop new software and technology related to the entertainment industry, according to Ian De Freitas, a partner with Berwin Leighton Paisner:

“The main problem is that the entertainment industry could use this judgment as the basis for starting proceedings anywhere in the world. This threat could make it too risky to invest in new software that could potentially be subject to this ruling. Serious financial problems could follow for any company that has assets in the US, and this includes many technology companies, as those assets could be sequestered under this ruling.

File sharing software providers have previously maintained that, because they did not know the specifics of the infringement, nor could contribute to it or supervise it, the infringement had not occurred. Their line has always been: ‘don’t blame us, we can’t see what our users are doing’.”

He points out that other jurisdictions will be watching this case, which points to how the European Court might rule. Coincidentally, a similar issue will soon be examined in the Australian courts, which are considering English legal concepts. Global music trade bodies such as IFPI and RIAA in the US have welcomed the decision but, according to De Freitas: “It’s a bad day for software developers because it means the entertainment industry could tie up technology providers in costly litigation for years. Innovators may decide it simply isn’t worth the risk.”

The full judgments may be read here: