BMI Cheers Supreme Court Ruling on Grokster

Posted in News on June 26, 2005
The following is a statement by BMI President and CEO Del Bryant regarding the Supreme Court decision in MGM vs. Grokster:

"The Supreme Court's unanimous decision today is good news indeed for the creative community whose work has been blatantly infringed by illegal file-sharing networks. BMI, acting on behalf of its more than 300,000 songwriters, composers, and copyright holders, had urged the Court in an amicus brief to find Grokster and StreamCast responsible for the massive infringements made possible by their software.

Click here to read the full text of the Opinion of the Court (pdf)

"The Court has made clear in its decision that services whose clear intent is to foster infringement are liable for the illegal behavior of third parties using their software. As the Court stated, 'The unlawful objective is unmistakable.'

"BMI has been at the forefront of licensing music for digital transmission, and this ruling today will strengthen the environment for legitimate businesses. So today, the victory is shared by the music community, innovative licensed music businesses, and consumers alike."

BMI's Fred Cannon (right) argues with Consumer Rights Association activist Michael Petricone outside the U.S. Supreme Court in Washington, DC on March 29 where the Grokster hearing took place. Photo by REUTERS/Yuri Gripas

The Practical Implications

The Supreme Court’s decision in MGM v. Grokster gives the creative community a much needed legal precedent to use in protecting copyrighted works from businesses who rely on the illegal infringement of intellectual property.   The courts overturned a ruling by the Ninth Circuit Court of Appeals which had held two “peer-to-peer” file sharing services, Grokster and StreamCast, not liable for the copyright infringement activities of the millions of users of their software.   In overturning the Ninth Circuit opinion, the Supreme Court justices focused squarely on the intent of Grokster and StreamCast to foster infringement.   The Court said “…one who distributes a device with the object of promoting its use to infringe copyright…is liable for the resulting acts of infringement by third parties.”   The Court’s opinion continued “The unlawful objective is unmistakable…there is evidence of infringement on a gigantic scale.”

Now the case goes back to the Ninth Circuit where Grokster and StreamCast will face trial.   The defendants will have to pass a much stiffer test of the legality of their businesses thanks to the Supreme Court’s new decision.   Essentially, they will have to prove to the Court that their main objective is not the downloading of copyrighted works.   It will be a hard test indeed.   The Supreme Court found “the record is replete with evidence 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.”

From a practical standpoint, other businesses whose primary appeal to customers is the unauthorized downloading of copyrighted works would be liable to lawsuits under this new Supreme Court precedent.   One such company, LimeWire, has indicated that it will cease operations rather than try to defend itself in Court.   Others may follow suit.

Although this decision certainly will not eliminate illegal file sharing, it gives copyright owners a much needed new tool to protect their intellectual property.

Review of the Grokster Legal Case

On June 27, the US Supreme Court handed down its decision in a precedent setting case concerning peer to peer file sharing. The Court overturned the ruling of the Ninth Circuit Court of Appeals, and held in favor of the plaintiffs in the case of MGM, et al. v. Grokster, Ltd. The Court ruled that services whose clear intent is to foster infringement are liable for the illegal behavior of third parties using their software.

The primary issue was whether Grokster intentionally induced infringement. The unanimous decision (9-0) of the Court was that distributors of peer-to-peer file sharing software may be liable for inducing copyright infringement even if the software is capable of substantial non-infringing uses, which was the test set forth in the Sony �Betamax� case. The Court stated 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.� After explaining that the defendants Grokster and StreamCast Networks, Inc. distribute free software products that allow computer users to share electronic files through peer-to peer networks, the court stated that MGM brought suit, alleging that the defendants should be held responsible for the copyright infringement of their users, because they knowingly enabled the users to infringe.

Grokster and StreamCast conceded the infringement in most downloads, and there was considerable evidence that they advised recipients to download copyrighted works and encouraged infringement. Nevertheless, the District Court held that the distribution of the software didn�t give rise to any liability because the use of the software did not provide the defendants with actual knowledge of specific acts of infringement. The Court of Appeals came to the same conclusion, saying that a defendant would be liable as a contributory infringer when it had knowledge of direct infringement and materially contributed to the infringement. Furthermore, they were not liable under the theory of vicarious liability either, because the defendants did not monitor or control the use of the software, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement.

The Court explained that there was clearly a �tension� between supporting creative pursuits through copyright protection, and promoting innovation. But the court recognized that �the argument for imposing indirect liability in this case is, however, 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.�

The Court went on to examine their decision in the Sony (�Betamax�) Corp. v. Universal City Studios case, as the issue of �secondary liability� (vicarious and/or contributory infringement) had been addressed there. In that case, the Court had held that �time-shifting� or taping a program for later viewing was a fair, not an infringing use. Because the VCR was capable of �commercially significant non-infringing uses� the Court held that the manufacturer could not be faulted. MGM argued that only 10% of the uses in this case were non-infringing, and that should not qualify as �substantial�. The Court agreed with MGM that just because a product is capable of a substantial lawful use doesn�t mean that the producer can never be held liable for third parties infringing use. However, the Court refused to rule based on the Sony case, saying that there is nothing in that case that requires courts to ignore evidence of intent. The Court says that where 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 will not preclude liability.

Justice Souter, who wrote the opinion, went on to say that the applicability of an inducement theory makes it unnecessary to revisit Sony �to add a more quantified description of the point of balance between protection and commerce when liability rests solely on distribution with knowledge that unlawful use will occur. It is enough to note that the Ninth Circuit�s judgment rested on an erroneous understanding of Sony and to leave further consideration of the Sony rule for a day when that may be required.� Concluding that the record in this case contains more than enough evidence that the defendants acted to cause infringing uses of their software, the Court vacated the summary judgment for defendants and remanded the case for trial under an inducement theory of liability.

Concurring opinions were written by Justices Stephen G. Breyer and Ruth Bader Ginsburg, essentially directed at each other. Justice Breyer contended that the Sony case articulates a clear rule that remains vital to balancing proprietary rights and the demands of advancing technology. Justice Ginsburg found Sony inapplicable in part because, unlike that case, there has been no finding here of fair use on the part of end users.