As expected by many entertainment industry lawyers, the Supreme Court's opinion released June 27 in the MGM Studio vs. Grokster case focused on the activities of the peer-to-peer operators rather than

As expected by many entertainment industry lawyers, the Supreme Court's opinion released June 27 in the MGM Studio vs. Grokster case focused on the activities of the peer-to-peer operators rather than on the technology, leaving room for legitimate commerce and innovation to flourish under the law.

The court held that anyone who distributes a device -- even one that has lawful uses -- with an objective of promoting its use to infringe copyright is liable for the resulting infringing acts by third parties who use the devise. The objective can be determined by showing evidence of the party's clear expression or the party's affirmative steps that were taken to "foster infringement." To be liable, the party must have done more than merely distribute a product with knowledge of third-party infringement.

The Supreme Court concluded that the unlawful objective of Grokster and StreamCast "is unmistakable." The evidence of their activities taken to encourage direct infringement showed their intent that their software, Grokster and Morpheus, respectively, be used to infringe.

Before reaching the Supreme Court, Grokster and StreamCast convinced the District Court and the Ninth Circuit Court of Appeals that the so-called Sony Betamax case, decided by the Supreme Court in 1984, permitted them to distribute any technology that was "capable of substantial" noninfringing uses as long as they did not know that users were infringing copyrighted works when they provided them with the software.

Focusing on their technology, these defendants argued that their P2P software could be used to share authorized files, such as public domain works and music willingly shared by copyright owners, and that they did not know about users' infringements when the operators held any control over the "decentralized" service. As a result, they could not be secondarily liable for users' infringing activities.

The Supreme Court today clarified the Sony Betamax opinion, explaining that the question in the older case was whether a company that "merely distributed" a commercial product could be held secondarily liable for infringement.

In that case, the evidence showed that the principal use of videocassette recorders (such as Sony's Betamax machines) was "time-shifting," i.e., taping a program for later viewing at a more convenient time, which that court found to be a fair, noninfringing use. There was no evidence that Sony desired to encourage any taping that would violate copyright law or had actively taken any steps to gain profits from unlawful taping.

The Sony Betamax decision did not replace "fault-based liability" for secondary infringement, the court wrote today. This type of liability -- contributory infringement and vicarious infringement -- focuses on the activities of the companies that provide technology.
"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, the Sony rule will not preclude liability."

Focusing on their activities to "induce infringement," the court today described some of the wrongful activity of Grokster and StreamCast.

First, the P2P companies "aimed to satisfy" a known source of demand for infringement by trying to supply services to former Napster users, which showed an "intent to bring about infringement."

Second, the companies did not attempt to develop filtering tools or other mechanisms to reduce the infringing activity. While the Court of Appeals said this was irrelevant since the P2P operators did not have a legal duty to monitor their users' activities, the Supreme Court held that this failure "underscores" their intention to encourage unlawful file-sharing.

Third, Grokster and StreamCast make money by selling advertising space, directing ads to the screens of computers using their software.

The court wrote that this rule of law, which attaches liability to "purposeful, culpable expression and conduct," will not harm "legitimate commerce or discourage innovation having a lawful promise."

Justice David Souter wrote the court's opinion for the unanimous decision. Two concurring opinions, written by Justice Ruth Bader Ginsburg (with Chief Justice William Rehnquist and Justice Anthony Kennedy) and Justice Stephen Breyer (with Justices John Paul Stevens and Sandra Day O'Connor) were also released.

The case was ordered back to the District Court to follow the rules set out in the opinion during a reconsideration of the motion for summary judgment.