The Supreme Court Finally Steps Into The Fray Between Online File Swappers And The Major Movie And Recording Studios:
The Case of MGM v. Grokster

By JULIE HILDEN
julhil@aol.com
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Tuesday, Feb. 15, 2005

On March 29, the Supreme Court will hear arguments in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., a closely-watched case involving peer-to-peer file sharing - a process in which people send or receive music or movies over the Internet.

The most famous peer-to-peer file sharing site was, of course, Napster. However, after a number of rounds of litigation, Napster has now been transformed into a site that, for a monthly payment, allows only legal downloads of music (that is, downloads of copyright music for which a license has been granted). Other sites, however, continue to offer peer-to-peer file sharing software despite the fact that one of its uses is to pirate copyrighted music and movies - and Grokster is one such site.

The Court's ultimate decision in MGM v. Grokster is very likely to be one of the landmarks of this term.

The Plaintiffs, the Defendants, and the Allegations in the Case

The list of plaintiffs in the case is a virtual "Who's Who" of influential Hollywood record and film companies. The defendants in the case are Grokster and StreamCast Networks - which provide software that allows peer-to-peer file sharing of music and movies on personal computers.

According to the plaintiffs, over 90% of the files that are actually exchanged using the software consist of copyrighted material that the swapper - that is, the person who makes files available for download on his or her computer - has no right to distribute. For this reason, the plaintiffs - who say they own the lion's share of the copyrights at issue - seek whopping damages against Grokster and StreamCast.

Their theory of liability holds that Grokster and StreamCast are responsible for the software users' copyright infringement - either because they contribute to users' infringement, or because the infringement is, in effect, their own. These two varieties of infringement are called "contributory" and "vicarious" infringement, respectively.

Will the Sony BetamaxCase Favor Defendants?

The last Supreme Court decision that seems closely analogous to this one was Sony Corp. v. Universal Studios Inc. - which was decided in 1984. It held that sellers of VCRs were not liable for users' copyright infringement - rejecting the claim that selling VCRs amounted to contributory infringement.

That holding, at first glance, sounds pretty good for the defendants in the MGM v. Grokster case: Like VCR makers, they, too, provide a means that enables copyright infringement on the part of some users, but not of all users. They, too, have created a new technology with a range of different uses, some legal and some illegal.

So shouldn't they, too, be off the hook - based on the Sony precedent?

The problem is, there's a big difference between VCRs and the software at issue here. At the time Sony was decided, the Court noted, the average American's use of his or her VCR was for "time-shifting" - that is, to record favorite television programs to be seen at a more convenient time. In short, VCRs were sort of like an old-time TiVo.

"Time-shifting" is a classic instance of "fair use" exempt from the copyright law. And in any event, as the Court pointed out, it would not seem to cause the typical kind of damages one sees in a copyright infringement case: lost profits from potential future legal sale of the copyrighted material.

In sum, the most common use of the VCR, according to the Supreme Court, was a legal one: time-shifting favorite television shows. In contrast, the average - indeed, the overwhelmingly likely - use of the software at issue in MGM v. Grokster is an illegal one: pirating copyrighted music and movies, which constitutes copyright infringement.

Indeed, the evidence shows that nine out of ten users use Grokster this way. (It is worth noting, though, that users whose use is perfectly legal actually do exist: Grokster offered the court affidavits from users who either were themselves copyright owners, or who were licensed to use the copyrighted material they distributed.)

In sum, the Court in Sony thought it was dealing with a mostly innocuous technology. But the Court in MGM v. Grokster knows it has a rattler, not a garden snake, in its hands. The idea, then, that the Court will blindly follow Sony here would be na´ve. No matter how the Court decides this case, it will not be simply by applying past precedent.

Why the Stakes in the Case Are Potentially Momentous

The stakes in the case are very high, too - higher than in Sony. If the plaintiffs win, distributors of software that allows peer-to-peer file sharing will face immense damage awards that are likely to put them out of business - as well as, potentially, court injunctions that direct them to cease distributing their software.

The possibility would still remain, however, that the use of offshore servers and companies - which are beyond the jurisdiction of U.S. courts -- as well as of anonymity - you can't effectively hold an unknown person liable -- will mean that peer-to-peer file sharing continues. Thus, as I argued in a prior column, it may well be that this is, in effect, an unstoppable technology.

However, the Supreme Court's decision in favor of the plaintiffs would, at a minimum, impose practical impediments to peer-to-peer file sharing. It might also stigmatize peer-to-peer file sharing in the eyes of some - especially if the Supreme Court used stern language equating piracy to theft, and derogating peer-to-peer file sharing software as a criminal's tool.

It may be one thing for the record and movie industry - trying to preserve profits - to label file sharers criminal, and another thing for the Supreme Court - interpreting the law - to do so. On the other hand, though, some file sharers may only greet the Court's ruling with the same contempt they reserve for the RIAA's and MPAA's anti- piracy campaigns.

Importantly, too, courts have consistently held that when users swap copyrighted files without owning the copyright or having a license to do so, they are illegally infringing copyright. So suits against users will remain open-and-shut, no matter what the Supreme Court decides.

(Some theorists argue that sharing is "fair use," and thus exempt from copyright law. On their view, it is as innocuous as inviting one's friends over to listen to music, or lending them a DVD. But courts have held to the contrary: Unlike these practices, file-sharing typically involves some copying, or the equivalent - and thus, courts tend to see it as a straightforward copyright violation.)

On the other hand, if the defendants win, the market for peer-to-peer file sharing software will probably boom.

In addition, the software distributed by Grokster and StreamCast will provide a model of how to craft such software so that it passes legal muster; so those who seek to distribute similar software may simply opt to reverse-engineer the software that the Court has already blessed.

Who Will Win This Case Is Anybody's Guess

So who will win the case? It is extremely hard to predict.

On one hand, I think it's unlikely that the Supreme Court will simply rule for the defendants, because the Justices will be uncomfortable with, in effect, licensing wide-scale copyright infringement.

The Court typically does not want to give its blessing to numerous instances of lawless behavior - remember, there's little, if any, question that peer-to-peer users are breaking the law - by otherwise law-abiding citizens. It might even fear that to do so, would create a scofflaw community where the attitude is, "It's okay as long as I don't get caught." And the Court is all too aware of the practical and public relations costs if companies must go after users one by one.

But on the other hand, simply ruling for the plaintiffs would also make the Justices uncomfortable, I think, in a different way: It's not the Court's job to censor American technology, and tell companies what they can and cannot create.

The upshot of this analysis is that the Court may reach for a compromise solution. One such solution might be to require Grokster and StreamCast to police their networks for users' infringement.

But there are reasons that the Court might be averse to this kind of solution, too: The Court probably is not much more inclined to tell software distributors how to interact with their customers, than it is inclined to tell them what software they can, and cannot, create and distribute.

In sum, a win for the defendants here seems lawless - as if it would, in effect, give a Supreme Court blessing to a possible scofflaw community. But a win for the plaintiffs seems somehow un-American - allowing courts to tell companies what to do, even though the companies aren't themselves breaking the law.

We don't even do this with gun manufacturers whose products are used by some to kill. Is the Supreme Court likely to mandate it for mere software distributors whose products are used by some to infringe copyright?

Given Flexible Legal Standards, the Court Has Substantial Freedom Here

One thing is clear: The law in this area is malleable enough that it can be argued either way. For instance, "contributory infringement" requires that the software distributor "materially contribute" to users' infringement of copyright, and have knowledge of it. But what kind of contribution is, or is not, "material"?

There's the rub. Grokster makes illegality possible - but when the illegality happens, later, it's through the user's own choice. So has Grokster made a "material contribution" - or virtually no contribution at all?

Similarly, when software is later used by many to infringe, and some to legally distribute files, does the software maker have "knowledge" of infringement? This is another requirement for contributory infringement - and, like the material contribution requirement, it's susceptible to debate: For instance, does the software maker have to know about a particular instance of infringement, or is the general knowledge that the product is being used to infringe copyrights - which Grokster surely has by now -- enough?

Similar difficult questions arise within a theory of "vicarious" infringement. A key question is: Did the software distributor have the "right and ability" to supervise for infringement?

How might the distributor reserve the right and ability to supervise for infringement? It might require users to agree to provide copyright registration or licenses for each use of the software. Obviously, that would be quite burdensome for the user. And doing so might only put the distributor in a worse legal position: Ironically, this test seems to suggest that the distributor will be better off if it remains ignorant of illegal uses, for then it cannot be held vicariously liable for them.

Some courts might want to address this irony by saying that the distributor must reserve this right and this ability - and thus must expose itself to a vicarious infringement claim. But arguably, a court that forced this, might be going too far.

Given that Congress has not specifically required the inclusion of such provisions in the relevant contracts, should courts interpreting copyright law take it upon themselves to tell Grokster how to structure its software, and force it to police its own users? Or should the onus be on copyright owners to devise "lockware" that makes illegal uses of particular files impossible?

Reasonable minds can differ on the answers to all these questions, I think - and for this reason, the Supreme Court will likely feel free to make law, rather than to simply interpret it, in this crucial case.


Julie Hilden, a FindLaw columnist, practiced First Amendment law at the D.C. law firm of Williams & Connolly from 1996-99. She published a memoir, The Bad Daughter, in 1998, and a novel, Three, in 2003. Excerpts from the novel - which also is available in the U.K., France, and the Czech Republic - can be found on her website, www.juliehilden.com.

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