The Volokh Conspiracy - Grokster Decision, Second Thoughts:

The unanimous Supreme Court decision holding Grokster & StreamCast liable as contributory copyright infringers for distributing peer-to-peer file-sharing software turns out, on close examination, to be not nearly the victory for the entertainment industry it might have seemed at first glance. [This, interestingly, repeats a pattern in these cases -- Sony v. Universal Studios (the Betamax case) was not (nearly) as big a loss for Hollywood as it appeared, nor, as I have argued elsewhere, was the Napster case as big a win).

The Court's holding has two parts. First, on the law: You are liable for the copyright infringements of others if you "intentionally induce or encourage" that infringing behavior. The Betamax case stands only for the proposition that if you "distribute an article [that] is good for nothing else but infringement," we will presume that you have such an intent, or impute it to you. If, on the other hand, you are selling a "staple article of commerce" -- "an item with substantial lawful as well as unlawful uses" (like the VCRs in the Betamax case) -- we won't make that presumption; plaintiffs can prevail in that case, but only if they prove, with direct evidence of your "statements or actions directed to promoting infringement," that you had the requisite intent to encourage others to infringe.

So far, so good. Not much new here, actually; we kind of knew all that last week. Had I shown the preceding paragraph to someone on either side of the case a week ago, I don't think they would have batted an eye.

On, then, to the second part of the holding, the application of that law to these facts. No need to decide whether the Grokster or StreamCast systems were in fact "staple articles of commerce," because here the "record is replete with . . . evidence that Grokster and StreamCast, unlike the manufacturer and distributor in Sony, acted with a purpose to cause copyright violations." In other words: we don't have to see whether a presumption of intent is or is not warranted; here's there was actual proof of such an unlawful intent -- "words and deeds [that] show [defendants'] purpose to cause and profit from third-party acts of copyright infringement." These included:

each company showed itself "to be aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users," including "beam[ing] onto the computer screens of users of Napster-compatible programs ads urging the adoption of [defendants'] OpenNap program, which was designed, as its name implied, to invite the custom of patrons of Napster, then under attack in the courts for facilitating massive infringement";
each of the defendants "communicated a clear message [of encouragement] by responding affirmatively to requests for help in locating and playing copyrighted materials";
there were "unequivocal indications of unlawful purpose in the internal communications and advertising designs aimed at Napster users"

Here's where things get weird: the defendants didn't really dispute this either. [No wonder the decision was unanimous!]. As I tried to explain a couple of months ago, Grokster and StreamCast didn't argue that they hadn't "intentionally induced" infringement; they argued instead that the question of whether they had or had not induced infringement wasn't properly before the Court, that none of the evidence on which a finding of inducement could be based was properly presented to the Court on appeal.

This was always going to be a tricky procedural argument to make, and, obviously, the Court didn't buy it, dismissing the argument in a footnote:

"Grokster and StreamCast contend that any theory of liability based on their conduct is not properly before this Court because the rulings in the trial and appellate courts dealt only with the present versions of their software, not 'past acts . . . that allegedly encouraged infringement or assisted . . . known acts of infringement.' This contention misapprehends the basis for their potential liability. It is not only that encouraging a particular consumer to infringe a copyright can give rise to secondary liability for the infringement that results. Inducement liability goes beyond that, and the distribution of a product can itself give rise to liability where evidence shows that the distributor intended and encouraged the product to be used to infringe. In such a case, the culpable act is not merely the encouragement of infringement but also the distribution of the tool intended for infringing use."

[Incidentally, there's almost always some odd procedural glitch like this whenever a unanimous Supreme Court decision overturns a lower court ruling. Appellate judges are not, generally speaking, stupid; it's not that likely that they'll get a judgment so wrong that all nine Justices will see things the other way]

What does this all mean for the future of copyright law and peer-to-peer file-sharing? On the one hand, a "work-around" here seems pretty straightforward: If you are developing and distributing file-sharing or file-copying or file-distributing software, avoid "words and deeds going beyond distribution as such [that] show a purpose to cause and profit from third-party acts of copyright infringement." I doubt that will prove an insurmountable hurdle for the software and systems developers of the world. Shut up about infringing uses.

The more interesting, and more difficult, question is the one the Court didn't answer here: what happens if you do shut up? If there is no proof of bad intent? What if you're just distributing software, with no evidence that you "actively encourage" your users to infringe you (though many do so); what happens then? We know that the requisite bad intent can be imputed to you if your software has "no substantial non-infringing uses"; but how can we tell whether that is or is not the case? If Grokster/StreamCast had not been so overt in their encouragement of infringement (as the next generation of developers will, surely, not be) could an intent to infringe been imputed to them based on the fact that most of what their users were doing was infringing? What constitutes "substantial non-infringing uses," anyway?

There's a real split on this one. The opinion for the Court is silent on the question; there's no need, it says, to resolve this question now, given that there was evidence of bad intent in this case.

But three Justices (Ginsburg, Rehnquist, and Kennedy), concurring, do take a position: the Grokster/StreamCast software was not a "staple article of commerce" having "substantial non-infringing uses," and it would therefore have been appropriate to presume an unlawful purpose even had there been no evidence of such. Their software was "overwhelmingly used to infringe," "infringement was the overwhelming source of revenue from the products," and there was no "reasonable prospect that substantial or commercially significant noninfringing uses were likely to develop over time."

Three Justices disagreed (Breyer, Stevens (author of the Sony opinion), and O'Connor). "The evidence now before us shows that Grokster passes Sony's test" -- it is "capable of substantial or commercially significant non-infringing uses." The evidence showed that 10% or so of the files shared over these networks were non-infringing; this figure, "if fixed for all time, might well prove insufficient," but here there was a "reasonable prospect of expanded legitimate uses over time, . . . a significant future market for noninfringing uses of Grokster-type peer-to-peer software": "swapping research information (the initial purpose of many peer-to-peer networks); public domain films; historical recordings and digital educational materials; digital photos; shareware and freeware; secure licensed music and movie files; news broadcasts past and present; user-created audio and video files; and all manner of free open content. works collected by Creative Commons." Even without considering the "now-unforeseen noninfringing uses that develop for peer-to-peer software . . . the foreseeable development of such uses, when taken together with an estimated 10% noninfringing material, is sufficient to meet Sony's standard."

So it's 3-3, with 3 abstentions, on that question -- the question we all thought was at the heart of the case and which we expected the Court to resolve here.

	[David Post, June 28, 2005 at 12:14pm] Trackbacks Grokster Decision, Second Thoughts: The unanimous Supreme Court decision holding Grokster & StreamCast liable as contributory copyright infringers for distributing peer-to-peer file-sharing software turns out, on close examination, to be not nearly the victory for the entertainment industry it might have seemed at first glance. [This, interestingly, repeats a pattern in these cases -- Sony v. Universal Studios (the Betamax case) was not (nearly) as big a loss for Hollywood as it appeared, nor, as I have argued elsewhere, was the Napster case as big a win). The Court's holding has two parts. First, on the law: You are liable for the copyright infringements of others if you "intentionally induce or encourage" that infringing behavior. The Betamax case stands only for the proposition that if you "distribute an article [that] is good for nothing else but infringement," we will presume that you have such an intent, or impute it to you. If, on the other hand, you are selling a "staple article of commerce" -- "an item with substantial lawful as well as unlawful uses" (like the VCRs in the Betamax case) -- we won't make that presumption; plaintiffs can prevail in that case, but only if they prove, with direct evidence of your "statements or actions directed to promoting infringement," that you had the requisite intent to encourage others to infringe. So far, so good. Not much new here, actually; we kind of knew all that last week. Had I shown the preceding paragraph to someone on either side of the case a week ago, I don't think they would have batted an eye. On, then, to the second part of the holding, the application of that law to these facts. No need to decide whether the Grokster or StreamCast systems were in fact "staple articles of commerce," because here the "record is replete with . . . evidence that Grokster and StreamCast, unlike the manufacturer and distributor in Sony, acted with a purpose to cause copyright violations." In other words: we don't have to see whether a presumption of intent is or is not warranted; here's there was actual proof of such an unlawful intent -- "words and deeds [that] show [defendants'] purpose to cause and profit from third-party acts of copyright infringement." These included: each company showed itself "to be aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users," including "beam[ing] onto the computer screens of users of Napster-compatible programs ads urging the adoption of [defendants'] OpenNap program, which was designed, as its name implied, to invite the custom of patrons of Napster, then under attack in the courts for facilitating massive infringement"; each of the defendants "communicated a clear message [of encouragement] by responding affirmatively to requests for help in locating and playing copyrighted materials"; there were "unequivocal indications of unlawful purpose in the internal communications and advertising designs aimed at Napster users" Here's where things get weird: the defendants didn't really dispute this either. [No wonder the decision was unanimous!]. As I tried to explain a couple of months ago, Grokster and StreamCast didn't argue that they hadn't "intentionally induced" infringement; they argued instead that the question of whether they had or had not induced infringement wasn't properly before the Court, that none of the evidence on which a finding of inducement could be based was properly presented to the Court on appeal. This was always going to be a tricky procedural argument to make, and, obviously, the Court didn't buy it, dismissing the argument in a footnote: "Grokster and StreamCast contend that any theory of liability based on their conduct is not properly before this Court because the rulings in the trial and appellate courts dealt only with the present versions of their software, not 'past acts . . . that allegedly encouraged infringement or assisted . . . known acts of infringement.' This contention misapprehends the basis for their potential liability. It is not only that encouraging a particular consumer to infringe a copyright can give rise to secondary liability for the infringement that results. Inducement liability goes beyond that, and the distribution of a product can itself give rise to liability where evidence shows that the distributor intended and encouraged the product to be used to infringe. In such a case, the culpable act is not merely the encouragement of infringement but also the distribution of the tool intended for infringing use." [Incidentally, there's almost always some odd procedural glitch like this whenever a unanimous Supreme Court decision overturns a lower court ruling. Appellate judges are not, generally speaking, stupid; it's not that likely that they'll get a judgment so wrong that all nine Justices will see things the other way] What does this all mean for the future of copyright law and peer-to-peer file-sharing? On the one hand, a "work-around" here seems pretty straightforward: If you are developing and distributing file-sharing or file-copying or file-distributing software, avoid "words and deeds going beyond distribution as such [that] show a purpose to cause and profit from third-party acts of copyright infringement." I doubt that will prove an insurmountable hurdle for the software and systems developers of the world. Shut up about infringing uses. The more interesting, and more difficult, question is the one the Court didn't answer here: what happens if you do shut up? If there is no proof of bad intent? What if you're just distributing software, with no evidence that you "actively encourage" your users to infringe you (though many do so); what happens then? We know that the requisite bad intent can be imputed to you if your software has "no substantial non-infringing uses"; but how can we tell whether that is or is not the case? If Grokster/StreamCast had not been so overt in their encouragement of infringement (as the next generation of developers will, surely, not be) could an intent to infringe been imputed to them based on the fact that most of what their users were doing was infringing? What constitutes "substantial non-infringing uses," anyway? There's a real split on this one. The opinion for the Court is silent on the question; there's no need, it says, to resolve this question now, given that there was evidence of bad intent in this case. But three Justices (Ginsburg, Rehnquist, and Kennedy), concurring, do take a position: the Grokster/StreamCast software was not a "staple article of commerce" having "substantial non-infringing uses," and it would therefore have been appropriate to presume an unlawful purpose even had there been no evidence of such. Their software was "overwhelmingly used to infringe," "infringement was the overwhelming source of revenue from the products," and there was no "reasonable prospect that substantial or commercially significant noninfringing uses were likely to develop over time." Three Justices disagreed (Breyer, Stevens (author of the Sony opinion), and O'Connor). "The evidence now before us shows that Grokster passes Sony's test" -- it is "capable of substantial or commercially significant non-infringing uses." The evidence showed that 10% or so of the files shared over these networks were non-infringing; this figure, "if fixed for all time, might well prove insufficient," but here there was a "reasonable prospect of expanded legitimate uses over time, . . . a significant future market for noninfringing uses of Grokster-type peer-to-peer software": "swapping research information (the initial purpose of many peer-to-peer networks); public domain films; historical recordings and digital educational materials; digital photos; shareware and freeware; secure licensed music and movie files; news broadcasts past and present; user-created audio and video files; and all manner of free open content. works collected by Creative Commons." Even without considering the "now-unforeseen noninfringing uses that develop for peer-to-peer software . . . the foreseeable development of such uses, when taken together with an estimated 10% noninfringing material, is sufficient to meet Sony's standard." So it's 3-3, with 3 abstentions, on that question -- the question we all thought was at the heart of the case and which we expected the Court to resolve here.