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MGM Studios, Inc. v. Grokster, Ltd.
Supreme Court of the United States
Argued March 29, 2005 Decided June 27, 2005
Full case name	Metro-Goldwyn-Mayer Studios, Inc., et al. v. Grokster, Ltd., et al.
Docket nos.	04-480
Citations	545 U.S. 913; 125 S. Ct. 2764; 162 L. Ed. 2d 781; 2005 U.S. LEXIS 5212; 75 U.S.P.Q.2D (BNA) 1001; 33 Media L. Rep. 1865; 18 Fla. L. Weekly Fed. S 547
Prior history	Motion to dismiss denied, 243 F. Supp. 2d 1073 (C.D. Cal. 2003); summary judgment granted in part to defendants, 259 F. Supp. 2d 1029 (C.D. Cal. 2003); plaintiffs' motion to dismiss counterclaims granted in part, 269 F.Supp.2d 1213 (C.D. Cal. 2003); affirmed, 380 F.3d 1154 (9th Cir. 2004); cert. granted, 125 S. Ct. 686 (2004)
Subsequent history	Remanded by MGM Studios, Inc. v. Grokster Ltd., 2005 U.S. App. LEXIS 17145 (9th Cir., August 15, 2005)
Holding
Producers of technology who promote the ease of infringing on copyrights can be sued for inducing copyright infringement committed by their users. Ninth Circuit Court of Appeals vacated and remanded.
Court membership
Chief Justice William Rehnquist Associate Justices John P. Stevens · Sandra Day O'Connor Antonin Scalia · Anthony Kennedy David Souter · Clarence Thomas Ruth Bader Ginsburg · Stephen Breyer
Case opinions
Majority	Souter, joined by unanimous
Concurrence	Ginsburg, joined by Rehnquist, Kennedy
Concurrence	Breyer, joined by Stevens, O'Connor
Laws applied
Copyright Act of 1976

MGM Studios, Inc. v. Grokster, Ltd. 545 U.S. 913 (2005) is a United States Supreme Court decision in which the Court unanimously held that defendant P2P file sharing companies Grokster and Streamcast (maker of Morpheus) could be sued for inducing copyright infringement for acts taken in the course of marketing file sharing software. The plaintiffs were a consortium of 28 of the largest entertainment companies (led by Metro-Goldwyn-Mayer studios).

Prior history

The case is frequently characterized as a re-examination of the issues in Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984), a case that protected VCR manufacturers from liability for contributory infringement. MGM wants makers of file sharing technology held liable for their users' copyright infringements. In Sony, the court held that technology could not be barred if it was "capable of substantial noninfringing uses."

Grokster came before the Supreme Court having already won in two previous courts. The United States District Court for the Central District of California originally dismissed the case in 2003, citing the Betamax decision. Then a higher court, the Ninth Circuit Court of Appeals, upheld the lower court's decision after acknowledging that P2P software has legitimate and legal uses. Sharman Networks' Kazaa file sharing program was originally amongst the defendants, but was dropped because the company is based in Vanuatu.

Computer and Internet technology companies such as Intel, and trade associations including firms such as Yahoo! and Microsoft, filed amicus curiae briefs in support of the file sharing companies, while the RIAA and MPAA both sided with MGM. A list of briefs filed in the case is available at copyright.gov and eff.org. Billionaire Mark Cuban partially financed Grokster's fight before the Supreme Court.^[1]

Oral arguments

During oral argument, the Supreme Court justices appeared divided between the need to protect new technologies and the need to provide remedies against copyright infringement. Justice Antonin Scalia expressed concern that inventors would be chilled from entering the market by the threat of immediate lawsuits. Justice David Souter questioned how the interpretation of the law the plaintiffs argued for would affect devices like copy machines or the iPod.

The music industry suggested that iPods have a substantial and legitimate commercial use in contrast to Grokster, to which Souter replied, "I know perfectly well that I can buy a CD and put it on my iPod. But I also know if I can get music without buying it, I'm going to do so."^[2] On the other hand, the justices seemed troubled at the prospect of ruling that Grokster's alleged business model of actively inducing infringement and then reaping the commercial benefits was shielded from liability. Grokster argued that affirming the Ninth Circuit would only prevent an injunction against future use of the P2P software, while the plaintiffs would still be free to pursue damages in the district court for alleged past wrongful acts. Much of the Court, however, expressed skepticism that Grokster's continuing enterprise could be severable from the consequences of those prior acts.

The Court's decision

The opinion was authored by Justice Souter, who wrote:

"We hold 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."

Concurring opinions were written by Justice Ginsburg, who was joined by Chief Justice Rehnquist and Justice Kennedy; and by Justice Breyer, joined by Justice Stevens and Justice O'Connor.

While the Court unanimously concurred that Grokster could be liable for inducing copyright infringement, there was considerable disagreement over whether the case is substantially different from the Sony case, and whether the precedent established by Sony should be modified. On one hand, Justice Ginsburg, joined by Kennedy and Rehnquist, claim that "[t]his case differs markedly from Sony" based on insufficient evidence of noninfringing uses. On the other hand, Justice Breyer, joined by Stevens and O'Connor, claims "a strong demonstrated need for modifying Sony (or for interpreting Sony's standard more strictly) has not yet been shown," primarily because "the nature of [...] lawfully swapped files is such that it is reasonable to infer quantities of current lawful use roughly approximate to those at issue in Sony." These justices concur in the judgment on the narrow ground of Grokster's alleged inducement of its customers to use the product illegally.

Roughly speaking, the Ginsburg concurrence suggests that Grokster would be liable (unprotected by Sony) even absent evidence of inducement. The Breyer concurrence, on the other hand, suggests that Grokster would be protected by Sony without evidence of inducement. The Souter opinion does not address whether or not Sony protects Grokster. Thus, neither the view that Grokster is protected nor the view that Grokster is unprotected by Sony commanded a plurality of the Court.

The majority of the Justices would have either expanded or contracted the Sony Betamax doctrine, however the Court as a whole has not chosen to reexamine the Betamax precedent in the decision, being split into three equal groups. Thus the Betamax ruling was reviewed only as necessary to properly detail the issues involved in this case. Instead, a new and - as several critics have contended - ambiguous test has been developed to determine whether the software in question is not protected by the Sony ruling. Briefly stated, it has to be shown that the distributors of the program have advertised and/or otherwise induced its use for copyright infringement; if this intent can be shown, additional contributory aspects may be relevant. For example, MGM et al. had asserted that the defendants' refusal to incorporate protocols that would filter copyrighted materials from the file-sharing network constitutes an intent to promote copyright infringement. In Footnote 12, however, Justice Souter notes that

"...in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses. Such a holding would tread too close to the Sony safe harbor."

The decision has been hailed by several SCOTUS correspondents as striking a fair balance between the need to respect the copyrights of artists, and the benefits of allowing and promoting technological innovation. Indeed, the decision does seem to leave sufficient leeway for developers in creating new products, as it establishes guidelines to compliance with existing copyright law, and holds liable the distributors rather than developers for copyright infringement. Conversely, others have criticized the new test for its apparent vagueness, contending that it permits financially powerful organizations such as the RIAA and MPAA to effectively hinder development of new technology by active pursuit of litigation against the developers and distributors.^[3]

Effects of the decision

On November 7, 2005 Grokster announced that it would no longer offer its peer-to-peer file sharing service. The notice on their website said, "The United States Supreme Court unanimously confirmed that using this service to trade copyrighted material is illegal. Copying copyrighted motion picture and music files using unauthorized peer-to-peer services is illegal and is prosecuted by copyright owners."^[4] As part of a lawsuit permitted by the MGM Studios v. Grokster Supreme Court decision, Grokster was forced to pay $50 million to the music and recording industries.^[5] As of May 1, 2009, visiting the Grokster website displays this message: "Your IP address is (your ip) and has been logged. Don't think you can't get caught. You are not anonymous."^[6]

Streamcast, however, continued to fight the suit on remand. On September 27, 2006, the U.S. District Court for the Central District of California granted summary judgment in favor of the plaintiffs on Streamcast's liability for infringement,^[7] though Streamcast promised to appeal the decision.^[8]

Fearing lawsuits similar to MGM v. Grokster, Mark Gorton, the chief executive officer of the firm that produces LimeWire, has said that he plans to stop distributing his file sharing program. He explained this by saying

"Some people are saying that as long as I don't actively induce infringement, I'm O.K. I don't think it will work out that way...[the Court] has handed a tool to judges that they can declare inducement whenever they want to."^[3]

In order to download the free LimeWire client, users must now first agree to the statement "I will not use LimeWire for copyright infringement."^[9]

See also

• List of United States Supreme Court cases, volume 545
• List of United States Supreme Court cases

References

External links

• Copy of the decision from FindLaw
• Copy of the decision from EFF (PDF)
• Transcript of oral argument before the U.S. Supreme Court
• Transcript of oral argument before the Ninth Circuit
• Summary of the case
• Stanford case page (archive)
• OYEZ case summary (archive)
• California district court case summary
• Filed Briefs
• MGM v. Grokster: Day 1 - March 30, 2005 MP3 Newswire recap of first day of trial
• Timothy K. Armstrong's detailed summary of arguments

From Wikisource

Court Documents
Opinion of the Court
Concurring Opinions Ginsburg Breyer
Wikipedia article

Respondent companies distribute free software that allows computer users to share electronic files through peer-to-peer networks, so called because the computers communicate directly with each other, not through central servers. Although such networks can be used to share any type of digital file, recipients of respondents’ software have mostly used them to share copyrighted music and video files without authorization. Seeking damages and an injunction, a group of movie studios and other copyright holders (hereinafter MGM) sued respondents for their users’ copyright infringements, alleging that respondents knowingly and intentionally distributed their software to enable users to infringe copyrighted works in violation of the Copyright Act.

Discovery revealed that billions of files are shared across peer-to-peer networks each month. Respondents are aware that users employ their software primarily to download copyrighted files, although the decentralized networks do not reveal which files are copied, and when. Respondents have sometimes learned about the infringement directly when users have e-mailed questions regarding copyrighted works, and respondents have replied with guidance. Respondents are not merely passive recipients of information about infringement. The record is replete with evidence that when they began to distribute their free software, each of them clearly voiced the objective that recipients use the software to download copyrighted works and took active steps to encourage infringement. After the notorious file-sharing service, Napster, was sued by copyright holders for facilitating copyright infringement, both respondents promoted and marketed themselves as Napster alternatives. They receive no revenue from users, but, instead, generate income by selling advertising space, then streaming the advertising to their users. As the number of users increases, advertising opportunities are worth more. There is no evidence that either respondent made an effort to filter copyrighted material from users’ downloads or otherwise to impede the sharing of copyrighted files.

While acknowledging that respondents’ users had directly infringed MGM’s copyrights, the District Court nonetheless granted respondents summary judgment as to liability arising from distribution of their software. The Ninth Circuit affirmed. It read Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, as holding that the distribution of a commercial product capable of substantial noninfringing uses could not give rise to contributory liability for infringement unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge. Because the appeals court found respondents’ software to be capable of substantial noninfringing uses and because respondents had no actual knowledge of infringement owing to the software’s decentralized architecture, the court held that they were not liable. It also held that they did not materially contribute to their users’ infringement because the users themselves searched for, retrieved, and stored the infringing files, with no involvement by respondents beyond providing the software in the first place. Finally, the court held that respondents could not be held liable under a vicarious infringement theory because they did not monitor or control the software’s use, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement.

Held: 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, going beyond mere distribution with knowledge of third-party action, is liable for the resulting acts of infringement by third parties using the device, regardless of the device’s lawful uses. Pp. 10—24.

(a) The tension between the competing values of supporting creativity through copyright protection and promoting technological innovation by limiting infringement liability is the subject of this case. Despite offsetting considerations, the argument for imposing indirect liability here is powerful, given the number of infringing downloads that occur daily using respondents’ software. When a widely shared product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, so that the only practical alternative is to go against the device’s distributor for secondary liability on a theory of contributory or vicarious infringement. One infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise the right to stop or limit it. Although “[t]he Copyright Act does not expressly render anyone liable for [another’s] infringement,” Sony, 464 U.S., at 434, these secondary liability doctrines emerged from common law principles and are well established in the law, e.g., id., at 486. Pp. 10—13.

(b) Sony addressed a claim that secondary liability for infringement can arise from the very distribution of a commercial product. There, copyright holders sued Sony, the manufacturer of videocassette recorders, claiming that it was contributorily liable for the infringement that occurred when VCR owners taped copyrighted programs. The evidence showed that the VCR’s principal use was “time-shifting,” i.e., taping a program for later viewing at a more convenient time, which the Court found to be a fair, noninfringing use. 464 U.S., at 423—424. Moreover, there was no evidence that Sony had desired to bring about taping in violation of copyright or taken active steps to increase its profits from unlawful taping. Id., at 438. On those facts, the only conceivable basis for liability was on a theory of contributory infringement through distribution of a product. Id., at 439. Because the VCR was “capable of commercially significant noninfringing uses,” the Court held that Sony was not liable. Id., at 442. This theory reflected patent law’s traditional staple article of commerce doctrine that distribution of a component of a patented device will not violate the patent if it is suitable for use in other ways. 35 U.S. C §271(c). The doctrine absolves the equivocal conduct of selling an item with lawful and unlawful uses and limits liability to instances of more acute fault. In this case, the Ninth Circuit misread Sony to mean that when a product is capable of substantial lawful use, the producer cannot be held contributorily liable for third parties’ infringing use of it, even when an actual purpose to cause infringing use is shown, unless the distributors had specific knowledge of infringement at a time when they contributed to the infringement and failed to act upon that information. Sony did not displace other secondary liability theories. Pp. 13—17.

(c) Nothing in Sony requires courts to ignore evidence of intent to promote infringement if such evidence exists. It was never meant to foreclose rules of fault-based liability derived from the common law. 464 U.S., at 439. 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’s staple-article rule will not preclude liability. At common law a copyright or patent defendant who “not only expected but invoked [infringing use] by advertisement” was liable for infringement. Kalem Co. v. Harper Brothers, 222 U.S. 55, 62—63. The rule on inducement of infringement as developed in the early cases is no different today. Evidence of active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use, shows an affirmative intent that the product be used to infringe, and overcomes the law’s reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use. A rule that premises liability on purposeful, culpable expression and conduct does nothing to compromise legitimate commerce or discourage innovation having a lawful promise. Pp. 17—20.

(d) On the record presented, respondents’ unlawful objective is unmistakable. The classic instance of inducement is by advertisement or solicitation that broadcasts a message designed to stimulate others to commit violations. MGM argues persuasively that such a message is shown here. Three features of the evidence of intent are particularly notable. First, each of the respondents showed itself to be aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users. Respondents’ efforts to supply services to former Napster users indicate a principal, if not exclusive, intent to bring about infringement. Second, neither respondent attempted to develop filtering tools or other mechanisms to diminish the infringing activity using their software. While the Ninth Circuit treated that failure as irrelevant because respondents lacked an independent duty to monitor their users’ activity, this evidence underscores their intentional facilitation of their users’ infringement. Third, respondents make money by selling advertising space, then by directing ads to the screens of computers employing their software. The more their software is used, the more ads are sent out and the greater the advertising revenue. Since the extent of the software’s use determines the gain to the distributors, the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing. This evidence alone would not justify an inference of unlawful intent, but its import is clear in the entire record’s context. Pp. 20—23.

(e) In addition to intent to bring about infringement and distribution of a device suitable for infringing use, the inducement theory requires evidence of actual infringement by recipients of the device, the software in this case. There is evidence of such infringement on a gigantic scale. Because substantial evidence supports MGM on all elements, summary judgment for respondents was error. On remand, reconsideration of MGM’s summary judgment motion will be in order. Pp. 23—24.

380 F.3d 1154, vacated and remanded.

Souter, J., delivered the opinion for a unanimous Court. Ginsburg, J., filed a concurring opinion, in which Rehnquist, C. J., and Kennedy, J., joined. Breyer, J., filed a concurring opinion, in which Stevens and O’Connor, JJ., joined.

This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).