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MGM v. Grokster: Background and Analysis

On Tuesday, March 29, the Supreme Court will hear arguments in what could be one of the most important copyright cases of the last two decades: Metro-Goldwyn-Mayer Studios Inc. v. Grokster, No. 04-480, a case on appeal from the Ninth Circuit. The question presented (slightly rephrased from the official version) is:

Whether the Internet-based “file sharing” services Grokster and StreamCast are contributorily or vicariously liable for the massive copyright infringement that constitutes roughly 90% of the total use of their services.

The Ninth Circuit’s decision can be found here (380 F.3d 1154 (9th Cir. 2004)). The district court decision is here (259 F.Supp.2d 1029 (C.D.Cal. 2003)). An incredible number of briefs and other documents associated with this case can be found here, with a helpful summary of their arguments provided here by Jonathan Band of Morrison & Foerster. (Marty previously noted these resources in an earlier post.) These briefs present a bewildering number of claims: the Christian Coalition, for instance, points out that file-sharing networks allow pedophiles to swap child porn (though it’s not clear why the software creators are responsible for this).

Donald B. Verrilli, Jr., of Jenner & Block will argue for petitioners MGM and other content owners; he will be joined by Acting Solicitor General Paul D. Clement, who will argue on behalf of the United States for petitioners. Richard G. Taranto of Farr & Taranto will argue for respondents Grokster and Streamcast Networks.

A longer description of the case follows.

This case pits large copyright holders against technological upstarts. The copyright holders claim that new technology will drive them out of business; the techies claim that overly restrictive legal rules could stifle innovation. This is not a new battle: Twenty years ago, in the famous case of Sony v. Universal, 464 U.S. 417 (1984), the motion picture industry argued that Sony’s sale of home video systems (the Betamax) constituted contributory copyright infringement. The Court ruled for Sony, holding that there was no contributory copyright infringement because “the Betamax is capable of commercially significant noninfringing uses.”

Fast forward to 2005, where many of the same media companies are making the same allegations about a new technology: file-sharing software, which permits individuals to download content from one another’s computers. (Ironically, Sony–today a major media producer of its own–now joins Universal and MGM against the techies.)

What is peer-to-peer file-sharing software? Here is an extremely simplistic explanation. File-sharing software connects users to a particular network. This network is not physically defined; instead, it is nothing more than the collection of users running particular pieces of software. More than one piece of software can connect users to the same network. Once connected to the network, users can designate certain files on their own computers to “share” (i.e., make publicly available) to other network users, also known as “peers.” Downloadable content is therefore transferred from peer to peer rather than from a centralized server to individual users.

One important design question for peer-to-peer networks is how users can search each other’s computers. At one extreme, a centralized indexing system can keep a continuously updated list of the files being shared by network users. At the other extreme, each user’s computer maintains its own list of shared files, and any particular search will have to “crawl” through every user’s individual list in order to find files. Somewhere in between is a “supernode” system, where certain computers on the system (typically the most powerful) are designated as “supernodes” in that they compile indexes of the files being shared on the network, and individual users connect to these “supernodes” when they want to search. Unlike the centralized indexing system, however, a “supernode” system has no central server with an index of shared files; rather, the network automatically generates indexes on multiple computers, chosen basically at random.

The infamous Napster used a centralized indexing system; the Ninth Circuit relied on that fact to hold Napster both contributorily and vicariously liable for copyright infringement because it stored lists of infringing files on its own servers. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001). (In another irony, Napster has written a brief here in support of the media company petitioners, in which the company holds up its recently revamped service as a sterling example of legitimate peer-to-peer file-sharing software.) Grokster, by contrast, involves file-sharing software that uses the other two methods of indexing. Respondents Grokster and Streamcast Networks claim that their sole point of contact with users is providing file-sharing software to download; after the software is downloaded, they argue, users are on their own, and the network runs automatically without the participation of the respondents.

The media company petitioners beg to differ. They argue that Grokster and Streamcast Networks are liable under two different theories. First, they are liable for contributory copyright infringement because they had knowledge of the infringing activity (they knew that their software would be overwhelmingly used for copyright infringement) and materially contributed to that activity (both by providing the software and by other activity, e.g., advertising targeted at potential copyright infringers). Second, Grokster and Streamcast Networks are liable for vicarious copyright infringement because they had a direct financial interest in copyright infringement (their revenue would be insignificant if their software relied solely on legitimate uses), and they had the right and ability to supervise the use of their software (but deliberately removed that control from current versions of the software in a misguided effort to avoid liability).

In response, respondents Grokster and Streamcast Networks rely heavily upon Sony‘s holding that there is no contributory copyright infringement for products with “commercially significant noninfringing uses.” They (and several amici) point out that their software is used to make available a significant amount of legitimate material: public domain books, government documents, free software, movie trailers, and other media deliberately distributed for free by copyright holders. With respect to vicarious liability, they argue that giving in to petitioners’ demands that the software be changed would improperly insert the judiciary into product design, stifling innovation. Finally, they urge that petitioners’ arguments should be addressed to Congress, not the courts.

This is only the briefest summary of the many legal arguments before the Court. What follows is my personal take on the case.

The strongest and most intuitively significant fact in support of the copyright holder petitioners is that remarkable statistic: 90% of all use on the Grokster/Streamcast networks is copyright infringement. On the other hand, there can be no doubt that peer-to-peer file-sharing software is valuable and useful technology. (The United States admits as much in its brief in support of the petitioners.) Very few people can afford the bandwith necessary to distribute even moderately sized content, like a 10 megabyte mp3 file. File-sharing software allows legitimate content owners to use individual users’ excess bandwith to distribute enormous amounts of data at essentially no cost. And such legitimate uses do occur: Bands give away their CDs for free over peer-to-peer networks to drum up publicity (the Ninth Circuit opinion has a charming anecdote about the Grammy-winning band Wilco, and more information is here), and open source software developers often have no other way to distribute gigabytes of important code.

Something else sure to be emphasized by Grokster and Streamcast Networks is the fact that copyright holders like the media company petitioners have been notoriously bad about predicting the end of their revenue stream. In Sony, the movie industry waxed histrionically about how the Betamax (and its ultimately more successful cousin, the VCR) would destroy movies forever, leading then MPAA chairman Jack Valenti to make his infamous statement before Congress: “I say to you that the VCR is to the American film producer and the American public as the Boston strangler is to the woman home alone.” Instead, the VCR became a huge jackpot for the movie industry, generating profits that rivaled and even surpassed theater revenues. Little wonder, then, that to many people (including myself) the media company petitioners suffer from a credibility problem. It’s hard to listen to their doomsday predictions about file-sharing software without remembering that they made the exact same claims in Sony.

Make no mistake: copyright infringement is a big deal, and it takes place over peer-to-peer networks. The fear among technologists, however, is that a group of nine older justices (who, it should be noted, are decidedly not the current beneficiaries of file sharing) will craft a legal rule protecting the revenue of copyright holders–and killing a highly promising new technology. Here’s hoping that they prove as far-sighted in Grokster as they were two decades ago in Sony.