Grokster and StreamCast Networks can be held liable for copyright infringements committed by users of their peer-to-peer file-sharing software, the U.S. Supreme Court ruled on Monday. The decision in the case Grokster v. MGM is a major win for the motion picture and recording industries, which took the case to the nation's highest court after losses in lower courts.
Lawyers for the plaintiffs -- the Motion Picture Association of America (MPAA), the National Music Publisher's Association of America and the Recording Industry Association of America (RIAA) -- asked the court to recognize that the Grokster and StreamCast's Morpheus P-to-P (peer-to-peer) software packages were created primarily to encourage users to illegally trade copyright songs and movies. They argued that while users are responsible for copyright violations, P-to-P vendors share a secondary liability.
The issue before the Supreme Court focused on a relatively narrow question: whether movie and music companies should be able to sue the P-to-P distributors for the copyright violations committed by their users.
The Supreme Court ruling thus gives movie and music companies the ability to sue P-to-P distributors and sends the case back to a lower court.
Those who supported Grokster argued the case has broader implications, saying if copyright owners are able to sue inventors of new technologies for the sins of their users, few technology companies will be safe.
The case centers around the Supreme Court's 1984 Sony Betamax ruling, in which judges rejected claims of a movie studio brought against Sony Corp., maker of the Betamax VCR. The court ruled against Universal City Studios, saying that makers of technologies with significant uses other than infringing copyrights were not liable for their users' copyright violations.
The entertainment industry had lost its previous attempts to sue Grokster and StreamCast Networks. The 9th U.S. Circuit Court of Appeals, citing the 1984 Betamax decision, ruled in August that the P-to-P vendors were not liable for their users' copyright violations.
In a unanimous decision, the Supreme Court on Monday left the landmark Sony decision untouched, but found that Grokster and StreamCast are at fault for promoting copyright infringement among users of their products. The Sony decision doesn't provide shelter for promoters of copyright infringement, the Supreme Court found.
Grokster and StreamCast are both aware that users employ their software primarily to download copyright files and that when they began distributing their software each company actively encouraged their users to use their products to download copyright works.
"Sony's rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law," wrote Justice David Souter, who penned the decision.
"The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement," Souter wrote.
Executives from the MPAA and RIAA hailed the decision as one that protects intellectual property and benefits not only the entertainment industry but also consumers.
"Today the Supreme Court sent a strong and unanimous decision that if you build a business that aids and abets theft you will be held accountable," said Dan Glickman, president and chief executive of the MPAA. "We believe this decision will help power the digital age by protecting the free market and promoting technological and creative innovation."
Consumers will benefit by getting "more content from more sources in a legal and hassle-free way in the digital age," Glickman added.
Mitch Bainwol, chairman and chief executive officer of the RIAA said: "Thou shall not steal. That's what this is all about." He urged parents to talk about the topic of illegal downloads with their children in light of Monday's decision.
In a separate press conference, Grokster backers warned that the decision will have a chilling effect on technology innovation and criticized the court for being unclear on what constitutes inducement of copyright violations.
"The court has now given as precedent to the whole world of digital technology companies a very difficult road map to follow," said Richard Taranto, from the law firm Farr & Taranto, who argued the case before the Supreme Court on the behalf of Grokster and StreamCast. While the decision's immediate impact on the case's future is unclear, he said, he called the impact for the industry and technology innovation as a whole "chilling."
Fred von Lohmann, senior intellectual property attorney at the Electronic Frontier Foundation, predicted the decision will unleash "a new era of legal uncertainty on America's innovators" related to copyright liability that will result in increased litigation. "By focusing on intent, the Supreme Court has opened the door to lawyers asking to see the notes of engineering meetings, the plans with marketing departments, the e-mails of technology company executives," von Lohmann said.
Michael Weiss, StreamCast's chief executive, called the ruling "another hurdle" for his company and vowed to "continue our fight" in what he labeled as a "David vs. Goliath" struggle.
Charles Baker, an attorney with Porter & Hedges representing StreamCast, vowed his client will win when the case goes back to the district court. "We're looking forward to litigating this issue. There's a substantial amount of evidence that hasn't been brought forward that we intend to bring forward ... that we believe very strongly will show that even under this new standard, StreamCast will not be held liable," Baker said.