The United States Supreme Court is set to decide a case which will determine whether creators of software that many people use to improperly download songs and movies to their computers can be sued successfully by the copyright holders of those songs and movies. On March 29, 2005, the Supreme Court heard oral arguments in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd. Metro-Goldwyn-Mayer (MGM), on behalf of itself, numerous motion picture companies and a class of 27,000 songwriters and music publishers, filed suit in California seeking damages from Grokster Ltd. (Grokster) and Streamcast Networks (Streamcast) for creating and distributing software that allowed peer-to-peer file sharing. After the trial court dismissed its claims, MGM appealed to the Ninth Circuit Court of Appeals, which agreed with the trial judge and determined that neither Grokster nor Steamcast was liable for either "contributory" or "vicarious" copyright infringement. The basic facts of the case are straight forward. Grokster and Streamcast create and distribute software that allows Internet users to search for and share computer files. While these computer files can be just about anything - text, music, movies, photographs, etc. - MGM contends that 90% of the files shared via the software consisted of music and movies protected by copyright. However, the software has other uses that do not lead to copyright infringement. Grokster and Streamcast argued that they should not be held responsible for what users do with their software once it is out of their control. MGM argued that the software was really intended to facilitate sharing copyrighted files and that the defendants should be financially responsible as contributory or vicarious infringers. Central to the United States Supreme Court's determination in Grokster will be a re-examination of Sony Corp. of America v. Universal City Studios, Inc. (Sony-Betamax). The Court decided that a manufacturer of a device could not be held liable for copyright infringement if the device has commercially significant non-infringing uses. The Supreme Court in Sony-Betamax observed that many owners of the Betamax recorder used the machine to record television programs in order to watch the program at a different time. Because Sony's Betamax recorder was capable of commercially significant non-infringing uses, the Court found that constructive knowledge of the infringing activity could not be imputed from the fact that Sony knew the recorders could also be used for infringement. Contributory Infringement In reviewing the District Court's ruling in Grokster, the Ninth Circuit (a higher court) noted that the elements for contributory copyright infringement are: (1) direct infringement by a primary infringer; (2) knowledge of the infringement; and (3) material contribution to the infringement. Relying heavily on Sony-Betamax, the Ninth Circuit found that (a) knowledge of the primary infringement could not be imputed to Grokster and Streamcast because the software had non-infringing uses; and (b) that they do not provide the "site and facilities" for infringement and do not otherwise materially contribute to direct infringement. The Ninth Circuit distinguished Grokster from its decision in an earlier peer-to-peer file sharing case, A&M Records v. Napster, where Napster employed a centralized set of servers that maintained an index of available files, providing a site and facilities for direct infringement. The court noted that Grokster and Streamcast on the other hand, "are not access providers, and they do not provide file storage and index maintenance. Rather, it is the users of the software, who, by connecting to each other over the Internet, create the network and provide the access." Vicarious Liability Turning to the issue of "vicarious liability," the Ninth Circuit stated that the three elements for vicarious copyright infringement are: (1) direct infringement by a primary party; (2) a direct financial benefit to the defendant; and (3) the right and ability to supervise the infringers. The Ninth Circuit found that there was no issue of material fact as to whether Grokster and Streamcast have the right and ability to supervise the direct infringers in this case. The Court noted that the right and ability to supervise describes a relationship between the defendant and the direct infringer, which the Court found did not exist here. The court again distinguished Grokster from Napster because Napster had an express policy reserving the right to block infringers_ access for any reason. The "ability to block infringers_ access to a particular environment for any reason whatsoever is evidence of the right and ability to supervise." By contrast, neither Grokster nor Streamcast could block access to individual users because their software products did not require registration and logging-in. Accordingly, the Court found that the sort of monitoring and supervisory relationship was completely absent in this case, "since Grokster and Streamcast are more truly decentralized, peer-to-peer file sharing networks." MGM responded that Grokster and Streamcast do have the right and ability to supervise the direct infringers because they could implement a registration and log-in procedure, or other technology to monitor and supervise the software users, if they so chose. MGM opined, however, that if they did that would make them liable for vicarious infringement. In conclusion, MGM observed that the law should encourage, not discourage, attempts to prevent copyright infringement. For more information, please contact F. Casey Del Casino or Andy Norwood or any other member of Waller Lansden's Intellectual Property Practice at (615) 244-6380. The opinions expressed in this bulletin are intended for general guidance only. They are not intended as recommendations for specific situations. As always, readers should consult a qualified attorney for specific legal guidance.