Secondary Liability After MGM v. Grokster

Thursday, September 1, 2005 - 00:00

Was the Supreme Court's long awaited ruling in MGM v. Grokster1 as significant as the famous Sony v. Universal City Studios2 case twenty years ago? Probably not. The Court decided Grokster in accordance with common law principles of secondary liability and the opinion is narrowly tailored, leaving unaddressed the question of whether peer-to-peer technology itself is illegal. Grokster 's greatest legacy may be to return the focus in secondary liability cases to the conduct of the defendant rather than the nature of the defendant's technology.

The Copyright Act, unlike the Patent Act, does not specifically address the issue of secondary liability. Secondary liability for copyright infringement is a judicially created doctrine. Secondary liability traditionally can take the form of contributory infringement, which requires knowledge of the infringing act and materially contributing to the infringement. Or, it can take the form of vicarious liability, which requires that the defendant have the right and ability to supervise the direct infringer, and a direct financial benefit in the infringement. For example, the Seventh Circuit held in Dreamland Ballroom, Inc. v. Shapiro Bernstein & Co.3 that a dance hall operator could be vicariously liable for unauthorized performances by an orchestra that played in the hall because it had the right and ability to supervise those performances and made money from patrons attending the performances.

An example of a contributory infringement case is Screen Gems-Columbia Music, Inc. v. Mark-Fi Records, Inc.4 In that case the court denied summary judgment for the defendants, holding that if plaintiffs could prove that defendants had actual or constructive knowledge of the infringement, the advertising agency responsible for creating and placing advertising for the infringing records, the radio station that ran the ads, and the company that merely packaged and sold the records all could be liable for copyright infringement.

Prior to Grokster, Sony v. Universal City Studios was the Supreme Court's most famous secondary liability case. In Sony, the entertainment industry sought to hold Sony liable for copyright infringements being committed by users of the Sony Betamax machine. But the Court held in Sony that a provider of technology is not secondarily liable for infringing uses if the technology is "capable of substantial non-infringing uses."5 The Sony Court found that consumers used the Sony Betamax primarily for "time shifting," recording television programming to be viewed later and then erased, a substantial non-infringing use. Sony therefore escaped liability.

Against this backdrop, Grokster received much attention because of the growing popularity of unauthorized "file sharing" of music and motion pictures on peer-to-peer networks and well-publicized entertainment industry efforts to stop it. Grokster and its co-defendant distribute computer software that enables such file sharing. MGM and other entertainment businesses sued the defendants for copyright infringement, alleging that the defendants were liable for the widespread copyright infringement committed by users of the defendants' software. To the dismay of the entertainment industry, the trial court granted summary judgment for the defendants, holding that Grokster could not be held secondarily liable because the Grokster software, like the Betamax machine at issue in the Sony case, was capable of non-infringing as well as infringing uses. The Ninth Circuit affirmed.

In a unanimous opinion, the Supreme Court reversed and remanded the case for reconsideration of plaintiff's motion for summary judgment. The Court did not focus on the legality of peer-to-peer technology, but rather on the defendants' conduct and intent. The Court reasoned that the defendants' unlawful intent was "unmistakable" and that such unlawful intent coupled with defendants' actions could make defendants liable. Justice Souter 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." A New York Times editorial explained that the crux of the Grokster holding is simple: "If a company actively encourages people to violate the law, in this case the copyright law, it can be held liable for the results of its actions."6

The Grokster decision does not, as many thought it would,7 overrule or even substantially modify Sony . The Grokster Court distinguished Sony because Sony "certainly did not intentionally induce its customers to make infringing uses."8 "On those facts" the Court wrote:

with no evidence of stated or indicated intent to promote infringing uses, the only conceivable basis for imposing liability was on a theory of contributory infringement arising from its sale of [Betamaxes] to consumers with knowledge that some would use them to infringe. But because the [Betamax] was "capable of commercially significant noninfringing uses" we held that the manufacturer could not be faulted solely on the basis of its distribution.9

In contrast, the Court found that the Grokster defendants actively induced copyright infringement in three ways: they solicited infringers who previously used Napster peer-to-peer software10 to continue their infringement using defendants' software; they designed their business models to generate advertising revenue tied to infringing user conduct; and they deliberately eschewed any type of filtering or blocking mechanism that might have served to reduce the number of infringing uses of their software.11 "[N]othing in Sony ", the court wrote, "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." Thus the Court's decision was conduct driven and technology-neutral.

So what then will be the impact of Grokster ? Clearly it will not be to define the future of peer-to-peer or any other technology. Grokster 's impact is likely to be limited to refining the doctrine of secondary liability in copyright law. But that is not insignificant. In the digital age, secondary liability has become increasingly important. It allows copyright owners to focus enforcement efforts on entities that foster infringement rather than pursuing numerous, geographically diverse and often judgment-proof individuals. Individual enforcement is especially difficult in the context of peer-to-peer technologies which create vast networks of copyright infringement. The Court recognized this fact, writing "[w]hen a widely shared service or product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, the only practical alternative being to go against the distributor of the copying device for secondary liability on a theory of contributory or statutory infringement."12 Organizations that represent copyright owners, such as the Recording Industry Association of America (RIAA), the Business Software Alliance (BSA), and the Motion Picture Association of America (MPAA), have therefore increasingly sought to use secondary liability to enforce their rights efficiently.

By focusing on software manufacturers' intent rather than the technology involved Grokster reflects the beneficial policy of avoiding interference with the processes by which new technologies are developed. The Court wrote: "We are, of course, mindful of the need to keep from trenching on regular commerce or discouraging the development of technologies with lawful and unlawful potential.''13 The Amicus Brief submitted in Grokster by the Computer and Communications Industry Association and Internet Archive, for example, highlighted beneficial technological advances that have occurred since the Sony decision which might not have succeeded under a more expanded liability standard such as Internet-based communications ( i.e. e-mail and attachments using MIME and PDF) and high-density recordable media ( i.e. CD-ROMS, DVD-ROMs, and MP3 players). The brief also highlights the legitimate uses and benefits of peer-to-peer networks, such as security of access to critical information, assurance of network stability, and access to a vast body of noninfringing content.14

Deirdre Mulligan, the Director of the Samuelson Clinic at the University of California at Berkeley's School of Law wrote that the Grokster decision preserves the safe harbor for technologies with substantial lawful uses created by Sony and "maintains the balance between innovation and protection of copyrights."15 Under the Grokster standard, businesses may continue to develop new technologies as long as those involved do not try to foster or promote infringing uses of their products.

Future courts will need to interpret the Grokster standard of intent-based liability, however. In particular, we wonder what courts will do when a defendant's behavior is less than "unmistakable." There may be some confusion, and differing results in the short term, which may concern risk-adverse technology developers.

Although there is nothing in the Grokster opinion to suggest that intent and wrongful conduct is always required to prove contributory or vicarious infringement, it is possible that future courts will find that Grokster actually raised the bar for secondary liability. Grokster states: "[M]ere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as offering customers technical support or product updates, support liability in themselves." Courts in cases involving secondary liability for copyright infringement therefore may focus more keenly on the intent of the defendant. Savvy technology providers undoubtedly will seek to avoid creating the perception of an intent to profit from infringement, and copyright owners will need to pay particular attention to any conduct that can be used to establish wrongful intent.

While the courts struggle with these issues Congress may take the opportunity to elucidate the current state of Internet copyright law. For example, Congress may reintroduce the stalled Internet Inducement Act of 2004 (known as INDUCE), which would have codified copyright owners' ability to bring actions against defendants who induced infringing conduct by others.

Grokster leaves some uncertainty and ultimately may not prove to be a landmark copyright case, but it serves the twin goals of punishing those who truly mean to violate the copyright laws while preserving the ability of Americans to invent and innovate.

1 125 S. Ct. 2764 (2005).
2 Sony Corp of America of America v. Universal City Studios, Inc., 464 U.S. 417 (1984).
3 Dreamland Ballroom, Inc. v. Shapiro Bernstein & Co., 36 F.2d 354 (7th Cir. 1929).
4 256 F. Supp. 399 (S.D.N.Y. 1966).
5 Sony at 442.
6 "At End of a Session; Stands Strongly Against Theft on the Internet..." N.Y. Times, June 28, 2005, late ed. at A22.
7 See Grokster, 125 S. Ct. at 2778 (commenting that the parties and many amici thought the key to the case was to determine what precisely it means for a product to be capable of commercially significant noninfringing uses).
8 Id. at 438-39.
9 125 S. Ct. at 2777.
10 Napster ceased operating as an instrument of infringement after the Ninth Circuit, the same court that affirmed summary judgment in favor of Grokster, affirmed the issuance of preliminary injunction preventing such operation. See A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001).
11 125 S. Ct. at 2773-74.
12 Id. at 2776.
13 125 S. Ct. at 2780.
14 Brief of the Computer and Communications Industry Association (CCIA) and Internet Archive as Amici Curiae in Support of Respondents and in Opposition to the Writ of Certiorari, (No. 04-480) November 8, 2004. Available at http://www.law.berkeley.edu/cenpro/samuelson.
15 "Memo To The Media," Available at http://www.law.berkeley.edu/cenpro/samuelson.

Stephen W. Feingold and Marc A. Lieberstein practice in the New York office of Pitney Hardin LLP, where they are both Partners in the Trademark and Copyright Group. Eric C. Osterberg is Counsel in the group also based in the firm's New York office. This article represents only the authors' opinions and does not necessarily reflect the views of Pitney Hardin or any of its clients.

Please email the authors at sfeingold@daypitney.com or mlieberstein@daypitney.com or eosterberg@daypitney.com with questions about this article.