For opinion see 125 S.Ct. 686
Briefs and Other Related Documents
<<Material
appearing in DIGEST section, including Topic and Key Number
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Copyright 2005 West Publishing Company>>
Supreme Court of
the United States.
METRO-GOLDWYN-MAYER
STUDIOS INC., et al., Petitioners,
v.
GROKSTER, LTD.,
et al., Respondents.
No. 04-480.
January 24, 2005.
On Writ of Certiorari to the United States
Court of Appeals for the Ninth
Circuit
Brief for Motion
Picture Studio and Recording Company Petitioners
Kenneth W. Starr Steven A. Engel Susan E. Engel Kirkland & Ellis LLP 655 Fifteenth Street, N.W. Washington,
DC 20005 (202) 879-5000
Russell J. Frackman George M. Borkowski Mitchell Silberberg & Knupp LLP 11377 West Olympic Blvd. Los
Angeles, CA 90064 (310) 312-2000
Donald B. Verrilli,
Jr. [FN*] Ian Heath Gershengorn William M. Hohengarten Steven B. Fabrizio Thomas J. Perrelli Jenner & Block LLP 601 Thirteenth Street, N.W. Washington, DC
20005 (202) 639-6000
David E. Kendall Robert J. Shaughnessy Thomas G. Hentoff Williams & Connolly LLP 725
Twelfth Street, N.W. Washington, DC 20005 (202) 434-5000 Counsel for Motion
Picture Studio and Recording Company Petitioners
Robert M. Schwartz Drew E. Breuder O'Melveny & Myers LLP 1999 Avenue of the Stars Los Angeles,
California 90067 (310) 553-6700 Counsel for Petitioners Warner Bros.
Entertainment Inc. and New Line Cinema Corporation
Gregory P. Goeckner Dean C. Garfield Motion
Picture Association of America, Inc. 15503 Ventura Boulevard Encino, CA 91436 (818) 995-6600
Elaine J. Goldenberg Matthew Hersh Kathleen R. Hartnett Brian Hauck Jenner & Block LLP 601 Thirteenth Street, N.W. Washington, DC
20005 (202) 639-6000
Steven M. Marks Stanley Pierre-Louis Recording Industry Association of America, Inc. 1330 Connecticut
Avenue, N.W. Suite 300 Washington, DC 20036 (202) 775-0101 Counsel for Motion
Picture Studio and Recording Company Petitioners
QUESTION PRESENTED
Whether the Ninth Circuit erred in concluding,
contrary to long-established principles of secondary liability in copyright law
(and in acknowledged conflict with the Seventh Circuit), that the
Internet-based "file sharing" services Grokster and StreamCast should
be immunized from copyright liability for the millions of daily acts of
copyright infringement that occur on their services and that constitute at
least 90% of the total use of the services.
*ii PARTIES TO THE PROCEEDING
Pursuant to Rule 14.1(b), the following list
identifies all of the parties appearing here and before the United States Court
of Appeals for the Ninth Circuit.
The petitioners here and appellants below are
Metro-Goldwyn-Mayer Studios Inc.; Columbia Pictures Industries, Inc.; Disney
Enterprises, Inc.; Warner Bros. Entertainment Inc. (as successor-in-interest to
the Filmed Entertainment Division of Time Warner Entertainment Company, L.P.);
New Line Cinema Corporation; Paramount Pictures Corporation; Twentieth Century
Fox Film Corporation; Universal City Studios LLLP (f/k/a Universal City
Studios, Inc.); Arista Records, Inc.;
Atlantic Recording Corporation; Rhino Entertainment Company; Bad Boy Records;
Capitol Records, Inc.; Elektra Entertainment Group Inc.; Hollywood Records,
Inc.; Interscope Records; LaFace Records, Inc.; London-Sire Records Inc.;
Motown Record Company, L.P.; The RCA Records Label, a unit of BMG Music d/b/a
BMG Entertainment; Sony Music Entertainment Inc.; UMG Recordings, Inc.; Virgin
Records America, Inc.; Walt Disney Records; Warner Bros. Records Inc.; WEA
International Inc.; Warner Music Latina Inc.; Zomba Recording Corporation;
Jerry Leiber, individually and d/b/a Jerry Leiber Music; Mike Stoller,
individually and d/b/a Mike Stoller Music; Peer International Corporation;
Songs of Peer, Limited; Peermusic, Limited; Criterion Music Corporation; Famous
Music Corporation; Bruin Music Company; Ensign Music Corporation; Let's Talk
Shop, Inc. d/b/a Beau-Di-O-Do Music.
The appellees below and respondents here are
Grokster, Ltd. and StreamCast Networks, Inc.
*iii CORPORATE DISCLOSURE STATEMENT
Pursuant to Rule 29.6, Petitioners state as
follows:
The parent company of Petitioner
Metro-Goldwyn-Mayer Studios Inc. is Metro-Goldwyn-Mayer Inc., a publicly traded
corporation.
The parent company of Petitioner Columbia
Pictures Industries, Inc. is Sony Corporation, a publicly traded corporation.
The parent company of Petitioner Disney
Enterprises, Inc. is The Walt Disney Company, a publicly traded corporation.
The indirect parent company of Petitioner
Paramount Pictures Corporation is Viacom Inc., a publicly traded corporation.
The parent of Petitioner Warner Bros.
Entertainment Inc. (as successor-in-interest to the Filmed Entertainment
Division of Time Warner Entertainment Company, L.P.) is Time Warner Inc., a
publicly traded company.
The parent of Petitioner New Line Cinema
Corporation is Time Warner Inc., a publicly traded company.
The parent companies of Petitioner Twentieth
Century Fox Film Corporation are Fox Entertainment Group, Inc. and The News
Corporation Limited, both of which are publicly traded corporations.
The parent companies of Petitioner Universal
Studios LLLP (f/k/a Universal City Studios, Inc.) are General Electric Company
and Vivendi Universal S.A., both of which are publicly traded corporations.
The parent companies of Petitioner Arista
Records, LLC (f/k/a Arista Records, Inc.) are Sony Corporation, a publicly *iv
traded corporation, and Bertelsmann AG, which is not publicly traded.
The parent company of Petitioner Atlantic
Recording Corporation is WMG Parent Corp., which is not a publicly traded
corporation.
The parent company of Petitioner Rhino
Entertainment Company is WMG Parent Corp., which is not a publicly traded
corporation.
The parent company of Petitioner Capitol
Records, Inc. is EMI Group PLC, which is publicly traded in the U.K.
The parent company of Petitioner Elektra
Entertainment Group Inc. is WMG Parent Corp., which is not a publicly traded
corporation.
The parent company of Petitioner Hollywood
Records is The Walt Disney Company, a publicly traded corporation.
The parent company of Petitioner Interscope
Records is Vivendi Universal S.A., a publicly held French company.
The parent companies of Petitioner LaFace
Records, LLC (f/k/a LaFace Records, Inc.) are Sony Corporation, a publicly
traded corporation, and Bertelsmann AG, which is not publicly traded.
The parent company of Petitioner London-Sire
Records Inc. is WMG Parent Corp., which is not a publicly traded corporation.
The parent company of Petitioner Motown Record
Company, L.P. is Vivendi Universal S.A., a publicly held French company.
The parent companies of Petitioner The RCA
Records Label are Sony Corporation, a publicly traded corporation, and
Bertelsmann AG, which is not publicly traded.
*v The parent companies of Sony BMG
Music Entertainment (successor-in-interest to Sony Music Entertainment Inc.)
are Sony Corporation, a publicly traded corporation, and Bertelsman AG, which
is not publicly traded.
The parent company of Petitioner UMG
Recordings, Inc. is Vivendi Universal S.A., a publicly held French company.
The parent company of Petitioner Virgin
Records America, Inc. is EMI Group PLC, which is publicly traded in the U.K.
The parent company of Petitioner Walt Disney
Records is The Walt Disney Company, a publicly traded corporation.
The parent company of Petitioner Warner Bros.
Records Inc. is WMG Parent Corp., which is not a publicly traded corporation.
The parent company of Petitioner WEA
International Inc. is WMG Parent Corp., which is not a publicly traded
corporation.
The parent company of Petitioner Warner Music
Latina Inc. is WMG Parent Corp., which is not a publicly traded corporation.
The parent companies of Petitioner Zomba
Recording, LLC (f/k/a Zomba Recording Corporation) are Sony Corporation, a
publicly traded corporation, and Bertelsmann AG, which is not publicly traded.
99 Copyrights and Intellectual Property
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons Liable. Most Cited Cases
Should Internet-based "file
sharing" services be immunized from copyright liability for the millions
of daily acts of copyright infringement that occur on their services and that
constitute at least 90% of the total use of the services?
*vi TABLE OF CONTENTS
QUESTION PRESENTED ... i
PARTIES TO THE PROCEEDING ... ii
CORPORATE DISCLOSURE STATEMENT ...
iii
OPINIONS BELOW ... 1
JURISDICTION ... 1
STATUTES INVOLVED ... 1
STATEMENT OF THE CASE ... 1
A. Factual Background ... 2
B. Proceedings Below ... 14
SUMMARY OF ARGUMENT ... 17
ARGUMENT ... 21
I. Grokster And StreamCast Are Liable
As Contributory Infringers. ... 23
A.
Grokster and StreamCast Knowingly Contribute to Massive Copyright Infringement.
... 23
B. Sony-Betamax Does Not Shelter
Grokster and StreamCast from Liability. ... 26
1. Grokster and StreamCast Cannot
Claim the Protection of Sony-Betamax Because They Intentionally Facilitated and
Actively Encouraged and Assisted Infringement. ... 27
2. Grokster's and StreamCast's
Services Do Not Have "Commercially Significant Noninfringing Uses."
... 30
C. The Ninth Circuit's Novel
Liability Rule Creates Perverse Incentives That Reward Efforts to Defeat
Copyright Protection. ... 38
*vii II. Grokster And StreamCast Are Liable As Vicarious Infringers.
... 42
A. Grokster and StreamCast Directly
Profit from the Massive Infringement Occurring on Their Content-Distribution
Services. ... 43
B.
Grokster and StreamCast Have the "Right and Ability" to Supervise or
Control Infringement, Despite Their Efforts to Tie Their Own Hands. ... 44
CONCLUSION ... 50
*viii TABLE OF AUTHORITIES
[omitted]
OPINIONS BELOW
The opinion of the court of appeals is
reported at 380 F.3d 1154 and is reprinted at Pet. App. 1a-22a. The district court's
opinion is reported at 259 F. Supp. 2d 1029 and is reprinted at Pet. App. 23a-56a.
JURISDICTION
The court of appeals entered its judgment on
August 19, 2004. The petition for writ of certiorari was timely filed on
October 8, 2004. This Court has jurisdiction under 28 U.S.C. § 1254(1).
STATUTES INVOLVED
This case involves provisions of the Copyright
Act, 17 U.S.C. § 101 et seq.,
reproduced at Pet. App. 57a-60a.
STATEMENT OF THE
CASE
Respondents Grokster and StreamCast operate
Internet-based services that contribute to copyright infringement on a
"mind-boggling" scale. [FN1] Their services make it possible for
millions of users to reproduce and distribute copyrighted sound recordings and
motion pictures without permission - and without paying for them. Virtually all
those who use Grokster and StreamCast are committing unlawful copyright
infringement, and they commit millions of acts of infringement each day.
Grokster and StreamCast exploit this massive infringement for profit, and
petitioners are suffering extreme harms as a consequence.
FN1. Statement of the Hon. Marybeth
Peters, Register of Copyrights, Before the Senate Comm. on the Judiciary, 108th
Cong. (Sept. 9, 2003) (Pet. App. 65a-66a).
The question is whether Grokster and
StreamCast will be held responsible for their conduct under well-established
principles of copyright liability, or whether they have a perpetual free pass
to inflict these harms because a tiny fraction of the material available on
their services may not be infringing. The Court's decision in *2Sony Corp. of America
v. Universal City Studios, Inc., 464
U.S. 417 (1984) ("Sony-Betamax"),
held that the manufacturer of copying
equipment used principally for legitimate noninfringing purposes could not be
held liable for its customers' incidental infringing uses of that equipment.
Sony-Betamax does not, however, absolve Grokster and StreamCast of liability,
as the Ninth Circuit believed. To the contrary, Sony-Betamax calls for a
balance between "effective - and not merely symbolic - protection" of
copyright, and "the rights of others freely to engage in substantially
unrelated areas of commerce." Id. at 442. Ignoring the need for balance,
the Ninth Circuit denied petitioners any possibility of "effective
protection" of their copyrighted works in the digital era, while shielding
enterprises that profit directly from brazen expropriation of the value of
those works.
A. Factual Background
1. Grokster and StreamCast run
infringement-driven businesses. Exploiting widely available
"peer-to-peer" technology, these companies created, maintain, and
profit from Internet-based services that offer users a vast array of
copyrighted sound recordings and motion pictures without permission for free.
Users of the Grokster or StreamCast services can search the computer files of
other users ("peers") connected to the service and, with a few simple
clicks of a computer mouse, copy any desired work from the available files of
the other users (hence the name "peer-to-peer"). See J.A. 246-63.
Technology that enables peer-to-peer distribution has existed for years.
Although the technology can be used for
lawful exchanges of digital files, that is not how Grokster and StreamCast use
it. They run businesses that abuse the technology. At least 90% of the material
on their services is infringing, and that infringement *3 occurs
millions of times each day. Pet. App. 4a; J.A. 439. [FN2] The services are
breeding grounds for copyright infringement of unprecedented magnitude -
infringement that would not occur if Grokster and StreamCast did not make it
possible.
FN2. Respondents concede that
unauthorized copying and distribution of copyrighted works over a peer-to-peer
service is direct infringement. Pet. App. 31a. That is also the conclusion of
every court to have ruled on the issue. See, e.g., A & M Records,
Inc. v. Napster, Inc., 114 F. Supp. 2d 896, 911-16 (N.D. Cal. 2000), aff'd in part, rev'd in part, 239 F.3d 1004 (9th
Cir. 2001); In re Aimster
Copyright Litig., 252 F. Supp. 2d 634, 648-49 (N.D. Ill. 2002), aff'd, 334 F.3d 643 (7th Cir.
2003), cert. denied, 540 U.S. 1107 (2004).
Copyright infringement is the lifeblood of
these businesses. The availability of free copyrighted sound recordings and
motion pictures (for which users would otherwise have to pay) is what uniquely
attracts users to Grokster and StreamCast.
Pet. App. 50a (district court finding that users are lured "because of the
ability to acquire copyrighted material free of charge"). [FN3] Each new
user adds digital files to the stock of copyrighted works that can be copied
and distributed, increasing the selection and volume of infringing material
available, and making respondents' services still more attractive to other
potential users.
FN3. To the extent a very small
number of public domain works or copyrighted works that are authorized for free
digital distribution are available on the networks, those works (which can be
found for free elsewhere) are at best incidental to the services.
Grokster and StreamCast "depend[] upon
this infringement" to make money. Id. They do not sell the specially
designed software needed to gain access to the vast array of copyrighted
material available through their services. Rather, they give away their software
to build their networks of anonymous users, and then profit by selling
advertising that they display to the millions of users committing infringement
on the services. Id. Each time a user connects *4 to the service to
search for copyrighted content, Grokster and StreamCast pump advertising to the
user's computer screen. See, e.g., J.A. 258, 458. The greater the number of users connected to
respondents' services, the more money respondents make. As StreamCast has
explained, "the core value of a peer-to-peer network [is] the network
itself" and not the technology that forms it. J.A. 880. Copyright
infringement is what builds and sustains the Grokster and StreamCast networks,
and thus what creates value for respondents - to the tune of millions of
dollars of annual advertising revenue. Pet. App. 49a-50a.
Because so many people have joined Grokster
and StreamCast, virtually all popular sound recordings and motion pictures are
available for free on the services, see, e.g., J.A. 205-09, 173-74, threatening
legitimate markets for those works, see infra at 12-14. Grokster and StreamCast
users need never again buy a CD or DVD, or log on to legitimate on-line
services such as Apple's iTunes or Movielink, to purchase desired works in
digital form.
2. Grokster's and StreamCast's services are
designed so that users can easily and anonymously connect with like-minded
infringers. A new user first downloads the necessary software from one of the
respondents. Once the software is installed and launched, the user is connected
both to respondents' central computers and to other users of the service -
typically millions of people at a time - to search for, copy, and distribute
copyrighted works stored on other users' computers. Respondents' software
creates a "share" folder on each user's computer to contain the files
the user downloads from the service, which are then
automatically available for copying by other users. J.A. 253. Moreover, to
enable users to search the computers of complete strangers, respondents'
software scans the "share" folders of those connected to the network,
extracts information from each user's files, and automatically creates indices
of the sound *5 recordings, motion pictures, and other works available
for copying and distribution. J.A. 253, 461-63.
Whenever users access the services,
"prompts" appear on the users' computer screens to facilitate
searches for desired songs, movies, or other content. For example, the software
directs users to search for "audio files" by artist, song title,
album title, or music category (such as "Top 40"). Pet. App. 27a;
J.A. 734-35, 1015. Similar prompts guide users seeking video files. J.A.
252-53. A user who wants recordings by Bruce Springsteen or the movie The
Godfather simply types the artist's name or the film title in the appropriate
search prompt and clicks a search button. Within seconds, the service searches
the indices and returns a list of copies of the desired work that are available
to copy. Id.
To obtain a copyrighted work, the user clicks
on an entry from the list of search results. The service then automatically
retrieves a perfect digital copy of the desired song or movie from the
computers of one or more other users. In a short time, the copying user has a
new, permanent copy that he or she can listen
to or view as often as desired. Id. Each time a Grokster or StreamCast user
makes an unauthorized copy, that copy immediately becomes available on the
copying user's computer (and remains available on the computers of the users
from whom the copy was made) to be copied and distributed further by others -
resulting in an exponentially multiplying (or "viral") creation and
redistribution of perfect digital copies. Pet. App. 27a; J.A. 250-51.
In addition to this web-like connection among
network users, respondents' services forge an ongoing hub-and-spoke connection
between each user and Grokster or StreamCast. J.A. 465. The latter connection
enables respondents to display advertising on their users' computer screens
whenever the users are connected to the system. Pet. App. 41a, 50a; J.A.
257-58, 261. It also allows respondents to *6 manage and modify their
networks to preserve and enhance the unauthorized exchange of copyrighted
material. J.A. 263-79, 447-61 (describing how StreamCast's central computer
communicates hourly or daily with each user's computer). Grokster and
StreamCast use this link to provide frequent software modifications and updates
(ranging from routine maintenance to complete network overhauls) to make
copying and distribution faster and more reliable. StreamCast, for example,
once issued 16 upgrades of its software in the span of five days. J.A. 261.
3. By design, Grokster and StreamCast are used
overwhelmingly for infringement. Both
businesses patterned themselves after Napster, the first infringement-driven
service that used peer-to-peer technology. As respondents' founders knew,
Napster was sued to stop the infringement occurring on its service, resulting
in a preliminary injunction compelling Napster to block infringing material.
See A & M Records,
Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001).
Seizing the moment, Grokster and StreamCast
launched alternative peer-to-peer services "so that when Napster pulls the
plug on their free service (or if the Court orders them [to] shut down prior to
that), we will be positioned to capture the flood of their 32 million users
that will be actively looking for an alternative." J.A. 861. In targeting
Napster users, Grokster and StreamCast intentionally sought a user base engaged
in proven copyright infringement on a massive scale. See A & M Records,
Inc. v. Napster, Inc., 114 F. Supp. 2d 896, 902-03 (N.D. Cal. 2000) (finding that "virtually all Napster users download or
upload copyrighted files and that the vast majority of the music available on
Napster is copyrighted"), aff'd in part, rev'd in part, 239 F.3d 1004 (9th
Cir. 2001).
The two companies directly courted Napster's
infringing users. StreamCast, then doing business as MusicCity.com, *7
promoted itself as "The #1 Alternative to Napster" and used the
slogan: "When the lights went off at Napster
... where did the users go? MusicCity.com." J.A. 836; see also J.A. 834-35
(banner ad describing StreamCast as the "most reliable alternative service
to Napster"). Grokster derived its name from Napster and then inserted the
word "Napster" into its website's "metatags" - digital
codes that are invisible to the user but visible to search engines such as
Yahoo! or Google - so that individuals searching the Internet for "Napster"
would be directed to Grokster. J.A. 992-93. [FN4] And respondents designed
their services so that, from the user's perspective, Grokster and StreamCast
operate identically to Napster, differing only in the greater variety of their
offerings, which include motion pictures, video games, and other digital
copyrighted works, in addition to the sound recordings that fueled Napster.
FN4. Similarly, when AudioGalaxy,
another Napster clone, announced it would begin blocking infringing works,
Grokster released an "AudioGalaxy migration tool" to make it easy for
disappointed AudioGalaxy users to move with their infringing files to Grokster.
J.A. 199, 287.
After their initial launch, Grokster and
StreamCast remained focused on attracting and retaining infringing users by
maximizing the copyrighted material available on their services. StreamCast's
executives even searched their service for
copyrighted works, measuring success by the availability of such works. J.A.
868 (complaint from StreamCast Chairman that more Garth Brooks songs were
available on a competitor's service). Respondents' promotional materials
boasted of the availability of copyrighted music from popular artists. See,
e.g., J.A. 936 (promotional materials stating that StreamCast searches resulted
in more Madonna songs than did searches on other services); J.A. 843-57 (same
for Sting); J.E.R. 911-24 (Grokster newsletters with links to articles lauding
ability to *8 find "Best of Elvis Costello" and "Sonny
and Cher"); J.E.R. 713.02-.06, 713.11-.12 (StreamCast web page
highlighting articles about wide range of copyrighted materials available
through the StreamCast service); J.A. 787-90 (StreamCast media kit including
similar articles); J.A. 923-24 (promotional screen shots showing availability
of musical works by The Eagles); J.A. 821-26 (same). [FN5] Respondents'
technical support personnel urged users to add more infringing content to the
network, e.g., J.A. 808 (response to user seeking more works by the Beatles and
other artists: "Maybe you should load some up"), and gave users
advice on how to copy specific infringing works, including popular movies such
as the Lord of the Rings trilogy, The Matrix, Moulin Rouge, and many others,
e.g., J.A. 809-17, 820, 941-54. Grokster and StreamCast hosted on-line forums
and "chat rooms" in which users discussed downloading copyrighted
works. E.g., J.E.R. 888-900. Respondents
also prevented copyright owners from accessing the network to detect and prevent
infringement by blocking the Internet Protocol ("IP") addresses of
petitioners' law firm and another firm that polices the Internet for copyright
piracy. J.A. 272. [FN6]
FN5. Citations to the
"J.E.R." refer to the Joint Excerpts of Record filed with the court
of appeals.
FN6. StreamCast also told users that
its service was "ENCRYPTED to protect privacy," J.A. 870-71, and
explained to its advertising agency that such encryption prevents copyright
owners from monitoring infringement on StreamCast's network. J.A. 753-56.
Grokster and StreamCast were well aware of the
massive infringement on their systems. Pet. App. 36a. Petitioners sent
respondents notices identifying by file name, user name, and IP address
"over 8 million infringing files available on their systems," which
"represent infringement of more than 80,000 different sound
recordings." E.g., J.A. 205. Ignoring the notices, Grokster and StreamCast
continued to provide *9 the software, updates, and network maintenance
needed for new users to join and old users to access the services.
4. Although Grokster and StreamCast offer the
same service as Napster, they differ from Napster in one technological detail
that is immaterial to their businesses but that led the Ninth Circuit to
immunize them from copyright liability. Grokster and StreamCast use
decentralized indices of available files, while Napster had a centralized
index. Initially, Grokster and StreamCast maintained indices on central
computer servers they owned and operated - just as Napster had. J.A. 250-51.
After Napster was held liable for infringement based in part on operating a
centralized index, respondents' counsel published a legal "primer" in
which he advised that, to avoid liability, peer-to-peer services should create
"plausible deniability" by "choos[ing] an architecture that will
convince a judge that ... monitoring and control is impossible." Fred von
Lohmann, IAAL: Peer-to-Peer File Sharing and Copyright Law After Napster
(2001), at http:// www.gtamarketing.com/P2Panalyst/VonLohmann-article.html.
Consistent with that advice, Grokster and StreamCast reprogrammed their
software to outsource the indexing function to user computers on the network,
and then "migrated" their users - and all of their infringing content
- to the new system. J.A. 253, 531- 32, 591, 828. [FN7]
FN7. When this case was filed, both
Grokster and StreamCast operated on the
"FastTrack" network, which creates and stores indices on selected
users' computers (called "supernodes"). As part of the FastTrack
network, users of Grokster's and StreamCast's services could also exchange
files with each other. J.A. 251-52. The FastTrack software was licensed from
Kazaa B.V. (a codefendant that appeared in the district court and then
defaulted). After a license dispute, Kazaa blocked all StreamCast users from
the FastTrack network. J.A. 258-59. StreamCast then transferred its user base
to a peer-to-peer network called "Gnutella," using software that
StreamCast repeatedly updates. Some versions of StreamCast's software create
"ultrapeers" - which perform functions similar to supernodes - while
other versions do not, resulting in a mix of indexing on ultrapeers and
indexing decentralized to all computers on the network. J.A. 261; J.E.R. 2628.
*10 That change did not transfer
control over the indexing function to the users who host it. Respondents still
control how and where the indices are created and update the indexing process.
They merely foist the task of storing this information on user computers that
meet certain criteria, such as adequate storage space, processing speed, and
broadband connection to the Internet. J.A. 254-55. Users whose computers are
commandeered for this purpose are almost never
aware of the role they have been conscripted to play.
5. Grokster and StreamCast also took other
steps to create "plausible deniability" about their ability to
monitor or prevent infringement. Before petitioners brought suit, Grokster and
StreamCast required users to log in to the networks through their central
servers using a unique user name and password, as is common practice for
Internet services. This feature allowed respondents to control access to their
services and to terminate the accounts of known infringers by deleting their
user names, changing their passwords, or blocking their IP addresses. J.A. 667,
780-83, 1096. After Grokster and StreamCast were sued, however, they eliminated
the log-in feature, thereby disabling a readily available (albeit imperfect)
tool for excluding infringing users. J.A. 271, 954. [FN8]
FN8. The district court incorrectly
stated that a user could access the services even after deletion of his or her
user name from Grokster's or StreamCast's log-in server. Pet. App. 43a n.7. The
court drew that erroneous inference from evidence that when Grokster's or
StreamCast's log-in server was not operational users could still access the
system (even if their user names and passwords were not valid). Id. But that
does not contradict the evidence cited above showing that when the central
log-in server was operational it would block
access to the service unless a user entered a valid user name and password. See
J.A. 664-67.
*11 At the outset of this litigation,
Grokster and StreamCast also required users to enter into license agreements
that gave respondents the right to terminate a user's access to their services
"upon any single act of infringement in conjunction with the use of"
the services. J.A. 345, 1006. Grokster's licensing agreement also authorizes it
to "add, delete or change some or all of our services provided in
connection [with] Grokster at any time. This may include download of necessary
software modules." J.A. 340. StreamCast's agreement has a similar
provision. J.A. 1001. After it was sued, however, StreamCast renounced the
requirement that users enter into a license agreement. J.A. 90.
Although they are in constant contact with
their users and have upgraded their software many times, Grokster and
StreamCast have chosen not to implement available technologies that would block
or filter infringing content on their networks. Several vendors offer fast,
efficient commercial technologies capable of taking a digital file's
"fingerprint," comparing it against a master database, and
disapproving the transfer of the file if it is infringing. These technologies
are already in use in other commercial applications, such as monitoring radio broadcasts for copyright
holders. See J.A. 183, 228-29. The evidence showed that filtering technologies
could be effectively employed with respondents' services. J.A. 181-88, 224-32,
279-85. StreamCast's former Chief Technology Officer confirmed that "there
are no technical limitations to the ability to filter" (and thereby
eliminate) infringing content, and that "the question is not whether
file-sharing companies can filter, but whether they will." [FN9]
FN9. Darrell Smith, The File-Sharing
Dilemma, C-Net News, Feb. 3, 2004, at
http://news.com.com/The+file-sharing+dilemma/2010-1027_3-5152265.html; see also
J.A. 1162. Respondents disputed their ability to block infringing files, and
Grokster claimed that it lacked the power to do so because it is a mere
licensee without access to the underlying "source code" for the
software that is the backbone of its system. But petitioners' evidence showed
that blocking was feasible for services such as Grokster's even without access
to the "source code." See J.A. 425-33, 1162 (Q: "And you could
have done [filtering] without the ... source code? A: That's correct").
*12 Respondents avoid filtering because
it is inconsistent with their strategy of
plausible deniability. As one StreamCast employee noted, filtering is "a
technology that will allow [us] to see what our users are sharing ... [and] I
know this is something we DO NOT want to do." J.A. 928. Filtering is also
incompatible with respondents' business model, as it would dry up the
infringing content that draws users to their services. In sharp contrast, where
it benefits their business interests, Grokster and StreamCast have implemented
filters - to eliminate files with "viruses," "bogus" files
that are not the works they purport to be (and which thus discourage or disrupt
downloading of copyrighted works), and some pornographic files. J.A. 274-75.
6. Respondents' services inflict massive and
irreparable harm because of the viral distribution they make possible. A copyrighted
motion picture or sound recording in digital form - unlike prior media such as
videotapes - can be copied and disseminated, swiftly and without degradation,
an infinite number of times. See generally S. Rep. No. 105-190,
at 8 (1998). Grokster and StreamCast exploit
this characteristic of digital copyrighted works.
As a result, piracy of sound recordings has
reached epidemic proportions. By some estimates, more than 2.6 billion
infringing music files are downloaded each month. See Lev Grossman, It's All
Free, Time, May 5, 2003. Empirical studies confirm that services like
respondents' have caused a sharp decline in sales of music. See, e.g., Simon
Dyson, Informa Media Group Report, Music on the
Internet 25 (4th ed. 2003) (estimating losses in the range of *13 $700
million to several billion dollars annually). [FN10] Shipments of the "Top
10" popular albums dropped 50% over a three-year period. [FN11] The motion
picture industry suffers as well, with as many as 400,000 feature-length motion
pictures - many of which are still in theaters - unlawfully downloaded each
day. [FN12] The damage will only grow as increased bandwidth allows users to
transfer files more quickly.
FN10. See also, e.g., Stan J.
Leibowitz, File-Sharing: Creative Destruction or Just Plain Destruction? 32
(Dec. 2004) (showing "significant harm to the recording industry" and
a clear substitution effect); Stan J. Liebowitz, Will MP3 Downloads Annihilate
the Record Industry? The Evidence So Far, in Intellectual Property and
Entrepreneurship 229 (Gary D. Libecup ed. 2004).
FN11. Privacy & Piracy: The
Paradox of Illegal File Sharing on Peer-to-Peer Networks and the Impact of
Technology on the Entertainment Industry: Hearing Before the Senate Comm. on
Governmental Affairs, 108th Cong. (Sept. 30, 2003) (statement by Mitch Bainwol,
CEO, RIAA), available at http:// hsgac.senate.gov/index.cfm? Fuseaction=Hearing.Tetimony&HearingID=120witnessID=414.
FN12. See Fiona Vanier, Piracy
Costing Industry $3.5 Billion a Year, Screen Finance, July 2, 2003 (noting that
"Deloitte & Touche estimates that up to 400,000 features are being
downloaded from the Internet in the USA every day"); see also DRM: The
Consumer Benefits of Today's Digital Rights Management Solutions, Hearing
Before the Subcomm. on Court, The Internet and Intellectual Property, of the
Comm. on the Judiciary, 107th Cong (June 5, 2002), available at http://
commdocs.house.gov/committees/judiciary/hju80031.000/hju80031_0f.htm.
Grokster and StreamCast also inflict a more
insidious form of harm. Their services breed a culture of contempt for
intellectual property, and for the rights of others generally, in cyberspace.
See In re Aimster
Copyright Litig., 334 F.3d 643, 645 (7th Cir. 2003) (describing "swappers, who are ... disdainful of
copyright"), cert. denied, 540 U.S. 1107 (2004). Respondents and those like them reinforce the notion that the
direct infringement on their services is unobjectionable by proclaiming that
the services are "100% Legal!" Pet. App. *14 83a; see id. at
75a-85a. [FN13] Respondents thus erode not only the public perception of the
value of sound recordings, musical compositions,
and motion pictures, but respect for the very foundations of copyright law in
the digital age.
FN13. See also Lior Jacob
Strahilevitz, Charismatic Code,
Social Norms and the Emergence of Cooperation on the File-Swapping Networks, 89
Va. L. Rev. 505, 581-82 (2003); Tim Wu, When Code Isn't Law,
89 Va. L. Rev. 679, 722-26, 745 (2003).
B. Proceedings Below
In October 2001, petitioners - the major
motion picture studios and record companies, later joined by a certified class
of 27,000 music publishers and songwriters - sued for damages and an injunction
against continuing infringement on the Grokster and StreamCast services.
Petitioners sought relief under two
established doctrines: "contributory infringement," which provides
for liability where "one ... with knowledge of the infringing activity,
induces, causes or materially contributes to the infringing conduct of
another," Gershwin Publ'g Corp.
v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971) (footnote omitted), and "vicarious liability," which
provides for liability where the "beneficiary" of "the
exploitation of copyrighted materials" has "the right and ability to supervise coalesce[d] with an obvious and
direct financial interest in the exploitation," Shapiro, Bernstein
& Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963). Petitioners submitted evidence showing that at least 90% of the
activity on the Grokster and StreamCast services was infringing; that
respondents well knew of this massive infringement; that they created,
designed, and expanded the services to encourage infringement; that they
obtained a direct financial benefit from the infringement; and that they had
ample right and ability to prevent the infringing uses while preserving the
noninfringing uses (if any) of their services.
*15 Despite this evidence, and relying
on this Court's decision in Sony-Betamax, the district court granted summary
judgment for respondents, finding their current services lawful. Pet. App.
23a-56a.
On appeal, the Ninth Circuit recognized that
Grokster and StreamCast "enable []
the user to participate in the respective peer-to-peer file-sharing
networks," id. at 7a; that on their networks "the vast majority of
the files are exchanged illegally in violation of the copyright law," id.
at 8a; and that Grokster and StreamCast profit directly from that infringement,
id. at 16a. Nonetheless, motivated by the apparent belief that any kind of
"innovation" is good, even when it is based on "market
abuses" of great magnitude, id. at 21a, the court affirmed.
The Ninth Circuit's contributory infringement
analysis was premised on its reading of Sony-Betamax. Id. at 11a, 12a. In that
case, the Court held that the manufacturer of a video recording device - the
Betamax - was not a contributory infringer based on the mere sale of the
product with constructive knowledge that it could be used for infringing
purposes, because the primary use of the Betamax did not in fact involve
copyright infringement. 464 U.S. at 421, 423; id. at 442 (Betamax was "widely used for legitimate,
unobjectionable purposes").
In the Ninth Circuit's view, Sony-Betamax
rendered irrelevant that at least 90% of the materials on Grokster's and
StreamCast's services are infringing. Pet. App. 11a. The court thought the only
issue was whether the services might be put to noninfringing uses. Relying on
anecdotal evidence that some noninfringing material was available on
respondents' services (or on the Internet generally), the Ninth Circuit held
that the services were "capable of substantial non-infringing uses"
and stated without analysis that these noninfringing uses have "commercial
viability." Id. at 12a.
*16 Having found "substantial
noninfringing uses," the Ninth Circuit formulated a new test for
contributory infringement, holding that Grokster and StreamCast could be liable
only if they "had specific knowledge of infringement at a time at which
they contribute[d] to the infringement and fail[ed] to act upon that information." Id. at 13a
(quotation marks omitted). The court thus ignored the evidence that Grokster
and StreamCast intended to contribute to infringement and had engaged in
conduct encouraging and assisting it.
According to the Ninth Circuit, respondents
did not have the kind of knowledge required by the court's test. Although
Grokster and StreamCast had received many notices of specific infringements,
the court believed respondents could not have "acted upon this
information" because by the time they received the notices, they had
completed the primary actions that facilitate the infringement (i.e., setting
up the services). Id. The Ninth Circuit found it irrelevant that respondents
deliberately and affirmatively disabled existing legal and practical mechanisms
for controlling infringement and avoided other readily available measures to
block infringement. Id. at 13a, 18a.
A similar analysis led the Ninth Circuit to
reject vicarious liability. Despite finding that the "elements of direct
infringement and a direct financial benefit, via advertising revenue, are
undisputed in this case," id. at 16a, the court believed that Grokster and
StreamCast could not supervise or control the infringement on their services.
Again, the court found irrelevant that Grokster and StreamCast had intentionally
tried to divest themselves of the very means to supervise or control
infringement, id. at 18a, and that they could readily supervise or control
infringement by filtering infringing files, id.
at 20a.
*17 SUMMARY OF ARGUMENT
As this Court recognized in Sony-Betamax, the
doctrines of contributory infringement and vicarious liability are a vital part
of the protection the law affords copyright owners. See 464 U.S. at 435, 437
& n.18. Properly applied, these doctrines
"strike a balance between a copyright holder's legitimate demand for
effective - not merely symbolic - protection" and "the rights of
others freely to engage in substantially unrelated areas of commerce." Id.
at 442.
The Ninth Circuit broke faith with that
central tenet of Sony-Betamax when it held that Grokster and StreamCast bear no
legal responsibility for the millions of acts of infringement made possible by
their services. The court afforded no protection whatsoever to petitioners'
copyrights in the creative works unlawfully reproduced and distributed on
respondents' services every day. And the court immunized enterprises that are
not engaged in legitimate "unrelated areas of commerce" but thrive on
infringement. The Ninth Circuit acted in the misguided belief that respondents'
"market abuses, despite their apparent present magnitude," must be
tolerated in order to avoid chilling "innovation." Pet. App. 21a. But
Sony-Betamax requires balance. It is not a free pass for "market
abuses." To the contrary, as Sony-Betamax itself makes clear, respondents are liable under established law.
Contributory Infringement. Grokster and
StreamCast are liable as contributory infringers because they have
"knowledge of the infringing activity" on their services and they
"induce[], cause[] or materially contribute[] to" that infringing
activity in myriad ways. Gershwin, 443 F.2d at
1161-62 (footnote omitted). Neither
proposition can be seriously disputed. Despite their efforts to achieve
plausible deniability, respondents know full well that their services are rife
with infringing activity. And they materially contributed *18 to that
infringement by creating, maintaining, and expanding their services, which make
possible the infringement that could not otherwise occur. While that conduct
alone establishes material contribution, respondents did much more. They
intended to bring about this massive infringement and actively encouraged and
assisted it in many ways - from promoting themselves as sources of infringing
content to deliberately disabling and avoiding mechanisms that would limit
infringement.
Although Sony-Betamax provides a defense to
contributory infringement where the defendant sells a staple article of
commerce that may be used to infringe but also has commercially significant
noninfringing uses, 464 U.S. at 442, Grokster and StreamCast cannot avail themselves of that defense,
for two independent reasons.
First, Sony-Betamax provides no safe harbor
where, as here, a defendant engages in conduct that encourages or assists
infringement, or intends to facilitate it. Immunizing such conduct would be
impossible to square with fundamental principles of copyright and patent law on
which the Court relied in Sony-Betamax. See, e.g., Kalem Co. v. Harper
Bros., 222 U.S. 55, 62-63 (1911); 35 U.S.C. § 271(b), (c). The existence of commercially significant noninfringing uses is
not a license to use a product or service to promote infringement.
Second, and in all events, the Grokster and
StreamCast services lack
"commercially significant noninfringing uses." In
Sony-Betamax, the principal use of the equipment was lawful, noninfringing
"time-shifting" of television programs that the copyright owners
offered to viewers for free. In vivid contrast, respondents' services are used
principally (indeed, overwhelmingly) for infringing reproduction and
distribution of works that users would otherwise have to pay to obtain. Where a
service is used principally for *19 infringement, it is not involved in
a "substantially unrelated" line of commerce. 464 U.S. at 442. Infringement is its business, and Sony-Betamax does not provide
it immunity. In addition, there is no conceivable reason for immunizing a
product or service used principally for infringement when, as in this case, the
defendant could prevent infringing uses while allowing noninfringing uses to continue. In such
circumstances, providing effective protection for copyrights will not impede
legitimate commerce.
The Ninth Circuit's contrary conclusions rest
on a fundamental misunderstanding of Sony-Betamax as rendering irrelevant the
undisputed evidence that Grokster and StreamCast actively encouraged and
assisted infringement, and that their services were used principally for
infringement. What mattered, in the Ninth Circuit's view, was that the services
were merely capable of noninfringing use. Finding Sony-Betamax's staple article
of commerce defense applicable on that basis, the Ninth Circuit created and applied
heightened standards for knowledge and material contribution. Neither the Ninth
Circuit's "mere capability" test nor its other novel standards find
support in precedent or common sense. The Ninth Circuit's approach creates a
safe harbor for enterprises like Grokster and StreamCast that dismantle or
avoid measures that can be used to limit infringement, which perversely
encourages such efforts to defeat copyright enforcement, and disadvantages
businesses that seek in good faith to prevent violations of copyright holders'
rights.
Vicarious Liability. Grokster and StreamCast
are also liable under established vicarious liability principles. "When
the right and ability to supervise coalesce with an obvious and direct
financial interest in the exploitation of copyrighted materials," settled
law imposes liability "upon the beneficiary of that exploitation." H.L. Green, 316 F.2d
at 307. Here, it is undisputed that Grokster
and StreamCast *20 benefit in an obvious and direct way from the
exploitation of copyrighted materials. They operate on-line bazaars for the
unlawful distribution of copyrighted music and movies; users are drawn to the
services by the free availability of such materials; and respondents'
advertising profits rise in direct proportion to the number of users they
attract. It is equally clear that Grokster and StreamCast have the right and
ability to supervise or control infringement on their services, but have
deliberately tried to shed all legal and practical means of doing so. The Ninth
Circuit's refusal to hold respondents liable rests on its mistaken view that
they should be absolved insofar as they succeeded in disabling or avoiding the
means to supervise or control infringement - a view that is precisely the
opposite of established law.
In short, there are multiple and
overwhelmingly strong legal grounds for imposing liability on Grokster and
StreamCast. The Ninth Circuit's decision granting summary judgment in favor of
respondents on all grounds cannot possibly be sustained. Indeed, under a proper
understanding of established law, the undisputed facts require summary judgment
to be granted in favor of petitioners. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247-48 (1986); Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986).
Doing so is entirely consistent with
Sony-Betamax because it ensures
"effective protection" of copyright in the digital age, 464 U.S. at 442, and poses no threat to legitimate noninfringing commerce. It is
the Ninth Circuit's rule that threatens innovation - not only in artistic
creation but also in software design (which copyright protects), as well as in
the efforts of legitimate businesses to distribute copyrighted content in
digital form on the Internet, through wireless services, or by satellite, cable
and other means. Finally, reversing the Ninth Circuit is necessary to restore a
climate of appropriate respect for intellectual property on the Internet,
thereby preserving the "economic incentive to create *21 and
disseminate ideas," and ensuring that copyright remains the "engine
of free expression" the Framers intended. See Eldred v. Ashcroft,
537 U.S. 186, 219 (2003); Harper & Row
Publishers, Inc. v. Nation Enters., 471 U.S. 539, 558 (1985).
ARGUMENT
The copyright law doctrines of contributory
infringement and vicarious liability play a critical role in protecting the
exclusive rights of copyright owners to control the exploitation of their
works. See Sony-Betamax, 464 U.S.
at 442; see also id. at 435, 437 & n.18.
Creative works are particularly vulnerable to expropriation in the absence of
effective legal protection. [FN14] As the Court has recognized, legal
protection - if it is to be more than symbolic
- must reach not only those who directly expropriate a copyright owner's
exclusive rights, but also, in suitable circumstances, those whose
"products or activities ... make such [infringing conduct] possible."
Id. at 442; see Kalem, 222 U.S. at
62-63; Herbert v. Shanley
Co., 242 U.S. 591, 594-95 (1917). [FN15]
FN14. William M. Landes, Copyright, Borrowed
Images and Appropriation Art: An Economic Approach, 9 Geo. Mason L. Rev. 1, 5
(2000) ("Creating [original] works
involves a good deal of time, money and effort.... Once created, however, the
cost of reproducing the work is so low that additional users can be added at a
negligible or even zero cost.... It follows that in the absence of copyright protection,
unauthorized copying or free riding on the creator's expression would tend to
drive the price of copies down to the cost of making them. But then the party
who expended the resources to create the work in the first place will be unable
to recover his costs. Hence, the incentive to create new works will be
significantly undermined without protection against unauthorized
copying").
FN15. Congress's comprehensive
re-enactment of the copyright laws in 1976, and its enactment of the Digital Millennium
Copyright Act (DMCA) in 1998, ratified the
established understanding under the Copyright Act of 1909 that
"infringement" encompasses secondary as well as direct liability. See
Sony-Betamax, 464 U.S.
at 435; H.L. Green, 316 F.2d
at 307; Gershwin, 443 F.2d at
1161. See generally Reno v. Koray, 515
U.S. 50, 59-60 (1995); Warner-Jenkinson Co.
v. Hilton-Davis Chem. Co., 520 U.S. 17, 28 (1997). The doctrines were expressly recognized in the 1976 Act, e.g., 17 U.S.C. § § 106, 108(f)(1), 110(6); H.R. Rep. No. 94- 1476 at 61, 159-60 (1976); S. Rep. No. 94-473 at 57, 141-42, 159-60 (1975), and in the
DMCA, e.g., 17 U.S.C. § 1201(c)(2); id. § 512(a)-(d); see also H.R. Rep. No.
105-551(II) at 64 (1998).
*22 It is thus both "manifestly
just" and central to copyright law's goal of "stimulat[ing] artistic
creativity for the general public good" to place "responsibility
where it can and should be effectively exercised." Sony-Betamax, 464 U.S.
at 432, 437 n.18 (quotation marks omitted).
Copyright law has therefore always imposed liability on "gatekeepers"
or intermediaries that facilitate infringement. The prospect of liability gives
gatekeepers an appropriate incentive "to police carefully" against
direct infringement, and counterbalances the prospect of financial gain from
facilitating it. Id. at 437 n. 18 (quoting H.L. Green). Without recourse
against gatekeepers, copyright holders would
be left with what is often - as here - the impractical and inadequate option of
pursuing a multitude of individual infringers. Aimster, 334 F.3d at
645; see also Dawson Chem. Co. v.
Rohm & Hass Co., 448 U.S. 176, 188-89 (1980). See generally Alan O. Sykes, The Economics of Vicarious
Liability, 93 Yale L.J. 1231 (1984). As the
Register of Copyrights explained:
secondary liability doctrines are critical to the effective functioning
of our copyright system, and even more so in the new digital environment. They
allow copyright owners to focus their enforcement (and licensing) efforts on
those entities that foster infringing activity and have the resources and
wherewithal to either pay licensing fees or satisfy an infringement judgment,
without bringing costly, time-*23 consuming and usually futile actions
against multiple, mostly judgment-proof individual defendants. [FN16]
FN16. The Intentional Inducement of
Copyright Infringements Act of 2004: Hearing on S. 2560 Before the Senate Comm.
on the Judiciary, 108th Cong. (2004) (statement of Hon. Marybeth Peters,
Register of Copyrights), available at
http://www.copyright.gov/docs/regstat072204.html (visited Jan. 23, 2005).
In Sony-Betamax, the Court endorsed these
principles, 464 U.S. at 435 n.17, 437-39, and recognized that they must reflect a balance between effective
copyright protection and the rights of others to engage in substantially
unrelated areas of legitimate commerce. Id. at 442. There, the Court concluded
that Sony was not liable for selling a device that some purchasers might use to
infringe copyrights in television programs. The dispositive factor was that the
Betamax's "primary" use was for "time-shifting," which the
Court determined was lawful fair use and not infringement. Id. at 421, 423,
442, 447-56.
Grokster's and StreamCast's services are the
polar opposite of the Betamax. Grokster and StreamCast built and run services
that are principally used for infringement, and it is this infringement - not
legitimate activity - that makes them money. Established doctrines of
contributory infringement and vicarious liability require that Grokster and
StreamCast be held responsible for their conduct.
I. Grokster And StreamCast Are Liable As
Contributory Infringers.
A. Grokster and StreamCast Knowingly
Contribute to Massive Copyright Infringement.
Grokster and StreamCast have "induce[d],
cause[d,] [and] materially contribute [d] to the infringing conduct" of
their users "with knowledge of the infringing activity." Gershwin, 443 F.2d at
1162 (footnote omitted). Thus, unless
liability is *24 precluded by the Sony-Betamax defense (which it is not, see infra at 26-38), Grokster and
StreamCast are liable as contributory infringers, based on the principle that
"one who knowingly participates in or furthers a tortious act is jointly
and severally liable with the prime tort-feasor." Screen Gems-Columbia
Music, Inc. v. Mark-Fi Records, Inc., 256 F. Supp. 399, 403 (S.D.N.Y. 1966) (Weinfeld, J.); see also, e.g., Aimster, 334 F.3d at
645-46 ("the law allows a copyright
holder to sue a contributor to the infringement ... in effect as an aider and
abettor").
The undisputed evidence establishes that
Grokster and StreamCast have always known about the massive infringement
occurring daily on their services. A court had already ruled that
"virtually all" of the Napster users targeted by respondents were
infringers. Napster, 114 F. Supp.
2d at 902-03. Grokster and StreamCast received
notices from petitioners identifying at least eight million copies of eighty
thousand separate copyrighted works on their services. Senior executives
monitored the services and the availability of infringing works, and support
personnel instructed users how to download infringing works. [FN17]
FN17. Despite this undisputed
evidence of knowledge, the Ninth Circuit concluded that Grokster and StreamCast
lacked the requisite knowledge for contributory infringement. It did so by
applying a novel and counterintuitive
knowledge standard that imports timing and control requirements without any
foundation in Sony-Betamax, established precedent, or common sense. See infra
at 38-42.
The undisputed evidence also establishes that
Grokster and StreamCast induced, caused, and materially contributed to this
infringement. Under well-established law, such contribution can take two forms:
(1) provision of a device or service that makes infringement possible, and (2)
active encouragement or assistance of infringement. 3 Melville B. Nimmer &
David Nimmer, Nimmer on Copyright *25 §
12.04[A][2], at 12-79 (2004); Paul Goldstein, Copyright § 6.1, at 6:6-6:7 (2d ed. 2004); Matthew Bender &
Co. v. West Publ'g Co., 158 F.3d 693, 706 (2d Cir. 1998). Respondents' services (and others like them) are engines of
infringement that millions of anonymous strangers use unlawfully to find, copy,
and distribute perfect digital copies of copyrighted works for free. Those
services did not spring up on their own. Grokster and StreamCast built them,
maintain them, and work to expand them, knowing full well that they are used
for massive infringement and little or nothing else. The unprecedented
infringement on these services is occurring because Grokster and StreamCast
have made it not merely possible but easy for their users to infringe. The
creation and operation of the services constitutes material contribution under settled law, and standing alone justifies
liability in the absence of a defense under Sony-Betamax. See infra at 30-38.
Grokster and StreamCast have, however, done
much more than build and provide their services with knowledge that they are
being used for infringement. They have actively encouraged and assisted their
users' direct infringement. They deliberately set out to create services that
would attract infringing users (first the Napster users and then others
interested in joining networks of like-minded infringers). They expressly
touted their services as alternatives to Napster and promoted the availability
of copyrighted content. Supra 6-8. The services are tailor-made for media files
- such as movies and music - that largely consist of copyrighted material, and
the services automatically make all media files downloaded by a user available
for copying by strangers whenever that user connects to the service. Supra at
4-5. Grokster and StreamCast also provide features - such as anonymity and
encryption of network communications - that make users feel "safe" to
infringe, and that hinder the efforts of copyright owners to identify
infringers. Supra at 4-5, 8, *26 10. They actively maintain and upgrade
their networks (including the software on users' computers) to provide the best
possible environment for infringement. Supra at 5-6. They have incorporated
filters that protect and promote infringing uses, such as filters to block
"bogus" files that interfere with infringement.
Supra at 12. Their promotional materials have used prominent and obviously
infringing examples of popular music, and they have even advised specific users
how to commit infringement. Supra at 7-8. And they have disabled or refused to
adopt mechanisms that would allow them to terminate users who commit
infringement or to prevent or limit the distribution of infringing files,
making clear that their interest is in maximizing the infringing uses of the
services. Supra at 10-12. That pattern of encouraging and assisting
infringement far exceeds the minimum necessary to establish knowing and
material contribution.
Indeed, Grokster and StreamCast have proceeded
with the specific intent of inducing infringement. The deliberate goal of
respondents' endeavors has been to maximize the availability of copyrighted
works on their networks because that is what lures users by the millions and in
turn allows respondents to increase their advertising revenues.
B. Sony-Betamax Does Not Shelter Grokster and
StreamCast from Liability.
The effort by Grokster and StreamCast to find
refuge in this Court's Sony-Betamax decision fails for two separate reasons.
First, Sony-Betamax's "staple article of commerce" defense does not
apply where, as here, a defendant either intends to facilitate infringement or
engages in conduct that encourages or assists it. Second, and in all events,
the Grokster and StreamCast services do not
have "commercially significant noninfringing uses" because those
services are used principally for infringement.
*27 1. Grokster and StreamCast Cannot
Claim the Protection of Sony-Betamax Because They Intentionally Facilitated and
Actively Encouraged and Assisted Infringement.
Sony-Betamax provides no defense when the
defendant engages in conduct that encourages or assists infringement, or
intends to facilitate it. Unlike the defendant in Sony-Betamax, Grokster and
StreamCast have done far more than merely sell a product with the constructive
knowledge that some buyers might put it to infringing use. They encouraged and
assisted infringement at every turn. And they plainly acted with the intention
of facilitating infringement. It is thus irrelevant whether their services have
commercially significant noninfringing uses.
At the outset of its analysis in Sony-Betamax,
this Court emphasized the district court's findings (after a full trial) that
none of the defendants' conduct was designed to encourage or assist
infringement. 464 U.S. at 438. Because liability could not be imposed on that basis, the Court
turned to the question of whether liability could be based solely on the sale
of the Betamax with the constructive knowledge that it could be used to
infringe. Id. at 439. Limiting itself to that context, and analogizing to
patent law, the Court observed that the
staple article of commerce defense applies "[w]hen a charge of
contributory infringement is predicated entirely on the sale of an article of
commerce that is used by the purchaser to infringe." Id. at 440 (emphasis
added). There, the Court balanced the interests of copyright holders and the
"rights of others freely to engage in substantially unrelated areas of
commerce." Id. at 442 (emphasis added). But where, as here, businesses
specifically intend to facilitate infringement, or engage in conduct that
encourages or assists the infringing uses of a product or service, they are not
engaged in "substantially unrelated areas of commerce." They are
engaged in, and profit from, infringement. See *28 Jesse M. Feder, Is Betamax Obsolete?, 37
Creighton L. Rev. 859, 862 (2004) (secondary
liability exists to address businesses built "on the infringement of other
people's copyrights").
This Court's copyright jurisprudence has long
recognized the distinction between the mere sale of a product on the one hand
and intending or actively encouraging and assisting infringement on the other.
In Kalem, Justice Holmes noted that when contributory liability is based on the
mere sale of an ordinary article of commerce, "nice questions may arise as
to the point at which the seller becomes an accomplice in a subsequent illegal
use by the buyer." 222 U.S. at 62. Kalem recognized, however, that "no such niceties are
involved" when a sale is made "with a view to [an] illegal
resale," or when the defendant
"not only expected but invoked by advertisement" the infringing uses
of its product. Id. at 62-63. Thus, where, as here, a defendant actively
encourages and assists infringement, or intends that result, the defendant is
liable based upon principles "recognized in every part of the law."
Id. at 63.
Extending the staple article of commerce
defense to the circumstances here would also be flatly inconsistent with the
patent law to which Sony-Betamax analogized. Codifying long-standing case law,
the Patent Act imposes liability for two types of contributory infringement: when
the defendant "actively induces" infringement, 35 U.S.C. § 271(b), [FN18] or *29 when the defendant "sells ... a
component of a patented machine, manufacture, combination or composition, or a
material or apparatus for use in practicing a patented process," id. § 271(c); see also, e.g., Hewlett-Packard Co. v.
Bausch & Lomb Inc., 909 F.2d 1464, 1469 (Fed. Cir. 1990) ("the single concept of 'contributory infringement' [is]
divided between" these two subcategories). The staple article of commerce
defense applies only to the sale of a product. 35 U.S.C. § 271(c). Thus, the seller of a device that has substantial noninfringing
uses, while absolved from patent liability under § 271(c), is nevertheless liable under § 271(b) "if, in addition to the sale of that product, active steps
are taken to encourage direct infringement." Dynacore Holdings
Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1276 n.6 (Fed. Cir. 2004); see also Donald S. Chisum,
Chisum on Patents § 17.04[4], at 17-87
(2004). [FN19]
FN18. "Inducement" under § 271(b) of the Patent Act encompasses a wide range of conduct - "as
broad as the range of actions by which one in fact causes, or urges, or
encourage[s], or aids another to infringe a patent" - so long as there
have been "active steps knowingly taken ..., as distinguished from
accidental or inadvertent." Fromberg, Inc. v.
Thornhill, 315 F.2d 407, 411 (5th Cir. 1963); see, e.g., Donald S. Chisum, Chisum on Patents § 17.04[4], at 17-87 (2004) (cataloging conduct
constituting inducement, including licensing, repair and maintenance, design,
instruction, and advertising of an item's infringing features).
FN19. Similarly, as Sony-Betamax observed,
464 U.S. at 439, one who actively encourages
or assists trademark infringement is liable for contributory infringement, Inwood Labs., Inc. v.
Ives Labs., Inc., 456 U.S. 844, 854-55 (1982).
Were the law otherwise, a business whose
product or service has commercially significant noninfringing uses would have
carte blanche to promote infringing uses
aggressively, with no risk of liability. Enterprises would have an incentive
not to limit but to maximize infringement, perversely turning Sony-Betamax's
narrow but important defense for products with widespread legitimate uses into
a perpetual license to promote copyright infringement. No sensible liability
rule would produce such results. [FN20]
FN20. Not surprisingly, therefore,
after Sony-Betamax courts and commentators (other than the court below) have
unanimously recognized that where a defendant's conduct encourages or assists
infringement, the fact that the defendant markets a product with substantial
noninfringing uses is no defense. See, e.g., Cable/Home
Communication Corp. v. Network Prods., Inc., 902 F.2d 829, 846-47 & n.30
(11th Cir. 1990); RCA/Ariola Int'l, Inc.
v. Thomas & Grayston Co., 845 F.2d 773, 781 (8th Cir. 1988); Columbia Pictures
Indus., Inc. v. Redd Horne, Inc., 749 F.2d 154, 161 (3d Cir. 1984); A & M Records,
Inc. v. Abdallah, 948 F. Supp. 1449, 1456-57 (C.D. Cal. 1996); Nimmer, supra, at 12-84 n.56, 12-88 n.75.4.
*30 2. Grokster's and StreamCast's
Services Do Not Have "Commercially Significant Noninfringing Uses."
Grokster and StreamCast are also ineligible
for Sony-Betamax's staple article of
commerce defense for a second reason: their services lack "commercially
significant noninfringing uses." See 464 U.S. at 439 n.19,
440-42.
1. Sony-Betamax variously stated the quantum
of noninfringing use required to make out the staple article of commerce
defense: "widely used for legitimate, unobjectionable purposes";
"capable of substantial noninfringing uses"; "commercially
significant noninfringing uses." Id. at 442. But the Court declined to
"give precise content to the question of how much use is commercially
significant." Id. Instead, it held that the standard was satisfied in that
case because the "primary use of the machine" - time-shifting - was
noninfringing. Id. at 423, 442, 447-56; see also id. at 421 (Betamax used
"principally" for time-shitting).
This case could not be more different. The
Grokster and StreamCast services are used overwhelmingly for infringement, and
not even respondents have tried to justify their users' copying and
distribution as fair use. That rampant infringing use bears no resemblance to
the time-shifting at issue in Sony-Betamax. The business of Grokster and
StreamCast is the unlawful world-wide distribution of perfect digital copies of
copyrighted music and movies *31 among strangers for free, resulting in
viral redistribution. In contrast, distribution - of any scope - was not at
issue in Sony-Betamax. 464 U.S.
at 425. Moreover, and in further contrast to
Sony-Betamax, the illegal reproduction and
distribution of copyrighted works on respondents' services directly supplants
petitioners' markets for the sale of those works, inflicting direct and obvious
harm. Supra at 12-14.
The question presented on this record is thus
the reverse of the question in Sony-Betamax: whether the smattering of claimed
noninfringing uses that incidentally occur over respondents' services absolves
them of the liability that otherwise follows from their knowing facilitation of
massive infringement. The answer must be no.
Under the principles articulated in
Sony-Betamax, the staple article of commerce defense should not apply when the
primary or principal use of a product or service is infringing. Purveyors of
products or services used principally for infringement are not engaged in
"substantially unrelated" commerce under any sensible meaning of the
term. Immunizing such businesses allows them to expropriate the value of
copyrighted material that rightfully belongs to the copyright owner.
More fundamentally, permitting businesses to
profit from products or services used primarily for infringement undermines the
fundamental purpose of copyright protection without a countervailing benefit in
any legitimate area of commerce. "The economic philosophy behind the
[copyright] clause empowering Congress to grant patents and copyrights is the
conviction that encouragement of individual
effort by personal gain is the best way to advance public welfare through the
talents of authors and inventors in 'Science and useful Arts.' " Eldred, 537 U.S. at
214 (citation omitted). Thus,
copyright's "ultimate aim" is to provide an "incentive to
stimulate artistic creativity for the general *32 public good," and
"the Copyright Act must be construed in light of this basic purpose."
Sony-Betamax, 464 U.S.
at 432 (quoting Twentieth Century
Music Corp. v. Aiken, 422 U.S. 151, 156 (1975)); see also, e.g., Eldred, 537 U.S. at
219 (copyright "spur[s] the
creation and publication of new expression"). Copyright protection also spurs
technological innovation in areas like computer software development. Moreover,
ensuring "effective protection" for copyright promotes innovation in
the related areas of technology for authorized on-line and digital distribution
of copyrighted works. See infra at 40-42. When businesses used principally for
infringement are immunized, the protection of copyrights is "merely
symbolic," and the powerful engine for creative effort and beneficial
innovation is crippled.
As the Ninth Circuit recognized, on Grokster
and StreamCast "the vast majority of the files are exchanged illegally in
violation of the copyright laws." Pet. App. 8a. This undisputed fact
establishes far more than what is needed to preclude respondents from invoking
the staple article of commerce defense.
2. That conclusion is clinched by an
additional consideration which - though not
necessary to overcome the staple article of commerce defense - drives home why
it should not apply here: The summary judgment evidence in this case showed
that separating mechanisms are readily available that would block infringing
uses while still permitting noninfringing file-sharing. See supra at 10-12.
Sony-Betamax adapted patent law's staple
article defense to address the concern that imposing liability on manufacturers
of products with commercially significant noninfringing uses might allow
copyright owners to leverage their rights into control over the legitimate uses
of the product. 464 U.S. at 440-41. But when infringing and noninfringing uses can be readily
separated, so that *33 noninfringing uses can continue even when
infringing uses are enjoined, the monopoly leveraging concerns that tipped the
balance in Sony-Betamax are not implicated. In these circumstances, the right
to engage in a "substantially unrelated area[] of commerce" is
protected, id. at 442, and there is nothing to balance against the strong
public interest in effective protection of copyrights. The Court's analysis in
Sony-Betamax, therefore, leads to the conclusion that at least when the primary
uses are infringing and can be readily blocked without significantly affecting
lawful uses, liability is wholly appropriate. See, e.g., Aimster, 334 F.3d at
653 ("to avoid liability as a
contributory infringer the provider of the service must show that it would have
been disproportionately costly for him to eliminate or at least reduce substantially the infringing
uses"); Douglas Lichtman & William Landes, Indirect Liability for
Copyright Infringement: An Economic Perspective, 16 Harv. J.L. & Tech. 395,
398 (2003) (arguing that "liability is
again attractive" when a business can "eliminate or greatly reduce
the level of infringement without significantly cutting down on the quantity
and quality of lawful uses").
This issue was not presented in Sony-Betamax,
because it was impossible to eliminate the infringing uses of the Betamax while
preserving its noninfringing uses. Rather, the only possible means of
separation even suggested in that case involved blocking all unauthorized uses.
That would have blocked more than infringing uses; it would also have blocked
unauthorized time-shifting, which was both the primary use of the Betamax and found
by the Court to be noninfringing. Thus, separation was not even a theoretical
possibility in Sony-Betamax, and the Court faced an all-or-nothing choice:
finding Sony liable would have deprived the public of the legitimate uses of
the technology. See 464 at *34 440-41 & n.21. [FN21] "Once 'all
or nothing' is no longer the only response the technology allows,"
however, "the legal rule should show similar flexibility." Jane C.
Ginsburg, Copyright Use and
Excuse on the Internet, 24 Colum.-VLA J.L. & Arts 1, 37 (2000).
FN21. Justice Blackmun's suggestion in dissent that the
manufacturer could have designed "a VTR that enables broadcasters to
scramble the signal of individual programs and 'jam' the unauthorized recording
of them," 464 U.S. at 494 (Blackmun, J., dissenting), rested on the view that all
unauthorized recording, including time-shifting, was infringing. But jamming
unauthorized recordings would not have separated infringing and noninfringing
uses in light of the Court's conclusion that unauthorized time-shifting was
fair use.
That all-or-nothing choice is not present
here, because petitioners' evidence shows that there are readily available means
for Grokster and StreamCast to separate infringing from noninfringing uses.
Supra at 10-12. But the Ninth Circuit deemed that evidence irrelevant as a
matter of law. For the Ninth Circuit, it was dispositive that Grokster and
StreamCast had chosen not to incorporate the relevant technology into their
systems - or had stripped it out. Supra at 10-12; Pet. App. 13a, 18a. That
approach is fundamentally misguided, because it rewards infringement-driven
services for the "innovation" of disabling a system's capacity to
prevent infringing uses, irrespective of whether such innovation otherwise
makes sense. See infra at 40-42 (discussing perverse incentives created by
Ninth Circuit's approach). Sony-Betamax - which expressly
recognized the justice of imposing liability on those who contribute to direct
infringement - did not contemplate such a perverse result.
3. In finding that Grokster and StreamCast
were protected by Sony-Betamax, the Ninth Circuit deemed it irrelevant that the
services' primary use is infringement and that they can separate infringing
from noninfringing uses. The court asserted instead that the services have *35
noninfringing uses with "commercial viability." Pet. App. 12a.
"Commercial viability" is not the correct standard. A product or
service used primarily for infringement does not receive the benefit of the
staple article of commerce defense merely because the provider might be able to
cover the costs of doing business based on its noninfringing uses while
profiting richly from infringement. Where, as here, a product or service is
primarily used for infringement - especially where the tools for separation are
readily available - the staple article of commerce defense does not apply.
In all events, the Ninth Circuit's claim that
respondents' noninfringing uses are commercially viable is insupportable. To be
consistent with Sony-Betamax, any meaningful definition of "commercial
viability" would require a showing that Grokster and StreamCast are commercially
successful in the marketplace on the basis of "wide[] use[] for
legitimate, unobjectionable purposes," Sony-Betamax, 464 U.S.
at 442. Otherwise, any noninfringing uses
would be parasitic on the massive
infringement that dominates the services. Grokster and StreamCast do not come
close to meeting that standard. Infringing content is the powerful magnet that
draws users to respondents' services and fuels their profits. Once users have
joined, it is conceivable that a few may find it convenient to search
respondents' services for public domain or authorized copyrighted works, even
though they could find that material for free elsewhere. But there is no
evidence that these noninfringing uses would attract a single user, much less
enough users to create commercially sustainable networks.
4. Even without a showing of commercial
viability or, indeed, evidence of any actual noninfringing uses, the Ninth
Circuit held that it sufficed to trigger the staple article defense that
Grokster's and StreamCast's services were merely capable of noninfringing uses.
Pet. App. 12a. That "mere capability" test cannot be squared with
Sony-Betamax or the principles that underlie it. Indeed, far from striking a *36
balance, as Sony-Betamax sought to do, a "mere capability" test gives
no weight to effective protection of copyrights.
To the extent Sony-Betamax refers to a
product's capabilities, it is in the context of discussing whether the product
can currently be "widely used for legitimate, unobjectionable
purposes." 464 U.S. at 442 (emphasis added). If the Court had applied a "mere
capability" standard like the Ninth Circuit's, virtually all of Sony-Betamax would be
superfluous dicta, because it was undisputed that authorized time-shifting was
a noninfringing use of the Betamax (and indeed constituted a material percentage
of its actual use).
If the Ninth Circuit's standard were the law,
then every product or service used for reproduction or distribution of
copyrighted works would be entitled to the staple article of commerce defense,
because every such product or service is capable of being used to distribute
public domain works or authorized copies of copyrighted works. As Judge Posner
recognized, Sony-Betamax did not endorse any such result. "It is not
enough ... that a product or service be physically capable ... of a
noninfringing use," and Grokster and StreamCast cannot "escape
liability for contributory infringement" merely by showing that their
"file-sharing system[s] could be used in noninfringing ways." Aimster, 334 F.3d at
651, 653.
5. Finally, the Ninth Circuit also grossly
exaggerated the evidence showing any noninfringing uses of Grokster and
StreamCast. Indeed, the record is almost entirely devoid of evidence that these
services are ever used for distribution of noninfringing copies, and thus
cannot support a finding of "commercially significant noninfringing
uses" under any standard, other than mere theoretical capability.
The Ninth Circuit was flat wrong to claim that
it is "undisputed" that 10% of the
use of the Grokster and *37 StreamCast systems is noninfringing.
Petitioners submitted expert analysis, based on a statistical sample,
demonstrating that 90% of the files being traded on respondents' services are
known or very likely infringing; as to the remaining 10%, "there was not
enough information to form reasonable conclusions either as to what those files
even consisted of, and/or whether they were infringing or non-infringing."
J.A. 439, 479. Respondents submitted no quantitative empirical analysis in
response. Thus, there is literally no evidence in the record supporting the
Ninth Circuit's assertion of 10% noninfringing use. It is merely an
insupportable negative inference. That ignores the evidence. [FN22]
FN22. The remaining
"evidence" on which the Ninth Circuit relied was speculative or
anecdotal and hotly disputed below. For example, nothing in the record supports
the court's assertion (without citation) that "the software has been used
to share thousands of public domain literary works." Pet. App. 11a.
Respondents contended that 187 "public domain" files could be traded
over peer-to-peer systems like Grokster and StreamCast - including works by
Shakespeare, excerpts from the Bible and the Koran, and presidential speeches.
J.A. 206. But a search for those works to see if they were actually on
respondents' networks typically located only single copies of nine of the works. Id. That is not
surprising, because all of these public domain works are available elsewhere
for free, so users have little reason to employ respondents' services to obtain
or distribute them. Indeed, other than a few isolated examples of public domain
or authorized works available on their networks, the balance of respondents'
evidence was either hearsay or merely stated a willingness to have some public
domain works distributed over peer-to-peer services. See, e.g., J.A. 394-95
(artist had heard that fans had downloaded her works); J.A. 410-11 (witness
admitted no knowledge of whether respondents' services were ever used to
download material from Prelinger Archives); J.A. 406-09 (witness stated
generally that some of Project Gutenberg's works are available on respondents'
networks, but recalled only three that he had searched for); J.A. 390-91,
J.E.R. 1359-62 (admitting that conclusion concerning the band Wilco was not
based on first-hand knowledge, and conceding possibility that free downloads
may have decreased Wilco's sales).
*38 Given the absence of probative
evidence of meaningful actual use of Grokster and StreamCast for legitimate
purposes, Grokster and StreamCast would be entitled to summary judgment on this
issue only if a handful of examples of lawful usage suffices to shield them
from liability for the overwhelming infringement
they make possible. That would water the standard down to the point of
meaninglessness. Sony-Betamax requires much more to shield enterprises from
liability for the infringement they knowingly make possible.
C. The Ninth Circuit's Novel Liability Rule
Creates Perverse Incentives That Reward Efforts to Defeat Copyright Protection.
1. After erroneously concluding that
respondents' services have commercially significant noninfringing uses, the
Ninth Circuit compounded its error by inventing an unprecedented and irrational
test for contributory liability where such noninfringing uses exist. Imposing
temporal and knowledge restrictions found nowhere in Sony-Betamax, the Ninth
Circuit held that such a defendant is liable for the infringement it enables
and encourages only if it has knowledge of specific acts of direct
infringement, and only if that knowledge comes at a time when the defendant can
stop that particular infringement. See Pet. App. 13a. The court further held
that Grokster's and StreamCast's knowledge of millions of specific acts of
infringement on their services did not satisfy this newly minted standard,
because their contribution to the infringement had largely occurred earlier
(when they set up their services), and because they designed and modified their
systems to minimize their ability to prevent infringing acts when they learned
of them. Id.
As demonstrated, however, Sony-Betamax does
not remotely support such a counterintuitive
rule. See supra at 27-29. Having set in motion and sustained the enterprise
that *39 makes the infringement possible, the defendant cannot escape
liability merely because it might not be able to arrest the infringement at the
precise moment it learns specific infringing acts will occur. The point of
contributory infringement is to hold businesses and individuals responsible for
infringement they help bring about, regardless of whether they control the
direct infringer. See, e.g., Screen Gems, 256 F.
Supp. at 402. [FN23] For example, one who
advertises products he knows to be infringing is liable, even though he does
not know exactly who will purchase the advertised items and can do nothing to
stop the infringement when it happens. E.g., id.; Columbia Pictures
Indus., Inc. v. Redd Home, Inc., 749 F.2d 154, 161 (3d Cir. 1984). Similarly, one who designs a product intending it to be used for
infringement is liable irrespective of whether he can later stop the
infringement he knows the product will make possible. E.g., Cable/Home
Communication Corp. v. Network Prods., Inc., 902 F.2d 829, 846-47 & n.30
(11th Cir. 1990); A & M Records,
Inc. v. Abdallah, 948 F. Supp. 1449, 1456-57 (C.D. Cal. 1996).
FN23. Indeed, the Ninth Circuit has
inappropriately imported into the law of contributory infringement the
"supervision and control" requirement of vicarious liability and, even more
incongruously, has incorporated that requirement into the assessment of a
defendant's knowledge.
The way the Ninth Circuit applied its
erroneous standard is equally flawed. In considering whether Grokster and
StreamCast could stop a specific act of infringement at the moment it was
occurring, the court rewarded respondents' willful blindness and efforts to tie
their own hands. The Ninth Circuit absolved Grokster and StreamCast precisely
because they had deliberately eliminated ready mechanisms for limiting
infringement such as their log-in servers, and had steered clear of others such
as filtering that would "allow [them] to see what [their] users are
sharing," JA 928 ("I *40 know this is something we DO NOT want
to do"). "Willful blindness is knowledge, in copyright law ... as ...
in the law generally.... [A] deliberate effort to avoid guilty knowledge is all
that the law requires to establish a guilty state of mind." Aimster, 334 F.3d at
650; see also id. at 653 (rejecting
attempt to evade liability where "Aimster blinded itself in the hope that
by so doing it might come within the rule of the Sony decision"). But
instead of recognizing respondents' willful efforts to blind themselves and tie
their hands as confirmation of their responsibility for the infringement they
caused, the Ninth Circuit simply accepted their self-imposed incapacitation as exculpatory. [FN24]
FN24. The courts below also
exaggerated the extent to which Grokster and StreamCast had succeeded in
shedding their abilities to detect and block infringement. Respondents have the
ability to require an upgrade of the software their existing users already have
to restore blocking mechanisms - not to mention upgrading software for new
users - and to render the services practically unusable without such upgrade.
J.A. 422-23, 448-53, 1158. The district court depicted respondents as passive
bystanders by suggesting that if they "closed their doors," their
services would continue in perpetuity without them. Pet. App. 45a. Not only is
that assertion hotly contested, see, e.g., J.A. 457 (evidence that network will
degrade if ongoing maintenance ceases); J.A. 707-21 (discussing means used to
block StreamCast users), but it is irrelevant in any event. Grokster and StreamCast
have not "closed their doors"; they continue to profit from the
infringement their services make possible by piping ads to the very users who
are infringing; and indeed they add new users every day. The issue is not what
would happen if respondents did nothing, but what they have done and continue
doing to make infringement possible.
2. The Ninth Circuit's analysis also
irrationally creates perverse incentives that affirmatively reward enterprises
like Grokster and StreamCast for dismantling or avoiding measures that can be
used to prevent copyright infringement. Under the Ninth Circuit's ruling, if
commercially significant noninfringing uses are shown, a service can shield
itself from liability simply by engineering out all means of stopping
infringement. Pet. App. 13a, 18a.
*41 Thus, instead of encouraging
companies to pursue their businesses so that they minimize the harm to others
from infringement, the Ninth Circuit's rule creates an incentive to avoid having
the ability to prevent infringement. Respondents' own counsel emphasizes that
perverse incentive, advising that to create "plausible deniability,"
peer-to-peer operators must "let go of any control you may have over your
users." Fred von Lohmann, supra ("choose an architecture that will
convince a judge that ... monitoring and control is impossible"). That is
hardly the sort of innovation the law should encourage. See Ginsburg, Copyright Use, 24
Colum.-VLA J.L. & Arts at 37 (criticizing
"rule that one who deliberately builds an online system in a way that
confounds the distinction [between infringing and noninfringing uses] should
escape liability").
The Ninth Circuit's approach also undermines
innovation in legitimate copyright commerce. Internet services for licensed
digital distribution of music and movies,
such as Apple's iTunes or Movielink - which must charge a fee to cover
licensing costs for copyrighted works - cannot compete on a level playing field
when potential customers can get the same works for free on Grokster and
StreamCast. The same unfair competition would hobble innovative peer-to-peer
services that use filtering technology to ensure that copyrighted works are
distributed over their networks only when authorized. To the extent these
companies implement available means to prevent infringement, they increase
their risk of liability under Ninth Circuit law. As a spokesman for Grokster's
and StreamCast's codefendant Sharman Networks (operator of Kazaa) candidly put
it, "I've got a great safe harbor right now," but under Ninth Circuit
law a legitimate "peer-to-peer company using the [filtering] technology
could be liable in the same way Napster was." David McGuire, Mashboxx Aims
to Make File Sharing Legit, washingtonpost.com, Dec. 22, 2004.
*42 Finally, by holding liable Napster
but not the functionally equivalent Grokster and StreamCast services, see Pet.
App. 13a, the Ninth Circuit has created a set of legal incentives that promotes
a particular type of technology - decentralized rather than centralized service
designs - regardless of its technological merit. If this holding stands, then
"even if it happens to be the case that the most usable P2P [peer-to-peer]
network for file trading requires a centralized indexing server, Grokster will
have deterred the market from producing such
a design." Andrew Chin, Antitrust Analysis in Software Product Markets: A
First Principles Approach, 18 Harv. J.L. & Tech. 1, 82 (2004). Such
"analytical approaches that attach liability to particular design choices"
are antithetical to "innovation driven by quality competition in a
well-functioning ... product market." Id.
By immunizing even the most flagrant
exploitation of copyright infringement, the Ninth Circuit has denied copyright
owners meaningful protection in the digital era. The Ninth Circuit's ruling
does not promote legitimate commerce, but businesses whose raison d'etre is
infringement itself. The staggering success of these businesses threatens the
very foundations of the incentive system on which our intellectual property
laws rest. To restore that balance, this Court need do no more than apply the
settled principles of contributory infringement recognized in Sony-Betamax.
II. Grokster And StreamCast Are Liable As
Vicarious Infringers.
Grokster and StreamCast are also liable under
the doctrine of vicarious liability. Their businesses depend on the copying and
distribution of copyrighted material, and they reap substantial revenue after
the initial download of their software based on the amount of infringement
their businesses generate. They could also limit that infringement. *43
They have done just the opposite, however, precisely because they have a strong
financial interest in preserving rather than
preventing the infringing uses.
In assessing the vicarious copyright liability
of such a copyright-dependent business, courts have universally applied the
standard formulated in H.L. Green: "When [1] the right and ability to
supervise coalesce with [2] an obvious and direct financial interest in the
exploitation of copyrighted materials," liability is imposed "upon
the beneficiary of that exploitation." 316 F.2d at 307; see, e.g., Sony-Betamax, 464 U.S.
at 437 n. 18 (citing H.L. Green with approval);
Nimmer, supra, at 12-70. The knowledge or intent of the secondary infringer is
irrelevant, e.g., H.L. Green, 316 F.2d
at 307, and efforts to eliminate the means
to control infringement do not eliminate liability, see, e.g., Gershwin, 443 F.2d at
1163. Under these settled principles,
Grokster and StreamCast are liable for the infringement on their services,
notwithstanding their machinations to disassociate themselves from the direct
infringement on which they depend.
A. Grokster and StreamCast Directly Profit
from the Massive Infringement Occurring on Their Content-Distribution Services.
In at least two important (and undisputed)
senses, Grokster and StreamCast have "an obvious and direct financial
interest in the exploitation of [the] copyrighted materials" distributed
over their services. H.L. Green, 316 F.2d
at 307. First, unlike manufacturers of
products like the Betamax, respondents are
not indifferent to the extent of subsequent infringement by their users. To the
contrary, respondents make their money from advertising to users each time they
access the services to copy and distribute copyrighted works. Pet. App.
49a-50a. The larger the number of users attracted by infringing content, the
more money Grokster and StreamCast make from advertising. See *44 H.L. Green, 316 F.2d at
306 (defendant's revenues varied
directly with the gross receipts from the infringing record concessionaire). As
the Ninth Circuit recognized, respondents' "direct financial benefit, via
advertising revenue, [is] undisputed in this case." Pet. App. 16a.
Respondents also have a direct financial
interest in a second sense: their businesses are predicated on the distribution
of copyrighted materials. Grokster and StreamCast operate vast on-line bazaars
for the distribution of music, movies, and other works subject to copyright.
Like the defendants in H.L. Green and Gershwin, respondents "profit
directly" from the performance or distribution of copyrighted works
because those works are a central draw for their users. Indeed, copyrighted
material is the "glittering object," Napster, 114 F. Supp.
2d at 922, that attracts users. It is thus not
surprising that Grokster and StreamCast did not contest the presence of a
direct and obvious financial benefit from infringement.
B. Grokster and StreamCast Have the
"Right and Ability" to Supervise or Control
Infringement, Despite Their Efforts to Tie Their Own Hands.
1. The receipt of a direct financial benefit
from the exploitation of copyrighted materials informs the remainder of the
analysis by identifying situations in which it is reasonable to hold a business
liable for failing to supervise or control infringement. When a business
receives ongoing financial benefit from infringing activity, vicarious
liability creates the needed incentive for that business to adopt reasonably
available measures to prevent the infringement, thereby counteracting the
otherwise powerful financial incentive it has to maximize infringement.
Imposition of vicarious liability also ensures that responsibility for
preventing infringement is placed on the entity best positioned to discharge
that duty, and imposes the costs of *45 infringement on the entity that
profits from it. In these circumstances, vicarious liability is
"manifestly just." Sony-Betamax, 464 U.S.
at 437 & n.18 (citing H.L. Green and other
vicarious liability cases).
Over the years, other businesses that
similarly profit directly from copyright infringement and could supervise or
control it - and thus would be liable under traditional principles - have tried
to insulate themselves from vicarious liability by arranging for a third party
to carry out the direct infringement and then renouncing supervision and
control over the direct infringer. Courts have invariably rejected such efforts
to achieve "plausible deniability," even when strict application of agency law might
not, by itself, dictate liability. See H.L. Green, 316 F.2d
at 307; see also Dreamland Ball Room,
Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354, 355 (7th Cir. 1929). Looking to substance, courts have "trace[d], case by case,
a pattern of business relationships which would render one person liable for
the infringing conduct of another." H.L. Green, 316 F.2d
at 307.
In H.L. Green, a department store chain was
vicariously liable for large-scale infringement by an independent contractor
that ran the chain's record departments. The chain could not evade liability by
outsourcing management of the record operation in that manner. Because it had
both the contractual right and practical ability to supervise the independent
contractor, liability was appropriate for the chain's failure "to police
carefully the conduct of its concessionaire," notwithstanding the absence
of a formal agency relationship. Id. at 308; see also Gershwin, 443 F.2d at
1162.
While placing weight on the chain's
contractual rights to supervise its concessionaire, 316 F.2d at 306, 308, H.L. Green recognized that a business that distributes or
performs copyrighted works cannot escape liability merely by *46
contractually ceding the right to supervise, explaining that "the cases
are legion" in which dance hall operators have been held liable
"whether or not the proprietor has ... any control over" the
compositions played. Id. at 307 (emphasis
added); see, e.g., Dreamland Ball Room,
36 F.2d at 355; Irving Berlin, Inc. v.
Daigle, 26 F. Supp. 149, 149-50 (E.D. La. 1928), rev'd in part on other
grounds, 31 F.2d 832 (5th Cir.
1929); M. Witmark & Sons
v. Pastime Amusement Co., 298 F. 470, 475 (E.D.S.C. 1924), aff'd, 2 F.2d 1020 (4th Cir.
1924). Similarly, vicarious liability was
imposed in Gershwin despite the secondary infringer's careful avoidance of any
contractual right to control the direct infringer. 443 F.2d at 1163.
As these cases demonstrate, businesses that
directly profit from infringement cannot immunize themselves from vicarious
copyright liability by avoiding the legal or practical control they would
otherwise have over the direct infringer.
2. Grokster and StreamCast are simply
digital-age versions of the record sellers or dance-hall operators that, when
facing liability for failing to supervise or control the infringement from
which they directly profit, seek to evade that liability by leaving the dirty
work to others. Respondents have created "virtual stores" - their
networks of users and the copyrighted works on their users' computers - that
allow users to copy movies and music, in exchange for the users' receipt of the
advertising that makes respondents money. Rather than supplying the content
themselves, respondents conscript users to do it. Their software automatically
makes music and movie files on the users' computers available for copying by
all other users of the service. Supra at 4- 5,
Respondents have similarly delegated the indexing function to users whose
computers serve as repositories for searchable lists of material available on
the network, allowing users all over the network to find works to copy. Supra
at 9-10. This is the sort of clever "outsourcing" *47 that has
never sufficed to immunize a business that directly profits from infringing
distribution or performance of copyrighted works. See supra 45-46.
Respondents plainly retained initially both
the legal right and practical ability to supervise or control infringement by
those users to whom they delegated the copying and distribution functions. See
generally Fonovisa, Inc. v.
Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996) (noting both the legal right and ability to control identified in
H.L. Green and the practical ability to control described in Gershwin).
Grokster and StreamCast, for example, each had licensing agreements that
expressly gave them the legal right and ability to prevent infringement by
terminating a user's access to their services "upon any single act of
infringement." Supra at 11. See Fonovisa, 76 F.3d at
263 (noting the "'unreviewable
discretion' to discharge the concessionaires' employees" in H.L. Green) (quoting
H.L. Green, 316 F.2d at 306). They also had
the practical ability to prevent infringement. Both Grokster and StreamCast had
log-in and registration functions that allowed them to restrict the access of
infringing users.
Grokster and StreamCast cannot escape
liability because they disabled the legal and practical mechanisms they had
previously used. Thus, that StreamCast has taken the all-but-unprecedented step
of eliminating its licensing agreement does not immunize it from liability.
Courts have consistently rejected such charades. See supra at 45-46.
Respondents' decision to eliminate log-in and registration functions is
similarly of no consequence. Vicarious copyright liability arises directly from
that kind of failure to exercise supervision or control. See Gershwin, 443 F.2d at
1162.
Here, moreover, respondents have also refused
to implement other readily available mechanisms that would prevent the transfer
of works that infringe petitioners' *48 copyrights. Petitioners offered
evidence showing that such technologies are readily available and effective and
could be employed with respondents' present services. Supra at 10-12.
Petitioners also showed that Grokster and StreamCast have the practical ability
to make any needed upgrades to the software required by their users to access
the service. Supra at 11-12. And even if there were some impediment to making
that change for existing users, Grokster and StreamCast can unquestionably add
filtering capabilities to the software they give away to new users. Indeed,
they filter to block viruses and bogus files that undermine their business
interests by interfering with infringement. Respondents' unwillingness to use
such readily available means of preventing
infringement makes vicarious liability entirely appropriate.
3. As even the Ninth Circuit recognized,
nothing in Sony-Betamax supports extension of the staple article of commerce
defense to the doctrine of vicarious liability. Pet. App. 16a. Vicarious
liability was not before the Court in Sony-Betamax.
464 U.S. at 435 n.17, 438. At the same
time, the Court cited H.L. Green and other vicarious liability cases as
instances where liability for indirect infringement is "manifestly
just." Id. at 437 & n.18. Indeed, the monopoly leveraging concerns
that drove the analysis in Sony-Betamax are absent in this context. Vicarious
liability applies when a business that directly profits from the performance or
distribution of copyrighted works can supervise or control what occurs under
its auspices in order to detect and stop infringing activities. In these
circumstances, the risks that the lawful copyright monopoly will be leveraged
over independent noninfringing areas of commerce are minimal, if they exist at
all. See supra at 32-34.
4. In the name of protecting
"innovation," the Ninth Circuit found that the actions of Grokster
and StreamCast are a basis for immunity, not liability. Pet. App. 18a. That *49
analysis turns vicarious liability law on its head. Vicarious liability is
intended to "encourage" a business that could profit from infringement
to exercise supervision and control, not shed it. H.L. Green, 316 F.2d
at 308; see also id. at 309 (refusing to
allow distributors of infringing works to
open " 'dummy' concessions and shiel[d] their own eyes from the
possibility of copyright infringement, thus creating a buffer against liability
while reaping the proceeds of infringement"). The Ninth Circuit's decision
does precisely the opposite. Indeed, the Ninth Circuit's vicarious liability
analysis fosters innovation of a most unwelcome kind, perversely encouraging
innovators to disable or avoid the means of preventing infringement even when
employment of those means would allow legitimate noninfringing activity to
continue. See supra at 40-42.
Moreover, the policy choices undergirding the
Ninth Circuit's approach are impossible to square with the approach of the
Digital Millennium Copyright Act ("DMCA"). In the DMCA, Congress
established safe harbors from secondary liability for Internet service
providers engaging in specific functions, on the condition that they
"cooperate to detect and deal with copyright infringements that take place
in the digital networked environment." S. Rep. 105-190, at 40. The safe harbors are available only if "the service
provider ... has adopted and reasonably implemented ... a policy that provides
for the termination in appropriate circumstances of subscribers and account
holders ... who are repeat infringers." 17 U.S.C. § 512(i)(1)(A). [FN25]
FN25. See also id. § 512(b)(2)(E), (c)(1)(C), (d)(1)(C) (extending safe harbors only
to service providers who disable access to infringing materials under certain
circumstances).
Of course, Grokster and StreamCast do not
remotely qualify for those statutory safe harbors. The Ninth Circuit's *50
approach is thus doubly mistaken. First, far from truncating traditional
secondary liability law (as the Ninth Circuit has done), Congress endorsed it.
Second, the incentives created by the Ninth Circuit's decision are precisely
contrary to the ones Congress sought to create in the DMCA context. The Ninth
Circuit exonerated Grokster and StreamCast precisely because they refuse to
deny access to infringing material and have actively undermined their ability to
deny access to repeat infringers.
Ultimately, the perverse incentives created by
the decision below are symptomatic of the Ninth Circuit's broader distortion of
traditional principles of copyright law. As the Ninth Circuit would have it,
businesses designed, promoted, and used overwhelmingly for infringement of
copyrighted materials may profit from that infringement as long as they tie
their hands, while the creators of the copyrighted material must stand by
helplessly as the value of their copyrighted works vanishes. That result is
antithetical to the balance struck in Sony-Betamax, and undermines the very
foundations of copyright law that the Framers believed critical to
"motivate the creative activity of authors"
and artists, and to "induce release to the public of the product of their
creative genius." Sony-Betamax, 464 U.S.
at 429 (quotation marks omitted).
CONCLUSION
For the foregoing reasons, the judgment of the
Ninth Circuit should be reversed.
Metro-Goldwyn-Mayer Studios Inc. v.
Grokster, Ltd.
2005 WL 166587
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