02 September 2005
Key Points:
The Grokster decision does not mean that the distribution of peer-to-peer file sharing software is, in and of itself, an infringement of copyright. It was limited to where the distributor had a specific intent to induce infringement and engaged in overt acts to encourage that infringement, but didn't answer the entertainment industry's real questions. Its impact in Australia is very difficult to gauge because of differences between Australian and US law.
Since the United States Supreme Court handed down its decision in MGM v Grokster, both Australian and international media have been awash with reports that the decision was a vindication for the entertainment industry and the first nail in the coffin for peer-to-peer file sharing. However, such reports represent a triumph of spin over substance.
As this article discusses, although the Supreme Court unanimously reversed the decision of the United States Court of Appeals for the Ninth Circuit, it did so on a basis that was not even pursued by the entertainment industry, and which provides the entertainment industry far less than they were seeking. Moreover, the Supreme Court's decision has altered the US legal landscape in a way that is likely, for at least the medium term, to be less favourable to the entertainment industry than if the Court had upheld the Court of Appeals' decision and ruled against the entertainment industry on all bases.
The entertainment industry loses before both the District and Appeals Courts
The Grokster case began when MGM, a large number of other movie and music companies and a large group of professional songwriters and music publishers commenced proceedings against a number of file sharing companies, including Grokster and Streamcast Networks. At issue were two theories of secondary copyright liability recognized by US copyright law at that time: contributory infringement and vicarious infringement. Contributory infringement occurs where a defendant induces, causes or materially contributes to direct infringement with knowledge of that direct infringement. Vicarious infringement occurs where a defendant profits from direct infringement and has the right and ability to supervise the direct infringer.
The entertainment industry argued that Grokster and Streamcast's conduct rendered them liable for copyright infringement committed by the users of their software. Grokster and Streamcast argued that they merely provided their software to users over whom they had no control, and thus, they were not liable under US copyright law.
The District Court limited its consideration to the asserted liability of Grokster and Streamcast for distributing the current versions of their software, and found in their favour on both theories of secondary copyright liability.
It held that Grokster and Streamcast were not liable for contributory infringement as they qualified for the safe harbour established by the United States Supreme Court in Sony v Universal almost 20 years before. More specifically, the District Court construed the Sony case to have held that distribution of a commercial product capable of substantial non-infringing uses could not give rise to contributory liability for infringement, unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge. The District Court held that Grokster and Streamcast could not be liable for contributory infringement as there was evidence that their software was capable of substantial non-infringing uses and the plaintiffs had failed to establish that Grokster and Streamcast had specific knowledge of infringement at a time when they contributed to that infringement and failed to act on that knowledge to prevent infringement. It also held that the plaintiffs had failed to establish that Grokster and Streamcast had materially contributed to direct infringement by the users of the software as the evidence established no more than that it was the users themselves who searched for, retrieved, and stored the infringing files, and that Grokster and Streamcast had no involvement in this process beyond providing the software in the first place.
The District Court also granted Grokster and Streamcast's summary judgment motion, and denied the entertainment industry's summary judgment motion, with respect to vicarious infringement as it held that Grokster and Streamcast did not monitor or control the use of their software, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement.
None of the parties sought summary judgment on the basis of inducement as either an aspect of contributory infringement or a separate basis of secondary copyright liability and the District Court did not rule on that issue.
The entertainment industry appealed the District Court's ruling granting Grokster and Streamcast's summary judgment motion and denying its summary judgment motion to the United States Court of Appeals for the Ninth Circuit. The Ninth Circuit upheld the District Court's ruling as to both contributory and vicarious infringement. Once again, none of the parties sought relief based on the issue of inducement, either as an aspect of contributory infringement or a separate basis of secondary copyright liability, and the Ninth Circuit did not rule on that issue.
The entertainment industry loses the case it is fighting before the US Supreme Court
Following losses before the District Court and the Ninth Circuit, the entertainment industry appealed to the US Supreme Court. The entertainment industry sought, and was granted, certiorari on the following question:
"whether the Ninth Circuit erred in concluding ... that the internet based "file sharing" services Grokster and Streamcast should be immunised from copyright liability for the millions of daily acts of copyright infringement that occur on these services and that constitute at least 90% of the total use of the services"?
The focus of the entertainment industry's appeal was the Sony safe harbour, a fact the Supreme Court acknowledged, but then ignored, in its unanimous decision. Ultimately, the entertainment industry was seeking a narrowing reinterpretation of Sony, or to have that 20 year old decision overruled. To achieve this end, the entertainment industry put forward many variations of the Sony safe harbour test for the Supreme Court's consideration, including whether the primary use of a technology was for infringement, whether the technology had intentionally been designed for infringement, whether there was a duty to build technology to thwart user infringement, whether technology developer liability should depend on cost/benefit analyses weighing how much infringement could have been averted by alternative designs, whether a technology developer could be held liable because its business model was infringement-driven, and whether to use multi-factor balancing tests in secondary liability cases. All of these proposals were either ignored or rejected by the court.
As at both the District and Appeals Court levels, the entertainment industry did not seek victory before the Supreme Court on the basis of a finding of inducement. It did not seek victory on this basis as it knew that legislation similar to that which it had strongly backed, the INDUCE Act, which would introduce an inducement test into US copyright law that was very favourable to the entertainment industry's interests, would almost certainly have been passed if the Supreme Court had held against the entertainment industry on all bases. However, although not a basis upon which the entertainment industry sought victory from the Supreme Court, inducement was the sole basis upon which the Supreme Court ruled in its favour.
Thus, before the Supreme Court, the entertainment industry actually lost the case which it was fighting and won a case which it wasn't. Moreover, the victory that it won is a hollow one, as it has deprived the entertainment industry, for at least the medium term, of its strongest argument for new legislation that would have granted it much stronger protection than that granted by the Supreme Court.
The new active inducement standard
The Supreme Court's unanimous judgement begins with the question that the court chose to answer:
"under what circumstances [is] the distributor of a product capable of both lawful and unlawful use liable for acts of copyright infringement by third parties using the product".
This is a very different question to the question on which the entertainment industry sought, and was granted, certiorari.
As set forth above, inducement has long been an aspect of contributory infringement under US copyright law. However, it is not one that has been embraced by the courts and it is not one that the entertainment companies sought summary judgment on.
The Supreme Court did not embrace this dormant aspect of contributory infringement. Instead, just as it had imported the capable of substantial non infringing use standard from US patent law two decades earlier to create the safe harbour,[1] the Supreme Court in Grokster imported the patent law doctrine of active inducement to form a separate basis of secondary copyright liability under US law. Importing this doctrine, the Court held that "one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties".
The Court further held that mere knowledge of infringing potential or of actual infringing uses would not be enough to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as offering customers technical support or product updates, support liability in themselves. The active inducement rule, instead, premises liability on purposeful, culpable expression and conduct.
The judgment goes on to provide at least some guidance as to what may constitute active inducement in the context of peer-to-peer file sharing. While the matter was sent back to the Ninth Circuit, the Supreme Court said it believed that the evidence in the record was enough to beat summary judgment on an active inducement theory that the parties had neither briefed nor argued. This decision was based on a number of factors, including the fact that neither had attempted to implement filtering technology, both had obtained advertising revenue through users and both had actively pursued former Napster users after Napster had been shut down due to copyright infringement. It should be noted that this last factor was particularly crucial. It is also important to note that the court made clear that although factors such as technology design and business models could be relevant factors in considering inducement, alone they could not be enough to establish active inducement liability. It is because of this that the pursuit of former Napster users forms a key part of the decision.
Vicarious infringement
The second issue actually before the Supreme Court, vicarious infringement, remained completely unaddressed, the Court holding that as it had resolved the case based on an active inducement theory, it did not need to analyse the entertainment industry's vicarious infringement theory. Thus, the Court did not address an issue actually before it solely because it had already decided the case on one that wasn't.
The impact of the Supreme Court decision - the Grokster case and beyond
As set forth above, although the Supreme Court vacated the Ninth Circuit's decision and remanded the case to the District Court for further proceedings, it did so without altering the tests for contributory or vicarious infringement, the theories upon which the entertainment industry sought, and were denied, relief by the lower courts. Thus the District Court will be free to make the same decision that it made before, although no doubt judicial politics will dictate more caution.
In the future, however, this new active inducement theory espoused by the Supreme Court is unlikely to provide much benefit to the entertainment industry and other copyright holders beyond the Grokster case itself. This is because, under US patent law, from which the Grokster Court imported the active inducement theory, courts have set a high standard for establishing active inducement, requiring proof of overt acts, such as advertising that actively promotes infringing uses or instruction manuals that show users how to infringe, as well as proof of a specific intent to induce infringement. This is recognised by the Supreme Court's reliance on the conduct of Grokster and Streamcast in pursuing former Napster users.
Thus, technology developers will continue to be protected from liability based on the infringing conduct of their users if they satisfy the tests for contributory and vicarious liability that have long governed their conduct, and will also be protected from liability for active inducement if they are careful not to overtly to encourage infringing use of their technologies.
Given the differences between the US doctrine of secondary infringement and the Australian doctrine of authorisation (its closest equivalent), the impact that Grokster will have in Australia is difficult to gauge. All the decision of the US Supreme Court appears to stand for is that an overt act encouraging infringement, in conjunction with a specific intent to induce infringement and the supply of the means to carry out the infringement may amount to secondary infringement under US law – but as demonstrated by the Australian decision in Universal Music Australia Pty Ltd v Cooper (see separate article in this edition), that would come as no surprise to anybody.
