Alert

Predictions About How the U.S. Supreme Court Will Rule Sometimes Come True

Last week's newsletter predicted that the Supreme Court would return the Grokster file-sharing case to the lower court for a limited purpose - the determination whether the defendants had actively induced the infringement of millions of users who were employing the Grokster and StreamCast file-sharing software to obtain copyrighted music. Today, the Court did precisely that - albeit with an accompanying explication which virtually directed a verdict in favor of the defendants upon remand. But vendors of hardware and software can breathe a sigh of relief.

Grokster and StreamCast provided software to millions of users which enabled the users to do many things - but what they primarily did was to copy copyrighted songs from each other's files. The central issue in the case had been thought to be whether the U.S. Supreme Court's 1984 decision in the Sony/Betamax case precluded or imposed liability upon entities like the defendants, who were unaware of these infringing uses as they were happening (because the companies' servers were never involved in the file transfer) but who were aware generally that their software was being used illicitly to copy copyrighted music.

The Sony case concerned whether Sony could be liable for contributory or vicarious copyright infringement for selling a product (the VCR) merely because its customers used the product to make infringing copies of copyrighted television programming. But the Supreme Court there noted the legal uses to which the VCR could be put, and stated that if the product was capable of substantial non-infringing uses the manufacturer could not be held liable for the copyright infringement of others.

The great fear among Silicon Valley companies was that the Court would overrule or modify the Sony decision so as to make vendors of electronic products and software liable for the copyright infringement of their customers. This would have given content providers such as record companies, movie studios, and songwriters considerable power over the design of new products, permitting them to demand that manufacturers design in counter-measures to foil infringement by the buyers. It would also have had a deleterious effect upon start-up companies based upon the infringing potential of their products, before these immature companies had had an opportunity to develop the potential for non-infringing uses, as the mere threat of a lawsuit would deter all but the most intrepid venture capital. But the Court refused to go there, holding that "mere knowledge of infringing potential or of actual infringing uses would not be enough to subject a distributor to liability."

On the other hand, the Supreme Court did not want to give carte blanche to software and hardware vendors to encourage infringement merely because their products were capable of substantial non-infringing uses - or even were actually being employed for substantial non-infringing uses - if the vendor was actively encouraging an infringing use; accordingly it ruled 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." Finding evidence of such inducement present, the Court reversed summary judgment in favor of the file-sharing defendants, and directed reconsideration of the content providers' motion for summary judgment.

While not an unalloyed blessing - since the Court's active inducement doctrine is a fact-intensive inquiry and the formulaic defense that a product is merely capable of non-infringing uses will no longer suffice - the Grokster decision is one that hardware and software vendors can live with. They dodged the bullet of secondary liability based solely on the infringement of their customers, or knowledge of the infringement of their customers. Moreover, the case is instructive as to what conduct such vendors should not engage in. In short, the risk of secondary liability for copyright infringement will be manageable, and can be managed.



	Alert Predictions About How the U.S. Supreme Court Will Rule Sometimes Come True Last week's newsletter predicted that the Supreme Court would return the Grokster file-sharing case to the lower court for a limited purpose - the determination whether the defendants had actively induced the infringement of millions of users who were employing the Grokster and StreamCast file-sharing software to obtain copyrighted music. Today, the Court did precisely that - albeit with an accompanying explication which virtually directed a verdict in favor of the defendants upon remand. But vendors of hardware and software can breathe a sigh of relief. Grokster and StreamCast provided software to millions of users which enabled the users to do many things - but what they primarily did was to copy copyrighted songs from each other's files. The central issue in the case had been thought to be whether the U.S. Supreme Court's 1984 decision in the Sony/Betamax case precluded or imposed liability upon entities like the defendants, who were unaware of these infringing uses as they were happening (because the companies' servers were never involved in the file transfer) but who were aware generally that their software was being used illicitly to copy copyrighted music. The Sony case concerned whether Sony could be liable for contributory or vicarious copyright infringement for selling a product (the VCR) merely because its customers used the product to make infringing copies of copyrighted television programming. But the Supreme Court there noted the legal uses to which the VCR could be put, and stated that if the product was capable of substantial non-infringing uses the manufacturer could not be held liable for the copyright infringement of others. The great fear among Silicon Valley companies was that the Court would overrule or modify the Sony decision so as to make vendors of electronic products and software liable for the copyright infringement of their customers. This would have given content providers such as record companies, movie studios, and songwriters considerable power over the design of new products, permitting them to demand that manufacturers design in counter-measures to foil infringement by the buyers. It would also have had a deleterious effect upon start-up companies based upon the infringing potential of their products, before these immature companies had had an opportunity to develop the potential for non-infringing uses, as the mere threat of a lawsuit would deter all but the most intrepid venture capital. But the Court refused to go there, holding that "mere knowledge of infringing potential or of actual infringing uses would not be enough to subject a distributor to liability." On the other hand, the Supreme Court did not want to give carte blanche to software and hardware vendors to encourage infringement merely because their products were capable of substantial non-infringing uses - or even were actually being employed for substantial non-infringing uses - if the vendor was actively encouraging an infringing use; accordingly it ruled 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." Finding evidence of such inducement present, the Court reversed summary judgment in favor of the file-sharing defendants, and directed reconsideration of the content providers' motion for summary judgment. While not an unalloyed blessing - since the Court's active inducement doctrine is a fact-intensive inquiry and the formulaic defense that a product is merely capable of non-infringing uses will no longer suffice - the Grokster decision is one that hardware and software vendors can live with. They dodged the bullet of secondary liability based solely on the infringement of their customers, or knowledge of the infringement of their customers. Moreover, the case is instructive as to what conduct such vendors should not engage in. In short, the risk of secondary liability for copyright infringement will be manageable, and can be managed.