Don't Stop Grokkin'

Apparent MGM v. Grokster slamdunk is really a mixed bag

If you had a chance to listen to the content companies' press conference on the afternoon the Supreme Court's decision in MGM v. Grokster was announced, you heard nothing but crows of victory. The word "unanimous" was repeated umpteen times (the decision was 9-0 against the peer-to-peer company defendants), and much was said about how unequivocal the record companies' and movie companies' victory was.

As a technical matter the content companies won MGM v. Grokster; the decision remands the case to a trial court for further factfinding as to whether defendants "induced" infringement. But it's clear that they didn't win anything like what they had been asking the Supremes for—a rule that would penalize any company that made money off a product widely used for infringement, regardless of what the company intended. And though the technical companies and consumer groups are troubled by the outcome in this case, there's still much to encourage them.

First, the rundown on what the Supreme Court actually said. Reversing lower courts' summary judgment on the issue of whether the current software offered by defendants Grokster and Streamcast was lawful, the Court adopted a new basis for liability—"inducement of infringement." The new rule adds a bit to the 21-year-old decision in Sony Corp. v. Universal City Studios, which held that a technology is lawful if it is "capable of substantial noninfringing use," even when technology is being widely used for infringement. (That's the VCR we're talking about—the lawful use in question back then was time-shifting TV programs; the more questionable use, which many people nonetheless clearly engaged in, was the archiving of favorite shows over the long term.)

The majority opinion for the court (there are two concurrences as well, each signed by three different justices) adds a new and potentially troubling gloss on this: "We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by the clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties," Associate Justice David H. Souter wrote for the majority. "Nothing in Sony requires courts to ignore evidence of intent to promote infringement if such evidence exists," he wrote. In short, while your technology considered in itself may be legal (and ditto for distribution of same), it may become part of an overall "inducement of infringement" when you design or distribute the technology with the intention of causing infringement.

On its face, this may sound sensible—loaning your car keys to a friend is understood to be legal, except when you do it to help your friend the bank robber leave the state. But as a practical matter this standard makes it harder for defendant technology companies to win an early-phase summary judgment when sued for causing or giving rise to infringement.

As a result, predicts the Electronic Frontier Foundation's staff attorney Fred Von Lohmann, the Grokster decision "is going to unleash a new era of uncertainty for America's innovators." The new theory of copyright liability, he says, is one that "will tie up the courts for some time." Von Lohmann is one of the lawyers who represented co-defendant Streamcast, a peer-to-peer software provider, in the Grokster case. Ed Black, president and CEO of the Computer & Communications Industry Association, is equally gloomy—the ruling, he says, is "a big victory for lawyers," who will be put to work litigating the less-than-clear and not entirely consistent new standard.

There's reason for them to worry. Until now, the Sony decision provided what lawyers like to call a "bright line" rule for lawful technologies—if your tech was "capable of substantial noninfringing use," you were home free, or so it was widely thought, and this was true even if some people used your technology for illegal purposes. Challenges to new technologies, such as the legal challenges brought against the makers of the iPod's precursor MP3 music players, could be wrapped up quickly, without a lot of litigation, just by applying the Sony rule.

Of course, the fact that the Sony rule still stands ought to be encouraging for tech companies and for consumers—nothing in this decision called into question the Court's recognition that the Sony case had allowed two decades of breathing space for technological innovation that included CD and DVD burners, iPods, and TiVos.

But the new decision blurs the bright line of Sony. By opening up the question of whether the designer or manufacturer or distributor of a new technology had the "intent" to "induce" infringement—terms that are not yet fully defined in this context—the Court made sure that company e-mails, advertising, and any other evidence may now be discovered in a trial proceeding, even if the technology itself has the potential substantial lawful use.

One can see why the content companies are happy—9-0 decisions in copyright matters don't come along every day. And it seems clear that the content companies have obtained some measure of the chilling effect on potentially infringing new technologies that they hoped they'd get. But other commentators are not so sure the victory is worth crowing about. Douglas Lichtman, a University of Chicago law professor who wrote a pro-MGM brief favoring an even more restrictive standard, termed the MGM v. Grokster decision "a hollow victory." Writes Lichtman on one Supreme Court-watching blog: "MGM won on paper today, but my first reading of the opinion makes me wonder whether the victory will have any bite outside of this specific litigation. Intent-based standards, after all, are among the easiest to avoid." Lichtman's view is that tech companies have an easy out to avoid liability. "Just keep your message clear—tell everyone, and I mean everyone, that your technology is designed to facilitate only authorized exchange—and you have no risk of accountability," he writes.

Hilary Rosen, former head of the RIAA, is just as skeptical as Lichtman, but for a different reason—the content companies, she says, are not stepping up to the challenge posed by new technologies, and have not yet offered new business models that will lure consumers away from the free, unauthorized trading of copyrighted works. Although winning MGM v. Grokster may be "important psychologically," Rosen wrote in the Huffington Post blog, "it just won't really matter in the marketplace." Why not? "Because by now SEVERAL HUNDRED MILLION copies of this software that the entertainment industry would like to vanquish have been downloaded to individual computers around the world."

Rosen isn't ready to let the tech companies off the hook—she says they "have seen that with enough 'innovation' their consumers can get all the content they want for free without it really being the tech industry's problem to worry about the investment required to make that content." That's a fair comment, although it's equally fair to ask why it should be the tech companies' obligation to look after the copyright interests of other industries.

What's certain is that in the near term it will be harder, given the superficial magnitude of its victory in MGM v. Grokster, for the content industries to ask for more legislation to protect them from those awful file-traders, who certainly include some high percentage of the folks reading this column. That's probably a good thing. It's also likely that the case itself, now remanded to a lower court for more factfinding, will result in further questions that appeals courts, including perhaps the Supreme Court, will need to answer.