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MGM v. Grokster

Decided June 27, 2005

Issue: Copyright Infringement – Can a distributor of file-sharing software be held liable if a third party uses it to infringe copyrighted material?

The Supreme Court unanimously held that a company that distributes a device with the intent to promote its use to infringe copyrighted material, should be held responsible for the resulting acts of infringement by third parties. The “device” in this case was a free software program which allowed computer users to share files of any type, through a peer-to-peer network. The software was primarily used by third party customers to share copyrighted material, such as music and video files. A group of copyright holders, MGM and several other large entertainment companies, sued Grokster and StreamCast Networks (the makers of Morpheus, Grokster and KaZaA) alleging that they knowingly and intentionally distributed the software so users could duplicate and share copyrighted material.

Grokster argued that since it had no actual role in the file exchanges, it should not be held responsible for its customers’ illegal activities. The appeals court, ruling in Grokster’s favor, had relied on the Supreme Court’s 1984 decision in Sony Corp. v. Universal City Studios, a case which challenged the innovative technology of the day, the Betamax video cassette recorder. The Betamax ruling held that distributor Sony was not liable for users’ infringement because the VCR was “capable of commercially significant non-infringing uses.” While Grokster made the same argument of its device, the distinction in the current case hinged on the fact that Grokster had genuine knowledge of its customers’ use and had “by clear expression or other affirmative steps” actually promoted the software’s use to infringe copyrighted material.

While this decision, on its face, is a major blow to file-swappers everywhere, it’s unlikely to eliminate such activity. The true impact of the Court’s ruling is its risk of interfering with or hindering future technology and innovation. Many similar technologies which relied on the Betamax ruling for protection, such as CD recorders and DVR devices (think TiVo) could be affected by the ruling. MGM hailed the Court’s decision as an unambiguous victory. However, the Court’s ruling actually remanded the case back to the lower court for review in light of its decision, so this battle will continue. Ultimately, the courts will have to strike a balance between the need for innovation and technological advances with the rights of artists, studios, and their copyrighted material.

To read the full opinion, click here.