P2P and Copyright -- 9th Circuit Rules

[Timber Loftis]

From the American Bar Association

P2P FIRMS NOT COPYRIGHT INFRINGERS
9th Circuit Opinion Lets Grokster and Other File-Sharing Services Stay in Business

BY DAVID L. HUDSON JR.

Providers of a technology do not necessarily infringe on copyright even though that technology is used for infringement, the San Francisco-based 9th U.S. Circuit Court of Appeals held. It is a significant victory for decentralized, peer-to-peer file-sharing technology.

A three-judge panel of the appeals court affirmed a lower court’s rejection of copyright infringement claims by a group of songwriters, music publishers and motion picture studios. Metro-Goldwyn-Mayer Studios v. Grokster Ltd., Nos. 03-55894, 03-55901, 03-56236 (Aug. 19).

The plaintiffs sued Grokster and StreamCast Networks Inc. (maker of Gnutella p2p software) for secondary copyright infringement, because the direct infringers are millions of individual users of the companies’ software who download protected digital material. The two theories of secondary copyright infringement are contributory copyright infringement and vicarious copyright infringement.

The plaintiffs argued the p2p software enabled mass piracy of copyrighted songs and films. They argued these companies were the "next Napster" designed to evade the holdings of the 9th Circuit in the cases against Napster, another p2p provider declared to be illegally aiding copyright infringement. Last year, a federal district court in California rejected those arguments and granted partial summary judgment to the software distributors. Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., 259 F. Supp.2d 1029 (C.D. Cal. 2003). In its Aug. 19 opinion, the 9th Circuit panel unanimously agreed.

To establish contributory copyright infringement, the plaintiffs had to establish three things:

Direct infringement by a primary infringer.
Knowledge of the infringement.
Material contribution to the infringement.
The key questions for the 9th Circuit panel were knowledge and material contribution.

Relying on its decisions in the Napster cases, the 9th Circuit determined that if a product is capable of significant uses that don’t infringe on copyrights, then the copyright owner must show that the software distributors had "reasonable knowledge of specific infringing files and failed to act on that knowledge to prevent infringement."

The panel determined that the software does have significant noninfringing uses, pointing out that some recording artists have "debuted their works through the user networks."

"In addition to music, the software has been used to share thousands of public domain literary works made available through Project Gutenberg as well as historic public domain films released by the Prelinger Archive," the panel wrote.

Because the software design of Streamcast and Grokster was decentralized, without the central index or control over all files that Napster had, the panel determined that the firms did not have knowledge or control over specific infringers.

The panel also determined that the software distributors do not materially contribute to the infringement, writing: "No infringing files or lists of infringing files are hosted by defendants, and the defendants do not regulate or provide access."

The panel related that three elements are also needed to establish vicarious copyright infringement:

Direct infringement.
Direct financial benefit for the defendants.
The right and ability to supervise the infringers.
The key inquiry here was the right and ability to supervise.

"It does not appear from any of the evidence in the record that either of the defendants has the ability to block access to individual users," the panel wrote. "The sort of monitoring and supervisory relationship that has supported vicarious liability in the past is completely absent in this case." The panel focused on the fact that Grokster and Gnutella are "more truly decentralized."


The appeals court also rejected the plaintiffs’ arguments that the defendants should be liable because they turned a blind eye to the infringement. The panel determined that "there is no separate ‘blind eye’ theory or element of vicarious liability that exists independently of the traditional elements of liability."

The opinion suggests the plaintiffs need to seek their remedy from Congress rather than the courts. "Indeed, the Supreme Court has admonished us to leave such matters to Congress," the panel wrote. For instance, there is a measure before Congress, the Inducing Infringement of Copyright Act of 2004 (S. 2560) or Induce Act, which would create a new cause of action against peer-to-peer software distributors.

The appeals court noted "resolution of these issues does not end the case" because the decision was limited to the specific software used at the time of the decision. The plaintiffs have also sought relief for infringement on previous versions of the defendants’ software which, in the words of the panel, "contain significant—and perhaps crucial—differences from the software at issue."

"I think [this is] a critically important decision because it rejects efforts by the plaintiffs to get the courts involved in designing technology," says Mark Lemley, a Stanford University law professor. "The right thing for copyright owners to do is to sue infringers, not to sue innovators."

Lemley, who represented Grokster in his role as of counsel with the San Francisco-based law firm Keker & Van Nest, is pleased the panel rejected the plaintiffs’ "blind eye" theory of vicarious copyright infringement. "It is flatly inconsistent with Supreme Court precedent," he says. "One could tell exactly the same story about Grokster and Sony—they provided a technology knowing that some unidentified people might use it illegally, but also knowing that it had significant legal uses.

"To say that the generalized knowledge that infringement is possible means you can’t sell a device would mean that no one could sell computers, photocopiers or DVD players, either. That has never been, and should never be, the law."

The landmark Sony Corp. of America v. Universal City Studios Inc., 464 U.S. 417 (1984), rejected copyright infringement claims filed against the manufacturer of videotape recorders because of their use in making unauthorized copies.

Lemley sees the ruling as a complete victory for his client.

Russell Frackman, a Los Angeles-based attorney who represented some of the plaintiffs, could not comment. But advocates for copyright-holders took a markedly different view of the decision than Lemley.

"The decision represents a significant departure from existing precedent and, as noted by the panel, conflicts with the 7th Circuit’s decision in the Aimster case [In re Aimster Copyright Litigation]," says Los Angeles-based attorney Ian Ballon, who wrote an amicus brief on behalf of the American Film Marketing Association in the Grokster case. "The decision represents a dramatic break with government precedent in the area of secondary copyright liability.

"As with its ruling on contributory infringement, the 9th Circuit’s analysis of vicarious liability artificially separates cause and effect, allowing potential infringers to avoid liability if they construct systems, even with knowledge that they will be used primarily for infringing purposes, that do not allow them the ability to monitor or control individual files ultimately exchanged by users," Ballon says.

Jessica Litman, law professor at Wayne State University in Detroit and the author of the book Digital Copyright, finds the 9th Circuit opinion to be "remarkably sensible."

"The 9th Circuit did a good job of identifying a solid middle ground between the extreme positions different interests have been advocating," Litman says. "I also was struck by the fact that the Grokster decision showed the same sensitivity to emerging technology that we see in the majority opinion in Sony.

"I assume that the decision will speed consideration of the Induce Act," she says. "I might worry about what answer Congress comes up with, but it is still clear that Congress is where the answer should come from. It is Congress’ job.

"The battle over online copyright infringement has taken on the characteristics of a religious war. I would hope that in the future we will see a détente."

©2004 ABA Journal

[Nightwing]

If something doesn't stop the piracy then we, as consumers, will end up paying astronomical prices for artists' work. I would not want to be the one to make the laws regaurding the internet. It just seems there are so many perspective to take into account.

[Cerek]

There is no doubt that Grokster and Gnutella have just managed to find a way to successfully circumvent the conditions on which Napster was nailed.

Then again, this is the 9th Circuit we're talking about here. We will just have to wait and see if this decision stands - or gets struck down by the other Circuit Courts as so many of the 9th Circuit decisions have been in the past.