Private: Supreme Court Takes Up File Sharing

by Patrick Shifley, Editor-at-Large
The fate of Peer to Peer file sharing will be determined on March 29th, when the Supreme Court hears the case of MGM v. Grokster. The Court will determine whether the writers of file sharing software are responsible for the possibly illegal acts of their clients. The Court has the opportunity to reconsider its own decision in the seminal copyright case Sony-Betamax, and to determine the limits of the right and ability of manufacturers to regulate consumers.
The case is a second appeal, the first denied by the 9th Circuit, from a summary judgment by the District Court for Central California. That court ruled that Grokster and StreamCast, operators of two file sharing networks, were not liable under vicarious or contributory infringement theories. The much debated appeal, granted certiorari by the Supreme Court on 12/10/04, has garnered a great deal of interest on the Internet and among copy-right holders. Over 50 amicus briefs have been filed with the Court, from parties as diverse as the Kids First Coalition, Intel, and a group of 60 law professors.
The controlling case, Sony-Betamax, has served for 20 years as the seminal case on products capable of being used to infringe copyright. The Supreme Court then determined that the production of Betamax VTRs (VCRs) by Sony did not create liability for the infringing behavior of their purchasers. The decision, against which then Associate-Justice Rehnquist joined in the dissent, ruled that as long as there existed "substantial non-infringing use[s]" the creation of VCRs did not create liability.

Since the Sony-Betamax decision the courts have followed two different understandings of substantial non-infringing use. The 9th Circuit has followed an interpretation which requires the product only be "capable of substantial non-infringing use." In contrast the 7th Circuit has included as a factor the probability of non-infringing use.
The Supreme Court must determine which of these two analyses is correct, and help lower courts decide on a definition of "substantial". The 9th Circuit's decision in Grokster came after impassioned argument on both sides that proposed differing standards for "substantial." MGM's attorney argued that the 90% identifiably infringing files shared on defendant's software left a non-substantial remainder. Grokster's attorney argued that even a the smallest non-infringing use is enough to create substantial use.
The Sony-Betamax decision affirmed protection of VTR's where only 7% was non-infringing use, but Rehnquist and the other justices could re-establish the standards with a lower threshold. The Court could adopt a strict percentage requirement, or simply declare the non-infringing uses in the instant case insufficient. The Court could also affirm the capability standard of the 9th Circuit. This portion of their decision will have far reaching effects as the "substantial" test was originally derived from the rules of patent law; any change in that test would change the established rules of patent law.
It is also worth noting that the Court could completely over-turn the decision of Sony-Betamax. Should they do so however, they would have to establish a new standard that considered the role of copying equipment in modern society. A standard giving liability to product manufacturers would fundamentally change technological innovation. The manufacturers of photocopiers, VCR's, DVR's, and CD players would all have to change their business model to account for their new liability.
Finally the Supreme Court could rule that the substantial test only applies to commercial hardware. Software like the defendant's products could be given a separate and novel standard. Software was only recently given the full protection of patentability, and it may be that the Court feels that a reduced standard is merited.
The second issue, on the limits of the right and ability to control, will require the Court to consider the specific facts of this case. Grokster and Streamcast have taken steps to make themselves different from previous file-sharing software programs courts have named liable. Napster, perhaps the original file sharing software, created liability for its operators because it hosted a centralized, indexed system of files. Grokster and Streamcast, have no such central system. Specifically designed to be independent, their systems operate in the computers of users, removing some of their ability to control. In addition, existing systems lack a registration requirement that would give them the ability to restrict usage on a person to person basis. Such a requirement did exist in past versions of the software, but was removed.
The 9th Circuit found Napster liable, but not Grokster because of these differences in software. That court compared the difference between the two programs to that of an operator and a landlord. While the operator may be liable for infringing behavior because of his authority to exclude, the landlord is not. Napster had made itself an operator by offering a centralized index, where Grokster had not. It is worth noting that the same analogies were used by the Court in Sony-Betamax as the 9th Circuit used in its decision on MGM v. Grokster.
MGM's position is that Grokster still retains significant contacts to provide control. Grokster, as MGM points out, licenses persons to use its software. The Sony Betamax VTR was offered for sale as a product, not as a licensed software application. In addition the software in question automatically displays advertising controlled by Grokster upon start up. It is the position of MGM that such connections between the software and Grokster create the right and ability to control.
It is difficult to predict the Supreme Court's decision on these two issues. Each will have consequences on commerce and ingenuity far beyond the limits of file-sharing. The particulars of the Court's ruling could limit or broaden those consequences, but those consequences will be something experienced by the next generation of technology.