Court Holds P2P Networks Liable

The Supreme Court ruled unanimously on Monday that peer-to-peer file-sharing networks could be held liable for inducing their users to commit copyright infringement—even if those same networks could be used to trade non-copyrighted material legally.

The decision overturned a Ninth Circuit Court of Appeals ruling in MGM v. Grokster, which found that software developers Grokster and StreamCast Networks met a standard of having “substantial non-infringing uses,” citing the precedent of a Sony Corp v. Universal City Studios decision about Betamax technology in the early 1980s.

The case will be sent down to a lower court for summary decision.

The opinion, written by Justice David H. Souter ’61, sided with MGM on the grounds that Grokster and StreamCast, the developers of Morpheus software, consciously knew that their software was primarily used to pirate copyrighted media and actively promoted such use.

“The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement,” Souter wrote in his opinion.

Souter’s opinion found evidence of intent to aid copyright infringement from both companies, following the collapse of popular file-sharing service Napster. Their revenue was dependent on their popularity among copyright infringers, he argued, and neither of them tried to develop a means by which copyrighted material could be filtered out.

Despite claims that the companies made users agree not to distribute copyrighted material, the opinion found that Grokster and StreamCast both were aware of and actively encouraged illegal file sharing by responding to user e-mail requests for help playing copyrighted movies.

An MGM statistician found that 90 percent of the files available on Grokster were copyrighted.

The Court stopped short of clarifying the Sony case further “to add a more quantified description of the point of balance between protection and commerce when liability rests solely on distribution with knowledge that unlawful use will occur,” the opinion stated.

Justices Ruth Bader Ginsburg and Stephen G. Breyer wrote concurring opinions. Breyer opposed further reevaluation of the Sony decision.

By adding to the Sony standard but leaving the arguments of original ruling largely intact, the court protected both copyright holders and the producers of materials, like recordable videocassettes, that could conceivably be used to violate copyrights.

“It’s sort of a Solomonic decision. The big players are all quite happy about it,” Executive Director of the Berkman Center for Internet and Society at Harvard Law School John G. Palfrey Jr. ’94 said.

Palfrey predicted that the decision will have limited impact on peer-to-peer networks or those networks’ users, but will affect how new technology is marketed, as companies will be sensitive not to suggest that their products can be used for copyright infringement.

The burden will likely fall heaviest on entrepreneurs and venture capitalists, Palfrey said.

“The entrepreneur and her prospective investor now have to ask some new questions. Does her business model effectively induce others to violate copyright?” he asked on his website. “What kinds of advertisements would get her in trouble? What are the ‘reasonable’ steps that she needs to take to stop people from using her technology for infringing uses?”

Venture capitalists will be less likely to invest in enterprises that are “on the line” between innovation and infringement, he said.

Further suits will likely follow to clarify the ambiguities in the opinion, according to Palfrey.

“This is the kind of thing that will be absolutely litigated time and again,” he said.

The decision precludes the need for congressional legislation against inducement to copyright infringement.

The Recording Industry Artists Association sued 11 Harvard students in April for violating copyright law, specifically mentioning i2hub, another file-sharing program.

—Staff writer Samuel C. Scott can be reached at sscott@fas.harvard.edu.