MGM v. Grokster Rundown

The Supremes heard oral arguments in the MGM v. Grokster case today. Copyfight, Slate, and NPR's Nina Totenberg all have recaps of the argument. None of them are willing to say who they think will prevail. But, I think it's safe to say that the Supremes will hold in favor of MGM for the reasons outlined below.

First, a little history lesson:

1. Sony Betamax
In 1984 the Supremes decided the famous Sony Betamax case (Justice Stevens writing the 5-4 opinion), in which it held that Sony was not contributorily or vicariously liable for the infringement of users of the Betamax.

In order to show contributory infringement, the plaintiff must show that 1) a 3rd party directly infringed its copyrights, 2) the defendant had actual or constructive knowledge of the infringement, and 3) the defendant materially participated in the infringement.

For vicarious liability the plaintiff must show 1) a 3rd party directly infringed its copyrights, 2) the defendant had the right and ability to control or supervise the infringing activity, and 3) the defendant had a direct financial benefit because of the infringement.

Sony won the case for two reasons (that are pertinent to the pending Grokster case): First, Sony had no continuing relationship with purchasers of VCRs, and therefore no control. This means there could be no vicarious infringement. Second, for contributory infringement the Court first looked to patent law to find an analogous contributory infringement test and then held that if the defendant does not have actual knowledge, but only has constructive knowledge, a defendant whose technology had substantial noninfringing uses would not be contributorily liable. Here Sony had only constructive knowledge of infringement since it did not have a continuing relationship with VCR purchasers. Sony also had two kinds of noninfringing uses on its side: 1) fair use recording for "time shifting" (later viewing) and 2) authorized use (bolstered by the testimony of Fred Rogers conveying his hopes that parents would tape his show so that their children could watch it when they got home from preschool).

2. Napster
Fast forward to 2001 when the 9th Circuit ruled on the A&M Records v. Napster case. Napster had tried to argue that its users were not direct infringers. That is, "space shifting" (accessing music they already owned on someone else's computer) was the same as time shifting, and free trial use prior to purchasing were both fair uses. Needless to say, the court rightly saw this as complete poppycock. Where Napster failed is in not presenting evidence of such fair use as sharing public domain works, or authorized sharing ala Mr. Rogers. (Just ask Crapartist or myself of our countless hours of entertainment trying to convince poor saps all over the world that "Char is very popular in America"). But, as it turns out, it didn't matter if Napster had substantial noninfringing uses or not.

The 9th Circuit surprised some because it did not apply the Sony Betamax case at all. The reason: Betamax only applies if there is no actual knowledge of infringement. Here, Napster had actual knowledge (because it kept lists of songs on its servers), so it didn't matter if there were substantial noninfringing uses. Napster was found to materially participate in infringement because it had the ability to remove infringing material from its servers, and yet never did.

Napster was also vicariously liable because it had both the requisite control (ability to remove the material) and would directly financially benefit from the infringement. This part always bothered me because up to this point, Napster was free. But, because it was in its business plan to eventually make money, that was good enough for the court.

3. Grokster
In 2004, the 9th Circuit got to revisit P2P file sharing with the MGM v. Grokster case. Grokster, and the other post-Napster P2P programs are different from Napster in an important technological and legal aspect: because there is no central index on Grokster's server, Grokster has no actual knowledge of infringement nor control over its users. Here's the rundown of the 9th Circuit's ruling:

1) Contributory infringement: the court tied knowledge to the timing of material contribution. Here knowledge became irrelevant because it did not occur at a time that Grokster could do anything about it.

Even if the court had decided there was constructive knowledge, Grokster had two advantages over Napster: First it presented evidence of substantial noninfringing uses (fair use and authorized use). Second, it had evidence that there were other benefits to reduced centralized control, and it didn't choose its architecture solely to get around the Napster decision. For example, if one part of the system shuts down, the rest still runs. Also, it's cheaper because Grokster doesn't require a huge server.

Grokster also did not materially contribute to the infringement inasmuch as it did not provide the site and server for its users. (The weakness in this reasoning is that nonetheless but for Grokster, there would be no infringement).

2) Vicarious infringement: there is no right and ability to supervise Grokster users making it distinguishable from Napster. The court found that Grokster did not have a continuing relationship with its users.

(The weakness in this argument being that Grokster does indeed have some relationship with users by way of being able to send them advertisements. This is how it makes money. Thus if the Supremes find that this constitutes a continuing relationship, the direct financial benefit prong will also be met.)

3) Redressability: courts generally do not like to decide cases if finding in favor of the plaintiff will not do any good. In the case of Grokster, finding them liable does not necessarily mean that current users will no longer be able to use the program.

The Supremes likely decision: MGM wins.

Why? For a number of reasons both legal and political.

1. The Supremes almost always reverse 9th Circuit opinions. This is especially true of 9th Circuit Intellectual Property opinions.

2. Betamax was a narrow 5-4 decision. It was almost certain to be 5-4 in the other direction, and then O'Connor changed her mind at the last minute.

But, Betamax was also in a completely different era: it was before the digital revolution. These days the content industry has everyone in a tizzy about digital piracy. Let's not forget the DMCA was passed even before Napster was around.

Let's also not forget who wrote the opinion for Eldred v. Ashcroft (that's the Sonny Bono Copyright Extension Act case): Justice Ginsburg. The content industry even has her in their grips. (This despite the fact that her daughter, Jane Ginsburg, is a prominent intellectual property attorney--and c0-authored my Trademark casebook with Copyfighter Jessica Litman).

3. Today, at oral argument, when Scalia was questioning the attorney for Grokster he outright stated that the decision would not be made on the basis of stare decisis. That is, he has no intention of following Betamax.

Where Scalia goes, Rehnquist and Thomas will follow. If they don't apply Betamax, then what becomes important is what kind of knowledge did Grokster have and when did they have it?

It's unlikely that the Supremes will tie knowledge to the time of direct infringement as did the 9th Circuit. Rather, they may focus on Grokster's knowledge that its program would be used primarily for infringement (and use its business plan as evidence of its intent). If so, it follows that the Court will find Grokster materially contributed to infringement using a but-for test.

True, Breyer seemed very concerned that inventions such as the photocopier, iPod, or printing press might fail under MGM's proposed test that requires a business to show it is substantially unrelated to copyright infringement. Stevens, as author of Betamax is likely to agree. However, the Court doesn't need to use MGM's proffered test when it can find contributory infringement merely by holding that Grokster had constructive knowledge. Let's face it: the photocopier, iPod, and printing press are not used primarily for infringement, nor would someone inventing them now have reason to believe they would be. Even if Grokster's knowledge was constructive, the Court can skirt around Betamax by holding that since 90% of its uses are infringing, the legitmate noninfringing uses are not substantial--or it can go Scalia's way, and not use Betamax at all.

4. The question remains, what will Ginsburg, Kennedy, and O'Connor do? Perhaps Ginsburg's daughter can talk some sense back into her. But, O'Connor was such a waffler on the Betamax case it wouldn't be surprising if she went the other way this time. I'm unsure about Mr. Kennedy. I guess we'll all find out soon enough.