Grokster: Active Steps to Encourage Copyright Infringement Can Create Liability

Secondary liability for copyright infringement can arise from "active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use," according to the Supreme Court's decision today in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., No. 04-480 (U.S. Supreme Court, 6/27/05). In ruling against Grokster and StreamCast, the Grokster Court took care to draw a line between "legitimate commerce" and "innovation having a lawful promise" on the one hand, and active inducement of illegal conduct as shown by "purposeful, culpable expression and conduct" on the other hand.

The opinion attempts to give guidance to technology businesses as to how to avoid copyright liability. For example, the opinion states that mere knowledge of potential or actual infringing uses would not be enough to subject a distributor to liability. Similarly, offering technical support or product updates would not be enough to create liability. However, the Court found that there was sufficient evidence for a trial on whether Grokster and StreamCast had intended to promote the illegal uses of their technology by advertising to former Napster users, and by advising users how to find and use copyrighted content.

Sony "Substantial Noninfringing Uses" Test Clarified: The Court held that the Ninth Circuit erred in reading the "substantial noninfringing uses" test of Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984) too broadly. Sony involved imputing illegal intent when a technology is good for nothing else other than infringement, and decided the doctrine was inapplicable on the facts in Sony because the VCR technology had "substantial noninfringing uses". However, the Court held that the Sony rule does not limit liability when there is other evidence of intent to induce infringement.

Court Adopts Inducement Doctrine From Patent Law: The Court looked to patent law and adopted the inducement rule:

"For the same reasons that Sony took the staple-article doctrine of patent law as a model for its copyright safe harbor rule, the inducement rule, too, is a sensible one for copyright. We adopt it here, holding that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties."

Evidence of Intent to Induce Infringement: The Court held that there was sufficient evidence that both Grokster and StreamCast had intended to promote the use of their services to infringe copyright such that MGM could take its claims to trial. The Court noted that:

• Both services promoted themselves as the alternative to Napster as that service was about to be shut down due to copyright litigation;
• Grokster promoted itself on search engines by turning up in searches for Napster;
• Both companies responded affirmatively to requests for help in locating and playing copyrighted materials;
• Streamcast's internal emails show that it intended to capture Napster users. These messages were evidence that Streamcast intended to promote infringing uses.