TCS Daily

Retirement Gift?

By Michael Rosen - July 7, 2005 12:00 AM

At first blush, the Supreme Court's unanimous opinion in the much-anticipated MGM v. Grokster case appeared to be cause for a collective sigh of relief. Given the controversy and unevenness that has attended every significant Supreme Court decision this term, it was comforting to see a 9-0 opinion in a hotly disputed case.

The decision also seemed to offer something for everyone (except, of course, for Grokster and StreamCast, the specific defendants who lost): the entertainment industry earned a resounding vindication of their intellectual property rights while the file-sharing companies could take comfort that their technology was not incurably illicit. The landmark 1984 Sony v. Universal case, which forged a pragmatic balance between the rights of producers and consumers of creative content, went undisturbed.

Kudos all around, then?

Well, not quite so fast. The 9-0 decision masked fundamental disagreements, expressed in two concurring opinions, about the application of the holding in Sony to the treacherous realm of file-sharing. In many respects, then, Grokster was an elegant dodge of issues that are now all but guaranteed to resurface before the Court in the coming years -- a Court that, we now know, will be without Justice Sandra Day O'Connor and her support for one particular interpretation of Sony.

The Grokster facts are widely known: the defendants were distributors of software allowing users to share files -- including copyrighted media such as music, movies, or software -- across a network without the distributors' direct intervention. The defendants argued that they neither contributed to copyright infringement by distributing their software nor induced such infringement through their acts or omissions.

Specifically, the defendants relied on another landmark copyright-and-technology ruling, Sony v. Universal (1984). There, the high court ruled in favor of Sony's Betamax video cassette recorder which permitted users to record and replicate copyrighted television programs or motion pictures. The Supremes found that the VCR had a "substantial noninfringing use", namely the ability of users to "time-shift", or tape shows or movies and view them at a convenient time (any current subscriber to TiVo or its competitors knows exactly how significant a use this is).

Here, the defendants argued that the file-sharing software also enjoys a substantial non-infringing application: the sharing of non-copyrighted works like Shakespeare plays, the Declaration of Independence, or old recordings whose copyrights have lapsed. For their part, the plaintiffs, a consortium of movie and recording studios, artists, and other media providers, contended that by the defendants' own admission, some 90% of the files that changed hands over their software was copyrighted (and therefore illegally reproduced). Furthermore, various actions taken by the defendants -- such as actively seeking to capitalize on Napster's reputation for illegally distributing copyrighted works -- indicated not only their knowledge of but their connivance in millions of acts of infringement.

In this case, the Supreme Court sided with the plaintiffs, enlisting a concept from patent law to determine that the defendants induced copyright infringement, and lots of it (the Court called the scope of infringement "staggering" and "gigantic"). Liability for the defendants hinged on this inducement theory, namely that "affirmative steps taken to foster infringement" place a distributor on the hook for "resulting acts of infringement by third parties."

This was therefore a fairly easy case: there was ample evidence of defendant's affirmative encouragement of infringement. But what about when the facts are less clear?

For instance, it seems evident from the decision that if a file-sharing company takes action to prevent copying and distribution of protected works, it can escape liability. But what kind of action should it take? Is it enough, as some services do, to post a disclaimer or warning against unauthorized copying on its website? What if the company simply does nothing: it neither fosters nor hampers infringement?

Another set of questions arise, too: How is a "substantial" non-infringing use defined? By absolute numbers of legitimate downloads or by percentage? Is there a magic figure or fraction of non-infringing uses that will insulate a file-sharing service from liability?

The majority opinion skated around these tough questions because answering them wasn't necessary for the outcome of the case. But the two concurring opinions addressed them to some extent.

Justice Ginsburg authored the first concurrence, in which Chief Justice Rehnquist and Justice Kennedy joined. In her opinion, "[e]ven if the absolute number of noninfringing files copied using the . . . software is large, it does not follow that the products are therefore put to substantial noninfringing uses" because this number could be "dwarfed by" the volume of illegitimate files. Thus, Justice Ginsburg essentially restricted the definition of "substantial noninfringing use" to a significant -- although undefined -- percentage of uses.

This concurrence observed that in Sony it was undisputed that the majority of Betamax users purchased the machine in order to "time-shift" their favorite programs and that the plaintiffs owned a mere 10% of the illegally copied works. Here, the reverse held: the plaintiffs owned at least 70-75% of the material that was shared on the networks while only 10% of available files were not copyrighted. This percentage did not cut the mustard for Justices Ginsburg, Rehnquist, and Kennedy.

These justices, in short, sought to restore the status quo that existed before the onset of speedy, perfect digital reproduction technology. In some sense, by bolstering the rights of content creators, Justice Ginsburg's concurrence seeks to forestall an escalating arms race between file-sharers and hackers, on the one hand, and the purveyors of content-protecting measures on the other -- technological defenses that, like SDMI and CSS, are penetrated as quickly as they are erected. In many respects, then, the Ginsburg-Rehnquist-Kennedy approach sees a future replete with infringement that overwhelms the benefits of file-sharing.

By contrast, Justice Breyer's concurrence, joined by Justices O'Connor and Stevens, focused on whether the technology in question is capable of significant legitimate use. These justices believed that 10% qualifies as substantial and that, absent the gross inducement, the Grokster defendants would not have been liable. For these concurring justices, Sony "provided entrepreneurs with needed assurance that they will be shielded from copyright liability as they bring valuable new technologies to market."

This opinion opens the door for file-sharing services to hawk their wares -- so long as they don't explicitly exhort users to commit copyright infringement. Justice Breyer's approach is forward-looking: "As more and more uncopyrighted information is stored in swappable form, it seems a likely inference that lawful peer-to-peer sharing will become increasingly prevalent." Free media, shareware, and scientific research, will supplant the protected content currently traversing these networks. Unlike Justice Ginsburg, Breyer even embraced "technological devices" that could curb infringement, alongside lawful downloading services like Walmart's. Justices Breyer, O'Connor, and Stevens may well be right about the destination, but many protected works will undergo unauthorized distribution -- and many creators will suffer lost profits and incentives -- during the journey.

These two concurrences line up with the various jurists' historical approaches. Justice Stevens wrote the original Sony opinion in 1984 in which Justice O'Connor joined -- and to which Justice Rehnquist dissented. Unsurprisingly, the first two justices found themselves on the opposite side of the third in Grokster. And of the three -- the only justices who were on the high court when Sony was decided -- Justice O'Connor has already announced her retirement and the denouements of Justices Stevens (age 85), Rehnquist (age 80), and even Ginsburg (age 72) could follow shortly thereafter.

In particular, Justice O'Connor's absence from the Court will likely impact future file-sharing cases. Her successor will probably have to choose between the Breyer and Ginsburg approaches to applying Sony. Will the newest Supreme opt for restorative protection of content producers, at the expense of new media, or a futuristic faith in an emerging technological edifice, built on the backs of creators (as O'Connor herself favored)? Along with the other three justices -- Souter, Scalia, and Thomas -- who joined neither concurrence, the new justice will represent a new swing vote on this contentious subject.

Justice O'Connor's retirement portends a furious confirmation battle and may well alter the Court's course on a wide range of issues. Stay tuned to see if the file-sharing controversy is one of them.

Michael M. Rosen, a TCS contributing writer, practices intellectual property law in San Diego.


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