Intellectual Property Rights

Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd.

545 U.S. 913 (2005)

Facts

Grokster and StreamCast distributed peer-to-peer file-sharing software.
Users employed the software to exchange files directly with one another without storing them on the defendants’ central servers.
A large proportion of shared files consisted of copyrighted songs and films.
The companies promoted their services to former users of Napster after Napster faced legal restrictions.
Their revenue depended upon advertising shown to users.
The more users and file-sharing activity the services attracted, the more advertising income the companies earned.
The defendants did not create the infringing files and their software was capable of some lawful uses.
Copyright owners sued for contributory and vicarious infringement.
The lower courts applied Sony Corp. v. Universal City Studios and held that distribution of a product capable of substantial lawful use could not create liability.
The copyright owners appealed.

Whether a software distributor can be liable when its product is capable of lawful use but is intentionally promoted for infringement.
Whether the Sony substantial-non-infringing-use rule prevents inducement liability.
What evidence demonstrates an unlawful intention to encourage infringement.

A person who distributes a device or service with the object of promoting its use for copyright infringement may be liable for resulting acts of infringement.
Intent may be shown by:
clear expressions encouraging infringement;
active steps designed to attract infringing users;
a business model dependent upon infringement;
other affirmative conduct.
Mere knowledge that a product can be misused is insufficient.
Failure to develop filtering measures alone does not create liability, but it may support an inference of intent when combined with other evidence.
The Sony rule protects the distribution of technology capable of substantial lawful use from liability based solely on its design or knowledge.
It does not immunise affirmative inducement.

Grokster and StreamCast did more than passively distribute neutral software.
Evidence showed that they targeted users who wanted a replacement for Napster.
Promotional communications encouraged access to popular copyrighted music.
The defendants’ economic model depended upon attracting very large numbers of users and increasing the volume of file sharing.
Because infringing content was a major attraction, increased infringement generated greater advertising revenue.
The companies made little meaningful effort to discourage infringement.
The Court did not hold that lack of filtering by itself proved liability.
However, combined with targeted marketing and commercial dependence upon infringement, it supported the conclusion that the companies intended unlawful use.
The lower courts had treated the existence of some lawful applications as a complete defence.
The Supreme Court explained that Sony addressed liability inferred merely from the distribution of a dual-use product.
It did not protect a distributor that actively encouraged customers to infringe.
Inducement liability therefore preserves technological innovation while holding accountable those who deliberately build a business around infringement.
The relevant inquiry focused on the defendants’ purpose and conduct, not simply the technical design of the software.

The Supreme Court unanimously held that the Sony rule did not bar inducement liability.
Evidence of affirmative steps to encourage infringement was sufficient for the case to proceed.
Summary judgment for Grokster and StreamCast was vacated.
Use this case for: a technology distributor is liable where it intentionally promotes infringement, even though the technology is also capable of lawful use.