P2P Protocols and the New Inducement Rule

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

Grokster and Streamcast are responsible for peer-to-peer software packages such as Morpheus. Neither company relies on a central server, or takes an active role in indexing copyrighted or non-copyrighted works, but both companies sell advertising space in their software, and both companies' business models rely on copyrighted works being available. There is plenty of evidence described in this case to show that the companies knew about, and to a large degree encouraged, copyright infringement over their networks. The question in this case is whether these two companies can be held liable for the infringement committed by the users of its software.

Sony Corp. v. Universal City Studios held that because the VCR was capable of "commercially significant noninfringing uses ... the manufacturer could not be faulted solely on the basis of its distribution." In this case there are two theories of copyright infringement that MGM claims apply: (1) "contributory" infringement occurs by "intentionally inducing or encouraging direct infringement" and (2) "vicarious" infringement occurs "by profiting from direct infringement while declining to exercise a right to stop or limit it" (notice, 2 requires "declining to exercise a right to stop or limit" infringement, as opposed to an affirmative duty). Here the majority holds that the Sony decision was only applicable in light of an argument for "imputed intent," thus leaving the two theories of liability described above, open for application despite "commercially significant noninfringing uses." In this case the Sony decision is not overturned or reconsidered, but expressly limited to the "imputed intent" theory. Furthermore, this rule does not prevent imputed intent from coming from other evidence, it simply states that an article's ability to be used to infringe upon copyright is not sufficient to demonstrate imputed intent.

So, here it is: "Thus, where evidence goes beyond a product’s characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony’s staple-article rule will not preclude liability." This specifically addresses infringement by "inducement," something that the Court adopts in this decision. Inducement requires (1) affirmative intent that the product be used to infringe, and (2) that infringement was encouraged. The Court explicitly states however that neither "mere knowlege of infringing potential," nor "ordinary acts incident to product distribution" would be sufficient to demonstrate inducement.

Justices Ginsburg, Rehnquist, and Kennedy concurred, indicating that they would overturn the decision because there was a question of material fact remaining, and the lower court should not have granted summary judgment (summary judgment cannot be granted where there is a question of material fact). This opinion goes on to say that the evidence of noninfringing uses of these software packages was not enough to grant summary judgment because the evidence did not establish a "substantial" noninfringing use.

Justices Breyer, Stevens, and O'Connor, in a concurring opinion, argues that an article need only be capable of commercially significant noninfringing uses for the Sony question to be resolved, and that, as opposed to the conclusion directly above, this case does present enough evidence to satisfy that standard. Justice Breyer then weighs the pros and cons of overturning Sony and concludes (for the most part) in favor of maintaining Sony's standard.