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

Facts

Grokster, Ltd., (D) and StreamCast Networks, Inc. (D) distribute free software products that allow computer users to share electronic files through peer-to-peer networks, so called because users' computers communicate directly with each other, not through central servers. Since copies of a file (particularly a popular one) are available on many users' computers, file requests and retrievals may be faster than on other types of networks. Peer-to-peer networks are employed to store and distribute electronic files by universities, government agencies, corporations, and libraries, among others. Ds have prominently employed these networks in sharing copyrighted music and video files without authorization. A group of copyright holders (P) sued Ds for their users' copyright infringements, alleging that they knowingly and intentionally distributed their software to enable users to reproduce and distribute the copyrighted works in violation of the Copyright Act, 17 U.S.C. § 101 et seq. (2000 ed. and Supp. II). Ps sought damages and an injunction. Ds' software allows an installed user to simply send a request to a supernode which in turn searches for the file and discloses a download location. The requesting user can download the file directly from the computer located. The copied file is placed in a designated sharing folder on the requesting user's computer, where it is available for other users to download in turn, along with any other file in that folder. Another version of the program works without supernodes and simply allows a search of all the computers connected with the software with search results being communicated back to the requester. There is no central point of communication between the computers. Ds do not know when particular files are copied. But a few simple searches would reveal what is available for download. The vast majority of files (90%) available for download were copyrighted works. P's evidence gives reason to think that the vast majority of users' downloads are acts of infringement and because well over 100 million copies of the software in question are known to have been downloaded, and billions of files are shared across the networks each month, the probable scope of copyright infringement is staggering. Ds are aware that users employ their software primarily to download copyrighted files. Users have sent emails to each company with questions about playing copyrighted movies they had downloaded, to whom the companies have responded with guidance. P also notified Ds of 8 million copyrighted files that could be obtained using their software. Ds both voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement. StreamCast (D) also gave away a software program called OpenNap designed as compatible with the Napster program and open to Napster users for downloading files from other Napster and OpenNap users' computers. Evidence shows it was always D's intent to use the OpenNap network to be able to capture email addresses so that it could promote its new Morpheus interface to them, OpenNap program was engineered ''to leverage Napster's 50 million user base.' StreamCast monitored both the number of users downloading its OpenNap program and the number of music files they downloaded. It also used the resulting OpenNap network to distribute copies of the Morpheus software and to encourage users to adopt it. StreamCast hoped to attract large numbers of former Napster users if that company was shut down by court order or otherwise, and that StreamCast planned to be the next Napster. StreamCast bragged to advertisers about its potential to capture former Napster users. Streamcast sold itself to the public as the best Napster alternative. Grokster (D) launched its own OpenNap system called Swaptor and inserted digital codes into its Web site so that computer users using Web search engines to look for 'Napster' or 'free file sharing' would be directed to the Grokster Web site, where they could download the Grokster software. StreamCast's executives monitored the number of songs by certain commercial artists available on their networks, and an internal communication indicates they aimed to have a larger number of copyrighted songs available on their networks than other file-sharing networks. Grokster sent users a newsletter promoting its ability to provide particular, popular copyrighted materials. Ds receive no revenue from users, who obtain the software itself for nothing. Ds generate income by selling advertising space, and they stream the advertising to users while they are employing the programs. Evidence shows that substantive volume is a function of free access to copyrighted work. Ds made no effort to filter copyrighted material from users' downloads or otherwise impede the sharing of copyrighted files. Although Grokster appears to have sent emails warning users about infringing content when it received threatening notice from the copyright holders, it never blocked anyone from continuing to use its software to share copyrighted files. StreamCast rejected another company's offer of help to monitor infringement and blocked the Internet Protocol addresses of entities it believed were trying to engage in such monitoring on its networks. The parties on each side of the case cross-moved for summary judgment. The District Court held that those who used the Grokster and Morpheus software to download copyrighted media files directly infringed P's copyrights, a conclusion not contested on appeal, but the court nonetheless granted summary judgment in favor of Ds as to any liability arising from distribution of the then-current versions of their software. Distributing that software gave rise to no liability in the court's view because its use did not provide the distributors with actual knowledge of specific acts of infringement. The Court of Appeals affirmed. A defendant is liable as a contributory infringer when it had knowledge of direct infringement and materially contributed to the infringement. It read Sony as holding that distribution of a commercial product capable of substantial noninfringing uses could not give rise to contributory liability for infringement unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge. Since the software was capable of substantial noninfringing uses Ds were not liable, because they had no such actual knowledge. It was the users themselves who searched for, retrieved, and stored the infringing files, with no involvement by the Ds beyond providing the software in the first place. Ds were not liable for vicarious infringement as they did not monitor or control the use of the software, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement. The Supreme Court granted certiorari.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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