The Legality of File Sharing - MGM vs Grokster

Introduction

Whether we believe it is right or not, many of us have become accustomed to the fact that a large number people download copyrighted material regularly using Peer-to-Peer file-sharing software. As a result, the entertainment industry is losing billions of dollars in revenue, and is suffering from the infringements of many copyrights. Who should be held responsible for this? Is it the fault of the people who misuse the software, or is it perhaps the fault of the software distributors for allowing this to take place? The recent case of MGM Studios, Inc. v. Grokster, Ltd examined these issues.

The Parties Involved

Grokster and other P2P software providers: All distribute free software that allows computer users to share electronic files (including digitised music and motion pictures) through P2P networks. This software allows transfer of any digital file, but has been mostly used by customers to share copyrighted files (e.g. music and video).

MGM and other entertainment companies (24 in total): A collection of song-writers, music publishers and motion picture studios who “own or control the vast majority of copyrighted motion pictures and sound recordings in the United States” (their own description). They sought damages and an injunction against respondents (Grokster) for copyright infringement. MGM accused Grokster of distributing software which enabled users to breach copyright restrictions. They insisted that around 90% of data transferred using P2P software was copyrighted, costing them millions of dollars in lost revenues. They also argued that this type of copyright infringement would not occur if Grokster and similar software distributors did not make it possible.

The Issues at Stake

Peer-to-Peer (P2P) File Sharing: Information in Grokster’s peer-to-peer distribution network does not exist in one place (there is no central server holding all the information), rather, every computer in the network holds information available to all other users in the network. Put another way, in a peer-to-peer network each computer is both a server and client. Members need only to download the relevant software, free of charge, and they may participate in this network to exchange files, which are more often than not copyrighted.

• The owners of copyrights believe that the software distributors are liable for copyright infringement of the software users: By providing P2P file-sharing software, MGM believe Grokster should be liable for the actions of the individuals who misuse it.
• A major debate rages over the issue that copyrights, no matter how numerous, do not give the holders a veto over certain advancements in technology.
• The copyright owners rely on the two recognised theories of secondary copyright liability: contributory copyright infringement and explicit copyright infringement. In order for Grokster to be held liable for contributory copyright infringement, it must be proven that direct infringement of copyrights took place by a primary party, that Grokster had full knowledge of the infringements and that they also provided a material contribution to this infringement. For Grokster to be held liable for vicarious (explicit) copyright infringement there must have been direct copyright infringement by a primary party, a direct financial benefit to the defendant (Grokster) and the right and ability of Grokster to supervise those responsible for the infringements.
• Precedent: The Betamax Case (Universal City Studios, Inc. et al. v. Sony Corporation of America Inc. et al. 1979) In this case it was held that video-recorders should not be banned, even though there is a chance they might be misused by the owner. This technology has substantial non-infringing uses, and so an outright ban could not be justified. Betamax technology was developed with the aim of allowing users to record television that they would have otherwise missed: thus, it’s intended and advertised use was not as an infringer of copyrights.

Possible Implications of MGM Succeeding With Their Case

Billions of files are shared across P2P networks each month - a large proportion of which are illegal. If Grokster was made responsible for their actions, the amount of files transferred would be expected to reduce significantly as tighter regulations are enforced.

• If MGM won, the owners of file-sharing software would be held responsible for copyright infringements of the software users.
• Even though MGM was attacking a certain type of software, many other technologies could be affected if MGM is successful, such as MP3 players, CD burners, external hard-disks, and so on… This would have brought drastic changes to the leisure (and working) time of many individuals.
• A precedent would be set against which similar cases in the future could be examined.
• This is not a new problem, it has been going on for years between the Entertainment Industry and technology which allows copyrighted material to be duplicated.
• The ultimate problem is a trade-off between intellectual property rights and technological innovations.

Conclusion

Both the District Court of California and the Ninth Circuit Court of Appeals ruled in favour of Grokster, much to MGM’s immense disappointment. It was held in both courts that Grokster escaped liability for a number of reasons:

• Grokster did not have constructive, adequate knowledge of the infringements.
• The software distributed by Grokster was capable of substantial non-infringing uses.
• There was no central server, thus Grokster could only obtain information of the infringement after it had already happened (i.e. they could not block or prevent copyright infringement because they were not able to directly supervise file transfers).
• Grokster could not be found responsible for materially contributing to any copyright infringement.
• Grokster did not directly earn money from this software, as it is free for people to download. Instead, they earned money through advertisements on their website.
• Grokster was unable to change the software to control user access due to the fact that the software resided on the users’ computers and not on a centralised server.

However, in the United States Supreme Court, the ruling of the appeal favoured MGM. The unanimous ruling was 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.” Under these conditions, P2P file-sharing companies could now be sued for copyright infringements. This case has been dubbed by many as the most important intellectual property case in decades.

Due to the extent of disagreement which arose as to whether Grokster is protected under the Sony Betamax case, a new test has been developed to determine whether the software in question is protected by the ruling in the Betamax case. The test assesses whether or not the distributors of the software have promoted it as a means of copyright infringement. If such intentions were found, then the ruling of the Betamax case could not be used as precedent.

Conclusion

As long as new innovations do not affect existing copyrights, then this ruling should not affect them. It is seen by the Supreme Court as a fair balance between the benefits gained by allowing and promoting technological innovation and the need to respect the intellectual property rights of artists. However, critics do not quite view it in the same light: they are sceptical that the test will work in their favour due to it’s inherent ambiguity.

There are major concerns, however, that despite the good intentions of the court to strike a fair balance between innovation and copyrights, many investors may be put off. If there is a slight chance that a potential project is at risk from this ruling, then ideas are likely to go no further than the drawing board. This could have huge significance, especially regarding the creation of new digital technologies: Any threat of liability, and the idea dies

Many argue that file-sharing is not the problem which needs to be addressed here, it is the issue of the individuals that abuse it. On the other hand, trying to hold millions of downloaders responsible for their (numerous) actions would be logistically impossible, and so a more preventative approach has instead been used.