United States: Grokking Grokster: Staying Out of Court and in Business in the Wake of the Supreme Court’s Decision

On June 27, 2005, the U.S. Supreme Court decided a case that gives new legal weapons to owners of works protected by copyright and makes it more difficult than ever for innovative technology companies to avoid costly litigation and potential damages. In MGM v. Grokster, the Court expanded the circumstances under which the provider of any product or service "capable of both lawful and unlawful use" may be indirectly liable for copyright infringement by third parties using the product or service. Under Grokster, liability for the infringement will attach when it is shown to a Court’s satisfaction that the product was distributed "with the object of promoting its use to infringe copyright." Because the criteria for making such a showing are broad and open-ended, it is impossible to predict what products or services could be the targets of new lawsuits under the Supreme Court’s new standard.

A common misconception about the Grokster case is that, because it involved defendants who make P2P software, it is somehow limited to that context. But the Court’s decision was not so narrow. Any product or service that enables users to engage in copyright infringement would qualify—from copy machines to computers to search engines to portable digital audio players and beyond—assuming the plaintiff is able to show, by direct or indirect evidence, that the defendant intended users to engage in copyright infringement and encouraged them to do so.

The good news is the Supreme Court confirmed the existing legal standard reflected in the 1984 Sony ‘Betamax’ case, that indirect liability should not attach simply because someone distributes a product that is capable of being used for copyright infringement.* This decision makes it clear that even if liability would not otherwise attach, it still may if intent that users will infringe, and/or encouragement of infringement by users, is shown. Thus, the belief that any substantially noninfringing use of a product or service would serve as an absolute bar and complete shield against liability has been dispelled. Unfortunately, the Court provided no bright line test for what will henceforth demonstrate culpable intent or active inducement of user infringement.

This article accordingly highlights the evidence underpinning the Court’s conclusions. By examining this evidence and encouraging businesses and developers to consider what analogies might be made to their own activities, we hope to shed light on the kind of internal and external communications, marketing strategies, as well as business models and processes, that can open the door to indirect liability claims under the Grokster decision. While it is important to understand and avoid repeating the kind of actions that led the Court to say of the Grokster defendants, "[t]he unlawful objective is unmistakable," it is equally important to note the steps those parties did not, but could have, taken that might have altered the outcome. The "Don’ts" and "Dos" that follow thus attack the problem on both fronts.

The following evidence in the Grokster case influenced the Court’s reasoning:

• The prominence of infringing acts by users, and the impracticality of pursuing actions against the direct infringers. The Court noted that users had "prominently" put defendants’ products to infringing use of probably "staggering" proportion, and emphasized the potential impossibility of effective copyright enforcement against the direct infringers. Efforts to limit or deter infringement and facilitate direct claims against infringers should help defray these concerns.

• The difficulty of controlling user access to copyrighted material and user behavior. Under Grokster, the adverse consequences of these sorts of design decisions can be borne by the product maker or service provider. By implication, the more a developer takes affirmative, effective steps to control these factors, the less likely he or she will be subjected to indirect liability.

• Pursuit of an infringing customer base and comparisons to legally questionable products. Internal StreamCast documents and materials provided to potential advertisers showed that the company hoped to "capture" Napster’s customers, who would need to find an alternative product when Napster ceased operations. Promotional materials compared StreamCast to Napster and described it as the best alternative. StreamCast and Grokster both fostered a Napster-alternative network where they advertised and made their products available in hope of interesting Napster users. Grokster did search-engine optimization that resulted in hits from searches for "Napster" and "free filesharing." The name "Grokster" uses a "-ster" suffix which the Court found users could be expected to associate with Napster. The lesson of these evidentiary items is to target a broad universe of users, and avoid marketing activities that could be construed as appealing to customers who are particularly interested in copyright infringement.

• Protecting and promoting the infringing uses to which the product may be susceptible. Internal communications focused on how StreamCast could make more unlicensed copyrighted material available to users. Built-in search functionality let users focus on unlicensed copyrighted material like "Top 40 Songs." An external Grokster newsletter touted the availability of particular unlicensed copyrighted materials on its network. And, when the companies were asked by users for "help in locating and playing copyrighted materials," both defendants "responded affirmatively" to such requests—rather than ignoring them or, better yet, attempting to discourage users whose expressed goals were to engage in infringement. Accordingly, internal and external communications should not highlight or encourage the product’s potentially infringing uses. Users who ask for help with infringing activities should certainly not be given that help, and preferably should be reminded about the need to comply with copyright laws.

• Failure to proactively warn users not to engage in copyright infringement, and to filter or monitor user activity. If a product or service is capable of any infringing use, under the Grokster case indirect liability may attach if user warnings about copyright violations are given only in reaction to the complaints of rightsholders, or if the maker of the product or provider of the service declines to filter or monitor user activity or otherwise take steps designed to limit user infringement. Thus, preemptive warnings about, and active filtering, monitoring, and control (as much as may be possible or practical) of, infringements by users will help reduce the risk of indirect liability.

• Adopting a business model about which a court might conclude the "principal object" is user copyright infringement. In Grokster, the Court also found that in offering a free, ad-supported software product which was dependent on securing a large user base in order to justify increasing charges to advertisers, the defendants’ business models relied on user infringement for their economic success. The Court found that "Grokster and StreamCast translated that demand [for unlicensed copyrighted works] into dollars." A product that is not free and does not depend economically on user volume and ad revenues might thus stand a better chance of avoiding indirect liability. What You Can Do The Court’s reasoning in the Grokster case suggests that by paying close attention to the points noted above and adopting the following strategies, others can protect themselves and minimize potential liability premised on promoting the use of a product or service, if, in addition to legitimate uses, the product or service could be used to infringe copyrights.

• Design to support Creative Commons or other duly licensed material. Creative Commons permits rightsholders to easily specify permitted uses of their works. If your product enables users to access duly licensed and authorized material, whether Creative Commons or otherwise, you are increasing its commercially significant noninfringing utility and helping diffuse an argument that your business model is premised on user infringements. Ourmedia (ourmedia.org) and Flickr (flickr.com) are examples of providing access to Creative Commons material; Altnet, iTunes, Rhapsody, Movielink and other for-pay services offer material that has been licensed by the recording and film industries.

• Design to support fair use rather than infringement. In addition to maximizing user access to licensed and authorized works, any steps you can take to encourage users to engage in fair use (e.g., personal, transformative use; comment, criticism, and parody; etc.) rather than infringing use will be helpful in fending off Grokster-type liability.

• Educate users about copyright infringement and any steps being taken to monitor and police infringing uses. Information of this nature in your packaging, advertising, EULAs, and all forms of communication, whether to prospective or existing users, potential advertisers, sponsors and others, will help demonstrate encouragement of law-abiding uses and discouragement of infringing ones.

For those offering potentially targeted products or services, it may be tempting to fixate on the innovation chilling aspects of Grokster, and perhaps be stopped cold by the onerous task of subjecting all of one’s internal and external communications, marketing concepts, and business strategies to a Grokster-oriented review. For their part, copyright holders correctly recognize this decision gives them new tools and weapons with which to target new defendants in the war on infringement. A workable approach beneficial to all concerned, and designed to minimize claims for infringement under Grokster, can and should begin with clear, consistent internal communications that leave no room for doubt that, although something conceivably (or actually) has both infringing and noninfringing uses, the infringing ones are a secondary consequence and the product or service stands on its own and flourishes without them. Once everyone involved in development, promotion, and support takes this as an article of faith, the "Don’ts" and "Dos" for avoiding Grokster-type liability can begin to move out of the realm of "audit," and into that of consistently sound decisionmaking.