On March 29th, the United States Supreme Court will hear oral arguments in one of the most important court decisions affecting the entertainment industry, Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. (the "Grokster case"), and a decision will likely be announced a few months later.
The Supreme Court will review a district and appellate court decision holding that two companies which provide file sharing software are not liable for copyright infringements by users of that software. The lower courts held that the file sharing companies are not contributorily or vicariously liable for infringements committed by users of their software since the companies do not store files containing infringing works on their servers and since their file sharing software has non-infringing as well as infringing uses.
Which way the Supreme Court will rule is difficult to predict. The Court may agree with the district and appeals courts that the Grokster and Streamcast file sharing companies are not liable for infringements committed by users of their software. They may believe that existing law does not allow for third party liability in this type of situation and that if the law is to be changed, that responsibility belongs to Congress rather than the courts (the district court implied this in its decision). To rule against Grokster and Streamcast, the Court would have to find that the district and appeals courts misapplied the substantial non-infringing use doctrine of Sony Corporation of America v. Universal City Studios, Inc. (commonly known as the "Betamax case") decided by the Supreme Court 20 years ago.
The Betamax precedent was the result of a 5-4 decision and is somewhat ambiguous (e.g., how substantial must non-infringing uses be and even if there are substantial non-infringing uses, does this mean that a technology can’t be legally regulated at all?). Further, the Betamax decision was based on circumstances much different than the file sharing at issue in the Grokster case. In the Betamax case, the Court held that Sony (the maker of Betamax videocassette recorders) was not liable for alleged infringements by people who recorded copyrighted television shows. The reasoning for this decision was based in part on the fact that recording TV shows (legally broadcast into homes under licenses from copyright owners) for time-shifting purposes (i.e., to watch at a more convenient time) was a fair use under copyright law. In contrast, people who make copies of copyrighted works through the use of file sharing software are not receiving an authorized distribution of the works they are copying. Further, file sharers are not merely copying works for themselves, but are making copies available for millions of others to copy (unless they disable the "sharing" feature of their file sharing software).
It should be pointed out that the Court does not have to overrule the Betamax decision in order to reverse the Grokster decision. Betamax stands for the proposition that a technology should not be made illegal as long as it has some substantial non-infringing use. File sharing software, although used predominantly to illegally share copyrighted works, certainly has non-infringing uses as well. For example, works in the public domain can be shared and some copyright owners authorize file sharing of their works. However, it is conceivable that the Court could hold that although file sharing software has substantial non-infringing uses, file sharing companies can be subject to regulation designed to prevent illegal use. Such regulation may be especially appropriate where companies seek to benefit financially from the illegal use of the technology they make available and encourage.
Whichever way the Supreme Court rules, this case will have a great impact on the entertainment industry and other industries dependent on ownership of copyrighted works. If upheld, copyright owners and organizations representing them (such as the Recording Industry Association of America and the Motion Picture Association of America) will have no choice if they want to enforce their rights but to continue suing individual file sharers. Copyright owners will also continue to lobby for Congress to pass legislation such as the proposed Induce Act which would make file sharing companies liable for inducing file sharers to commit copyright infringement.
On the other hand, if the Supreme Court reverses the Grokster decision, its very likely that copyright owners will go back to their initial strategy of suing file sharing companies. Since there would be a clear U.S. precedent allowing file sharing companies to be held liable for infringements directly committed by file sharers, its likely that file sharing companies which benefit from unauthorized sharing of copyrighted works would gradually become less prevalent since investors will be hesitant to put money into companies that could be liable for multimillion (if not multibillion) dollar judgments due to the huge volume of copyright infringements committed by file sharers. As a consequence, its possible that lawsuits against individual file sharers might decline a bit although its unlikely they would be given up totally since these lawsuits seem to have done a better job of making people aware of illegal file sharing than anything else.
It also seems clear that absent the possibility of penalty, many people will not hesitate to use file sharing software even if they know they are violating the law and committing copyright infringement. A reversal of the Grokster decision might help spur the development of legal online music services. While iTunes and some other online music services have had modest initial success, it seems logical that they’d be more successful if they didn’t have to compete with illegal file sharing since no legitimate business can fairly compete with other businesses that allow the products they sell to be given away for free.
Finally, another likely result of a reversal of the Grokster decision is that more file sharing companies would be willing to pursue some type of licensing system to allow for legal file sharing of copyrighted works. Although licensed file sharing services are currently being developed, such services would also have to compete with unlicensed file sharing services which is not by any means an even playing field.
Although I wouldn’t want to bet on how the Supreme Court will decide the Grokster case, I wouldn’t hesitate to bet that file sharing companies such as Grokster and Streamcast would not exist if file sharing were limited to the substantial non-infringing uses these types of companies proclaim insulate them from copyright infringement liability.
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