On Monday, June 27th, the Supreme Court issued a unanimous decision that Grokster and other internet file-sharing networks may be subject to liability for contributory copyright infringement when users download illegal content from the internet. In reversing a summary judgment finding, the Supreme Court adopted a new "intentional inducement" theory of liability for copyright infringement, holding 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 infringement by third parties."

To determine a company’s intent to promote infringement, the Court looked to internal communications, business plans, marketing materials, and whether the company took easily available steps to reduce infringing uses. Specifically, the Court noted advertisements that touted the ability to download copyrighted materials and a business plan that targeted the Napster customer base as strong evidence of intent. Together with the failure to implement filters to reduce infringing downloads, the Court was convinced the case presented a material issue of fact deserving of a trial on the merits.

The issue before the Court was whether internet file sharing services can be held liable for copyright infringement when digital files are shared illegally by computer users who use free software provided by the file sharing services but over whom the file sharing services have no control. The entertainment companies claimed that Grokster enables millions of users to infringe copyrights and consequently should be held liable for those infringements. In its defense, Grokster argued that its software had many legal uses besides copyright infringement and that it thus cannot be sued for copyright infringement under the 1984 Supreme Court decision in which the Court ruled 5-4 that Sony and other makes of VCRs and video tapes could not be held liable for illegal copying of movies and television shows. The Ninth Circuit agreed, granting summary judgment on the grounds that Sony v. Universal City Studios eliminates contributory liability when the product in question is capable of a substantial non-infringing use. However, the Supreme Court found error in this interpretation and remanded the case for trial. The Court does not view Sony as a complete bar to all secondary liability, but rather a bar to "secondary liability based on presuming or imputing intent to cause infringement solely from the design or distribution of a product capable of substantial lawful use, which the distributor knows is in fact used for infringement." The Court does not read Sony as barring other evidence of intent such as advertising and internal communications. Since the Court found "substantial evidence of inducement" to infringe copyrights and unlawful intent by the defendants, the case was remanded for trial.

Overall, the Grokster decision is an attempt to reach a balance that takes into account the need to establish liability for those who induce massive copyright infringement while at the same time trying to avoid stifling new technological innovation. The result may subject technology companies to increased levels of litigation, but it remains unclear to what extent companies will incur heightened liability. The exact practices that will give rise to liability from "inducing" copyright infringement are matters of fact that will be determined by future cases. Still, the Court explicitly stated that "mere knowledge of infringing potential or of actual infringing uses would not be enough to subject a distributor to liability." Likewise, the ruling does not impose duties to take active steps against infringement. Instead, in order to incur liability, a distributor would need to take active steps to encourage infringing uses or have a clear intent to induce infringement.

What steps can be taken when new technologies are developed in order to protect creators and distributors from potential contributory copyright liability?

  • Keep excellent records of the invention and development process, making clear the lawful purposes for which the technology and/or product is intended.
  • Do not promote potentially infringing uses of the technology or product, especially in your advertising.
  • Take reasonable steps to avoid or reduce infringing uses by users and other third parties, if such steps are reasonably available.
  • Do not publish any materials instructing the public in how to use the product to infringe.

The case was remanded to the lower court for trial and the resolution of that trial should shed further light on the factors used to determine whether there is liability for inducement of copyright infringement in any particular case. Future decisions by lower courts interpreting Grokster should provide further guidance regarding inducement of copyright infringement and the steps that a company can take to protect itself from liability.

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