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Understanding Grokster

By Marjorie Heins

On March 29, the Supreme Court heard argument in the hottest case of its term – MGM v. Grokster. The stakes are high – whether peer-to-peer file-sharing will survive, or whether it will have to be redesigned to conform to the desires of the entertainment industry.

Peer-to-peer (“P2P” for short) enables millions around the globe to share music files and virtually anything else they have on their home computers, without the need to go to a central Web site – or ask permission of the copyright owner. The industry says the overwhelming bulk of this file-sharing is illegal, and unless P2P distributors are stopped, the music business will be destroyed because potential buyers will download free music instead of paying for it. Grokster, its co-defendant Streamcast (distributor of Morpheus software), and their allies argue that, on the contrary, P2P is a brilliant, economical way of legally sharing huge amounts of video, audio, and text, and that it would be a terrible idea to hold makers of tools liable – to the tune of billions of dollars – for the misuse of those tools by copyright infringers.

The creation of the Internet was a radical innovation that undermined top-down, or “one-to-many” control of mass communications. In addition to innumerable listservs and chatrooms, anyone could set up a Web site and become, as the Supreme Court put it, a “town crier with a voice that resonates farther than it could from any soapbox.”1 P2P was a natural for this new medium, because it allows exchanges between computers without the need, and cost, of posting everything on a central server and clogging that central space with big audio and video files.

Napster was the first P2P music-sharing technology – until a lawsuit put it out of business. The problem with Napster was that most of the music being exchanged was copyright-protected, and Napster assisted in this sharing through a central Web site, index, and support services. The centralization was Napster’s downfall; the courts found it guilty of “contributory copyright infringement.”2

So, the next generation of P2P – Grokster, Morpheus, and others – dispensed with centralized Web sites and indexes. These companies simply create (or license) P2P software and distribute it; they use no central server. Consequently, the same court of appeals that doomed Napster ruled that Grokster and Morpheus are not guilty of contributory copyright infringement.3

The court based its decision on the famous Sony case of 1984. In Sony, TV and movie companies sued to outlaw the video cassette recorder on the theory that its manufacturer was guilty of contributory infringement because it knew the product would be used to tape television shows. The Supreme Court said this knowledge didn’t make the machine illegal – any more than a photocopier or radio transmitter is illegal. Communication tools should be encouraged, said the Court, as long as they are “capable of substantial non-infringing uses.”4 The irony, of course, was that the VCR turned out to be a huge profit-maker for the industry.

Grokster and Streamcast aren’t guilty under the Sony test because their software enables lots of sharing that does not infringe copyright – for example, old songs and movies that are in the public domain; recordings of government activity, from congressional hearings to Supreme Court arguments; videos of the tsunami disaster, which raised public awareness and generated critical aid to victims; and songs by musicians who don’t have recording industry contracts, or who do, but give permission because file-sharing increases their visibility and concert followings. Even accepting the industry’s claim that only 10% of P2P traffic is legal, this amounted to about 1.3 billion legally shared files in 2004.5

The industry argues that Grokster and Morpheus are guilty even under Sony because they “actively induced” copyright violations by soliciting former Napster users and promoting the downloading of copyrighted songs. These alleged bad acts are not part of the case now before the Court, though, so MGM and its supporters have also suggested ways to modify Sony in order to control illegal uses.

One argument is that where the proportion of illegal uses outweighs the proportion of legal ones, then the technology should be stopped. Others propose a profit-oriented test: the non-infringing uses would have to be “commercially significant.” A big problem with these balancing tests is that their lack of predictability would scare entrepreneurs away from investing in new technology, for fear that a court somewhere down the line would find that the primary use was infringing – or even just for fear of litigation costs. Copyright infringement is punishable by damages of up to $150,000 per incident. Multiply this by billions of downloads per year, and you not only bankrupt Grokster, but send a chill down the spine of every distributor of a technology that’s capable of copying.

Another issue that lurks in this case is whether some sharing of copyrighted material is not infringement but “fair use.” Fair use allows copying, without permission of the owner, for purposes such as parody and news reporting, especially where it doesn’t cut into the market for the original work. In Sony, the Supreme Court said that copying TV programs for later replay at home is fair use. Some friend-of-the-court briefs in Grokster argue that similarly, nonprofit P2P file-sharing is different from commercial piracy, and may qualify as fair use.

Although the industry has been claiming for years that file-sharing has caused a disastrous drop in CD sales, the evidence is ambiguous. Some studies show that file-sharers are more likely to buy CDs. In 2004, university researchers found that file-sharing had at best only a modest impact on sales.6 Since the downturn of 2000-03, music sales have rebounded. And pay services like iTunes have grown exponentially, demonstrating that millions of people who get their music online are willing to pay for it.

Grokster and its supporters argue that Congress, not the courts, should resolve the file-sharing dilemma. Congress can weigh all the competing interests – artists, scholars, and librarians who rely on P2P; tech companies concerned about the threat of contributory liability; and an entertainment industry fighting for copyright control. When home taping of music became an industry concern, Congress hammered out a solution with a system of royalty payments based on the sale of recording devices; it simultaneously immunized the makers, distributors, and noncommercial users of the devices from copyright suits.7

For all the heated talk of copyright scofflaws, what’s fundamentally at stake in MGM v. Grokster may best be summed up by a line in the studios’ brief. They say that a ruling in their favor is needed to “restore a climate of appropriate respect for intellectual property.”8 The very term “intellectual property,” though, conveys a sense of entitlement that’s at odds with the purpose of copyright law – to provide enough incentive for innovation, while encouraging wide availability of creative works.

The industry says P2P makers have the ability to prevent illegal file-sharing by redesigning their software to filter out copyrighted material. But this would create a totalistic system that’s inconsistent with the more limited control created by copyright law; among other things, it would eliminate fair use. The real question, then, is whether the industry will be able to control communication on the Internet by requiring copyright filters as the price of avoiding lawsuits for contributory infringement. Not only of P2P software but Web sites, search engines, and computers themselves would then have to be reconfigured to serve as copyright cops. This would be an unfortunate outcome for what once promised to be the freest medium of communication in human history.

March 30, 2005

1. Reno v. American Civil Liberties Union, 521 U.S. 842, 870 (1997).

2. A&M Records v. Napster, 239 F.3d 1004 (9th Cir. 2001).

3. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd., 380 F.3d 1154 (9th Cir. 2004).

4. Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 442, (1984).

5. Brief Amici Curiae of ACLU, American Library Association, et al., in MGM v. Grokster, S. Ct. No. 04-480, p. 13.

6. Brief Amici Curiae of Felix Oberholzer-Gee and Koleman Strumpf in MGM v. Grokster, S. Ct. No. 04-480, p. 3.

7. Audio Home Recording Act, 17 U.S. Code §§1003-08.

8. Brief for Motion Picture Studio and Recording Company Petitioners in MGM v. Grokster, S. Ct. No. 04-480, p. 20.

The Free Expression Policy Project began in 2000 as a project of the National Coalition Against Censorship, to provide empirical research and policy development on tough censorship issues and seek free speech-friendly solutions to the concerns that drive censorship campaigns. In 2004-2007, it was part of the Brennan Center for Justice at NYU School of Law. Past funders have included the Robert Sterling Clark Foundation, the Nathan Cummings Foundation, the Rockefeller Foundation, the Educational Foundation of America, the Open Society Institute, and the Andy Warhol Foundation for the Visual Arts.

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