MGM v. Grokster

MGM v. Grokster

Supreme Court Case No. 04-480

Frequently Asked Questions (FAQ)

What is this case about?

This case is about innovation. To be more precise, it is about whether innovators are free to develop new technologies without fear that they will be sued if some of their customers choose to misuse their technology to infringe copyright. Should preventing copyright infringement be the dominant consideration of future innovators? Had that been the rule for the last 20 years, the photocopier, PC, CD burner, World Wide Web, and iPod would certainly look very different than they do today. At stake is nothing less than whether future innovators have to beg permission from the entertainment industries before they can invent the next generation of technologies.

Who are the parties?

The Plaintiffs/Petitioners in this case are 28 major movie and record companies plus a class comprised of songwriters and music publishers.

The Defendants/Respondents in the case before the Supreme Court are two peer-to-peer technology companies, Streamcast Networks, which provides the Morpheus software, and Grokster, which provides the Grokster software.

When will the case be heard by the Supreme Court?

The case will be argued on March 29, 2005. Richard Taranto, of Farr & Taranto, will argue on behalf of Respondents. The Supreme Court case number is 04-480. All briefs will be available on EFF's website: http://www.eff.org/IP/P2P/MGM_v_Grokster/

When will the case be decided by the Supreme Court?

The Supreme Court will likely decide this case before its current term ends, late June or early July, 2005.

Exactly what is before the Court?

The district court in Los Angeles granted summary judgment in favor of StreamCast and Grokster with respect to "current versions" of their software (the software as it existed in Spring 2002 - 2003), and was subsequently affirmed by a unanimous panel of of the Ninth Circuit Court of Appeals in San Francisco. All questions of liability for any software or activities before that time are still before the district court and are not part of the appeal before the Supreme Court.

How is Kazaa involved in this case?

Kazaa is a P2P file sharing application that is distributed by Sharman Networks, a company based in Australia. Although the companies responsible for Kazaa are defendants in this case, the district court has not yet ruled on any of the copyright claims relating to those companies. Accordingly, neither the Kazaa software, nor Sharman, is involved in the matter before the Supreme Court.

What is the current law?

The major precedent in this area is Sony Corporation of America Inc. v. Universal City Studios, commonly known as the "Sony Betamax case." In that case, Universal City Studios and Disney sued Sony to ban the sale of VCRs, arguing that Sony should be held responsible for the infringements made possible by the new device. The U.S. Supreme Court in 1984 ruled that Sony was not liable for the infringements of its customers because the Betamax was capable of substantial non-infringing uses such as time-shifting (recording at one time and playback at another) and the recording of shows authorized for copying (like Mr. Rogers' Neighborhood).

Last year, the Ninth Circuit applied the ruling in Sony to find that StreamCast Networks and Grokster, the distributors of the Morpheus and Grokster peer-to-peer file sharing software, were not liable for copyright infringement because their software also is used for substantial non-infringing uses. Furthermore, since neither StreamCast nor Grokster have any ability to control what users of their software search for, share or download, the court reasoned that it would be unfair to hold the P2P companies liables for those infringing activities. In the words of the district court, "Grokster and StreamCast are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights."

Are this case and the Sony Betamax case really alike?

Yes. From the perspective of technology companies, this case raises the same legal question that was addressed by the Supreme Court in the 1984 Sony Betamax ruling: should an innovator who makes a multipurpose technology be held responsible for misuses of the technology? In fact, a comparison of the briefs filed by the motion picture companies in the Supreme Court in 1982 with those filed against StreamCast and Grokster in 2005 makes this clear.

EFF has written a web page devoted to the striking similarities: http://www.eff.org/legal/cases/betamax/

How is this case different from Napster?

The entertainment industry has tried unsuccessfully to claim that Morpheus and Grokster are identical to Napster's infamous original file-sharing service. Unlike Napster, however, StreamCast and Grokster have no ability to control or monitor what users search for, share or download. Napster, in contrast, had perfect knowledge and control over the file-sharing activities of its users, as well as the ability to block individual users from its service. In other words, StreamCast and Grokster are in the same position as Xerox or Microsoft - once their products are delivered to users, they have no ability to monitor or control the uses to which their products are put, and no ability to block users from accessing the public P2P networks.

What is P2P technology?

A P2P network is a network that allows users to connect directly to one and other, without relying on centralized "servers," that enables users to harness the enormous untapped resources (processor cycles, storage, and bandwidth) at the "edge" of the Internet. In the words of Intel's then-CTO Patrick Gelsinger in 2000, "Peer-to-peer computing could usher in the next generation of the Internet, much as we saw Mosaic [the first web browser] spark the last."

What are the noninfringing uses of P2P file sharing software?

P2P file sharing networks are being used today to legally share a wide variety of material. For example:

The Internet Archive relies on P2P networks to distribute its collection of more than 20,000 concert recordings by over 850 bands. Many other well-known bands (Grateful Dead, Phish, Dave Matthews Band) have also authorized the free sharing of their concert recordings directly among fans.
An increasing number of musicians are turning to new technologies like Weed and Altnet to distribute and sell their songs through P2P networks. Companies like TryMedia, J!VE Media and the Jun Group are building their businesses by distributing authorized content on P2P networks.
Many software and videogame vendors authorize users to redistribute shareware and demo-ware products on P2P networks.
The P2P community is sharing many public domain works, including the Bible, Koran, and the works of Shakespeare.

What other uses are there for P2P technology besides sharing music and movies?

There are a number of important uses for which P2P technology has already been implemented.

Genealogists and others interested in family research use P2P technology to exchange data on family history and genealogy. The Mormon Church especially is very active in these projects.
Human gene-sequencing researchers use P2P technology to allocate sequencing work over the Web to idle computers, which cuts the processing time for each sequence and speeds up results. Similar projects help fight cancer and other diseases by cutting down on computing time by using idle computers on their P2P networks.
The U.S. government and other groups use P2P technology to distribute government documents over the Web to the public to ensure a more open and responsible government. The Web site www.outragedmoderates.org is at the forefront of this application of P2P technology.
Financial companies are exploring the use of P2P technology for portfolio pricing, risk evaluation, counter-party netting, and margin calculations.

What proportion of the uses of P2P file sharing software are noninfringing?

There is no way to know for sure, because there is no way to observe what everyone is sharing and downloading, establish how much of that activity is authorized, or determine what part of those activities might be fair use. The entertainment industry claims that more than 90% of the uses of Morpheus and Grokster are infringing. A closer look at their evidence, however, tells a different story; when examined closely, the evidence establishes that no more than 75% of the uses might be infringing. In addition, the survey was performed several years ago, and thus fails to reflect the growth in noninfringing uses that has occurred since that time.

More importantly for the Supreme Court, it is not the proportion of uses that matters. The Supreme Court spoke very clearly in the Betamax case, establishing that the relevant question is whether a technology is "merely capable of substantial noninfringing uses." One use of the Betamax VCR that the Court found to be "substantial" was the recording of programs authorized for copying (like Mr. Rogers' Neighborhood). These uses comprised no more than 9% of the uses of the Betamax-nevertheless, the Court concluded that this alone was a "substantial noninfringing use."

Will p2p Technology kill the entertainment industry?

To hear the entertainment industries, you would think that P2P file-sharing has brought them to the brink of financial ruin. The music industry, in particular, has been quick to blame P2P file-sharing technologies for the downturn in CD sales in recent years. The motion picture industry has suggested darkly that P2P file-sharing represents an imminent threat to their business prospects, as well.

There are reasons to treat these dark predictions with a grain of salt, however. Historically, entertainment industry incumbents have often "cried wolf" when confronted by new technologies that disrupt their existing business models. Nevertheless, for the last 100 years these new technologies have invariably ended up creating new business opportunities that enhance the welfare of copyright holders.

Despite the popularity of P2P file-sharing, there is a growing body of evidence that suggests that the use of P2P networks may not, in fact, be causing nearly as much harm to copyright holders as their public statements suggest. EFF recently collected the evidence in a comments submitted to the Federal Trade Commission in January 2005 (http://www.eff.org/cgi/tiny?urlID=406).

Will the entertainment industry kill P2P file sharing?

Not likely. P2P file sharing has proven to be highly resilient in the face of a hostile legal environment. Despite the fact that lawsuits have shut down a variety of P2P companies, including Napster, Scour, Aimster, Audiogalaxy, and iMesh, and despite the fact that more than 8,000 individuals have been sued for file sharing, the popularity of P2P software continues to grow, both in the U.S. and internationally. A number of P2P companies are located outside the United States. Other P2P applications are developed on an open source basis by hobbyist programmers around the world. Legal precedents in the Netherlands and Canada suggest that the distribution of P2P file sharing software is legal in both of those countries. So no matter the outcome of MGM v. Grokster, all indications are that P2P file sharing software will continue to be available and popular among Internet users.

So what is this case really about then?

This case is about the future of innovation for the American technology sector. After all, the rules announced by the Supreme Court will apply as much to Apple and Microsoft as StreamCast and Grokster.

Are there any solutions to the P2P dilemma that will allow artists and authors to get paid without impeding the development and deployment of new technologies?

Yes. In fact, history may be the best guide. The music industry today could do what the songwriters did when the advent of broadcast radio challenged their business models. In that case, songwriters formed ASCAP (and later BMI and SESAC), which collects fees from radio stations in exchange for the stations' right to broadcast copyrighted music over the radio. The major record labels today could follow a similar path, sometimes called voluntary collective licensing. The music industry would form on or more collection societies, which would offer blanket download licenses to fans for a monthly fee. In exchange, music fans would be able to share files of their favorite music without fear of a lawsuit. The money collected would get divided up amongst various owners of copyrighted works according to the popularity of each shared work.

Others have suggested that copyright owners simply find new business models that can compete with free. Apple, for example, is now selling over a million downloads each day by offering customers a quality product at a reasonable price. If the music industry were to allow authorized music services to improve on the example set by Apple (by lowering prices, increasing inventory, and eliminating anti-consumer restrictions), they may well succeed without the need for radical changes to copyright law.