~A consideration of the potential legal,
economic and cultural impact of MGM vs. Grokster~
By Laura Possessky
Since the meteoric rise of the
Internet, the entertainment industry has grappled with the role of digital
technology in content distribution. Digital media like TiVo and web-casting
have presented exciting new distribution alternatives. Yet technological innovation
threatens established distribution channels and business models. In the midst
of it all, the industry’s lifeblood – content – has been
under siege with widespread illegal copying of music and movies on the Internet,
infringing industry copyrights.
The entertainment industry has fought relentlessly to combat
file sharing and eliminate online infringement. The press is littered with
accounts of record labels suing college students and similarly mismatched efforts
at rights protection. Still, many infringers are either hard to locate or live
outside of the U.S., and so pursuing individual infringers has been extremely
Recording labels and movie studios have also sued companies
whose technology facilitates widespread infringement on grounds of vicarious
and contributory infringement. This strategy has proven equally problematic.
Although recent Copyright Act amendments have established new bases for liability,
like criminal sanctions for decrypting codes on DVDs, most of vicarious and
contributory infringement law is uncodified and unsettled.
Possibly bringing some relief, the recent Supreme Court decision
in MGM vs. Grokster addresses the issue of vicarious liability. In this
case, Grokster and StreamCast developed software for peer-to-peer computer
networks that allows participants to share digital files. Like Napster, participants
access a sizable database of digital files stored on participants’ computers,
consisting mostly of music and films posted without permission. In contrast
to Napster, neither company indexed the shared files and had no specific knowledge
about infringing conduct. MGM and other content-owners sued Grokster and StreamCast
for vicarious and contributory infringement, claiming that the companies encouraged
infringing conduct through marketing and other activities.
The Court unanimously held that a person who distributes
a device with the objective of promoting its use to infringe copyright, either
through clear expression or affirmative steps to foster infringement, is liable
for resulting acts of infringement by third parties. The decision overturns
the Ninth Circuit’s ruling that liability for vicarious infringement
requires knowledge of specific acts of infringement. The Court reasoned that
evidence showing infringing intent should not be ignored and that requiring
evidence of specific acts had the effect of eliminating, not limiting, secondary
Although the Court demonstrated tremendous sensitivity to
the balance in copyright law between technological innovation and copyright
interests, the effect is likely to be an increased risk of infringement liability
for technology companies. Although Grokster articulates a clear vicarious
liability standard, it leaves an unanswered question about what constitutes “fostering” infringement.
Because establishing vicarious liability will require evidence that a company
engaged in conduct to promote infringement (and raises the factual issue of
whether the conduct constitutes promoting infringement), future cases are likely
to involve protracted discovery.
Moreover, although hailed as a victory for content owners,
the decision may dampen growth in the entertainment industry. Industry growth
depends upon technological innovation for new methods of content distribution.
Because of the increased liability risk that promoting a new technology may
be construed as facilitating infringing activity, the decision may have a chilling
effect on development of devices that create new content distribution channels.
If innovators are reluctant to introduce new technologies, new distribution
opportunities for studios and recording labels disappear.
Currently, one of the highest growth areas for the music
industry is downloadable ring tones for cell phones. Wireless companies have
licensing arrangements with record companies. Still, cell phones may be used
as a means to swap music files without permission. Under Grokster, it
is unclear at what point cell phone manufacturers or wireless companies foster
infringement. Is a wireless company vicariously liable if it advertises downloading
music as one of its features? What if it is aware, but has no specific knowledge,
that customers are engaged in widespread illegal downloading of music using
the telephone technology? What happens to the ring tone business?
Grokster also raises concerns about the collateral impact
that vicarious liability risks will have on the accessibility of content. As
archivists and librarians will attest, millions of books, tapes and film footage
are disintegrating from our cultural heritage because of concerns that restoration
or public display will invite an infringement action. Filmmakers have shelved
countless projects because of disagreements with rights holders or prohibitive
licensing fees that make production economically non-viable. The threat of
vicarious liability will only heighten these problems.
The impact of unchecked copyright infringement facilitated
by digital technology has caused copyright holders to pursue legal reforms
for enforcement of their rights. Grokster will provide an effective
basis to limit any ongoing infringement by third parties. However, without
careful scrutiny of how these rights are enforced, technological innovation
and our cultural heritage may suffer. As a society, we must decide where to
strike the balance.
Laura Possessky is a partner in the Washington,
D.C., office of Gura & Day. She practices media law and represents artists,
producers and businesses on content usage and licensing.