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 acts of infringement by third parties.

With those words, from its unanimous decision in MGM Studios v. Grokster, decided June 27, 2005, the Supreme Court expanded the scope of contributory copyright infringement and likely threw the peer-to-peer file sharing community into disorder.

In the case, MGM Studios and other film and recording companies seek to arrest the distribution of software that enables internet users to share files in a “peer-to-peer” environment. More specifically, the suit focused on the popular FastTrack software offered by Grokster Ltd., and the Morpheus software offered by StreamCast, which enable internet users who download the software to share files directly with one another over the internet. Unlike other sharing programs, such as the once popular Napster software, the Grokster and StreamCast software does not rely upon Grokster or StreamCast operating a central server, network or index. Instead, the users themselves maintain open indices and files. Once users download the software, they can use it to search one another’s files and to copy the files they choose.

Copyrights protect original expressions of ideas once they are reduced to a fixed, tangible form. Accordingly, copyrightable subject matter ranges from the prose of a poet, to the paintings of an artist, to the computer software of a programmer. It also includes the lyrics of a songwriter and the music recorded by a musical group, both of which were at the heart of the copyright infringement claims brought against Grokster and StreamCast. Copyright infringement occurs when one of the specifically enumerated rights of a copyright holder set forth in the Copyright Act are usurped without the copyright holder’s authority. Principal among these are the right of the copyright holder to copy and distribute copies of his works. Thus, when an individual makes or distributes an unauthorized copy of a musical recording he directly infringes the copyrights in the recording. Although the Copyright Act does not expressly render anyone liable for infringement by another, well established common law principles hold someone liable for intentionally inducing or encouraging direct infringement. Thus, the question presented in the Grokster case was under what circumstances is someone other than the direct infringer responsible for the infringement.

Clearly, those that use the Grokster and StreamCast software to make unauthorized copies of copyrighted material are direct infringers. However, pursuing multitudes of infringers one at a time would surely prove an unproductive way of thwarting copyright infringement. MGM Studios, therefore, sought to hold Grokster and StreamCast responsible as contributory infringers and brought the suit to enjoin the further distribution of the FastTrack and Morpheus software. In response, Grokster and StreamCast took the position that their services did not provide its users with all of the network components necessary to engage in pirating copyrightable material. Indeed, they argued that, while users may be able to use their software to engage in acts of copyright infringement, they had no actual knowledge that their software was being used to engage in copyright infringement, and that their software had substantial application for lawful, non-infringing uses. Thus, they argued they should not be held responsible for contributory copyright infringement. The trial court and the Ninth Circuit Court of Appeals both found this reasoning compelling, and entered (or upheld) summary judgment against MGM Studios. In doing so, the Ninth Circuit Court of Appeals found that the software was capable of substantial non-infringing uses. Therefore, under the appellate court’s construction of Supreme Court precedent, MGM Studios would be required to show that Grokster and StreamCast had reasonable knowledge of specific infringing files and failed to act on that knowledge to prevent infringement. Because MGM Studios was unable to present evidence of such knowledge, the appellate court affirmed the trial court’s entry of summary judgment against MGM Studios.

In reversing the decision, the Supreme Court held that “nothing in its [prior rulings] requires courts to ignore evidence of intent to induce infringement.” And, this case presented ample evidence of explicit intent to induce infringement. The record established that Grokster and StreamCast (i) each marketed itself as being able to satisfy a known source of copyright infringement, namely replacing the Napster service that was found to constitute contributory copyright infringement, (ii) failed to attempt to develop technical mechanism to diminish the infringing activity using their software, and (iii) made money by selling advertising, which is more valuable the larger the number of users of their software, 90% of whom were estimated as using the software in an infringing manner. This evidence, the Court concluded, was sufficient for the trial court to determine whether Grokster and StreamCast could be found liable for contributory infringement. As such, the Court reversed the prior ruling, and sent the case back to the trial court to make such a determination.

The decision will undoubtedly have the effect of focusing the case on how Grokster and StreamCast intended their software to be used, rather than on the potential ways the software could be used. If the trial court finds that they distributed the software “with the object of promoting its use to infringe,” then they will be found liable for contributory copyright infringement. Similarly, distributors of other software programs or products having similar intent will also be found liable for contributory infringement. This, of course, may well reach programs such as iMesh, Shareza and WinMx and other products currently in use in the peer-to-peer community. This decision, therefore, substantially enhances the ability of a copyright holder to protect their work.