The Supreme Court’s Grokster Decision – A Conversation With a Client

by Lee Gesmer on July 12, 2005

Following the Supreme Court’s June 27, 2005 decision in MGM v. Grokster I wrote a short article about the case, in the style of a client consulting a lawyer about a file-sharing system.

Attorney: Judy, what brings you to my office today?

Client: John, I have an exciting idea, and I want to run it by you to make sure it passes legal muster. I’ve been involved in indie music and film for years; I have hundreds of contacts in the entertainment industry. People don’t realize what a huge body of uncommercialized work is out there! I’ve developed the most radical peer-to-peer file-sharing software you can imagine. It makes Napster, Grokster, Morpheus and all of the others look medieval by comparison. I think that musicians and video producers will contribute their works to this network to get publicity. My revenue model will be based on banner advertising. It’s perfect! I have no cost of inventory – my only costs are computers, networking, and sales commissions for my ad reps. The best thing is that although anyone can put their files on my network, the technology creates proprietary file structures, so that people can’t grab my files, convert them into MP3s, and publish them on a competing system.

Attorney: Judy, this sounds very promising. However, there are some legal issues that we should discuss. You know that on June 27th the Supreme Court issued its decision in the Grokster case?

Client: I vaguely knew that something was pending before the Supreme Court, but I’ve been too busy with my programmers to read the news this week. How does this case affect me?

Attorney: Well, the Court held that MGM could proceed with its copyright case against Grokster, and reading the decision it seems a forgone conclusion that the lower court will find that Grokster violated the copyright laws. The Supreme Court didn’t buy Grokster’s argument that it shouldn’t be held liable for contributory infringement because there were potential noninfringing uses for its software. So, is there any chance that people could rip copyrighted music or videos, convert them into your format, and use your network to engage in illegal file sharing?

Client: I suppose there is; I really can’t control that. Am I participating in copyright infringement if copyright pirates take advantage of my system, even if I don’t illegally copy files myself? We would never condone or participate in that kind of conduct, but I don’t see how we could stop it from happening.

Attorney: You may not have to. The facts in Grokster were pretty extreme. The evidence showed that at least 90% of the files available on Grokster’s system were unauthorized copies. Also, Grokster made some serious mistakes – there was evidence that they actively encouraged infringement …

Client: Wow, they really dug their own grave …

Attorney: …. they held themselves out openly as an alternative to Napster, made no effort to filter copyrighted material, didn’t block users who shared copyrighted files, and they even rejected an offer to help them monitor and reduce infringement.

Client: Interesting. Did the Court announce some kind of rule or holding that I can use as a guide for my company?

Attorney: They did. They said, and I quote, that it is illegal to distribute a device (including software), “with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement.” If you do that, you will be liable for acts of infringement by third parties who use your software.

Client: Well, I certainly can control what my company says. I’ll be careful never to indicate to the public that the purpose of my system is to copy unauthorized works

Attorney: Well, be careful Judy. Any internal emails, business plans or other communications would also show your intent, not just statements to the public.

Client: Thank you, I understand that John. But what does the Supreme Court mean when it talks about “fostering infringement”? Attorney: “Affirmative steps taken to foster infringement,” to use their exact language.

Client: What do they mean by that? Could the old media companies claim that I am fostering infringement simply by making this system available, despite my good intentions? After all, simply starting this file sharing system is an “affirmative step,” right?

Attorney: Yes, but it appears the Supreme Court wanted to avoid discouraging the creation of the kind of system you’re describing. They specifically stated, and again I quote, “mere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a distributor to liability.” They emphasized that illegality requires “purposeful, culpable expression and conduct,” and that they did not want to discourage innovation.

Client: Well, that sounds good. But you said that in Grokster the Court was influenced by the fact that only 10% of the files shared were “legal,” and the rest were infringing. As a practical matter, I can’t prevent my system from being taken over largely by illegal file sharers. What if my system ends up the same way?

Attorney: Taking the Supreme Court at face value, there is no per se illegality based on percentages alone. As long as you have the proper “intent,” the fact that your system is used for illegal purposes shouldn’t be a problem.

Client: Hmmm … if that’s the case, what’s to stop someone from coming up with the next generation of Napster or Grokster, hiring good lawyers to make sure they behave properly and don’t express illegal intentions, and then sit back and get fat and happy on advertising fees while illegal file sharers take over and expand their system?

Attorney: Nothing, that I can see from this case. Someone might be able to get away with a scheme like that. It almost goes without saying that they’d have to be able to fight off attempts by the media companies to expand the ruling in Grokster and shut them down, so a large litigation budget would be essential.

Client: What else could such a company do to be on the safe side?

Attorney: Well, like so many Supreme Court cases, the decision is very complex, and there are depths we may not have time to go into now. Although all three judges agreed on the ultimate ruling (reversing the lower court ruling in favor of Grokster), there are three different opinions, each joined in by three of the nine justices, so there are three factions within the nine member court. There are areas of disagreement, and one can see some complex cross-currents running through the three opinions that suggest that not all issues related to file sharing and copyright law have been resolved. That said, there are a few things you can do to be conservative. First, believe it or not, the Court thought the names of the services suggested their bad intent. For example, “Grokster” was derived from “Napster,” suggesting an illegal service. So, a file sharing service should have a neutral name. Second, I’d be somewhat concerned if someone knew that their system had been hijacked and did absolutely nothing to curtail the situation. So if it’s technically possible and financially feasible, use some filtering technology to minimize illegal file sharing. There’s more, but ….

Client: That’s OK John, I’ve heard enough for today. This has been much more educational than I anticipated. This conversation we’ve just had is attorney-client privileged, of course?

Attorney: Of course Judy. Best of luck on your new venture. Let me know if you need any further assistance, and don’t forget to give me the URL.

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