Legal Bytes:  Some After-Thoughts About MGM vs Grokster
         by John Brewer   Aug 2005

       In July, this column discussed the MGM v Grokster opinion that had just been issued by the U.S. Supreme Court. The case pertained to file sharing and the liability of the companies who are developing and distributing file sharing software. A reading of the opinion gives me the impression that it was a fair assessment of the issues.
      The opinion of the Court was unanimous and was written by Justice David Souter. The mechanism for opinions of the Supreme Court is interesting. One justice is given credit for the opinion but that does not mean the other justices do not play a role in the drafting of the opinion. “Draft” opinions are circulated between the members of the Court and the final opinion generally is a compromise document that seeks to secure the acquiescence of the other members of the Court. When other members of the Court agree with an opinion, he or she “joins” the opinion. Sometimes the justices will agree on the final result but disagree with the reasoning in the opinion. When this happens, one or more other justices may write a concurring opinion. If a justice disagrees with the result, he or she may write a dissenting opinion.
       In this case, Justice Ginsburg filed a concurring opinion and Justices Rehnquist and Kennedy joined her opinion. Justice Breyer also filed a concurring opinion that was joined by Justices Stevens and O’Connor. So three justices formed the majority opinion and three justices each formed a concurring opinion. This probably means that there were three “major” opinions circulating within the Court. Justices Scalia and Thomas signed off on the Souter opinion. This can make it difficult to determine the final result regarding the law because the reasoning can differ within the three opinions. However, I think the rule is that the Souter opinion will govern as to the law.
       The bottom line is that the Supreme Court sent the case back to the trial court for further proceedings and offered some clarification as to the law regarding copyright. The Supreme Court did not overrule the Sony Betamax VCR case from twenty-plus years ago. Individuals can still use their VCRs to record and “time shift” television programs. The Supreme Court ruled in 1984 that if the device had a “substantial non-infringing use” then it was permissible within the framework of copyright law and did not constitute a copyright infringement on its face. That ruling is still the law. There are a number of devices that are legally in use because they are capable of substantial non-infringing uses. CD and DVD burners are a classic example. However, the Sony Betamax case did not declare open season for copyright infringement. It was limited to the legality of the device itself.
       In more recent years, Napster entered the picture and set up a central server system that permitted the easy transfer of copyrighted works. The courts ruled that the Napster system had crossed over the boundaries of permissible conduct. The end result was the shutdown of Napster.
       Grokster and its similar entities learned from Napster. There is no central server at Grokster. The software enables two users who are both using the same software, and who are both connected to the Internet, to identify files on the computers that have been put into “shared” folders. Then the computers can interchange files. Multiply these two computers by millions of computers and one can readily understand why the owners of copyrighted content object to these companies developing and distributing file sharing software.
       However, the mechanics of the Grokster model make it more difficult to show that Grokster is engaging in “direct” copyright infringement (as was Napster). The fallback theory is one of secondary infringement; i.e., is Grokster engaging in contributory (inducing others to infringe) or vicarious (profiting from another’s infringement and not trying to stop it) infringement. The trial court’s opinion that was upheld by the Circuit Court of Appeals said the Grokster software was capable of substantial non-infringing use and was sheltered under the principles of the Sony Betamax case.
       In the Grokster case, the Supreme Court said there was simply too much smoke to apply Sony Betamax to the facts. Grokster and its sister companies jumped into the Napster vacuum and also profited by selling advertising. So there appears to be elements of both contributory and vicarious infringement. That issue has been sent back to the trial court for fact-finding and a decision on the merits, with the additional guidance that has been furnished by the U.S. Supreme Court.
       So, after working through this process, what is the bottom line? The bottom line is that the peer-to-peer software companies will rework their software to try to fit within the new rules. That means more litigation as to what is permissible and what is not. It also means the recording and video industries will spend lots of US dollars to lobby Congress to strengthen the copyright laws. It does not mean there has been a change in the law that permits the sharing of copyrighted content via the Internet. The sharing of copyrighted content is still improper.
       There is one other important element that should send cold chills through the recording and video industries. If the software company is situated in a venue that is outside of the reach of U.S. copyright laws or similar national law, then there is a limited remedy against the Groksters of the world.
       Is the battle over because of the Grokster decision? No. A better observation is that this case is simply another chapter in what will be a very long book.

John Brewer practices law in Oklahoma City, is a member of the Governor’s and Legislative Task Force for E-Commerce, and enjoys issues relating to eBusiness and cyberspace. Comments and questions are welcome and can be emailed to johnb@jnbrewer.com.

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