2005-06-28

MGM v. Grokster

Today's Supreme Court ruling is interesting in a number of respects which have not received the attention I would have liked from the usual suspects. As has been widely noted, this was a unanimous decision by the court, what has received little focus are the substantial divergences between various justices expressed in the concurring opinions.

The Court held as follows:
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, going beyond mere distribution with knowledge of third-party action, is liable for the resulting acts of infringement by third parties using the device, regardless of the device’s lawful uses.
As the decision makes clear, the Court upheld its previous ruling in Sony which "absolves the equivocal conduct of selling
an item with lawful and unlawful uses and limits liability to instances
of more acute fault." The Court held that:
the Ninth Circuit misread Sony to mean that when a product is capable of substantial lawful use, the producer cannot be held contributorily liable for third parties infringing use of it, even when an actual purpose to cause infringing use is shown, unless the distributors had specific knowledge of infringement at a time when they contributed to the infringement and failed to act upon that information.
The operative difference between Sony and MGM v. Grokster, then, is intent, specifically evidence that the conduct of Grokster and StreamCast was motivated by an "unlawful objective". Whatever else one thinks of the ruling, I don't think this conclusion about the motivations for Grokster and StreamCast's behavior can seriously be denied. (The Court's specific extension of the inducement to infringe from patent law seems to be getting a lot of attention elsewhere, so I won't say anything about it —anyway, I'm not qualified to do so.) The Court confined itself to this basis for its decision, without reconsidering Sony, in its unanimous opinion.

In the concurring opinions, however, Sony does receive direct consideration. Justice Ginsburg (probable relation), joined by Chief Justice Rehnquist and Justice Kennedy, argues for a significantly stricter interpretation of the Sony test, that a product put to infringing use is not liable if it is "capable of commercially significant noninfringing uses." Justice Ginsburg argues for a shift in the interpretation of this test from "the likely existence of a substantial market for authorized copying upon general declarations, some survey data, and common sense" to the much stricter "evidence ... of both present lawful uses and of a reasonable prospect that substantial noninfringing uses would develop over time." Justice Breyer, joined by Justices Stevens and O'Connor, strongly and (I might add) very articulately disagrees.

Justice Breyer first carefully equates the facts of infringing versus noninfringing use at issue in Sony and the present case, concluding (stripped of citations and other impediments to readability):
The nature of these and other lawfully swapped files is such that it is reasonable to infer quantities of current lawful use roughly approximate to those at issue in Sony. At least, MGM has offered no evidence sufficient to survive summary judgment that could plausibly demonstrate a significant quantitative difference. To be sure, in quantitative terms these uses account for only a small percentage of the total number of uses of Grokster's product. But the same was true in Sony, which characterized the relatively limited authorized copying market as "substantial." (The Court made clear as well in Sony that the amount of material then presently available for lawful copying—if not actually copied—was significant and the same is certainly true in this case.)
Importantly, Sony also used the word "capable," asking whether the product is "capable of" substantial noninfringing uses. Its language and analysis suggest that a figure like 10%, if fixed for all time, might well prove insufficient, but that such a figure serves as an adequate foundation where there is a reasonable prospect of expanded legitimate uses over time. And its language also indicates the appropriateness of looking to potential future uses of the product to determine its "capability."
Here the record reveals a significant future market for noninfringing uses of Grokster-type peer-to-peer software. Such software permits the exchange of any sort of digital file—whether that file does, or does not, contain copyrighted material. As more and more uncopyrighted information is stored in swappable form, it seems a likely inference that lawful peer-to-peer sharing will become increasingly prevalent.
And that is just what is happening. Such legitimate noninfringing uses are coming to include the swapping of: research information (the initial purpose of many peer-to-peer networks); public domain films (e.g., those owned by the Prelinger Archive); historical recordings and digital educational materials (e.g., those stored on the Internet Archive); digital photos (OurPictures, for example, is starting a P2P photo-swapping service); "shareware" and "freeware" (e.g., Linux and certain Windows software); secure licensed music and movie files (Intent MediaWorks, for example, protects licensed content sent across P2P networks); news broadcasts past and present (the BBC Creative Archive lets users "rip, mix and share the BBC"); user-created audio and video files (including "podcasts" that may be distributed through P2P software); and all manner of free "open content" works collected by Creative Commons (one can search for Creative Commons material on StreamCast). I can find nothing in the record that suggests that this course of events will not continue to flow naturally as a consequence of the character of the software taken together with the foreseeable development of the Internet and of information technology.
There may be other now-unforeseen noninfringing uses that develop for peer-to-peer software, just as the home video rental industry (unmentioned in Sony) developed for the VCR. But the foreseeable development of such uses, when taken together with an estimated 10% noninfringing material, is sufficient to meet Sony's standard. And while Sony considered the record following a trial, there are no facts asserted by MGM in its summary judgment filings that lead me to believe the outcome after a trial here could be any different. The lower courts reached the same conclusion.
Of course, Grokster itself may not want to develop these other noninfringing uses. But Sony's standard seeks to protect not the Groksters of this world (which in any event may well be liable under today's holding), but the development of technology more generally. And Grokster's desires in this respect are beside the point.
Accordingly, Justice Breyer makes clear that "The real question here, I believe, is not whether the record evidence satisfies Sony"; rather, "the real question is whether we should modify the Sony standard, as MGM requests, or interpret Sony more strictly, as I believe JUSTICE GINSBURG'’s approach would do in practice." He proceeds to answer as follows:
As I have said, Sony itself sought to "strike a balance between a copyright holder's legitimate demand for effective—not merely symbolic—protection of the statutory monopoly, and the rights of others freely to engage in substantially unrelated areas of commerce." Thus, to determine whether modification, or a strict interpretation, of Sony is needed, I would ask whether MGM has shown that Sony incorrectly balanced copyright and new-technology interests. In particular: (1) Has Sony (as I interpret it) worked to protect new technology? (2) If so, would modification or strict interpretation significantly weaken that protection? (3) If so, would new or necessary copyright-related benefits outweigh any such weakening?

A
The first question is the easiest to answer. Sony's rule, as I interpret it, has provided entrepreneurs with needed assurance that they will be shielded from copyright liability as they bring valuable new technologies to market.
Sony's rule is clear. That clarity allows those who develop new products that are capable of substantial noninfringing uses to know, ex ante, that distribution of their product will not yield massive monetary liability. At the same time, it helps deter them from distributing products that have no other real function than—or that are specifically intended for—copyright infringement, deterrence that the Court's holding today reinforces (by adding a weapon to the copyright holder's legal arsenal).
Sony's rule is strongly technology protecting. The rule deliberately makes it difficult for courts to find secondary liability where new technology is at issue. It establishes that the law will not impose copyright liability upon the distributors of dual-use technologies (who do not themselves engage in unauthorized copying) unless the product in question will be used almost exclusively to infringe copyrights (or unless they actively induce infringements as we today describe). Sony thereby recognizes that the copyright laws are not intended to discourage or to control the emergence of new technologies, including (perhaps especially) those that help disseminate information and ideas more broadly or more efficiently. Thus Sony's rule shelters VCRs, typewriters, tape recorders, photocopiers, computers, cassette players, compact disc burners, digital video recorders, MP3 players, Internet search engines, and peer-to-peer software. But Sony's rule does not shelter descramblers, even if one could theoretically use a de- scrambler in a noninfringing way.
Sony's rule is forward looking. It does not confine its scope to a static snapshot of a product's current uses (thereby threatening technologies that have undeveloped future markets). Rather, as the VCR example makes clear, a product's market can evolve dramatically over time. And Sony—by referring to a capacity for substantial noninfringing uses—recognizes that fact. Sony's word "capable" refers to a plausible, not simply a theoretical, likelihood that such uses will come to pass, and that fact anchors Sony in practical reality.
Sony's rule is mindful of the limitations facing judges where matters of technology are concerned. Judges have no specialized technical ability to answer questions about present or future technological feasibility or commercial viability where technology professionals, engineers, and venture capitalists themselves may radically disagree and where answers may differ depending upon whether one focuses upon the time of product development or the time of distribution. Consider, for example, the question whether devices can be added to Grokster's software that will filter out infringing files. MGM tells us this is easy enough to do, as do several amici that produce and sell the filtering technology. Grokster says it is not at all easy to do, and not an efficient solution in any event, and several apparently disinterested computer science professors agree. Which account should a judge credit? Sony says that the judge will not necessarily have to decide.
Given the nature of the Sony rule, it is not surprising that in the last 20 years, there have been relatively few contributory infringement suits—based on a product distribution theory—brought against technology providers (a small handful of federal appellate court cases and perhaps fewer than two dozen District Court cases in the last 20 years). I have found nothing in the briefs or the record that shows that Sony has failed to achieve its innovation- protecting objective.

B
The second, more difficult, question is whether a modified Sony rule (or a strict interpretation) would significantly weaken the law's ability to protect new technology. JUSTICE GINSBURG's approach would require defendants to produce considerably more concrete evidence—more than was presented here—to earn Sony's shelter. That heavier evidentiary demand, and especially the more dramatic (case-by-case balancing) modifications that MGM and the Government seek, would, I believe, undercut the protection that Sony now offers.
To require defendants to provide, for example, detailed evidence—say business plans, profitability estimates, projected technological modifications, and so forth—would doubtless make life easier for copyrightholder plaintiffs. But it would simultaneously increase the legal uncertainty that surrounds the creation or development of a new technology capable of being put to infringing uses. Inventors and entrepreneurs (in the garage, the dorm room, the corporate lab, or the boardroom) would have to fear (and in many cases endure) costly and extensive trials when they create, produce, or distribute the sort of information technology that can be used for copyright infringement. They would often be left guessing as to how a court, upon later review of the product and its uses, would decide when necessarily rough estimates amounted to sufficient evidence. They would have no way to predict how courts would weigh the respective values of infringing and noninfringing uses; determine the efficiency and advisability of technological changes; or assess a product's potential future markets. The price of a wrong guess—even if it involves a good-faith effort to assess technical and commercial viability—could be large statutory damages (not less than $750 and up to $30,000 per infringed work). The additional risk and uncertainty would mean a consequent additional chill of technological development.

C
The third question—whether a positive copyright impact-would outweigh any technology-related loss—I find the most difficult of the three. I do not doubt that a more intrusive Sony test would generally provide greater revenue security for copyright holders. But it is harder to conclude that the gains on the copyright swings would exceed the losses on the technology roundabouts.
For one thing, the law disfavors equating the two different kinds of gain and loss; rather, it leans in favor of protecting technology. As Sony itself makes clear, the producer of a technology which permits unlawful copying does not himself engage in unlawful copying—a fact that makes the attachment of copyright liability to the creation, production, or distribution of the technology an exceptional thing. Moreover, Sony has been the law for some time. And that fact imposes a serious burden upon copyright holders like MGM to show a need for change in the current rules of the game, including a more strict interpretation of the test.
In any event, the evidence now available does not, in my view, make out a sufficiently strong case for change. To say this is not to doubt the basic need to protect copyrighted material from infringement. The Constitution itself stresses the vital role that copyright plays in advancing the "useful Arts." No one disputes that "reward to the author or artist serves to induce release to the public of the products of his creative genius." And deliberate unlawful copying is no less an unlawful taking of property than garden-variety theft. But these highly general principles cannot by themselves tell us how to balance the interests at issue in Sony or whether Sony's standard needs modification. And at certain key points, information is lacking.
Will an unmodified Sony lead to a significant diminution in the amount or quality of creative work produced? Since copyright's basic objective is creation and its revenue objectives but a means to that end, this is the underlying copyright question. And its answer is far from clear.
Unauthorized copying likely diminishes industry revenue, though it is not clear by how much. The extent to which related production has actually and resultingly declined remains uncertain, though there is good reason to believe that the decline, if any, is not substantial.
More importantly, copyright holders at least potentially have other tools available to reduce piracy and to abate whatever threat it poses to creative production. As today's opinion makes clear, a copyright holder may proceed against a technology provider where a provable specific intent to infringe (of the kind the Court describes) is present. Services like Grokster may well be liable under an inducement theory.
In addition, a copyright holder has always had the legal authority to bring a traditional infringement suit against one who wrongfully copies. Indeed, since September 2003, the Recording Industry Association of America (RIAA) has filed "thousands of suits against people for sharing copyrighted material." These suits have provided copyright holders with damages; have served as a teaching tool, making clear that much file sharing, if done without permission, is unlawful; and apparently have had a real and significant deterrent effect.
Further, copyright holders may develop new technological devices that will help curb unlawful infringement. Some new technology, called "digital 'watermarking'" and "digital fingerprint[ing]," can encode within the file information about the author and the copyright scope and date, which "fingerprints" can help to expose infringers. Other technology can, through encryption, potentially restrict users' ability to make a digital copy.
At the same time, advances in technology have discouraged unlawful copying by making lawful copying (e.g., downloading music with the copyright holder's permission) cheaper and easier to achieve. Several services now sell music for less than $1 per song. (Walmart.com, for example, charges $0.88 each). Consequently, many consumers initially attracted to the convenience and flexibility of services like Grokster are now migrating to lawful paid services (services with copying permission) where they can enjoy at little cost even greater convenience and flexibility without engaging in unlawful swapping.
Thus, lawful music downloading services—those that charge the customer for downloading music and pay royalties to the copyright holder—have continued to grow and to produce substantial revenue. And more advanced types of non-music-oriented P2P networks have also started to develop, drawing in part on the lessons of Grokster.
Finally, as Sony recognized, the legislative option remains available. Courts are less well suited than Congress to the task of "accommodat[ing] fully the varied permutations of competing interests that are inevitably implicated by such new technology."
I do not know whether these developments and similar alternatives will prove sufficient, but I am reasonably certain that, given their existence, a strong demonstrated need for modifying Sony (or for interpreting Sony's standard more strictly) has not yet been shown. That fact, along with the added risks that modification (or strict interpretation) would impose upon technological innovation, leads me to the conclusion that we should maintain Sony, reading its standard as I have read it. As so read, it requires affirmance of the Ninth Circuit's determination of the relevant aspects of the Sony question.
(Well, that was long but, as I said, he puts things nicely.) I think Justice Breyer is spot-on in his analysis. In particular, his emphasis on the clarity of the Sony rule in allowing ex ante evaluation of potential liability is critical in not deterring innovation, as his highlighting of the forward-looking nation of the rule. Notable, at least to me, is his admission of the limitations of the judicial branch in deciding questions concerning technology —if only more jurists (and פוסקים!) would admit their limitations! (As an aside, the advocates of דעת תורה are shocking in their hubris as much as their innovation.)

One concern that emerged from the Court's ruling is their identification of a "tension between the competing values of supporting creativity through copyright protection and promoting technological innovation by limiting infringement liability" in the subject matter of the case. It is not clear to me that there is really such a tension. We should ask: Is copyright really supporting creativity in the preponderance of the cases at issue? Does P2P-type copying actually do substantial harm to the goal of fostering creativity? I think the answer to both these questions is "no".

In a pair of recent posts on Ars, Hannibal has argued correctly that at present copyright is primary a tool to support inflated monopoly pricing by media conglomerates:
What the music industry has is not a piracy problem, but a monopoly pricing problem. The "pirates" are just giving consumers the chance to purchase music in a real market. In asking the government to help them go after pirates, what the recording industry is really trying to do is get the government to help them work against the market by maintaining their monopoly pricing. It's ironic that in the name of "free trade" and commerce, Big Content is actually fighting to counteract the very market forces that they claim to champion.
The prevalence of piracy is a symptom of a flawed, economically unviable business model, and only by adjusting its business model —not through any ruling of the Supreme Court— will the industry thwart piracy. As the exclusive monopoly conveyed by copyright is intended to foster creativity, when it is not in fact doing so I see little reason (with Justice Breyer) revise or strengthen the Sony test.

Furthermore, there seems to be little evidence that P2P-type infringement substantially deters creativity, because it appears that such activity causes a relatively insignificant decrease in revenues to the artists who actually create (which probably explains which artists, in general, seems to be less threatened by P2P networks than the industry). Justice Breyer cites some evidence to this effect. Again, if this is so, there seems to be little reason to revise or strengthen the Sony test in ways which will substantially deter technological innovation. (Keep in mind that even though Grokster and StreamCast profited from the infringement which (according to the ruling) they induced, their profit was not substantially at the expense of copyright holders who would not have seen much of that revenue anyhow.)

Thus, it appears to me that, not only is Justice Breyer right to resist revising or strengthening Sony, but that the tension in this case is not between fostering creativity and promoting innovation at all. Rather, it is between the unfettered development of business models and the unlawful conduct by others that some of these business models rely upon. The particulars of copyright, and of patents wherefrom the Court's favored doctrine of inducement is derived, are largely beside the point. The real question, which is not restricted to copyrights or patents, is whether one can pursue a business model which depends on and induces unlawful conduct in order to succeed. The Court has, quite reasonably, looked to evidence of intent to demarcate the limits here; but other than legal convenience, I see to reason why that test should not apply beyond copyright and patents.


(For what it's worth, Wilco gets a number of mentions by the Court. I guess that one way to know you've made it big.)

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