The Supreme Court Addresses "Inducement" of Copyright Infringement Through Software in Anticipated Grokster Case.

Originally published July 7, 2005

On June 27, 2005, in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., the United States Supreme Court held that software companies may be held liable for copyright infringement if there is evidence showing an intent to encourage infringement through use of their software by third parties. In delivering the unanimous decision of the Court, Justice Souter stated that "one who distributes a device with the object of promoting its use to infringe copyright, as shown by the clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties."

This ruling reversed a ruling of the United States Court of Appeals for the Ninth Circuit, which had held that defendants Grokster Ltd. and StreamCast Networks, Inc. (collectively "software companies") were not liable for contributory or vicarious copyright infringement. The "inducement rule," which the Court adopted from patent law, creates a fact-intensive inquiry for assessing whether a particular software or product developer engaged in conduct that could be considered as purposefully encouraging copyright infringement by end users.

The Grokster case involved copyright infringement claims by three groups representing motion picture studios, recording companies, and music publishers (collectively "content owners") based upon the software companies' distribution of peer-to-peer file-sharing software that allows end users to share copyrighted material with one another via the Internet. The content owners argued that the software companies should be held liable for contributory and vicarious copyright infringement based upon the well-documented infringing actions of end users of the software in question.

The trial court, and the United States Court of Appeals for the Ninth Circuit, ruled in favor of the software companies finding that they were not liable for contributory or vicarious copyright infringement based upon the Supreme Court's landmark ruling in Sony v. Universal City Studios, 464 U.S. 417 (1984) ("Sony-Betamax"). In Sony-Betamax, the Supreme Court held that Sony, the manufacturer of VCRs, was not liable for contributory copyright infringement because VCRs were capable of substantial or commercially significant non-infringing uses. In their briefs to the Supreme Court, the content owners argued that the Ninth Circuit misapplied the Sony-Betamax defense to preclude all secondary copyright infringement liability for products that have commercially significant non-infringing uses. The content owners contended that Sony-Betamax should not be interpreted to protect defendants from liability where they actively encourage or assist infringement. The software companies argued that the Sony-Betamax rule generally foreclosed any claims of secondary infringement liability for products that are capable of significant non-infringing uses. They also argued that the content owners could not prove any known instances in which the software companies had encouraged or promoted infringement.

In rendering its decision, the Supreme Court held that the Ninth Circuit's interpretation of the Sony-Betamax rule, as precluding secondary liability where the product in question has substantial non-infringing uses, was an overly broad interpretation of the rule. The Court held that the Sony-Betamax rule does not preclude secondary infringement liability where there is evidence of intent to encourage infringement. The Court then declined to further address the Sony-Betamax rule and held that there is inducement of copyright infringement where the evidence shows that the defendants intended for their software to be used in an infringing manner.

Upon examination of the evidence, the Supreme Court found that the defendant software companies went beyond merely distributing a software product open to both non-infringing and infringing uses and engaged in conduct showing a purpose to cause and profit from third-party infringement. Notably, the evidence that the Court believed showed an intent by the defendant software companies to cause infringement included (i) use of software product names that implicitly invoked Napster (the clearly infringing file sharing software), (ii) offering the same basic services that Napster offered to end users, (iii) internal correspondence that one defendant was targeting former Napster users (interpreted as proving intent regardless of whether the messages ever reached end users), and (iv) the defendants' failure to attempt to prevent infringement by users of their software. In combination with this direct evidence, the Court also found that unlawful intent to cause copyright infringement could be inferred from the fact that the commercial success of the defendants' software products depended on a huge volume of use, most of which was infringing.

The decision reflects the clear intent of the Supreme Court to retain the Sony-Betamax rule as a defense to claims of contributory and vicarious copyright infringement, thereby protecting the rule's aim of encouraging technological innovation, unless there is some evidence or affirmative action showing intent to foster use of the product for an infringing purpose. The case will now return to the trial court for a determination of whether summary judgment should have been granted in favor of the plaintiff content owners based on what the Supreme Court considered to be "substantial evidence" supporting secondary liability for infringement.

Although the Court preserved the Sony-Betamax rule as a defense to claims of secondary copyright infringement in some situations where the products in question have substantial non-infringing uses, the Court's inducement rule implies that technology companies would be wise to carefully scrutinize all activities related to products that are capable of being used in a manner that could infringe third-party copyrights. Marketing activities, product manuals, and business plans related to such products should be carefully created to clearly demonstrate that the products are intended to be used for only non-infringing purposes. The most cautious of software companies may also wish to consider implementation of product features that limit end users' ability to use the software for infringing activities. Conversely, content owners should explore all avenues for demonstrating intent to induce infringement when seeking to establish secondary copyright infringement liability and should seek broad discovery related to product developers' intended uses for products that have both infringing and non-infringing uses.

[c] 2005 Sutherland Asbill & Brennan LLP. All Rights Reserved.

This article is for informational purposes and is not intended to constitute legal advice.

Ms Patricia Cunningham

Sutherland Asbill & Brennan

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