Supreme Court Rules against Grokster P2P file sharing.

In what's being touted as a major victory for Music and Movie companies, the Supreme Court in late June issued a unanimous ruling in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd, Case No. 04-480. (US Supreme Court June 27, 2005). The court held that “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.

Thus the case is remanded to the lower Court to either consider MGM’s motions of summary judgment (which the court signals should be granted) or to conduct a trial.

Grokster is one of several P2P (peer to peer) file-sharing applications which make it possible for users around the world to upload and download data files (including music, movies, documents, software, etc.) to and from each others' computers.

Although the Court had, in 1989 ruled against the Movie studios in the Betamax Case (Sony v. Universal) finding that the videocassette recorder had ‘substantial non-infringing uses', and that consequently, the manufacturer would not be liable for its customers' copyright infringements, this case was different because the defendants had essentially built their business around the infringing use.

First, the court pointed out that the probable scope of copyright infringement is staggering” and that “there is evidence of infringement on a gigantic scale.” The court went on to point out that the non-infringing uses of the Grokster and Streamcast software were miniscule by comparison to the infringing uses by millions of illegal downloaders.

Grokster, the Court found, had chosen its name to appeal to users of the older Napster service (which was put out of business after losing several legal battles over its service). The Court apparently held that this selection of the name was not only evidence of knowledge of the infringing use, but also an affirmative act to promote that use. Thus, Grokster is liable for infringement of copyrights perpetrated by others.

This case presents some sticky problems for technology companies and innovators, who must anticipate possible illegal uses at all stages of a product's development, incorporate countermeasures against such illegal uses, and take great pains to avoid any act which would be considered to induce or promote such use.

Recall that Apple's iPod was introduced with an advertising campaign titled “Rip, Mix, Burn”. Needless to say, post Grokster, such a product launch would be unthinkable, as it quite clearly promotes illegal copying.

This victory for the entertainment industry is clearly a setback for the computer and consumer product industries. We may experience a ‘chilling effect' on the development of new technologies. The next iPod may be a long time coming.