IT Law Journal

administrator January 3rd, 2005

Metro-Goldwyn-Mayer Studios, Inc., et. al. vs. Grokster Ltr. And Sherman Networks Ltd.
CV-01-08541-SVW (United States)

(This section will be a regular feature of the journal to highlight significant cases decided in the Philippines and in foreign jurisdictions relating to information technology)

by Jhonelle S. Estrada

Facts: The plaintiffs in these consolidated cases (copyright owners) are songwriters, music publishers, and motion picture studios or those ‘who own or control the vast majority of copyrighted motion pictures and sound recordings in the United States.’ Defendants Grokster Ltd. and Streamcast Networks, Inc., on the otherhand are ‘software distributors.’ They are the companies that freely distribute software that allow users to share computer files with each other, including digitized music and motion pictures. Plaintiffs alleged that over 90 percent of the files exchanged through use of the ‘peer to peer’ file-sharing software offered by the software distributors involve copyrighted material, 70 percent of which is owned by the copyright owners. They contend that defendants are liable for vicarious and contributory copyright infringement, and that they are entitled to monetary and injunctive relief.

Defendants initially used the fast track technology. But since StreamCast had a licensing dispute with KaZaa, it now uses its own branded ‘Morpheus’ version of the open-source Gnutella code. StreamCast users connect to other users of Gnutella-based peer-to-peer file-sharing software. Grokster and Streamcast both distribute their software free of charge. Once downloaded onto a user’s computer, the software enables the user to participate in the respective peer-to-peer file-sharing networks over the internet. The users of the software share digital audio, video, picture, and text files. Some of the files are copyrighted and shared without authorization, others are not copyrighted (such as public domain works), and still others are copyrighted, but the copyright owners have authorized software users in peer-to peer file-sharing networks to distribute their work.

Plaintiffs claim that majority of the information was exchanged in violation of copyright law. The district court ruled in favor of the defendants by stating that such activities do give rise to liability under the theory of contributory copyright infringement and vicarious copyright infringement.

Issue: Whether or not the distributors of peer-to-peer file-sharing computer networking software may be held contributorily or vicariously liable for copyright infringement of the software users.

Held: The decision of the district court was affirmed.

A. Contributory Copyright Infringement

The three elements required to prove a defendant liable under the theory of contributory copyright infringement are: (1) direct infringement by a primary infringer; (2) knowledge of the infringement,;and (3) material contribution to the infringement.

The element of direct infringement is present in this case.

As regards to knowledge of infringement, in order to analyze its required element, the level of knowledge required must be determined. If the product at issue is not capable of substantial or commercially significant non-infringing uses, then the copyright owner need only show that the defendant had constructive knowledge of the infringement. In this case, the district court found it undisputed that the software distributed by each defendant was capable of substantial noninfringing uses. A careful scrutiny of the record indicates that there was no genuine issue of material fact as to non-infringing use. Indeed, the software distributors submitted numerous declarations by persons who permit their work to be distributed via the software, or who use the software to distribute public domain works. In the case at bar, the software distributors have not only shown that their products are capable of substantial noninfringing uses, but that the uses have commercial viability. On the other hand, if the product at issue is capable of substantial or commercially significant noninfringing uses, then the copyright owner must demonstrate that the defendant had reasonable knowledge of specific infringing files and failed to act on that knowledge to prevent infringement. In this case, the software design is of great import. Under both StreamCast’s decentralized, Gnutella-type network and Grokster’s quasi-decentralized, supernode, KaZaa-type network, no central index is maintained. Indeed, at present, neither StreamCast nor Grokster maintain control over index files. And, as the district court observed, even if the software distributors ‘closed their doors and deactivated all computers within their control, users of their products could continue sharing files with little or no interruption.’

With respect to their current software distribution and related activities, defendants do not materially contribute to copyright infringement. The software distributors do not provide the ‘site and facilities’ for infringement, and do not otherwise materially contribute to direct infringement. Infringing messages or file indices do not reside on defendants’ computers, nor do defendants have the ability to suspend user accounts. Also as found out, the software distributors here are not access providers, and they do not provide file storage and index maintenance, but rather, it is the users of the software who, by connecting to each other over the internet, create the network and provide the access. Plaintiffs failed to present evidence that defendants materially contribute in any manner.

B. Vicarious Copyright Infringement

Three elements are required to prove a defendant vicariously liable for copyright infringement: (1) direct infringement by a primary party; (2) a direct financial benefit to the defendant; and (3) the right and ability to supervise the infringers.

The elements of direct infringement and direct financial benefit, via advertising revenue, are undisputed in this case.

With regard to the right and ability to supervise, it does not appear from the records that either of the defendants has the ability to block access to individual users. Grokster nominally reserves the right to terminate access, while StreamCast does not maintain a licensing agreement with persons who download Morpheus. However, given the lack of a registration and log-in process, even Grokster has no ability to actually terminate access to file sharing functions, absent a mandatory software upgrade to all users that the particular user refuses, or IP address blocking attempts. It is also clear that none of the communication between defendants and users provides a point of access for filtering or searching for infringing files, since infringing material and index information do not pass through defendants’ computers. The sort of monitoring and supervisory relationship that has supported vicarious liability in previous cases is totally absent in this case. Unlike in the case of Napster, Grokster and StreamCast do not operate and design an integrated service.

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