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Okay, SCOTUS, (Supreme Court Of The United States) handed down its MGM v Grokster decsion, and predictably, (and sadly) most of the web commentary is best described as mindless panic, even though there's no real reason for it.

This is not new, but you occasionally hope.

Now, before we go any further, I want you go and read the decision. It's not long, (The primary decision's only about 5 pages) and it's really not a hard read. Go ahead, I'll wait. Make some notes if you like, I'll get some coffee.

See? Wasn't that hard. There, now that we're all on the same page, let's delve into this fascinating bit of legalese.

First, the basic complaint: (Note: I don't change any of the quotes from the decision beyond reformatting them to remove hard breaks and unnecessary hyphens)

Respondent companies distribute free software that allows computer users to share electronic files through peer-to-peer networks, so called because the computers communicate directly with each other, not through central servers. Although such networks can be used to share any type of digital file, recipients of respondents' software have mostly used them to share copyrighted music and video files without authorization. Seeking damages and an injunction, a group of movie studios and other copyright holders (hereinafter MGM) sued respondents for their users' copyright infringements, alleging that respondents knowingly and intentionally distributed their software to enable users to infringe copyrighted works in violation of the Copyright Act.

That's the basic case there. MGM is saying that the defendants created and distributed their software primarily to enable their users to infringe on copyright. It doesn't say that all P2P is bad, although I'm sure MGM and the rest think so. It's saying that Grokster's set their software up for copyright infringement.

Here's the first important bit from the second paragraph:

Respondents are not merely passive recipients of information about infringement. The record is replete with evidence that when they began to distribute their free software, each of them clearly voiced the objective that recipients use the software to download copyrighted works and took active steps to encourage infringement. After the notorious file-sharing service, Napster, was sued by copyright holders for facilitating copyright infringement, both respondents promoted and marketed themselves as Napster alternatives.

This is the important bit, and it's going to pop up again. This is saying that Grokster didn't just hand out the software for people to “use as they will”. This part is saying that there's clear evidence, and lots of it, that Grokster made one of the objectives of their software the downloading of copyrighted works, and actively encouraged this. They even positioned themselves as alternatives to Napster after Napster's first incarnation was bombed back to the Stone Age. This would be analogous to Smith and Wesson advertising the Model 29 as “The best way to blow your neighbor's head off”. Advertising illegal uses as a primary purpose of a product is, what most in the legal profession would probably call “dumb”.

Next, SCOTUS restates what the Ninth Circuit court found in its affirmation of the District Court's summary judgement for Grokster:

While acknowledging that respondents' users had directly infringed MGM's copyrights, the District Court nonetheless granted respondents summary judgment as to liability arising from distribution of their software. The Ninth Circuit affirmed. It read Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417, as holding that the distribution of a commercial product capable of substantial non-infringing uses could not give rise to contributory liability for infringement unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge. Because the appeals court found respondents' software to be capable of substantial noninfringing uses and because respondents had no actual knowledge of infringement owing to the software's decentralized architecture, the court held that they were not liable. It also held that they did not materially contribute to their users' infringement because the users themselves searched for, retrieved, and stored the infringing files, with no involvement by respondents beyond providing the software in the first place. Finally, the court held that respondents could not be held liable under a vicarious infringement theory because they did not monitor or control the software's use, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement.

Here we see the lower court decisions that applied Sony v Universal as saying that because Grokster has substantial uses other than copyright infringement, and that Grokster was, due to the design of the software unable to monitor how its software was used, that it was not liable for how those using its software used it. Furthermore, that because there was no centralized server, and Grokster didn't monitor or control the use of the software, due to both the use agreement and technical feasibility, it had no duty to police the use of the software. This is Grokster's case in a nutshell. “We don't know what people do with our stuff, and we can't monitor how they use it, so how can you hold us responsible for how they use it?” The District Court in the case agreed, and handed down a summary judgement, and the Ninth Circuit Court upheld that.

Now onto the next bit...this relates to the point of “If you market a product's illegal uses, you're responsible for that illegal use”:

Held: 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.

Again, if you make a product, and then promote the nefarious use of that product, even fostering such use beyond saying “Here it is, do what you want with it”, then you're liable for the resulting acts. But did Grokster do this? SCOTUS says they did. SCOTUS does point out that the point isn't just “Someone did something bad with your product, you're at fault”. If that was the case, then there'd be a lot of people suing the makers of the Louisville Slugger, along with anything else that can be possibly used as a weapon. SCOTUS says that in cases of copyright infringement, Sony said you can't hold person A directly responsible for person B's actions. However, if person A is actively encouraging person B to infringe on copyright, then person A is said to be liable for contributory infringement:

One infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise the right to stop or limit it. Although “[t]he Copyright Act does not expressly render anyone liable for [another's] infringement,” Sony, 464 U. S., at 434, these secondary liability doctrines emerged from common law principles and are well established in the law, e.g., id., at 486. Pp. 10-13.

Even if you don't directly commit the infringing act, if you are seen to be actively encouraging the infringement, you can still be held liable. Furthermore, while Sony did deal with secondary infringement. That decision said that first, recording a program for the sole purpose of time-shifting it for personal use was allowed, and secondly, Sony didn't encourage users of the Betamax to infringe on copyright, nor did it profit from copyright infringement. Because of that, the only way to bust Sony was on the fact that they were distributing a product that could be used to infringe on copyright. However, Because the VCR was “capable of commercially significant non- infringing uses,” the Court held that Sony was not liable. Again...in the Sony case, Sony wasn't actively encouraging people to break copyright, and you can do tons of stuff with a VCR that wasn't centered around copyright infringement.

Because of that, SCOTUS disagrees with the Ninth Circuit's application of Sony:

In this case, 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. Sony did not displace other secondary liability theories.

What SCOTUS is saying is that the Ninth Circuit read Sony to mean that because Grokster has substantial non-infringing uses, unless you could show that Grokster had specific knowledge of all the violations of copyright its software was being used for and failed to act on that knowledge, Grokster was immune from liability for those infringements. SCOTUS says this is an incorrect interpretation of Sony, as that decision did not overrule all secondary liability theories. AKA, Sony was not a “License to Kill”.

The next paragraph goes into more detail, but this is the critical part:

Evidence of active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use, shows an affirmative intent that the product be used to infringe, and overcomes the lawís reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use. A rule that premises liability on purposeful, culpable expression and conduct does nothing to compromise legitimate commerce or discourage innovation having a lawful promise.

This is a critical part. Just because your product has non-infringing uses, if you actively encourage infringement as a use of your product you're liable. It also says that just because one vendor of a product encouraged infringement as a use of their product does not meant hat all similar products from all vendors are to be viewed in the same way. In other words, P2P isn't inherently bad, but if you advertise it as a way to infringe on copyright, you're gonna get screwed.

Now, onto the next part. This would be the bullet to the brain of the Ninth Circuit's decision.

On the record presented, respondents' unlawful objective is unmistakable. The classic instance of inducement is by advertisement or solicitation that broadcasts a message designed to stimulate others to commit violations. MGM argues persuasively that such a message is shown here.

Bang, you're dead. Grokster was actively encouraging infringing use of their product, and MGM was able to show this.

Three features of the evidence of intent are particularly notable. First, each of the respondents showed itself to be aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users. Respondents' efforts to supply services to former Napster users indicate a principal, if not exclusive, intent to bring about infringement.

By marketing yourself as the replacement for a service whose, (in its original incarnation), sole reason for being was copyright infringement, Grokster was specifically targeting its software for use by a large population of known copyright infringers. That's probably not the smartest way to prove that your software isn't primarily designed for copyright infringement.

Second, neither respondent attempted to develop filtering tools or other mechanisms to diminish the infringing activity using their software. While the Ninth Circuit treated that failure as irrelevant because respondents lacked an independent duty to monitor their users' activity, this evidence underscores their intentional facilitation of their users' infringement.

This part's kind of weak. The Ninth Circuit said the lack of filtering tools or other infringement prevention mechanisms was not Grokster's job, and SCOTUS uses this as evidence of Grokster's liability. The truth is, in a decentralized P2P setup, such as Gnutella - based systems, it's effectively impossible to monitor what people are doing with the software, and once you can successfully transcode the file to say, AIFF, then all you really have to go on, (feasibly) is the file name, which is completely unreliable. SCOTUS kind of screwed up here, although the supporting opinions in this case address this technical issue a little. (No, I'm not going into those, as for the purposes of this article, they're redundant, but I hope you read them. They're neat.)

Third, respondents make money by selling advertising space, then by directing ads to the screens of computers employing their software. The more their software is used, the more ads are sent out and the greater the advertising revenue. Since the extent of the software's use determines the gain to the distributors, the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing. This evidence alone would not justify an inference of unlawful intent, but its import is clear in the entire record's context

This part's saying that Grokster makes money by selling advertising in its product. By itself, this is neither good or bad. But, since Grokster actively encouraged using its software to infringe on copyright, and because the more copies of its software are in use, the more money they make, well, this just doesn't help them at all. Taken in context with encouraging infringement, this is just another nail in the coffin of Grokster's case.

In addition to intent to bring about infringement and distribution of a device suitable for infringing use, the inducement theory requires evidence of actual infringement by recipients of the device, the software in this case. There is evidence of such infringement on a gigantic scale. Because substantial evidence supports MGM on all elements, summary judgment for respondents was error. On remand, reconsideration of MGM's summary judgment motion will be in order. Pp. 23-24.
380 F. 3d 1154, vacated and remanded.

No big shock here...the fact that the biggest use, by far of Grokster was to blatantly and massively infringe on copyright, when combined with the other decisions SCOTUS came to, well, the lower courts' summary judgement and support of said summary judgement is gutted. The summary judgment is vacated, and it goes back to the lower court for trial.

So yeah, Grokster lost, but SCOTUS didn't issue a blanket condemnation of P2P. They didn't say anyone using P2P is guilty. They said that Grokster was being shady, and that the lower courts should have actually had the damned trials instead of just issuing summary judgments.

Again...SCOTUS said, “Grokster created and aimed this software at the Napster crowd, and encourage it as a music sharing product”
SCOTUS didn't say “All P2P is only for copyright infringement, and if you use it for any reason, you're a criminal”.

So can we all CALM THE HELL DOWN?

Please?

Thanks.

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