The most recent Supreme Court ruling on this controversial issue was in the case of MGM v. Grokster.  Reversing the opinions of both the district court and the Third Circuit, the Supreme Court found that, though the software could be used for both infringing and non-infringing purposes, the companies “induced” its users to infringe copyright.  Even though the software may have had substantial non-infringing uses and may thus have passed the Sony test, the court unanimously felt that the software was created with the intention of allowing users to infringe copyright for the profit of the company .  While these file-sharing networks were shut down as a result of the ruling, the government did not seek prosecution of users, many of whom had shared less than $1000 dollars worth of copyrighted works and were thus not criminally liable under the current U.S. code.  And while the government may have had a shot at prosecuting the creators and marketers of the software itself, as their product had been found to induce copyright infringement, with damages likely totaling thousands of dollars, a federal case was never made of it.  Grokster was shut down, and numerous file-sharing networks popped up in its place, while legal digital distribution networks gained popularity as well, filling the gap left by the popular illegal networs.  The war on piracy continued despite this dramatic ruling, and the complaining on behalf of the record companies has yet to cease.

The MGM Studios, Inc. v. Grokster, Ltd. Supreme Court decision is the basis for my argument that the decision in this case has stopped the process in which technology has continually stayed ahead of the law. In the ruling, Justice Souter wrote: "We hold 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." The ruling here put the burden on the company producing new technologies to not do anything that could be construed as promoting illegal activity through the use of their product. No longer could a company sell a product that was capable of enabling illegal activity and turn a blind eye to how its customers used it.

The court also made a point to say that a company cannot be found liable if there is no evidence to support that it has promoted illegal activity if it has not taken steps to prevent infringement, only if the product has other substantial non-infringing uses. This is significant in that it does not halt technological development that could be used for infringing, but tries to strike a balance between protecting technological advancement and intellectual property.

The Grokster decision effectively ended Grokster as a file sharing service and forced Grokster to pay $50 million to the recording industry. The court ruled that Grokster had shown intent of providing its service for the illegal infringement of copyrighted materials by its users. This case has taken the focus of copyright infringement off of the technological aspect to the intent of the company issuing the technology. As a result, companies must be very careful about how their intent can potentially be seen by a court and also smaller companies may have trouble with creating new innovations if they are forced into costly litigation with much larger companies.

This article looks at newly emerging technology that is currently being effected by the MGM v. Grokster decision. Ganley provides a standard background of the Grokster case, stating the facts of the proceedings, before delving into the ramifications of the unanimous decision that “distributors of decentralized P2P software can be held liable for copyright infringements committed by their users.” Some people felt that the “key to resolving the case was an affirmation or reinterpretation of the Sony rule,” but Ganley writes that the Supreme Court disagreed with this notion and instead focused on the issue of intent, which was mention in the Sony case, but not the main focus of that decision. Specifically, the court stated that “nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law.”

Overall, the court used three main pieces of evidence to prove that there was intent on the part of Grokster and Streamcast, thus enacting the inducement standard. The three points were 1) Advertising – meaning the way Grokster presented its service to clients – 2) Absence of Filtering – meaning the lack of precaution against the potential for infringing activity – and 3) Revenue model – meaning the way revenue was collected. In this case, the amount of money generated directly correlated to the number of people using the service and the traffic on the site was almost entirely due to infringing behavior, which meant that regardless of the system’s non-infringing potential uses only the infringing uses were directly generating revenue. The court also pointed out in their holding that points 2 and 3 “simply added weight to inference of an unlawful intent based on the advertising-related behavior. On their own, these points would not satisfy the evidential burden.”

About these three points, Ganley comments that the one dealing with filtering seems to be the most problematic. The reason for his saying this is because future innovation could be chilled. Even though the lack of a filtering system alone was not enough to prove inducement, the decisions of future cases may hinge on whether of not a filtering mechanism was present in the device or system. However, these sorts of mechanisms may be too expensive for independent inventors to incorporate in early stages of development and therefore hinder future inventions. Ganley also touches briefly on the inducement standards possible effect on BitTorrent and Me2Me technology such as Tivo, the iPod or the Slingbox. So far, BitTorrent seems to be in the clear because all expression of its intent encourages non-infringing uses, unlike Grokster’s internal communication that specifically hoped to target old Napster users. Additionally, Me2Me technology has not get been formally prosecuted because thus far they are not guilty of inducement or the Sony standards of contributory infringement and vicarious liability. Of course, they may still be brought to court in the future.

In conclusion, Ganley writes that the Grokster decision is unlikely to make much of a difference to files shared online and has only caused minimal damage to future technological advances. But, as a result of the case's outcome, harsher infringement protection is being created. There is new technology coming to the market like programs called Avalanche or SnoCap that are using cutting-edge technology to digitally fingerprint copyrighted material and hopefully protect them from being illegally distributed in the future.

As Alfred Yen, professor of law at the Boston College Law School, states in his introduction, this article "studies the construction of third party copyright liability in light of the recent Supreme Court case Metro-Goldwyn-Mayer Inc. v Grokster, Ltd.” The article is broken up into five sections: the first describes the doctrines that governed third party liability before Grokster, the second uses “fault and strict liability to expose the theoretical and practical tradeoffs implicit I these differing constructions, the third analyzes the case itself, the fourth describes the implications of the decision and “sets forth the general contours of an improved, post-Grokster­ construction of third party copyright liability, and the fifth gives some thought to the future of this subject matter.

The Grokster case is the latest in a series of cases where an internet service provider has been prosecuted for the actions of its users. Yet, even with this new decision in the books, little progress has been made to determine who is really the most responsible for infringement or how to hold them adequately responsible. Yen writes that “third part copyright liability benefits society by encouraging individuals to stop others from infringing, but those benefits come at a price… third party copyright liability suppresses non-infringing as well as infringing behavior.” Overall, this paradox illustrates the biggest deficit of internet copyright law: the inability to find the balance between, in Yen’s words, “desirable and undesirable consequences” of new technology. At this point in time, there seems to be no obvious strategy for regulating the internet without stifling future innovation and creation.

This article points out that although Grokster “gave the Supreme Court the opportunity to straighten out the law of third party copyright liability” little to no progress was actually made in interpreting pre-Grokster doctrines of third party copyright liability. Instead of “choosing between” existing “differing interpretations” of the law, Yen writes that the court “adopted a dormant theory of third party copyright liability, inducement.” Overall, Yen’s article shows that “inducement give courts a new tool for holding culpable defendants liable which reducing the risk of undesirable side effects.” Yen describes the Grokster decision as being “not a landmark, so much as a milestone, ratifying a continuing détente between those who build on the Internet and those in a position to regulate the builders.” This decision has also turned the focus of internet gate keeping to controlling software and PC uses ability to run that software rather than the ability to control the entire network.

Whether or not one agrees with the merit of the new inducement doctrine, this article is a comprehensive look at an area of copyright law that is important and continuing to quickly evolve. The story of these laws will continue to change drastically in the years to come, but this is a useful, informative and through-provoking look at the situation thus far.

This article is short, but it is a contemporary reaction to the Grokster decision, and the worries expressed in it (almost a year and a half ago) are still very relevant today. Currently, products like TiVo and Slingbox are being called guilty of “place-shifting.” This phrase is similar to the “time-shifting” ideology of the Sony case, which was then considered to be a fair use. With technology like TiVo or Slingbox, the general consensus is that it is not just time that is being shifted, but the place where one watches as well. For example, the Slingbox connects to a television set and then gives the owner the option of watching whatever is broadcast on that television on their laptop even if they are in a different city or state. Thus far, this has not been said to be illegal, but, as this article suggests, a law suit may not be far off on the horizon.

This article quotes from an article in the Hollywood Reporter, which explicitly asked for technology to be incorporated in to the Slingbox product that “will respect copyright.” In other words, it almost sounds as if Hollywood is asking for Slingbox to include a filter. One of the reasons that Grokster was found to be guilty was because there was no filtering mechanism used in the technology. However, the court explicitly stated that the lack of filtration system alone would not be enough to find guilt but would be additional evidence in a situation where other factors led to the appearance of guilt.

And therein lays the biggest part of the dilemma: Slingbox and TiVo and other Me2Me file-sharing has not been said to be illegal, but it has also not been legally ruled as being fair use either. Therefore, as this article asks, if these companies “lose on fair use, are they automatically liable for inducement?” Although many people may be inclined to say no, the Grokster decision may actually make it so they would be liable for inducement. Additionally, these technologies are already being called out for not having filtration systems, which will only come back to haunt them – as it did with Grokster and Napster before it – and may contribute to their being found guilty if they are ever brought to trial.

Before the Grokster ruling, these sorts of companies would only have to have proved that “any substantial use of their product” was non-infringing, however now they may be expected to prove that “every” use of their product is non-infringing. This might be over-exaggerating the situation, but it does illustrate what sort of effect the Grokster decision might have in the future. And, seeing as how now, in the winter of 2006, which are a year and a half into the future since this article was written, it seems that this claim of a future chilling effect is really more accurate than innovators and digital media inventers would’ve liked to admit at the time.

In this article, Andrew Beckerman-Rodau asks whether the Grokster ruling was really a good decision or simply judicial activism. Judicial activism refers to the practice of a court not interpreting the law as it already exists but rather legislating from the bench and creating new legal interpretations. Beckerman-Rodau writes that the Grokster decision rightly recognizes “the conflicting goals which had to be balanced: protecting intellectual property to promote creative activities; and, the importance of not impeding creative and innovative conduct.”

Overall, Beckerman-Rodau also writes that the Grokster decision “does not represent a novel interpretation of the law. Rather, it is consistent with the underlying principles of intellectual property law and it is based on established unfair competition theory which is supported by existing precedent.”

The article begins with “an overview of the decision,” first looking at the facts of the case. Then it discusses what the court did decide – the application of the inducement theory – and what it did not decide – the ramifications of the Sony decision in this context. Then it goes on to deal with the underlying policy considerations of the case. In both Sony and Grokster the same conflicting policy concerns are raised, which deal with “the underlying policy of promoting creativity and innovation by granting property protection for the results of such activity versus withholding such property protection to avoid impeding technological developments.” Beckerman-Rodau states that “copyright law exists to provide benefits to the public, not to maximize economic benefit flowing to a creator.” The Grokster decision went in favor of the content holders, those looking to reap the maximum economic benefit.

The article continues by looking at the application of the new inducement theory. First, it looks at the iPod, stating that although the device has illegal uses and Apple is aware of the potential for infringement the knowledge alone is not enough to hold them liable. The fact that Apple has provided iPod owners with a legal model for acquiring music, iTunes, only further helps Apple avoid liability. Secondly, the article looks at the legality of DVRS – meaning digital video recorders such as Tivo. Again, this service does not encourage users to engage in illegal activity and does not intend for infringing activities to be its primary usage.

Finally Beckerman-Rodau concludes with a recommendation for the lower courts’ application of the Grokster decision. He writes that a good way to balance the concerns of chilling innovation with the concerns of allowing infringement to occur “would be to require sufficient proof of intent to meet the clear and convincing evidence standard for inducement liability. This would avoid chilling innovation because inducement liability would only apply in situations where it is obvious that a product is being distributed with the clear intent that it be used for infringing activity. Additionally, this heightened standard would not affect the ability of a copyright owner to sue direct infringers.”

Whether courts will take this sort of advice is yet to be determined, but Beckerman-Rodau clearly states that the court, in this instance, was not legislating from the bench and instead codifying “preexisting judicially recognized doctrines” in order to make a ruling in contentious legal territory. As Beckerman-Rodau suggests, online copyright liability is an area of law that is only beginning to come into the forefront of legal decision making and liability discussions and will be debated long into the future.

The full effect of the Grokster case is still yet to be determined. The case itself is important in current discussions of copyright law because of the way the Inducement Doctrine was used in reference to copyright. The case is also significant because it touched on the highly contentious issue of when and to what extent a distributor can be held liable for the infringement of individual users.

The case itself did not just concern Grokster, but also Morpheus, KaZaA and StreamCast. 28 of the world's largest entertainment companies brought a lawsuit against them, hoping to establish a new precedent to be used against other technology companies mostly in the realm of, but not limited to, peer-to-peer file-sharing networks.

Originally in the case, the Ninth Circuit court ruled that the companies responsible for distributing Grokster and the other services could not be held liable for the violations of its users because of precedent of the Sony ruling, which found that distributors could not be held liable for the infringing activities of its users so long as the tool was capable of substantial non-infringing uses. However, the Supreme Court set aside this ruling. The Court did not overturn the Sony Doctrine, but it did not re-interpret it either. Instead, the Court chose to turn to the Inducement Doctrine. Now, in addition to the uncertainty regarding contributory infringement and vicarious liability, innovators must also contend with the problems of inducement.

The court’s holding stated that “for the same reasons that Sony took the staple-article doctrine of patent law as a model for its copyright safe-harbor rule, the inducement rule, too, is a sensible one for copyright. We adopt it here, holding 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."

In the final decision, the Supreme Court found the defendants guilty of inducement for three main reasons. First, the companies showed that they were “aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users.” The court looked at the companies’ internal communication and found several documents that made “constant reference” to the model and practice of Napster. Secondly, MGM was able to show that none of the company’s attempted to develop filtering tools or other mechanisms to diminish the infringing activity, which the Supreme Court felt underscored “Grokster’s and SteamCast’s intentional facilitation of their users’ infringement. (The Ninth Circuit looked at the lack of such tools as “irrelevant” because the companies “lacked an independent duty to monitor their users’ activity.”) Additionally, though, the Supreme Court decision stated that “in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial non-infringing uses. Such a holding would tread too close to the Sony safe harbor.” Thirdly, the Court concluded that the companies’ selling advertising space was further evidence of unlawful objectives. The court stated that “the more the software is used, the more ads are sent out and the greater the advertising revenue becomes. 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 Article points out the critical short-coming of the Grokster case: the inability to answer the question of what a technology vendor can be held liable for. Instead, the court announced a new doctrine for copyright – inducement – which is certainly a viable way of dealing with the situation, but fails to contend with information that was already on the table. Instead of somehow using the copyright legislature already in circulation to deal with the Grokster case, the court decided to shift focus and contend with a new doctrine.

Author Fred von Lohmann writes that this new decision leaves technology companies and their attorneys to “pick their way through a dangerous minefield of legal uncertainties.” Really, the problem is not the new doctrine of inducement itself, but the “continued uncertainty surrounding the traditional doctrines of contributory infringement and vicarious liability.”

Overall, this article states that legal uncertainty is particularly chilling to innovators because of the problem of statutory damages. Sometimes the penalties for technology end up being put on such a large scale that they can be looked at as a “corporate death penalty” because insurance is unavailable for such large claims. Sometimes, even just one of these sorts of claims can bankrupt a company. But, in contrast, patent law has no similar provision and additionally, patent claims are made primarily against copporations while in copyright, claims can be made not just against the company as a whole, but against the individual officers, directors and corporate investors. Therefore, the uncertainly left as a result of refusing to deal with contributory or vicarious infringement claims is thoroughly problematic and will only cause future courts and cases to continue to contend with the same problems, which could’ve been put to rest if the courts had chosen to deal with them.

The uncertainty surrounding contributory and vicarious infringement is not only troubling for future legal proceedings but also “chilling” for current and future innovators. The risks and uncertainties involved with these undecided doctrines propose trouble for innovators and investors of new multipurpose technologies because having substantial non-infringing uses may no longer be enough of a guarantee that a product will be allowed to be distributed.

Lohmann proposes that “if the Supreme Court is unwilling to address the scope of secondary liability, perhaps it is time for Congress to address copyright remedies.” He also feels that Congress should “abolish statutory damages for secondary copyright claims” because this would “leave copyright owners injunctive remedies and actual damages, putting them in no worse a position than litigants in most other areas of civil law.” This change would allow companies and investors to be able to make “reasonable business decisions about manageable levels of legal risk” without fear of unpredictable or unprecedented legal standards that could completely bankrupt their company or hinder their production beyond repair.

This article is written by the Center for Democracy and Technology, a non-profit interest group that “seeks to promote free expression, privacy, and individual liberty on the open, decentralized internet.” This document “outlines the limits on the scope of secondary copyright liability,” looking at the Grokster decision, the landmark decision in Sony Corporation of America v. Universal City Studios, Inc. (1984), and patent law precedents relating to inducement liability. The goal of this investigation is to make sure that "secondary liability for copyright infringement does nothing to compromise legitimate commerce or discourage innovation having lawful promise.’” The Grokster case and the Sony decision can obviously be looked at be looked at individually, but this article does a nice job of synthesizing the information and explaining how they impact each other.

The article focuses on the new implications of the “inducement test,” what repercussions the situation has for the Sony rule and what this all means for vicarious liability. The article focuses on one key difference in clarification between the Grokster and Sony decisions. The language in the Grokster decisions "suggests that the Sony test focuses on 'substantial' non-infringing uses, not 'commercially significant' non-infringing uses." With Grokster, the emphasis was certainly placed on the commerical uses of the site. Monetary gains became one of the most significant factors of the case, not just ethical or legal implications. Certainly the internet is just as much a business as any other commerical frontier in the world, but more and more - especially illustrated with the Grokster decision - financial viability is the determining legal decision making. For example, today YouTube is currently seen as protected by the safe harbor provison, although some of the content being posted on YouTube today was possibly (or probably) also availible on Grokster. YouTube has been able to position itself not only in a safe harbor in a legal sense, but also in a financial sense by teaming up with companies who own many of the copyrighted works that are being infringed.

Of course the Sony case was also motivated by money, but more than ever before the current world of the web and the sites that are allowed to function within its borders are completely a function of their monetary potential for copyright holders. Grokster was taken to court because it posed a threat to the financial success of copyright holders. YouTube poses a similar threat as well, but thus far has been able to keep in partnership with the people who would be taking them to court in the first place.

In this article, William Landes looks at the “enduring legal question” that asks to what extent tools, services and venues that individuals use to infringe copyright should be held liable for the resulting infringement. In other words, Landes asks “how far should copyright liability extend beyond any direct lawbreakers?” Copyright law uses a variety of common law doctrines and statutory provisions in order to address issues of secondary and tertiary liability. In this article, Landes looks at these laws of copyright and evaluates them from an economic perspective. Landes states that unlike the Patent Act, the Copyright Act of 1976 “does not explicitly recognize the possibility of indirect liability.” He writes that courts have held third parties liable for copyright infringement by turning to the long-standing common law doctrines of contributory infringement and vicarious liability. Landes goes into a great deal of detail in explaining what these two terms actually mean and explaining their role in the Sony decision.

Landes claims that in the Sony decision the Courts failed to consider the balance between the benefits associated with legitimate use and the harms associated with illegitimate use. Landes writes that the ruling “implies that VCR manufacturers can facilitate any copyright violation they wish so long as they can prove that VCRs also facilitate some non-trivial amount of legitimate behavior.” However, Landes concedes that “mere dissection of the legal analysis misses the heart of the Sony decision” and goes on to write that “the driving concern in Sony was a fear that indirect liability would have given copyright holders control over what was then a new and still-developing technology.” Overall, the Court wrote that Copyright law must “strike a balance between a copyright holder’s legitimate demand for effective . . . protection . . . and the rights of others freely to engage in substantially unrelated areas of commerce.” This same idea can be analogized to a lawsuit that attempts to hold Internet service providers liable for online copyright infringement. Landes writes that “it is easy to see why courts would be reluctant to enforce such liability.”

From an economic standpoint, Landes explains that although Copyright law is important “at some point copyright incentives must take a backseat to other societal interests, including an interest in promoting the development of new technologies and an interest in experimenting with new business opportunities and market structures.” Overall Landes concludes that “the main argument in favor of liability is that, although [secondary] parties are only indirectly responsible, they are typically in a good position to either prevent copyright infringement or pay for the harm it causes.” However, “indirect liability has a significant drawback […] in that legal liability — even if carefully tailored — inevitably interferes with the legitimate use of implicated tools, services, and venues. Sometimes raising the prices of services, or even just setting the prices of in the first place, dissuades legitimate users from engaging in legal activity because they don’t want to pay the price. Landes points out that “one can only wonder, for example, how different the Internet would look today had it been clear from that outset that, say, Internet service providers were going to be held accountable for online copyright violations.” Landes concludes by saying that “ the only way to determine the proper scope for indirect liability is to weigh its costs and benefits against the costs and benefits associated with other plausible mechanisms for rewarding authors.”

Brian P. Wilkner discusses in this article the effects of the Sony v. Universal and MGM v. Grokster on the newest batch of cases that will "pit mainstream, consumer-participation-oriented companies against copyright owners".  The article gives background information on both the Sony and Grokster cases and talks about the contributory liability doctrine, and how the Sony decision limited the power of this doctrine by stating that Sony's VCR had significant non-infringing uses.  On the other hand, it noted the Napster and Grokster cases which found each music file sharing company guilty of copyright infringement, and therefore were illegal.  Napster's fatal flaw, writes Wilkner, was the fact that they had a centralized indexing system that gave the creators of Napster too much knowledge of what was actually being shared on their website.  Grokster attempted to circumvent this problem by creating a decentralized index which "deprived their creators of any knowledge of infringing activity".  The Supreme Court ultimately ruled against them, saying that companies that distribute a device with clear intentions of promoting copyright infringement were illegal, and that Grokster's claim that they were unable to stop copyright infringement from taking place demonstrated an "unlawful objective".  One of the interesting tidbits about the Grokster case was that the court did not rule on the limits of the Sony decision, as many court observers thought they would.

Wilkner then goes on to talk about "inverse Grokster scenarios",  which he says will "pit content owners against legitimate organizations seeking to capitalize on the demand for interactivity".  Companies like Google, MySpace, and YouTube, he states, will not make statements or take actions to promote copyright infringement, but will maintain day-to-day operations with the knowledge that some copyright infringing content is being viewed or placed on their sites.  This is in direct contrast with Grokster, which claimed ignorance by stating it was unaware of any infringement taking place on its site.  The article ends with Wilkner proposing a "test" of the inverse Grokster dilemma in which the courts will have to decide whether the public benefit from these sites outweighs the property rights of copyright holders. 

Amanda Bronstad in this article writes about the differences between the copyright infringement cases that ultimately doomed music file sharing sites like Napster and Grokster and the current batch of cases involving video sharing sites like YouTube.  On one side of the argument, video sharing sites say that a major percentage of their content is perfectly legitimate and legal.  Also, these sites, especially YouTube, point out that they remove content considered to be copyright infringing immediately after they are notified by the copyright holder.  This did not happen with music file sharing sites. However, lawyers for Hollywood's major studios say that their case is bolstered by the fact that they now have a precedent in MGM v. Grokster.  They argue that web sites know they make money off of this infringing material, and therefore are liable for induced infringement.  They also say that video sharing sites may be considered direct infringers because of the role these sites take in editing user content.

Bronstad also notes that while the recent agreements between YouTube and major studios such as Universal, Warner, and CBS does help legitimize the site, the agreements aren't necessarily "suit proof".  She says that many experts in the field see a major gray area that could be exploited by an ambitious company or law firm.  She says that the debate will ultimately come down to the DMCA's "safe harbor provision", and whether or not these video sites have put in place and enforced rules to protect themselves from future legal issues.  She says that the strongest safe harbor these companies have is the ability to remove copyright infringing material from their sites.  If sites continue to consistently remove copyright infringing content, as YouTube has done over the last few months, then these companies will have a strong legal foundation for their business models.