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.

Section 512 of the Digital Millennium Copyright Act (DMCA) is called “Limitations on liability relating to material online.” It specifically outlines what an online service provider (OSP) can be held responsible for and the times when they are exempt for responsibility. 512 provides copyright holders the right to ask OSPs to remove material that appears on their sites or in their programs if it is an infringement of copyright. However, a service provider is not liable for “monetary relief” or for “injunction or other equitable relief” if “the service provider does not have actual knowledge that the material or an activity using the material on the system or network is infringing” and upon obtaining such knowledge “responds expeditiously to remove, or disable access to, the material that is claimed to be infringing or to be the subject of infringing activity.”

In other words, a service provider is, in many cases, not liable for the content posted by its users, but must act swiftly to remove the infringing material from its site or service once it is notified of the infringement. Basically, if the OSPs comply promptly and effectively with copyright holders’ take down requests then they are protected by a “safe harbor” provision. According to reference.com the definition of a “safe harbor” is “a provision of a statute or a regulation that reduces or eliminates a party's liability under the law, on the condition that the party performed its actions in good faith.”

Therefore, this section of the DMCA is particularly important in determining secondary liability. A safe harbor can only be created if the site or service follows proper protocol and has been cleared of primary liability in the first place. Napster was held liable for the content being uploaded by its users because it provided a centralized server through which all information had to be passed, and thus was not granted a safe harbor.

YouTube is currently being protected by 512 because of its compliance with any and all take down notices it receives. YouTube's safe-harbor status is also helped by the fact that it has partnered itself with big, copyright-holding companies. Of course, if YouTube wasn't also complying with the takedown notices being issued by copyright holders in the first place, these partnerships wouldn't matter - or at least we’d like to think it wouldn't... The business possibilities for YouTube may almost be enough to outweigh the law, if they get the right business partners on their side.

512 is an important provision because it allows sites and services with substantial non-infringing uses to function with the possible existence of infringing material in exchange for removing that infringing material as quickly as possible. A no-tolerance infringement policy seems to be outside the scope of available online practices, therefore 512 allows services to exist with the understanding that there is inherent infringement on the internet.

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.”