{"id":50332,"date":"2016-09-30T11:27:00","date_gmt":"2016-09-30T16:27:00","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/supreme\/legal-commentary\/apple-rips-while-grokster-burns-how-mgm-v-grokster-benefits-information-technology-companies.html"},"modified":"2016-09-30T11:27:00","modified_gmt":"2016-09-30T16:27:00","slug":"apple-rips-while-grokster-burns-how-mgm-v-grokster-benefits-information-technology-companies","status":"publish","type":"supreme","link":"https:\/\/supreme.findlaw.com\/legal-commentary\/apple-rips-while-grokster-burns-how-mgm-v-grokster-benefits-information-technology-companies.html","title":{"rendered":"Apple Rips While Grokster Burns How MGM v. Grokster Benefits Information Technology Companies"},"content":{"rendered":"\n
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Apple Rips While Grokster Burns: How MGM v. Grokster Benefits Information Technology Companies<\/h1><\/td>\n <\/tr>\n

By ANUPAM CHANDER AND MADHAVI SUNDER<\/h2><\/a><\/td>\n <\/tr>\n

Wednesday, Jun. 29, 2005<\/td>\n\n <\/tr>\n <\/table>\n

Leave it to Justice Souter, whom Justice Kennedy has described as a “member of the lead pencil club,” to come to the rescue of digital technology.<\/p>

This week’s Supreme Court decision in MGM v. Grokster<\/i><\/a>, penned (or penciled?) by Justice Souter, substantially reduces the risks faced by information technology companies as they innovate. Steve Jobs must be breathing a sigh of relief.<\/p> \n\n\n

The Lawsuit: Hollywood Goes After Peer-to-Peer File-Sharing<\/b><\/b><\/p>

In 2001, Hollywood studios, music publishers, and songwriters sued Grokster and some other file-sharing companies for copyright infringement. (Grokster offers software that ordinary people can use to share files–including copyrighted music or movies.) <\/p>

The studios did not accuse Grokster of infringing copyrights directly–after all, Grokster did not copy any work itself. Rather, they accused Grokster of secondary <\/i>copyright infringement, which can arise either because of “contributory copyright infringement” or “vicarious copyright infringement.” <\/p>

The Key Precedent: Sony and Its “Substantial Non-Infringing Uses” Language<\/b><\/p>

Standing in the studios’ way, however, was a hoary precedent–Sony v. Universal Studios<\/i><\/a>. In that 1984 decision, Hollywood had badly failed in a previous attempt to accuse the maker of a new technology of secondary copyright infringement. <\/p>

There, the new technology was the VCR. And in Sony<\/i>, the Supreme Court gave the VCR its blessing. It said the maker of a device that, like the VCR, had “substantial non-infringing uses,” could not be held liable even if it knew of widespread infringing uses of that device<\/u>. <\/p>

Peer-to-peer (P2P) file trading software also has substantial non-infringing uses: It can be used, for instance, by solo musicians, garage bands, and others who want to disseminate their work widely. <\/p>

\n\nSo did Sony<\/i> mean that P2P software, too, was legal? <\/p>

In Grokster<\/i>, the studios urged the Court to say no. They argued for Sony <\/i>to be interpreted narrowly, permitting only technologies whose “principal” use is non-infringing to avoid liability. And they contended the principal use (or, at least, the currently most popular use) of P2P software was copyright infringement. <\/p>

Fortunately, the Court did not undermine Sony in the face of the studios’ entreaties, and adopt the “principal use” test. Instead, it held steadfast to the idea of “substantial non-infringing uses.”<\/p>

The Risk for Apple: Why Even Steve Jobs Must Have Been Nervous<\/b><\/b><\/p>

The stakes were high – many others, besides the few upstart peer-to-peer file trading services who were sued, would be affected.<\/p>

Other digital technology companies, too, felt the pressure of Hollywood’s lawsuit. If the Court accepted the studios’ argument–or. worse, accepted the argument of some others who suggested that the Court do away with Sony <\/i>entirely–these companies knew that they could well be next in the studios’ line of fire.<\/p>

Consider the iPod, Apple’s much adored digital music player, which has probably singlehandedly revived the music industry. When the iPod was introduced, Apple simultaneously unveiled its iTunes music store, permitting legal downloads for $0.99 a song.<\/p>

But most users, it turns out, did not<\/u> fill their iPods with iTunes; they often used peer-to-peer software to fill them with illegal downloads instead. So if “principal” use means “currently most popular use,” the principal use of an iPod has arguably been copyright infringement. <\/p>

Thus, the studios’ claim that Grokster abetted copyright infringement — because it designed a product to permit infringement — might have swallowed with it the music publishers’ new favorite retailer, Apple. <\/p>

Some Data Suggests iPods May Be Primarily Used to Infringe Copyright<\/b><\/p>

And some of the numbers supported the claim that the iPod’s primary use is infringement:<\/p>

In an amicus brief submitted in the Grokster <\/i>case, Harvard law professors offered some simple math to demonstrate this. They divided the number of iTunes songs legally downloaded (250 million, at the time they performed the calculation) by the number of iPods sold (10 million). The iPod thus has on average 25 songs purchased online. <\/p>

Yet iPods famously hold thousands of songs, so the iTunes downloads accounts for a small fraction of their capacity. <\/p>

What other ways can you load up your iPod with songs? Apple offers two: <\/p>

First, you can “rip” songs from CDs that you insert into the computer – a legal use, at least if you’ve bought the CD at issue. <\/p>

Second, you can copy songs in MP3 form that have been downloaded from peer-to-peer services like Grokster. The music that is distributed on peer-to-peer services often ends up on MP3 players like the iPod – and since much (but not all) of this music is illegally downloaded, it may follow that iPods are, in practice, largely stocked with illegal downloads.<\/p>

Even worse for Apple was the fact that it might have engineered the iPod not to play MP3s, but it did not. Sony, by contrast, was more conscientious: Its Networked Walkman would not play MP3s when it was rolled out last year; rather the Walkman only permitted you to play songs purchased legally from Sony’s website. But Sony hastily reconsidered that decision when it proved unpopular. <\/p>

The Supreme Court Carefully Considered the Risk of Chilling New Inventions<\/b><\/p>

The iPod, then, could have been at risk. And so were a number of yet-to-be-dreamed of technologies that might not effectively protect against illegal uses.<\/p>

This risk was likely to chill invention. And the risk was coupled with an uncertainty: Sometimes, when a company is considering rolling out a new technology, only time will tell how that technology will be used in practice. If “principal” use was the test, and if it meant “most popular” use, a company would incur somewhat uncontrollable legal risk: Who knows which uses will prove popular? <\/p>

No wonder, then, that the risk of chilling invention was very much on the mind of the Supreme Court Justices as they heard oral argument in the MGM v. Grokster<\/i> case in March. Justice Breyer asked the studios’ lawyer: “Are you sure that you could recommend to the iPod inventor that he could go ahead and have an iPod, or, for that matter, Gutenberg, the press?”<\/p>

Imagine the scene in the Apple boardroom if the iPod were being rolled out today, and the studios had had their way in Grokster<\/i>: <\/p>

“Mr. Jobs, are you confident that this device you call an iPod will be used principally <\/i>for legal songs? I might remind you, Mr. Jobs, that your 60 MB model holds 15,000 songs, costing $14,850 if purchased through iTunes. Do you expect Americans to hold out against the temptation to download illegally to the tune of thousands of dollars?”<\/p>

The Risk for Information Technology Companies<\/b><\/b><\/p>

The risk that was faced by Apple is endemic to information technology. That’s because the fundamental characteristics of information technology facilitate copyright infringement. <\/p>

In the digital world, copyright infringement is made possible by a computer processor, storage devices, and a communications medium. A Sony, Dell, or Toshiba laptop, with their built-in DVD burner, and Ethernet and wireless connections to the world, makes a near-ideal infringement tool. <\/p>

And couple that with a super-fast (USB 2 or Firewire) connection to an MP3 player like an iPod, and you can copy entire libraries of material in minutes flat.<\/p>

It is not surprising, then, that Intel, AT&T, BellSouth, MCI, SBC, Sun, and Verizon submitted briefs to the Supreme Court arguing against the rule proposed by the studios. <\/p>

The Economist <\/i>reports that more than half of the traffic flowing through broadband systems is peer-to-peer file trading, the bulk of which is illicit. This risk is one reason why telecommunications companies such as Verizon have obtained Congressional protection in the form of Title II of the Digital Millennium Copyright Act (DMCA), which insulates them from secondary copyright infringement liability. But clearly, even with the DMCA’s insulations, broadband companies would still not have felt safe had the Court adopted the studios’ rule. <\/p>

What the Court Held<\/b><\/b><\/p>

This week’s Supreme Court decision in MGM v. Grokster <\/i>leaves intact technology companies’ ability to innovate. <\/p>

The Court held unanimously that there was evidence that Grokster might have induced users to infringe copyright using its software. After Napster’s demise, Grokster had promoted itself to Napster’s users, most of whom were trading files illicitly, as an alternative. Grokster apparently even responded to requests by its users for help in locating and playing copyrighted material! <\/p>

Given this evidence of inducement, the Court ruled that Grokster could not<\/u> avail itself of the Sony <\/i>safe harbor for products with substantial non-infringing uses. That exception to liability, it said, only applied in the absence of evidence of inducement. <\/p>

Here’s a simple cheat sheet to the decision, in the form a law student might outline the issue:<\/p>

The Law of Secondary Liability (assuming direct infringement)<\/p> \n\n

\n\n<\/p>