Tech vendors could be liable for customer behavior – and not just file sharing

07 Jul Tech vendors could be liable for customer behavior – and not just file sharing

On June 27 the U.S. Supreme Court decided Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd. et al. This decision affects how software companies and other technology providers will function in the future when their technology can be used to play, transmit or store copyrighted content.
The court, in an unanimous decision, found in favor of MGM, reversing a lower court decision favoring defendants Grokster Ltd. and StreamCast Networks (providers of software that allows users to share files online). This decision does not mean that Grokster and StreamCast have been held liable for copyright infringement; only that the case is headed back to the lower courts to fully consider whether Grokster and StreamCast contributed to infringment of MGM’s copyrights.
The case arose out of a lawsuit filed by MGM against Grokster and StreamCast for distributing file-sharing software which allowed its users to illegally share copyrighted movies owned by MGM. The lower courts originally found that Grokster and StreamCast could not be held liable for how the users of their software interact across peer-to-peer networks that are provided by the software. The earlier courts relied on a previous U.S. Supreme Court decision, Sony v. Universal City Studios (commonly referred to as the Betamax case).
The Sony decision provided protection to technology companies in that it held as long as “substantial commercial non-infringing uses” are possible with a technology, manufacturers aren’t legally responsible for infringing uses undertaken by the users of the technology (unless the manufacturer had actual knowledge of specific instances of infringement and failed to act on this knowledge).
The Grokster case did not overturn the Sony decision, but it did limit the protection provided to technology companies. The Supreme Court found that even if a device can be used lawfully, a manufacturer can still be found liable if evidence shows that the manufacturer has promoted the usefulness of the product it distributes as a means to commit infringement – that is, they induce third parties to infringe copyrighted material.
The court found 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 of third parties.”
What does this mean to software and technology companies?
If you manufacture a product that can be used to infringe copyrighted material it is important that you promote its non-infringing uses and actively discourage third parties from using the product to infringe copyrights. This may include incorporating copyright protection in the product itself.
In Grokster, the court said there were many elements that tended to show that Grokster had “intent to induce” copyright infringement. First, the court found it compelling that Grokster had sought to satisfy the demand left from users of the Napster service, which was ultimately shut down for copyright infringement. Second, the court noted that Grokster did not make active attempts to discourage infringement by users of the file-sharing network. Third, the court discussed that Grokster’s revenue depended on the scale of infringement occurring on their network.
As a result, more lawsuits on behalf of the recording and motion picture industry will likely be filed against technologies related to peer-to-peer networks. The Grokster decision also provides a wake-up call to the technology industry. Future technological developments that can utilize copyrighted content will have take into account ways to protect, or encourage protection, of copyrighted content.