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EFFector - Volume 18, Issue 21 - Supreme Court Ruling Will Chill Technology Innovation

EFFector       Vol. 18, No. 21       June 27, 2005

A Publication of the Electronic Frontier Foundation     ISSN 1062-9424

Dear EFFector readers,

As many of you know, EFF represented StreamCast in the MGM v. Grokster case. The Supreme Court's decision held that software innovators may be held liable for inducing the copyright infringement of their users. EFF believes that the Court unleashed the potential for a torrent of new litigation by creating a test that has many factors, is very fact-specific, and is difficult to predict. The Court also set us up for a world where consumers are given fewer choices in the marketplace, because innovators will be scared to introduce products that do not have Hollywood's seal of approval.

There is no question that there will be a flood of litigation as a result of this decision, as well as congressional hearings. EFF must be there to represent the rights of innovators and consumers in the fights to come. Now, more than ever, we need your support to continue to protect innovation and new technologies in cyberspace.

If you haven't done so already, please become a member of EFF at http://secure.eff.org/membership to continue the fight for innovation and digital rights. If you are already a member, you can make a quick gift now at http://secure.eff.org/saveinnovation to ensure the future of technology innovation.

Thank you for your support!

In the 337th Issue of EFFector:


Supreme Court Ruling Will Chill Technology Innovation

Copyright Liability Standard in Grokster Decision Endangers P2P and Other New Technologies

Washington, DC - Today the Supreme Court issued a ruling that could impede makers of all kinds of technologies with expensive lawsuits. The long-awaited decision in MGM v. Grokster states that P2P software manufacturers can be held liable for the infringing activities of people who use their software. This decision relies on a new theory of copyright liability that measures whether manufacturers created their wares with the "intent" of inducing consumers to infringe. It means that inventors and entrepreneurs will not only bear the costs of bringing new products to market, but also the costs of lawsuits if consumers start using their products for illegal purposes.

"Today the Supreme Court has unleashed a new era of legal uncertainty on America's innovators," said Fred von Lohmann, EFF's senior intellectual property attorney. "The newly announced inducement theory of copyright liability will fuel a new generation of entertainment industry lawsuits against technology companies. Perhaps more important, the threat of legal costs may lead technology companies to modify their products to please Hollywood instead of consumers."

The Supreme Court has also ordered the lower court to consider whether peer-to-peer companies Grokster and StreamCast can be held liable under the new standard. StreamCast is confident that it will pass muster under the new, multi-pronged test.

MGM v. Grokster was brought by 28 of the world's largest entertainment companies against the makers of the Morpheus, Grokster, and KaZaA filesharing software products in 2001. The entertainment companies hoped to obtain a legal precedent that would hold all technology makers responsible for the infringements committed by the users of their products. EFF, along with StreamCast counsel Matt Neco and Charles Baker of Porter and Hedges, defended StreamCast Networks, the company behind the Morpheus filesharing software.

The entertainment companies lost their case in District Court, then lost again on appeal to the Ninth Circuit Court of Appeals. The lower court rulings were based on the Supreme Court's landmark decision in the 1984 Sony Betamax case, which determined that Sony was not liable for copyright violations by users of the Betamax VCR.

MGM v. Grokster Supreme Court decision:
http://www.eff.org/IP/P2P/MGM_v_Grokster/04-480.pdf

More on MGM v. Grokster:
http://www.eff.org/grokster

For this release:
http://www.eff.org/news/archives/2005_06.php#003748

Audio recording of this morning's press conference with members of the Grokster and StreamCast legal teams and amici:
http://www.morpheus.com/mp3/


A Reader's Guide to the Grokster Ruling

What exactly does today's Supreme Court ruling mean for the future of technological innovation? Below, our own Fred von Lohmann offers a "reader's guide" to the ruling, providing commentary on the major issues moving forward:

* It's Not About P2P: Whether or not today's ruling unleashes new litigation against innovators, it will have no effect on the tens of millions of Americans who continue to use P2P file-sharing software, nor will it deter off-shore programmers living beyond the reach of US copyright laws. Giving music fans a compelling legitimate alternative, whether through collective licensing or simply competing with free, is the only solution.

* No Matter What, We've Won: There is reason to celebrate in today's ruling. It could have been much worse. As many have noted, the Court rejected many of the more extreme positions that the entertainment industry argued for in the courts below. The Court left intact several important legal bulwarks for innovators. While the Court didn't shore them up, it also didn't tear them down.

* Main Event #1: Sony Betamax. The Supreme Court left the "Betamax" defense intact by essentially refusing to say anything about it, although the disagreements in the two concurring opinions suggest that a future battle may be coming. Neither side in the case can declare total victory on this score, and future cases are probably inevitable (especially where well-advised companies use today's decision as a roadmap for avoiding any hint of "inducement").

* Main Event #2: Vicarious Liability. The Court chose to punt on this issue, choosing to base its decision on inducement instead of addressing the entertainment industry's "you could have designed it differently" theory of vicarious liability. The Court's exposition of inducement, however, suggests that it would be hostile to any theory that imposed a free-floating obligation to redesign (without any evidence of inducement) on technologists. That's good news.

* Main Event #3: Inducement. The Court conjured a new form of indirect copyright liability, importing inducement from patent law. Lawyers will be reading the tea leaves here for years to come, trying to divine the precise boundaries of this new form of copyright liability (and, contrary to what the patent lawyers will tell you, patent precedents don't resolve all the questions). The opinion suggests that copyright plaintiffs must show some overt act of inducement; the design and distribution (along with the usual incidents of distribution) of a product, by itself, are not enough. But the Court's opinion may lead lower courts to conclude that once you find an overt act, however small, virtually everything else becomes relevant to divine your "intent." That would be a bonanza for entertainment lawyers eager to foist huge legal costs on defendants. This is reminiscent, in some ways, of the securities class actions that have bedeviled high tech companies for years.

For the original version of this piece online: http://www.eff.org/deeplinks/archives/003749.php


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