September 28, 2006 | By Fred von Lohmann

MGM v. Grokster: More Bad News for Innovators

The district court in the MGM v. Grokster case issued its ruling yesterday, granting summary judgment in favor of the entertainment industry plaintiffs against StreamCast Networks (the other defendants, Grokster and Sharman Networks, have settled). This comes 15 months after the Supreme Court ruling that sent the case back down for consideration of the newly-minted "inducement" theory.

EFF represented StreamCast from the beginning of the case through the Supreme Court proceedings. After the Supreme Court's ruling, we predicted that the new inducement theory would have a chilling effect on innovators. Yesterday's ruling bears out that fear.

In finding StreamCast liable for inducement, the court said:

Thus, Plaintiffs need not prove that StreamCast undertook specific actions, beyond product distribution, that caused specific acts of infringement. Instead, Plaintiffs need prove only that StreamCast distributed the product with the intent to encourage infringement.

This is a remarkably broad statement, and is at odds with the Supreme Court's view that an intent to encourage infringement must be accompanied by "clear expression or other affirmative steps" beyond the mere distribution of a product.

Here's the nightmare scenario for innovators: if you distribute a product that can be used for infringement, copyright owners sue and seek in discovery to comb through every document in your company (emails, customer support records, engineering notes, etc.) looking for anything that looks like evidence of bad intent. If the lawyers find anything (how well-trained is your level 1 customer support staff? did your engineers have copyright debates in email? how did they test the product?), they will argue that intent + distribution = inducement. Even if you never advertised or publicly encouraged infringing uses.

And don't forget, discovery is expensive. It cost SonicBlue $3 million per quarter in legal fees in the ReplayTV suit.

So yesterday's ruling is one more reason to suspect that secondary liability rules in copyright are out of balance and chilling innovation.

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