March 1, 2005 | By Fred von Lohmann

MGM v. Grokster: Venture Capital Speaks

Lest anyone think we are the only ones who believe that MGM v. Grokster is critical for America's innovation sector, read the brief [PDF] filed by the National Venture Capital Association:

The [Supreme] Court's bright-line rule in Sony has been the midwife for the technological revolution of the past two decades. ...

[The petitioners] seek to move away from the bright-line safe harbor created by the Court, and relied upon by inventors and product developers for the past two decades, in favor of an amorphous test that would invite litigation and uncertainty while suppressing innovation -- all without doing anything actually to protect copyrighted materials from direct infringement. ...

It is critical to understand that the threat of secondary liability from copyright suits is qualitatively different from most other sorts of business risk that investors can insure against or build into their risk calculations. The mandatory mechanism of statutory damages -- designed to discourage direct infringement -- has crushing implications for vendors of multi-purpose technologies, where damages from unforeseen users can quickly mount in the millions and even billions of dollars. And the indeterminate reach of such secondary liability means that not merely start-up capital is at risk but also the personal wealth of start-up's officers, directors, and investors. The litigation risk in such circumstances is wholly one-sided: minimal attorneys' fees for the plaintiffs versus financial annihilation for the defendants. ...

Grokster and StreamCast are just stalking horses for the real targets of the Motion Picture Studios and the Recording Companies. They want to force fundamental, and hugely expensive, changes in the software and hardware that constitutes the Internet, by imposing an obligation on providers to design and engineer their systems to block unauthorized file sharing. Such an open-ended standard of liability would be a proverbial Pandora's box.


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