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Supreme Court Ruling Will Chill Technology Innovation

June 27, 2005

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. The Electronic Frontier Foundation (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.

Contacts:

Cindy Cohn
Legal Director
Electronic Frontier Foundation
cindy@eff.org

Fred von Lohmann
Senior Intellectual Property Attorney
Electronic Frontier Foundation
fred@eff.org

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