A unanimous Supreme Court dealt a blow to Grokster and fair-use advocates Monday, ruling that companies that create the technology for sharing movies, TV shows, and other digital content over the Internet may be liable for the illegal content piracy those technologies make possible.
"We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirma- tive steps taken to foster infringement, is liable for the resulting acts of infringement by third parties," the court wrote.
It was a big victory for studios and broadcasters. They argued that the vast majority of the digital file sharing over peer-to-peer computer networks that Grokester makes possible is illegal and threatens their business models and survival in the digital age.
Calling it a big win for consumers, Motion Picture Association of America Dan Glickman said the case was "a reaffirmation of common law in the digital age."
Glickman said that if the court can come to a unanimous decision, the movie and tech industries can "come together to power the digital age."
California Democratic Congresswoman Diane Watson praised Hollywood's win:, adding "I hope today's decision will send a message to all pirates that winking and nodding at digital theft will not be tolerated any more than theft itself. I am confident that the lower courts will carefully apply this well-reasoned opinion in finding Grokster and other similar companies liable for actively inducing their customers into illegal use of their products."
Mitch Bainwol, chairman of the Recording Industry Association of America, said the decision was about "Thou Shalt Not Steal"-citing the 10 Commandments decision also handed down by the court--and he advised parents to talk to their children about the right way and the wrong way to share digital files.
Studios have been pushing for a bill in Congress that would make copyright inducers liable. Although the Supreme Court decision seemed to mute that effort, the group said it would let the decision percolate before deciding how and whether to proceed with that effort.
On the other side of that 9-0 decision, fair use fans, who initially characterized the decision as "bad news," were taking some solace in the fact that the court sent the case back for a finding of whether Grokster had indeed actively induced the infringement.
Gigi Sohn, of fair use advocate Public Knowledge said:
"Today's Court decision in the Grokster case underscores a principle Public Knowledge has long promoted -- punish infringers, not technology. The Court has sent the case back to the trial court so that the trial process can determine whether the defendant companies intentionally encouraged infringement.
"What this means is, to the extent that providers of P2P technology do not intentionally encourage infringement, they are exempt from secondary liability under our copyright law.
"The Court also acknowledged, importantly, that there are lawful uses for peer-to-peer technology, including distribution of electronic files 'by universities, government agencies, corporations, and libraries, among others.'
The threat to those noninfringing uses was the same argument Public Knowledge used in arguing to get the FCC's broadcast flag rules thrown out--also unanimously--by an appeals court earlier this year, though that ruling hinged on the fact that the flag--a security device to prevent illegal digital file sharing--was a post-transmission technology over which the FCC had no jurisdiction.
Peter Jaszi, the lawyer for Public Knowledge and others in their brief on the case, argued Monday that the key principle of the Sony Betamax case, survived unscathed despite the 9-0 decision.
That principle is that, so long as their technology has a noninfringing use, manufactures and distributors are not liable just becase they make the technology available and are aware that some people use it to infringe.
What the Supreme Court said in the Grokster decision, Jaszi asserted, was that bad actors would have some level of liability for a "purposeful, culpable expression of conduct," (according to Justice David Souter's opinion), but not simply for distributing the software or knowing it might be used to illegally distribute.
That "purposeful, culpable" standard will now be applied ot the facts in the case, and as precedent to other cases and "will permit the innovation sector to continue to develop and bring to market technologies that benefit the consumer," he said.
Consumer Electronics Association President Gary Shapiro saw the decision as a clear path to massive legal bills, but an uncertain future for technological innovation.
"With this ruling," he said, "the Supreme Court has handed a powerful new tool to litigious content creators to stop innovation. Innovators must now consider new murky legal rules and potentially overwhelming legal costs before bringing their product to market - or even moving forward with an innovative idea. It is essentially a 'full employment act' for plaintiff's attorneys and a guarantee for further lawsuits."
A federal-appeals court in San Francisco had ruled in August that Grokster itself was doing nothing wrong because its file-sharing system has legitimate, non-infringing, uses and it was not storing illegal files on its own servers. Instead, the system allows swappers to trade files stored on their own computers.
Saying broadcasters have to pay for their copyrighted material, NAB, which sided with the studios, had argued that shielding companies like Grokster threaten broadcasters' ability to offer geographic exclusivity for programming.
In a report essentially teeing up this decision, MAGNA Global USA media analyst Brian Wieser argued that content providers, even if they won, should not just protect their old models of distribution through lawsuits and other purely defensive tactics.
Instead, Wieser said, studios should start thinking creatively about product distribution for "the day when producers and/or networks are forced to provide their content in online, on-demand environments.
Even if the networks don't start looking at new models, he says, marketers will need to start thinking of ways to reach the audience that will co-opt that model themselves.
If the court agreed with the studios, as it did, that Grokster and similar software does violate copyright, it would slow, but not stop, the movement toward new tech TV content sharing, said Wieser, and "push P2P (peer-to-Peer) file trading further underground toward services that are literally and figuratively beyond the reach of the law," says the report.
If the court agreed with Grokster, P2P could become a distribution mechanism to rival other broadband entrants, like Verizon's VCast wireless mobile network or online media portals like Yahoo, said Weiser.
Either way, he concluded, marketers need to start planning for the "contextual" advertising--think product placement and integrated marketing--and direct response models, to reach the younger audience that will migrate to new tech TV.