Supreme Court Rules Against Grokster and StreamCast

Washington, DC (June 27, 2005)--In an unequivocal reversal of two lower court findings, the U.S. Supreme Court unanimously ruled against Grokster and StreamCast today, supporting claims by the MPAA and RIAA that person-to-person file-sharing software (commonly referred to as P2P) developers must be held responsible for illegal actions of their products' users.
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Washington, DC (June 27, 2005)--In an unequivocal reversal of two lower court findings, the U.S. Supreme Court unanimously ruled against Grokster and StreamCast today, supporting claims by the MPAA and RIAA that person-to-person file-sharing software (commonly referred to as P2P) developers must be held responsible for illegal actions of their products' users.

The file-sharing companies had expected a ruling against the trade organizations, which would have likely provided them with the clout to negotiate distribution agreements with the two industry groups. Instead, Grokster and StreamCast--the two main defendants in the case--and the file-sharing community at large have suffered a major setback.

Nonetheless, the case far from over; the Supreme Court's decision sends the case back for retrial in the same lower court that initially ruled for the P2P networks.

The decision marks the latest upset in nearly four years of judicial wrangling, initiated in October, 2001 when the MPAA and RIAA filed against Grokster and StreamCast (then MusicCity). Due to basic differences in the architecture of the two companies' networks, shutting them down was not as simple as the efforts that had previously shuttered Napster and Scour. Because Grokster and StreamCast are decentralized networks, and thus do not have direct control of their networks' indexing responsibilities, cataloging of all files, legal and otherwise, is put upon the networks' users.

While they were not directly responsible for copyright infringement then, the two companies were still found guilty of contributory copyright infringement and vicarious copyright infringement. To be found guilty of the contributory copyright infringement charge, Grokster and StreamCast had to be shown to have met three criteria--direct infringement by a primary infringer, knowledge of the infringement, and material contribution to the infringement.

To be held liable for vicarious copyright infringement, the MPAA and RIAA had to also prove that the two P2P companies had met three other criteria: direct infringement by a primary party, a direct financial benefit to the defendant, and the right and ability to supervise the infringers.

The legal upset follows two lower court rulings in favor of the P2P companies. Justice Steven Wilcox ruled in April, 2003 against the MPAA and RIAA, basing his decision on the 1983 Sony Vs. Universal decision, often known as the Betamax case. "Defendants distribute and support software, the users of which can and do choose to employ it for both lawful and unlawful ends," Wilson wrote in his opinion. "Grokster and StreamCast are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights."

The case was soon appealed to the United States Federal Court of Appeals in California, where the following April, Justice Sidney R. Thomas found that StreamCast and Grokster were still not guilty of copyright infringement.

This time, that's not the case. "One who distributes a device with the object of promoting its use to infringe copyright ... is liable for the resulting acts of infringement by third parties using the device, regardless of the device's lawful uses," Justice David Souter wrote in the ruling.

In response to the ruling today in the case MGM v. Grokster, the Recording Industry Association of America (RIAA) issued the following statement from chairman and CEO Mitch Bainwol:

"With this unanimous decision, the Supreme Court has addressed a significant threat to the U.S. economy and moved to protect the livelihoods of the more than 11 million Americans employed by the copyright industries. The Supreme Court has helped to power the digital future for legitimate online businesses--including legal file sharing networks--by holding accountable those who promote and profit from theft. This decision lays the groundwork for the dawn of a new day--an opportunity that will bring the entertainment and technology communities even closer together, with music fans reaping the rewards."

RIAA
www.riaa.org

Grokster
www. grokster.com