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06/28/2005 |
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Jonathan M. Holda Appeared in The Daily Record On Monday, the Supreme Court issued its much-anticipated decision in MGM v. Grokster, 04-480. The Court unanimously held that peer-to-peer file sharing services will be held liable for the copyright infringement of their customers if the file sharing services affirmatively promote infringement. The Supreme Court specifically refused to revisit the Court’s prior decision in Sony v. Universal Studios, dubbed the Betamax case. MGM v. Grokster has widely been characterized as a battle between entertainment and technology interests. The entertainment industry position is that it is necessary to hold file sharing services liable for infringement to stem the tide of illegal file sharing. Technology groups are concerned that such liability would have a chilling effect on the development of new technologies capable of both infringing and noninfringing uses. At issue was whether Respondents Grokster and StreamCast, two peer to peer file sharing services, were liable for the illegal music file sharing of their customers. The Ninth Circuit had found that under the test outlined in the Betamax decision, Respondents were not liable as long as their services were capable of "substantial non-infringing use," and as long as Respondents had no specific knowledge of the infringing uses of their services. Petitioners MGM and some of the world’s largest content providers countered that while there was evidence of some non-infringing use of Respondents’ services, the overwhelming majority of Respondents' customers used Respondents’ services to illegally share copyright-protected files. Further, the Petitioners presented evidence that the Respondents actively promoted such infringing uses of Respondents’ services. The Supreme Court reaffirmed Betamax, holding that the Ninth Circuit had misapplied the Betamax test in granting summary judgment to the Respondents on the issue of secondary liability, stating: "[W]here evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, [the Betamax test] will not preclude liability." The Supreme Court remanded this case to the Ninth Circuit to determine whether the Respondents were liable for inducing their customers to infringe. In remanding this case, the Supreme Court observed that "[t]here is substantial evidence in MGM’s favor on all elements of inducement." The Court based this observation in part on evidence presented by the Petitioners that the Respondents’ advertising and business models were based on promoting infringement. The Respondents' advertising positioned the Respondents as successors to Napster, another Internet file sharing service provider that was undone by copyright infringement. The Court also focused on the Respondents’ business models, where Respondents' income streams were driven by the amount of use the services received. The Court noted that "[w]hile there is doubtless some demand for free Shakespeare, the evidence shows that substantive volume is a function of free access to copyrighted work." Jonathan M. Holda is an attorney practicing in the Intellectual Property Group of the national law firm Ober|Kaler. He is based in the firm's Baltimore office and can be reached at 410-347-7380 or jmholda@ober.com.
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