The 1984 Sony v. Universal case established the "Betamax defense," or the "Sony safe harbor": a manufacturer cannot be found liable for contributory infringement if the device in question is "capable of substantial noninfringing use" [1].
Before the Grokster case reached the Supreme Court, Grokster had already won in two lower courts. In 2003, U.S. District Judge Stephen Wilson ruled that Grokster was protected from contributory infringement by the Sony safe harbor, stating that "Grokster and StreamCast are not significantly different from companies that sell home video recorders or copy machines, both of which can and are used to infringe copyrights" [2]. This ruling was appealed, but the United States Ninth Circuit Court of Appeals again ruled in Grokster's favor [1]. The Supreme Court eventually agreed to hear the case.
MGM v. Grokster
The Supreme Court, in MGM v. Grokster, overturned the decisions of the lower courts and ruled 9-0 in favor of MGM. The Court announced a new form of secondary liability -- inducement -- separate from the "traditional" secondary liability doctrines of contributory infringement and vicarious liability. Inducement was described thus:
[O]ne who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties. [1]
Moreover, the Court determined that the Sony safe harbor does not apply to inducement, and, therefore, did not apply to the Grokster case:
[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 defense] will not preclude liability. [1]
In the opinion, Justice Souter wrote:
In sum, this case is significantly different from Sony and reliance on that case to rule in favor of StreamCast and Grokster was error. Sony dealt with a claim of liability based solely on distributing a product with alternative lawful and unlawful uses, with knowledge that some users would follow the unlawful course... MGM's evidence in this case most obviously addresses a different basis of liability for distributing a product open to alternative uses... There is substantial evidence in MGM's favor on all elements of inducement, and summary judgment in favor of Grokster and StreamCast was error. On remand, reconsideration of MGM's motion for summary judgment will be in order. [3]
The Court found enough evidence to justify a trial on inducement, and sent the case back to the lower courts. Grokster was eventually forced to shut down.
Consequences
By finding that the Betamax defense did not apply to Grokster's case, and to inducement claims in general, the Supreme Court "did little to clarify the debates surrounding the Betamax defense" [1]. They also did little to resolve controversies surrounding contributory infringement and vicarious liability; in two concurring opinions, the Justices split on their interpretations of how the Sony safe harbor applies to these theories.
Fred von Lohmann, a supporter of Grokster, thinks that the Court "missed an opportunity to clarify the traditional secondary liability doctrines... As a result, software developers are left to puzzle their way through the uncertainties and contradictions left by the Sony, Napster, and Aimster rulings, as well as... MGM v. Grokster" [1].
While the Supreme Court ruled 9-0 against Grokster, some have questioned whether MGM "really won" the case. MGM hoped that the Supreme Court would overturn the Betamax defense established in Sony v. Universal, and "didn't want to win on an active inducement theory" [4]. Pamela Samuelson writes:
If there are no overt acts of inducement and no proof of specific intent to induce infringement, and if the Sony safe harbor continues to shield technology developers from contributory liability, MGM will find itself on the losing side of challenges to technology developers for infringing acts of their users. [4]
Indeed, the legal precedents set by MGM v. Grokster can actually hurt -- not help -- the media companies in their fight against peer-to-peer file-sharing software.
Sources:
[1] http://www.cs.duke.edu/courses/cps182s/spring09/readings/papers/p2p_copyright_wp_v5_0.pdf
[2] http://www.law.com/jsp/article.jsp?id=1051121796114
[3] http://caselaw.lp.findlaw.com/cgi-bin/getcase.pl?court=US&navby=case&vol=000&invol=04-480#opinion1
[4] http://www.cs.duke.edu/courses/cps182s/spring09/readings/papers/p19-samuelson.pdf
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