MGM STUDIOS v. GROKSTER

Legal Principle at Issue

Can a distributor of file-sharing software be held liable if a third party uses it to infringe copyrighted material?

Action

Vacated and remanded. Petitioning party received a favorable disposition.

Facts/Syllabus

Respondents Grokster and StreamCast Networks distributed free software products that allowed computer users to share electronic files through peer-to-peer networks — so called because users' computers communicate directly with each other, not through central servers. Because they need no central computer server to mediate the exchange of information or files among users, the high-bandwidth communications capacity for a server may be dispensed with, and the need for costly server storage space is eliminated.

A group of copyright holders (MGM for short, but including motion picture studios, recording companies, songwriters, and music publishers) sued Grokster and StreamCast for copyright infringements, alleging they knowingly and intentionally distributed their software to enable users to reproduce and distribute the copyrighted works in violation of the Copyright Act. MGM sought damages and an injunction.

During litigation, discovery revealed how the software worked. Grokster's eponymous software employed what is known as FastTrack technology, a protocol developed by others and licensed to Grokster. StreamCast distributed a very similar product called Morpheus. Neither software utilized servers to intercept the content of the search requests or to mediate the file transfers conducted by users of because there is no central point through which the substance of the communications passed in either direction. Although Grokster and StreamCast did not therefore know when particular files are copied, a few searches using their software would show what was available on their networks. MGM commissioned a statistician to conduct a systematic search, and the study found that nearly 90% of the files available for download on the FastTrack system were copyrighted works. Grokster and StreamCast disputed this figure, raising methodological problems and arguing that free copying even of copyrighted works may be authorized by the rightholders. They also argued that potential noninfringing uses of their software are significant in kind, even if infrequent in practice.

Years earlier, the music-sharing platform Napster was sued by copyright holders for facilitation of copyright infringement in A&M Records, Inc. v. Napster, Inc. (2000). StreamCast gave away a software program known as OpenNap that was designed as compatible with the Napster program and open to Napster users for downloading files from other Napster and OpenNap users' computers, and the company developed promotional materials to market its service as the best Napster alternative. The evidence that Grokster sought to capture the market of former Napster users was sparser but revealing, for Grokster launched its own OpenNap system called Swaptor and inserted digital codes into its website so that computer users using search engines to look for "Napster" or "free file sharing" would be directed to the Grokster website, where they could download the Grokster software. Finally, according to court documents, there was no evidence that either company made an effort to filter copyrighted material from users' downloads or otherwise impede the sharing of copyrighted files.

After discovery, the parties on each side of the case crossmoved for summary judgment. The District Court held that those who used the Grokster and Morpheus software to download copyrighted media files directly infringed MGM's copyrights, a conclusion not contested on appeal, but the court nonetheless granted summary judgment in favor of Grokster and StreamCast as to any liability arising from distribution of the then-current versions of their software. Distributing that software gave rise to no liability in the court's view, because its use did not provide the distributors with actual knowledge of specific acts of infringement. The U.S. Court of Appeals for the Ninth Circuit affirmed. The fact that the software was capable of substantial noninfringing uses in the Ninth Circuit's view meant that Grokster and StreamCast were not liable, because they had no such actual knowledge, owing to the decentralized architecture of their software. The court also held that Grokster and StreamCast did not materially contribute to their users' infringement because it was the users themselves who searched for, retrieved, and stored the infringing files, with no involvement by the defendants beyond providing the software in the first place.