At a Glance: MGM v. Grokster

Compiled by David McGuire Staff Writer
March 28, 2005

On March 29, the U.S. Supreme Court will hear arguments in Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., a landmark case that specifically addresses the legality of peer-to-peer Internet file-sharing services, but has broad implications for any technology that could potentially be used to infringe on copyrighted materials.

So far, lower courts have ruled that the defendants in the case -- Grokster and StreamCast Networks -- can't be held responsible for what users do with their software, even if that includes illegally downloading copyrighted songs, films and software products.

If the Supreme Court upholds the previous rulings, it would take an act of Congress to outlaw the current generation of file-swapping technologies. On the other hand, members of the broader technology industry are worried that a decision that goes against Grokster will undermine a previous Supreme Court decision they say created a legal climate in which technology innovation has been able to thrive for two decades.

The lower court decisions upholding the legality of Grokster and other peer-to-peer Internet services rested on the 1984 Sony Betamax case, where the Supreme Court ruled 5-4 to reject the movie industry's efforts to effectively knock the home video recorder off of store shelves. Hollywood argued that the Sony Betamax, an early VCR, allowed users to infringe on copyrighted works. The justices ultimately decided that because the device had legitimate uses, Sony wasn't contributing to copyright infringement by selling it, even though the company knew that some consumers were using the product illegally.

Technology interests contend that if the current court decides to redefine the meaning of the 1984 ruling to find in favor of MGM and the other plaintiffs, it could change the legal landscape for devices ranging from digital television recorders like the TiVo digital video recorder to the iPod digital music player, to the Internet itself.

On the other side, record companies say they have tracked billion-dollar declines in compact disc sales since the emergence of Napster in the late 1990s. If file-swapping firms are allowed to continue doling out their software with impunity, the companies say they will have few ways to stop the hemorrhaging, which they say will only get worse as Internet technology improves.

The justices are expected to issue a ruling in the case by the end of June.

Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd. Case History

In 1999, college student Shawn Fanning introduced Napster, one of the first file-sharing applications released on the Internet. The service garnered a huge following of music fans who liberally traded copyrighted music works. The recording industry filed suit, and in 2001 a federal judge forced Napster to close its doors (it has since relaunched under different ownership as a legitimate distributer of copyrighted music).

The ink wasn't dry on the Napster decision before a clutch of fledging companies in the United States and abroad emerged to take Napster's place. What separated this second generation of file-swapping services from Napster was a technological tweak that had major legal implications.

Napster allowed users to browse each other's computers and "share" copyrighted songs with one another, but it routed all of those transactions through its own internal servers, maintaining a modicum of control over how people used its network. That control was Napster's undoing. A judge ruled that since Napster could prevent copyright infringement, it had a responsibility to do so.

The founders of the new services -- including Morpheus and Kazaa -- learned from Napster's mistake. Their software abandoned centralized servers, allowing users to connect directly with each other. The companies made their money by bundling software that served up advertisements with their product, but maintained no control over what people did with it.

In October 2001, the major music and movie companies sued Grokster and StreamCast (which distributes Morpheus) for contributing to the theft of millions of copyrighted music and movie titles. In 2003, a federal judge in California rejected the entertainment companies' arguments, concluding that file-sharing software could be used for legitimate purposes, and as such was protected under the 1984 Sony Betamax ruling.

The Ninth Circuit Court of Appeals upheld that ruling under appeal last August, and in December the Supreme Court announced it would hear the case.

The Supreme Court is the final court of appeal for the entertainment companies; and even before the court agreed to hear the case, copyright owners were considering other options. The Recording Industry Association of America and Motion Picture Association of America last year threw their weight behind a bill intended to drive file-swapping networks out of business. The bill died at the end of 2004, but could be introduced again this year.

The Legal Arguments

The plaintiffs in the case, backed by an amicus brief filed by the Bush administration, say that unlike the Betamax, file-swapping services like Grokster aren't used for legitimate purposes. One of the key findings in the Betamax case was that although the VCR could be used to make illegal copies of movies and TV shows, it also provided a major legitimate benefit for people who wanted to tape a program being broadcast at an inconvenient time in order to watch it later.

There is no parallel in the peer-to-peer world, the plaintiffs argue. Although the technology can be used to trade files that aren't protected by copyright, they say that is done very rarely, meaning that file-swapping programs like Grokster exist overwhelmingly to abet copyright infringement.

The plaintiffs also say that contrary to the widely publicized fears of the consumer electronics industry, the Supreme Court can expose file-swapping companies to legal liability without disturbing the technological protections established by the Betamax case, which they say doesn't protect business models premised on theft.

The principal defendants in the case -- Grokster and StreamCast -- have far fewer allies, but several technology and public interest groups have filed amicus briefs asking the Supreme Court to uphold the 1984 Betamax decision. The Consumer Electronics Association, which represents companies like Dell Computers, Sony Electronics and Phillips, and the Electronic Frontier Foundation, a San Francisco-based civil liberties group, are among those that have filed "friend of the court" briefs supporting the ruling that protected the file-swapping firms.

The companies insist that they do not condone the theft of copyrighted materials, but at the same time argue that the 1984 Betamax ruling absolutely protects file-swapping software. In the 1984 decision, they note, the court found that a technology only needs to be "capable" of legitimate uses, not that users take advantage of them.

Since even the plaintiffs in the case concede that file-swapping software is capable of legitimate uses, the court would have to change that language in order to expose the file-swapping companies to liability, these groups say. That could be devastating to technology companies, which could be forced to divine the intentions of their potential customers before even developing a new product. Popular innovations like the iPod, could die amid flurries of legal challenges before they ever reach a consumer's hands if the court removes that absolute protection, the respondents maintain.

The Attorneys

Plaintiffs: The entertainment industry has enlisted the help of some of Washington's biggest legal guns for what it sees as the most important Supreme Court decision since Betamax. Former special prosecutor Kenneth Starr helped write the entertainment industry's brief, and former U.S. Solicitor General Theodore Olson was retained to help lay out a legal strategy.

Leading the oral arguments on behalf of the plaintiffs will be Jenner & Block Partner Donald Verrilli Jr., a Supreme Court veteran who has been involved in several high-profile technology and telecommunications cases, including Reno v. American Civil Liberties Union -- one of the seminal cases governing online free speech.

Verrilli will use 20 minutes of the plaintiffs' half-hour argument, and acting U.S. Solicitor General Paul Clement will use the remaining 10.

Respondents: Another Supreme Court veteran, Richard Taranto of Farr & Taranto, will argue on behalf of the defendants. Taranto did stints clerking for Justice Sandra Day O'Connor and working in the U.S. Solicitor General's office before starting a practice specializing in Supreme Court cases. In his most recent case before the court, he successfully represented Verizon in an antitrust matter. The opposing counsel in that case was Verrilli.

Online Resources

* Supreme Court Docket Resources and Grokster Case Background

* Electronic Frontier Foundation: MGM v. Grokster Backgrounder

* Motion Picture Association of America:

* Recording Industry Association of America:

* Digital Media Association: Grokster Case FAQ (PDF)

* P2P United:

News Archive

* Artists Break With Industry on File Sharing (Post, March 1)

* High-Tech Tension Over Illegal Uses (Post, Feb. 22)

* Disparate Cast Lobbies Court to Restrict File Sharing (Post, Jan. 26)

* U.S. Asks High Court to Curb File Swapping (Post, Jan. 25)

* Tech Firms to Seek Legal Protection From Pirating (Post, Jan. 24)

* High Court to Weigh File Sharing (Post, Dec. 11)

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