INTELECTUAL PROPERTY LAW
The Courts and Internet Piracy after Grokster

By Louis C. Bechtle and Geoffrey L. Beauchamp

In June 2005 the United States Supreme Court decided MGM v. Grokster (125 S. Ct. 2764 (2005)), finding in favor of the music and movie companies that had filed a copyright infringement suit against Grokster and StreamCast Networks, whose software was used to illegally download music and movies from the Internet. In a unanimous decision, the Court set aside the judgment won by those two file-sharing software companies and returned the case to the federal district court, virtually directing that the judge enter judgment for the entertainment industry plaintiffs without the need for a trial.

Grokster recently reached a settlement in which it agreed to (1) shut down its file-sharing service and stop supporting its users; (2) discontinue distribution of its software; (3) never again directly or indirectly participate in any infringing activities; and (4) pay the plaintiffs $50 million. Grokster executives also announced plans to launch a legal fee-based “Grokster 3G” peer-to-peer service. Grokster’s codefendants, StreamCast Networks and Sharman Networks, have refused to settle and remain defiant.

In Grokster the Supreme Court ruled that those who actively induce others to commit copyright infringement while also providing them with the means to do so are liable for any resulting infringement even though the defendants’ device or service has other lawful uses. Although clearly a victory for the entertainment industry, freestanding file-sharing software remains available to download music and movies illegally. This includes more insidious technologies such as the “Darknet” software code unveiled in the summer of 2007, which allegedly allows users to download copyrighted music and movies in complete anonymity. The problem presented by these technologies is compounded by the fact that many file-sharing software providers are based in foreign countries and may be outside the jurisdiction of U.S. courts.

It therefore should come as no surprise that critics of the entertainment industry’s campaign against Internet piracy, such as the Electronic Frontier Foundation (EFF), call the Grokster decision a hollow victory of no lasting consequence. The arguments critics offer misconstrue the real import of the Supreme Court’s ruling and its effect on the availability of legitimate online content distribution services such as iTunes and Movielink. They also greatly underestimate the power of the U.S. courts to remedy the harm caused by Internet piracy. The arguments advanced by the EFF and its allies can be readily refuted.

First, they contend that other file-sharing software providers can avoid liability by adopting stealthier ways of promoting illegal downloading based on the Supreme Court’s reliance on unmistakable evidence that Grokster and StreamCast acted with the unlawful objective of promoting copyright infringement on a gigantic scale. However, those who assume they can escape liability by using more covert means to achieve the same illegal purpose are mistaken.

In deciding that Grokster’s and StreamCast’s active inducement of copyright infringement justified the imposition of liability, the Court was not saying that less egregious conduct would allow other file-sharing software distributors to escape liability. Rather, the liability standard recognized by the Supreme Court will allow courts to consider any evidence bearing on a defendant’s intent, including its marketing activities, internal communications, the design of the product itself, and a defendant’s business model. Indeed, the Supreme Court cited this type of evidence in support of its decision.

Second, the entertainment industry’s critics argue that even if Grokster and other file-sharing service providers stop distributing their software, people will continue to use that software to illegally download movies and music on the Internet, and nothing can be done about it. This view discounts the determination of the entertainment industry to protect its intellectual property and greatly underestimates the broad powers of a federal court to fashion effective remedies for the victims of Internet piracy. As for remedies, some are found in the Copyright Act itself, which gives a federal district court the right to “grant temporary and final injunctions on such terms as it may deem reasonable to prevent or restrain infringement of a copyright.” The Supreme Court has recognized that the scope of a district court’s equitable powers to remedy past wrongs is also broad, with remedies including, but not limited to, the impoundment and destruction of all infringing works.

To the extent that piracy in the digital age requires more novel remedies, federal judges can provide them. For example, in certain cases they could order the file-sharing software defendants to do the following:

• produce the Internet protocol addresses of their users or assist the plaintiff copyright owners in doing so;

• disable or modify their software so that it can no longer be used for the illegal downloading of copyrighted works; and

•support plaintiff copyright owners in the development and deployment of the antipiracy countermeasures designed to stop the illegal use of their software.

In sum, federal courts have broad authority to enter appropriate orders to assist the plaintiff copyright owners in remediating the harm caused by a defendant’s illegal conduct. As piracy technologies become more insidious and sophisticated, even more creative and effective remedies will be required, and the federal courts can provide them as appropriate in particular cases.

A third assertion of the critics of Grokster is that the decision will do nothing to inhibit the illegal downloading of music and movies, nor will it foster the lawful distribution of copyrighted content on the Internet. They are wrong on both counts. The justices sent a clear message that the Court takes very seriously the protection of historic intellectual property rights in the digital realm. Those who distribute anything that can be used to infringe copyrights on a vast scale should regard the Grokster decision as a warning that under present law they should carefully consider the rights of copyright holders in the design and distribution of their products.

The fourth and last criticism is simply that the decision will have no impact on foreign-based file-sharing service providers. Although some foreign defendants may fall outside the jurisdiction of U.S. courts, that is certainly not true in all cases. In addition, many countries are signatories to the World Intellectual Property Organization Treaty, which protects copyrights internationally. Just three months after the Grokster decision, the Federal Court of Australia entered a judgment against the makers of the Kazaa file-sharing software for authorizing users of its software to commit copyright infringement. As a remedy, the Australian court ordered the defendant to alter its software so that it would filter out copyrighted works.

At its core, the Grokster decision presents both a great opportunity and the expectation that copyright owners and technology companies will devise legal means of distributing copyrighted content on the Internet. Because so much is at stake, the technology that made file-sharing possible ought to be harnessed for lawful purposes, and legitimate online content distribution services such as iTunes and Movielink should prosper. The real message of the Supreme Court’s decision is that even though the marketplace should strike the balance between copyright protection and technological innovation, the courts can be expected to provide copyright owners with meaningful and effective protection against proven Internet piracy. 

For More Information About the Section Of Intelectual Property Law

- This article is an abridged and edited version of one that originally appeared on page 17 of the IPL Newsletter, Winter 2008 (26:2).

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Louis C. Bechtle is a member of Conrad O'Brien Gellman & Rohn, PC, and former chief judge of the U.S. District Court for the Eastern District of Pennsylvania; he may be reached at . Geoffrey L. Beauchamp is of counsel, Conrad O'Brien Gellman & Rohn, PC, and amicus counsel in MGM v. Grokster; he may be reached at .

Copyright 2008

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