A Little Help with Sharing: A Mandatory Licensing Proposal to Resolve the Unanswered Questions Surrounding Peer-to-Peer Liability for Contributory Copyright Infringement in the Wake of Grokster – Note by Julie Zankel

From Volume 80, Number 1 (November 2006)

In June 2005, the Supreme Court held that the peer-to-peer (“P2P”) networks Grokster and Streamcast1 could be held liable for contributory copyright infringement upon a showing that network administrators clearly expressed support for or took other affirmative steps to encourage infringement. In the Supreme Court’s only prior holding on the issue of secondary liability, Sony Corp. of America v. Universal City Studios, Inc., the Court established that a manufacturer could not be held liable for contributory infringement if the device was “capable of substantial noninfringing uses.” In Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., the Court focused on the networks’ culpable conduct-relying on an inducement theory-and came to a conclusion that would allow the lower court to find Grokster liable on remand without resolving the current circuit split on the issue4 or rethinking or reinterpreting its prior holding in Sony. This ruling essentially overturned the Ninth Circuit’s holding that Grokster was not liable for its users’ infringement merely by virtue of the fact that the system also had substantial noninfringing uses. The Grokster Court instead held that the Sony doctrine did not foreclose the possibility that an actor could be liable for contributory infringement, even if the device is capable of substantial noninfringing uses, when there is evidence the actor encouraged and induced illegal use of the product.

Thus, while it is now clear that a P2P network that encourages infringing uses of its product can be liable for contributory copyright infringement, the extent of liability for a network that does not actively induce users to infringe copyrights where the system is capable of both infringing and noninfringing uses remains uncertain. Further, the Grokster decision is not instructive as to what exactly inducement entails. While the Court was adamant that Grokster’s actions amounted to inducement in the present case, it gave no explanation regarding what actions a network would have to take to be considered “intentionally inducing… infringement,” or alternatively what a network would have to do to avoid inducing infringement on a system capable of both infringing and noninfringing uses. This lack of clarity is of particular importance considering the growing popularity of these types of networks. P2P networks, in particular, are increasingly being used by universities, government agencies, corporations, libraries, and other organizations. Exchange over P2P networks is not limited to music (the digital files at issue in Grokster), but includes motion pictures, novels, videogames, television programs, and photographs.8 In addition, as digital technology rapidly advances, it will be feasible to disseminate more and more types of copyrighted and uncopyrighted works through P2P networks “with ever greater speed and efficiency.”

Further, considering the amount of money that is at stake (Grokster, for example, agreed to “pay up to $50 million in damages”), it is extremely important that P2P networks have some sense of their potential liability in a case where no inducement exists, and what they could and should do to avoid such liability. The Grokster opinion is not instructive on this point, and this is exactly where the two concurring opinions diverge. Justice Ginsburg’s concurring opinion seems to imply that, had there been no “inducement,” a network such as Grokster would still fail the Sony test. On the other hand, Justice Breyer’s concurrence maintains that without culpable intent, a network such as Grokster should not be liable for contributory copyright infringement.

Prior to the Grokster case, both the Ninth Circuit and the Seventh Circuit confronted contributory copyright liability issues in A&M Records, Inc. v. Napster, Inc. and In re Aimster Copyright Litigation, respectively. Although in both cases the defendants were found liable for the infringement of their users, due to the unclear standard set forth in Sony, these two courts came to divergent conclusions in their analysis with respect to the circumstances under which contributory liability should and could be imposed. While the Ninth Circuit focused on whether the defendant had actual or constructive knowledge of the infringement and subsequently failed to act to curb the infringing activity, the Seventh Circuit concentrated on whether the device was actually used for noninfringing purposes. The Seventh Circuit interpreted Sony to further require that even where noninfringing uses exist, the network provider must demonstrate it would have been disproportionately costly to design the server or monitor the network in a way that would eliminate or reduce the infringing uses in order to escape liability. 

This debate regarding issues surrounding secondary liability is one that must be resolved quickly. Clarification of the Sony rule is necessary to encourage legitimate P2P networks by ensuring that networks are fully informed of the extent of their potential liability. Without a resolution, servers will have no way to determine their liability or know what reasonable steps should be taken to avoid such liability. The Grokster majority avoided this question by basing its decision on an inducement theory-arguing this would enable copyright owners to protect themselves while keeping the Sony rule intact so as not to chill innovation. The lack of guidance in the Grokster decision, however, could itself chill innovation as it will lead P2P network providers to take economically inefficient steps to avoid liability, disallow uses on their servers even though the uses would not infringe and might further education or some other important goal, or completely abandon their networks in favor of something less risky.

This Note will argue that the best way to resolve this conflict is through a mandatory licensing scheme that puts the burden on the content industry rather than the technology provider to track the use of protected works and petition the service provider for a reasonable royalty.