Understanding Grokster and its Implications
The Recording Industry Association of America (RIAA) has drilled it into our heads: downloading music for free on Napster-clone P2P software is bad; buying CDs at $15 a pop is good. Picture the starving artist, whose salvation from poverty hinges on the success of her intellectual forays into music, robbed of financial stability by a technologically deviant underage and utopian-minded software developer. Well, not quite – the debate hinges on the respective strength and balancing of two legitimate arguments. On the one end, software developers want to be free from liability when developing innovative programs that facilitate data transmission; on the other end, copyright holders want to fully benefit from the constitutionally-granted protection of their intellectual property. The solution lies somewhere in the murky middle of innovation and commerce.
On June 27, 2005, the Supreme Court unanimously ruled that “one who distributes a device with the object of promoting its use to infringe copyright . . . is liable for the resulting acts of infringement by third parties.” In other words, you will be liable for copyright infringement if your product can be used to infringe upon copyrights and you actively promote your product for such purposes. This decision is significant because its focus is not on the underlying technology, as in the lower court’s opinion that it reverses (see Grokster I article), but rather on the intent of technology companies or those who promote the infringement of intellectual property.
Grokster, Ltd., and StreamCast Networks, Inc. (“Grokster Defendants”) are companies that distribute free software that allows computer users to share electronic files through so called “peer-to-peer” networks. Unlike Napster, the Grokster Defendants software was not centralized in that there was no central indexing server from which information was disseminated but rather select computers acted as “supernodes” so long as they meet certain technical requirements (see Grokster I article). From the evidence submitted to the court, it was clear that almost 90% of the files available for download on these programs were copyrighted works. In other words, an overwhelming majority of the Grokster Defendants software’s use was for illegitimate purposes. The lower court found that regardless of this fact, the Grokster defendants were not liable because the system was a decentralized one and therefore the defendants could not control when, how and where the files were being downloaded or uploaded onto users’ individual computers. The Supreme Court, however, disregarded the centralized v. decentralized distinction and focused on the percentage of illegitimate uses and the “intent” of the defendants in distributing their software.
In finding this intent in the Grokster defendants’ behavior, the court examined a number of factors to show a “clear expression or other affirmative steps taken to foster infringement” - namely:
? Recapture of Napster market: Both Grokster Defendants affirmatively sought out former users of the notorious file-sharing service Napster. Streamcast developed OpenNap, a program designed to recapture the email addresses of Napster users and facilitate Streamcast’s Morpheus to interface with them. The OpenNap program allowed Streamcast to monitor the activities of its users and encouraged them to adopt the Morpheus software. Furthermore, Streamcast’s internal company documents and press kits clearly evidenced an intent to draw a comparison to Napster in order to reinforce their appeal and potential success as a file sharing service. In fact, one of Streamcast’s promotional materials blatantly supported copyright infringement by stating: “Napster, Inc. has announced that it will soon begin charging you a fee. That’s if the courts don’t order it shut down first. What will you do to get around it?”
Grokster similarly drew upon Napster’s appeal by inserting digital codes into its web site so that computer users searching for “Napster” or “free filesharing” would be directed to the Grokster web site.
? Providing user support for copyright infringement: Streamcast monitored the number of copyrighted songs on their networks and internal communications indicated that their goal was to increase the availability of songs by commercial artists on their file-sharing service. To do so, Streamcast included commercial artists as examples on their promotional materials and even featured a “top 40” search on Morpheus. Grokster also sent newsletters to its users promoting its ability to deliver commercial artists for download.
? Business Model supports copyright infringement: The Grokster Defendants’ business model was entirely based on the sale of advertising space, which was streamed to users who obtain the software free of charge. The greater number of users, the greater likelihood of advertising exposure and revenue. It was clear to the court, however, that the number of users seeking popular Top 40 songs would far outnumber the number of users seeking obscure artists or public domain works. In other words, the success of Defendants’ business model was entirely based on its ability to attract infringing downloaders.
? No attempt to provide filter tools: Neither Defendant made any effort to filter copyrighted material from unprotected or public domain works. Defendant Grokster never blocked anyone from using its software even after receiving notice of infringing uses, whereas Defendant Streamcast blocked the IP addresses of those seeking to monitor users engaging in alleged copyright infringement.
A court’s focus on intent to impose liability is not new. On the contrary, fault-based liability pre-dates federal statutory authority for intellectual property infringement. Whenever someone entices or persuades someone else to do something that is, in essence, nothing less than theft, they will be held liable for nothing less than the actual act.
So where does all of this leave you and is all of this mere academic discussion or should it concern you in the first place? If you’re making products or offering services that enable someone to engage in copyright infringement, then you should be worried. There is nothing in the Grokster opinion that suggests that the principles involved are strictly limited to peer-to-peer software. On the contrary, if someone can show by direct or indirect evidence that you intentionally offer someone the possibility to infringe copyrights and you encourage them to do so, then you will be held liable for copyright infringement. This presumably includes any kind of goods and services, from digital audio players to copy machines and legitimate P2P services. In other words, the goods and services that are encompassed by the Grokster decision are left undefined and it is up to you to determine whether you can withstand the elusive “intent” standard that the Grokster decision endorses.
The good news is that there are certain things that you can do to minimize potential liability. If you know that your product or services have the potential to be used for copyright infringement, there are certain strategies you can implement in order to prevent the perception that you endorse such activities:
• Don’t name anything ending in “-ster” : This is not a joke. The Court in Grokster did take the trouble of noting that Grokster was an obvious derivative of Napster, the notorious file-sharing service that put file-sharing on the map. Why attract attention to yourself by drawing a comparison? Use your imagination and find something new that bears no phonetic resemblance to Napster.
• Go through your company’s stated objectives: Your company should not have a mission that encourages theft. Check through your minutes, business plan, internal memoranda, emails, websites – none of them should mention or even allude to copyright infringement as an objective. Assess where the company stands – what are your business objectives? Are you filling gaps for copyright infringement?
• Check your company’s external communication to consumers: Establish a system whereby your company has an advertising promotion clearance to ensure that no external communication could be construed as encouraging copyright infringement. Make sure that your company website and promotion materials don’t link to a company such as Grokster. Establish an internal employee code of conduct that prohibits purposeful and intentional conduct to promote infringement (i.e. sales staff showing how to infringe copyright). Certainly don’t respond affirmatively to copyright infringement requests and double check your external communications to consumers about what they can or cannot do with your product.
• Rely on technology to deter theft: Review whether your company has filtering tools, so that technology minimizes infringing use by clients or customers. If your company offers a product, it should be designed to deter infringing uses – your company developer should be aware that you are trying to develop products that prevent infringement.
• Educate your consumers about copyright infringement: Place some educational materials on your website regarding copyright infringement. The Copyright Society of the U.S.A. has educational materials on their website that is easy to understand and which you can link to. Prominently feature your support of materials protected by Creative Commons (www.creativecommons.org) or some other duly licensed materials.
• Have a back-up plan: Make sure that your company has a procedure to deal with copyright infringement once you are aware that it is in fact occurring. Your internal company management materials should feature it have it as well as your employee code of conduct.
The Grokster decision was not meant to place your company into bankruptcy
if there is a remote possibility that your product or services could lead
to copyright infringement. What it was meant to do is prevent companies
from building a business around the theft of other people’s work
where it is clearly such business’ objective to do so. If you have
a sibling, you know exactly what I am talking about. You don’t tell
your little sister to go steal your next door neighbor’s Star Wars
action figure and expect not to get in trouble for it. Copyright infringement
is simply theft, and although we all know that we shouldn’t do it,
the fact remains that someone will always do it. Let’s just make
sure that you are not the one that facilitates it.