MGM Studios, Inc. v. Grokster, LTD.
Since the inception of the Napster website, copyright battles involving the exchange of proprietary material over the Internet via file-sharing services have escalated. In December of 1999, the Recording Industry Association of America (RIAA) sued Napster, and the case ultimately resulted in the demise of the original Napster website. (Napster has since returned as a "music store" in cooperation with the RIAA.) But other file-sharing services such as Morpheus and KaZaA, which also supported the exchange of MP3 files containing copyrighted music over the Internet, initially managed to avoid the fate of Napster. Unlike Napster, which used a centralized distribution point consisting of a server, index, and registry of names, Morpheus and KaZaA used a decentralized file-sharing system- a "true" peer-to-peer (P2P) technology. This structure presented the RIAA with a more difficult legal challenge than it had experienced in the Napster case.
After considering the kind of P2P systems used by Morpheus, Grokster, Gnutella, KaZaA, and other file-sharing sites, the RIAA decided to use a different strategy to track down users of those services who exchanged copyrighted music online. Rather than filing suit against the P2P service providers themselves, the RIAA instead issued court subpoenas to Internet service providers (ISPs) such as Comcast and Verizon to find out the names of users it suspected of having downloaded and exchanged copyrighted music. Most ISPs compiled with the RIAA's request, but Verizon decided it would challenge the RIAA in court, arguing that turning over the list of names would violate the privacy of its users (see the Verizon v. RIAAcase).
Of course, the debate about whether it is permissible to share copyrighted files through P2P systems has not been limited to the exchange of copyrighted music files. The motion picture industry, which watched carefully as the RIAA pursued its legal actions, had also become concerned about the ease with which copyrighted movies were being freely exchanged online via P2P file-sharing systems. In 2003, Metro-Goldwyn-Mayer (MGM) Studios, along with 27 other music and motion picture studios, files lawsuits against Grokster (which owned KazaA) and Streamcast (which owned Morpheus). MGM alleged "contributory copyright infringement" against these P2P file-sharing services, arguing that they were legally liable for the copyrighted material exchanged on their systems.
Grokster argued that its system was legal, citing a precedent fromteh Sony Corp. of America v. Universal City Studios, Inc.(1984) case, which determined that a technology could not be barred merely because it could result in copyright infringement. In that precedent-setting case, Universal had sued to ban the sale of VCR technology, claiming that Sony, which manufactured the Betamax home video recorder (then a rival of VHS recording devices), was liable for copyright infringement either directly or indirectly because the new technology could be used to make illegal copies of movies. The Supreme Court, however, ruled in favor of Sony, arguing that VCRs did not violate copyright law merely because they were capable of substantial infringement. (This interpretation has since come to be known as the “Sony Safe Harbor” precedent.) Courts have subsequently been reluctant to ban or limit the use of technological advances. Because P2P networks are considered a “technological advance,” this technology would also seem to fall under the Sony precedent. However, MGM argued that 90% of the material exchanged on Grokster’s P2P system was copyrighted material and that this constituted “substantial” copyright infringement.
Initially, a district court disagreed with MGM, ruling that Grokster could not be held legally liable for the distribution of copyrighted material. Although MGM appealed the decision, the Ninth Circuit Court of Appeals upheld the lower court’s decision. MGM then decided to appeal to the U.S. Supreme Court, which agreed to hear the case. In debating the case in the high court, justices were divided between two seemingly conflicting principles: (1) the need to protect “new technologies,” such as P2P networks, and (2) the need to provide “remedies against copyright infringement.”
The justices could not agree as to whether there was sufficient legal precedent to protect Grokster from liability for copyright infringement. However, the justices agreed unanimously that using Grokster’s services to trade copyrighted material is illegal. In deciding this case, the justices were careful not to use the Sony precedent in their ruling. However, the court did not rule that P2P technology itself violated copyright law (a ruling that MGM wanted). As a result of the Supreme Court’s decision, Grokster was forced to pay $50 million to the music and recording industries, which effectively forced Grokster to close down its services.