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Metro-Goldwyn-Mayer Studios, Inc., et al. v. Grokster Ltd., et al.

Granting defendants' motion for summary judgment, the District Court holds that neither Grokster Ltd. ("Grokster") nor StreamCast Networks Ltd. ("StreamCast") are liable, on theories of contributory or vicarious copyright infringement, for infringing plaintiffs' copyrights as a result of their distribution, respectively, of branded versions of Kazaa (Grokster) and Gnutella (StreamCast) software.  This software enables third party users to connect to peer-to-peer file sharing networks, over which they frequently share and download copyrighted materials without the consent of the owners of the copyrights therein.  The court held that defendants were not liable for contributory copyright infringement both because there were "substantial non-infringing uses" to which their software applications could be put, and because defendants were not involved in the third parties' use of their software after its distribution.  Similarly, the court held that defendants were not responsible for vicarious copyright infringement because they could not control the uses to which their software were put.  In making this conclusion, the court rejected plaintiffs' arguments that defendants should be held liable for vicarious infringement because, by altering the functionality of their software, defendants could prevent it from being used to infringe the copyrights of third parties.

Plaintiffs are holders of copyrights in various works, including motion pictures and sound recordings.  Defendant Grokster distributes for free a branded version of the Kazaa software, which it, in turn, licenses from a third party.  Grokster does not have access to the source code for this software, and can not alter it.  The software permits users who download and install it on their computers to connect to the FastTrack peer-to-peer network.  Once there, users can gain access to, and download copyrighted works without the consent of the owners of the copyrights therein.  The software also allows users to organize and play various media files, and to communicate, via chat, with other users.

According to the court, apart from its distribution of this software, Grokster is not involved in a user's procurement of copyrighted media files.  Instead, according to the court, the user who seeks to connect to the FastTrack network is connected to a "root supernode" which, in turn, directs and connects him to an active "supernode."  Once connected to the network in this fashion, a user can search it to locate desired media files on, and download those files from, other users' computers.  Such search queries are directed to supernodes which amalgamate information from users' computers (nodes) as to media files they are willing to share.  According to the Court, Grokster does not, at present, operate any of the computers used to operate the FastTrack network.  Thus "[w]hen users search for and initiate transfers of files using the Grokster client, they do so without any information being transmitted to or through any computers owned or controlled by Grokster."  Many of the "root supernodes" are, however, operated by Kazaa BV/Sherman, which licenses its Kazaa software to Grokster.

Grokster's software is set up so that users are provided with advertising when they commence their use of the software.  Grokster derives significant revenue from this advertising.  Grokster also provides technical support to those using its software.

Like Grokster, StreamCast also distributes for free software that permits users to connect to a peer-to-peer network, on which they can obtain copyrighted media files.  At present, StreamCast does not distribute a branded version of the Kazaa software.  Instead, it distributes a branded version of the Gnutella software, under the name "Morpheus."  Like Kazaa, Gnutella permits users to connect to a peer-to-peer file sharing network.  However, its network does not use supernodes.  Instead, a user typically connects to the network by contacting a computer which contains a directory of active users already connected to the network.  The user is then connected to one of these users.  Search queries are passed from user to user, until a match is found.  Once found, files are transferred between the two users' computers.  As with Grokster, StreamCast does not operate any of the computers used in the Gnutella network.  It does, however, have the ability to alter the software it distributes.

Plaintiffs sued Grokster and StreamCast, accusing them of both contributory and vicarious copyright infringement as a result of their distribution of the Kazaa and Gnutella software.  The court rejected these claims on defendants' motion for summary judgment.

The Court held that "for [the] purpose of these motion, plaintiffs have established direct infringement of their copyrighted works by some end-users of defendants' software."

To establish a claim of contributory copyright infringement, plaintiff must establish that defendant "with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another." 

Relying on the Sony Betamax case, the court held that the mere distribution of software which could be used for both infringing and substantial non-infringing uses did not subject the distributor to contributory copyright infringement.  Because there were "substantial non-infringing uses for Defendants' software - e.g., distributing movie trailers, free songs or other non-copyrighted works; using the software in the countries where it is legal; or sharing the works of Shakespeare" as well as their use to "search for public domain materials, governing documents, media content for which distribution is authorized, media content as to which the rights owners do not object to distribution, and computer software for which distribution is permitted," the Court found that the distribution of the software at issue did not subject the defendants to liability for contributory infringement.  Said the court: 

Defendants distribute and support software, the users of which can and do choose to employ it for both lawful and unlawful ends.  Grokster and StreamCast are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights.  While defendants, like Sony or Xerox, may know that their products will be used illegally by some (or even many) users, and may provide support services and refinements that indirectly support such use, liability for contributory infringement does not lie "merely because peer-to-peer file sharing technology may be used to infringe plaintiffs' copyrights."  Napster, 239 F.3d at 1020-21 (citation omitted).  Absent evidence of active and substantial contribution to the infringement itself, Defendants cannot be liable.

Moreover, to be liable for contributory infringement, it is not enough that defendants knew their products were being used to infringe the copyrights of others.  Rather, to prevail, plaintiff must establish that "defendant has actual - not merely constructive - knowledge of the infringement at a time during which the defendant materially contributes to that infringement" and "fail[s] to act upon that information."  Stated another way "Defendants correctly point out that in order to be liable under a theory of contributory infringement, they must have actual knowledge of infringement at a time when they can use that knowledge to stop the particular infringement.  In other words, Plaintiffs' notices of infringing conduct are irrelevant if they arrive when Defendants do nothing to facilitate, and cannot do anything to stop, the alleged infringement."

The Court held that under this theory, plaintiffs could not prevail because defendants could not stop their users' infringing activities, as their involvement therein ended upon delivery of the software applications to their users.  Said the Court:

Plaintiffs appear reluctant to acknowledge a seminal distinction between Grokster/StreamCast and Napster:  neither Grokster nor StreamCast provides the "site and facilities" for direct infringement.  Napster, 239 F.3d at 1022.  Neither StreamCast nor Grokster facilitates the exchange of files between users in the way Napster did.  Users connect to the respective networks, select which files to share, send and receive searches, and download files, all with no material involvement of Defendants.  If either Defendant closed their doors and deactivated all computers within their control, users of their products could continue sharing files with little or no interruption.

This presented a sharp distinction from the Napster case.  In Napster, user search requests were transmitted through, and processed on computers operated by Napster.  Removal of these computers from the network would prevent it from continuing to function, and thus prevent continuing infringement.  Such was not the case here, according to the Court.

The Court also held that supplying technical assistance to users did not constitute material contribution to their infringing activities.  Said the court:

More critically, technical assistance and other incidental services are not 'material' to the alleged infringement.  To be liable for contributory infringement, 'participation must be substantial.'

The Court also rejected plaintiffs' vicarious infringement claims.  To prevail on such a claim, the plaintiffs must show both that defendant "has a right and ability to supervise the infringing activity and also has a direct financial interest in such activities."

The Court held that defendants had a direct financial interest in the infringing activity occurring as a result of their distribution of the software in question because of their receipt of substantial revenue from advertisements appearing on users' screens when they used the software.  Because the ability to use the programs to obtain infringing materials was a principal lure, the Court held defendants derived a financial benefit from the infringing activities for which their software was used.

However, the court held that defendants did not have the requisite ability to supervise and control the infringing activity of the third party users.  In reaching this conclusion, the court relied heavily on defendants' lack of involvement in the peer-to-peer networks, and the fact that they could not block or bar users from continuing to use it.

Defendants provide software that communicates across networks that are entirely outside Defendants control.  In the case of Grokster, the network is the propriety FastTrack network, which is clearly not controlled by Defendant Grokster.  In the case of StreamCast, the network is Gnutella, the open-source nature of which apparently places it outside the control of any single entity.  While the parties dispute what Defendants feasibly could do to alter their software, here, unlike in Napster, there is no admissible evidence before the Court indicating that Defendants have the ability to supervise and control the infringing conduct (all of which occurs after the product has passed to end-users).

In reaching this result, the court rejected plaintiffs' argument that vicarious liability be imposed because of defendants' ability to change the software to prevent infringing activities.  Said the Court:

The doctrine of vicarious infringement does not contemplate liability based upon the fact that a product could be made such that it is less susceptible to unlawful use, where no control over the user of the product exists.

The Court accordingly granted the motion of Grokster and StreamCast for summary judgment, and held that their distribution of the software described above did not render them liable for either contributory or vicarious copyright infringement.