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Designer Skin LLC v. S & L Vitamins, Inc., et al.
Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

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

___ F.3d __ (9th Cir., August 19, 2004)

Affirming the court below, the Ninth Circuit Court of Appeals holds that distributors of Kazaa and Morpheus are not liable for the infringing uses to which their peer-to-peer file sharing programs are put by third parties.  These third parties use defendants' software to make and distribute unauthorized copies of sound recordings and motion pictures in which plaintiffs hold copyrights.  Because, however, defendants' programs can also be used for 'substantial non-infringing uses,' such as the sharing of works either in the public domain, or with the permission of the holders of the copyrights therein, the Ninth Circuit held that defendant distributors are not liable as contributory infringers for such third party activities.  These claims fail because defendants did not have the requisite knowledge of the users' infringing activities at a time when they contributed to, or could take steps to prevent that infringement, given the decentralized nature of defendants' software.  Nor are the distributor defendants liable as vicarious infringers, as they did not have the requisite right and ability to supervise, or prevent, the infringing conduct of the users of their software.  The Ninth Circuit accordingly affirmed the District Court's grant of partial summary judgment to the distributor defendants, dismissing so much of the complaint which asserted copyright infringement claims arising out of those versions of defendants' software being distributed at the time of the District Court's decision.

Plaintiffs "own or control the vast majority of copyrighted motion pictures and sound recordings in the United States." 

Defendants are distributors of peer-to-peer file sharing programs.  Both defendants distribute their software for free, making money from the advertisements that appear on consumers' screens when they use the software.

Defendant StreamCast distributes a branded version of the Gnutella peer-to-peer file sharing software known as Morpheus.  The Morpheus software allows each user to create on his computer a list of the song or movie files he is willing to share with his peers.  When a user seeks to obtain a particular song or movie, the Morpheus software sends a query to each users computer then online to ascertain whether the song or movie being sought is on the list of files that user is willing to share.  The Morpheus software compiles the resulting data on the seeker's computer, who can then initiate a transfer from the computers of the identified users who have the song or movie file he seeks.

Defendant Grokster distributes Fast Track, a branded version of the Kazaa peer-to-peer software.  Fast Track works in a slightly different fashion than Morpheus.  Each user's computer sends a list of the song or movie files the user is willing to share to computers designated as super nodes.  When a user seeks a particular file, his query is sent to a super node computer, which identifies computers on which it can be found.  As with Morpheus, however, the file transfers take place between the computers of two users.

In neither system is the defendant actively involved in file search or transfer.  Thus, the defendants do not operate centralized computers which house either lists of files available for sharing or the files themselves, or permit a user to access the 'network.'  In this regard, the software offered by defendants differs from that previously offered by Napster, which housed on its own computers lists of files users were willing to share

Plaintiffs claimed that third parties used defendants' software to create and distribute unauthorized copies of plaintiffs' copyrighted works and thereby to directly infringe plaintiffs' copyrights.  Plaintiffs sought to hold the defendants liable for these infringing activities on theories of contributory and vicarious copyright infringement as a result of their distribution of the software used to effectuate such infringement.  The Ninth Circuit rejected both of these claims.

To be guilty of contributory copyright infringement, a defendant must have knowledge of, and materially contribute to the direct infringement of plaintiff's copyright by a third party.  Applying the Supreme Court's Sony-Betamax decision, the Ninth Circuit held that the level of knowledge sufficient to give rise to a contributory infringement claim depended on whether defendants' software could be used for substantial non-infringing activities.

If the product at issue is not capable of substantial or commercially significant noninfringing uses, then the copyright owner need only show that the defendant had constructive knowledge of the infringement.  On the other hand, if the product at issue is capable of substantial or commercially significant noninfringing uses, then the copyright owner must demonstrate that the defendant had reasonable knowledge of specific infringing files and failed to act on that knowledge to prevent infringement.

If the defendant established that its software can be used for 'significant noninfringing uses,' the plaintiff must then show that defendant was aware that its product was being used by a particular individual to infringe "at the time at which it contributed to [that] infringement." 

The Ninth Circuit held that defendants' software could be used for significant non-infringing uses, such as the sharing of works in the public domain, or the authorized distribution of copyrighted works.  As such, the fact that defendants may have been aware that their software was also being used to infringe copyrights did not make them liable for contributory infringement.  Rather, because defendants only learned of a particular infringing activity after they had distributed their software to the infringer, and at a time at which they could not stop him from infringing, the Court held defendants neither materially contributed to that infringing activity, nor had the requisite knowledge to be guilty of contributory copyright infringement.  Said the Court:

As the district court correctly observed, and as we explain further in our discussion of material contribution, "Plaintiffs' notices of infringing conduct are irrelevant," because "they arrive when Defendants do nothing to facilitate, and cannot do anything to stop, the alleged infringement" of specific copyrighted content.

The Court also rejected plaintiffs' vicarious infringement claim.  To be guilty of vicarious copyright infringement, the defendant must obtain a direct financial benefit from a third parties' infringing activities, and have "the right and ability to supervise the infringers."  Because the defendants could control neither who had access to the networks created by their software, nor what files they shared thereon, the Ninth Circuit held that defendants did not have the requisite ability to control the third party infringers.  In reaching this result, the Court rejected plaintiffs' claims that this power lay in either defendants' ability to rewrite their software, or stop distributing it altogether.  Said the Court:

We agree with the district court that possibilities for upgrading software located on another person's computer are irrelevant to determining whether vicarious liability exists.

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