US Supreme Court: liability for P2P software providers

The US Supreme Court has handed down a slashing verdict for the makers of
peer to peer software. In the case of MGM versus Grokster and StreamCast
the judges find the software producers liable for copyright infringements
committed by users of the software. The court uses three arguments for
this theory of extended liability.

First of all, the CEOs clearly “marketed themselves as Napster
alternatives” and “took active steps to encourage infringement”. Secondly,
they didn’t make any effort to prevent the sharing of copyrighted files.
And thirdly, they gain a profit from selling advertising space. “Since the
extent of the software’s use determines the gain to the distributors, the
commercial sense of their enterprise turn on high-volume use, which the
record shows is infringing.”

The Supreme Court has ordered the lower court to reconsider its decision
from 2001 with the new doctrine. In the 2001 case, and in the appeal in
2004, the software producers successfully claimed protection from
liability, based on the 1984 landmark decision in the Sony (Betamax) v.
Universal City Studios case. Since the VCRs were mainly used for
timeshifting (substantial noninfringing use), the producer could not be
held liable for possible infringing use.

In the earlier cases against the P2P software makers, the courts also took
into account the software providers had no actual knowledge of
infringement, did not monitor the behaviour of users and had no
involvement in any infringement other then providing the software.

The US Electronic Frontier Foundation provided legal council to the case
from the beginning. Fred van Lohmann, the EFF senior intellectual property
attorney commented: “Today the Supreme Court has unleashed a new era of
legal uncertainty on America’s innovators. The newly announced inducement
theory of copyright liability will fuel a new generation of entertainment
industry lawsuits against technology companies. Perhaps more important,
the threat of legal costs may lead technology companies to modify their
products to please Hollywood instead of consumers.”

Supreme Court case 545 MGM v. Grokster et al (27.06.2005)
http://www.eff.org/IP/P2P/MGM_v_Grokster/04-480.pdf

Press release EFF (27.06.2005)
http://www.eff.org/news/archives/2005_06.php#003748