A Few Notes from the Grokster Argument

-------- Original Message --------
Subject: pho: A Few Notes from the Grokster Argument
Date: Tue, 29 Mar 2005 12:11:19 -0800
From: "James S. Tyre" <[email protected]>
To: [email protected]

http://blogs.law.harvard.edu/tka/2005/03/29#a53
A Few Notes from the Grokster Argument

Along with what seemed like about two-thirds all the lawyers in
Washington, I attended today’s Supreme Court argument in MGM v.
Grokster, the case on the legality of decentralized peer-to-peer
file sharing.  It was the most crowded argument I’ve ever
attended—I arrived before 6:30 a.m. and still ended up in the
overflow seating, listening to the audio in the attorney lounge,
which was standing room only.  Mostly industry and government
lawyers in attendance, it seemed to me, which is surely no
surprise given the dollar amounts on the line.  I don’t really
like the attorney lounge because it’s sometimes hard to hear the
Justices (they don’t all speak directly into their microphones)
and because it’s not always clear who is speaking (Kennedy and
Souter, in particular, sound basically the same to my ears). 
Just based on the audio feed, it sure sounded like the Chief had
no business being out of a hospital.

I would say the argument went a little better for Grokster than I
would have expected it to.  Not to the point where I’d actually
predict victory for them, but to my mind at least, the questions
Grokster got were not as difficult as those MGM got.

The big issue that the Justices were wrestling with, it seemed to
me, is what the standard ought to be for deciding whether
services like Grokster can be secondarily liable for their users’
copyright infringement.  The Justices did not sound especially
satisfied with either MGM’s or the government’s answers to this
question.  MGM’s view was and is a little od; their argument to
the Court was that the legality of a technology should turn upon
the type of business model the developer of that technology
adopts to distribute it.  On this view, Sony is off the hook
because Sony is not a company that is primarily in the business
of copyright infringement.  But Grokster should be held
accountable because they intentionally founded a business based
expressly on encouraging infringement of copyright.  It does not
matter, in MGM’s view, whether the infringing use of Grokster’s
system constitutes 90% or 10% of the total: because its whole
business plan is geared around using the promise of infringing
content to lure customers, it should be liable.

At least some of the Justices, Scalia in particular, seemed
troubled by how an inventor would know, at the time of inventing,
how its invention might be marketed in the future.  How, some of
the Justices asked MGM, could the inventors of the iPod (or the
VCR, or the photocopier, or even the printing press) know whether
they could go ahead with developing their invention?  It surely
would not be difficult for them to imagine that somebody might
hit upon the idea of marketing their device as a tool for
infringement.

MGM’s answer to this was pretty unsatisfying.  They said that at
the time the iPod was invented, it was clear that there were many
perfectly lawful uses for it, such as ripping one’s own CD and
storing it in the iPod.  This was a very interesting point for
them to make, not least because I would wager that there are a
substantial number of people on MGM’s side of the case who don’t
think that example is one bit legal.  But they’ve now conceded
the contrary in open court, so if they actually win this case
they’ll be barred from challenging “ripping” in the future under
the doctrine of judicial estoppel.  In any event, though, MGM’s
iPod example did exactly what their proposed standard expressly
doesn’t do: it evaluated the legality of the invention based on
the knowledge available to the inventor at the time, not from a
post hoc perspective that asks how the invention is subsequently
marketed or what business models later grow up around it.

Justice Scalia’s questions kept the focus on what an inventor
would know at the time of making an invention: how would they
know which uses of their product would later come to predominate;
and should an inventor maybe have some fixed period of time (say,
ten years) to develop noninfringing uses of its product before
its legality is tested.  MGM’s answer was that an inventor could
never be secondarily liable because they could not be found to
have acted with the requisite knowledge that they were
facilitating infringement, but Grokster can be liable because its
knowledge of that fact forms the very basis for its business
plan.  Justice Ginsburg asked whether an inducement theory based
on whether a defendant built a business around encouraging
infringement of copyright could ever be amenable to resolution on
summary judgment, and MGM seemed to say that a trial would be
required in every case.  This is an extraordinarily low threshold
they are asking the Court to establish for getting to a jury, and
this is still a Court that generally likes summary judgment, so I
wonder whether MGM’s proposed standard will get much traction.

If the Solicitor General’s proposed standard was actually
different from MGM’s, I’m afraid the subtlety was lost on me;
their argument to the Court parroted MGM’s in most pertinent
respects.  The SG argued that a defendant should be held liable
if their business model is not substantially unrelated to
copyright infringement.  Minor noninfringing uses (such as
authorized downloads) should not immunize a defendant from
liability, and in suggesting the contrary, the courts below
misread the Sony decision.  The Court (Justice Kennedy, I think)
questioned the government about whether there could ever be a
safe harbor for defendants (maybe trying to see whether the SG
shared MGM’s view that a plaintiff should get to trial in every
case, or whether in some cases nonliability was so clear as to be
decided summarily).  The SG’s answer was that if a minority of
the uses were infringing (that is, 50% minus one), the defendant
should be off the hook, but anything beyond that and the court
would have to look closely at their business model.  The SG, in
other words, called for a safe harbor that no extant, or
reasonably foreseeable, service would ever be able to avail
itself of.  The SG also rejected the suggestions (by Justices
Scalia and, I think, Souter) that perhaps
infringing-versus-noninfringing business models shouldn’t be
evaluated at the moment the company launches its product, but
maybe after a market has had a certain opportunity to mature.

The questioning of Grokster’s lawyer was very odd.  The Court
spent what I thought was an inordinate amount of time trying to
nail down exactly what issues had been certified for
interlocutory review and what issues were still “live” in the
trial court.  The dividing line seemed to fall between the
question whether Grokster’s software design was lawful going
forward, and whether Grokster could nevertheless face liability
for its past efforts to market that software as a vehicle for
infringement.  The discussion on this point was not especially
illuminating and consumed an awful lot of Grokster’s clock time.

As expected, Grokster argued that the Sony rule was necessary to
protect innovation, and noted the large industries that had grown
up expressly relying on the “capable of substantial noninfringing
uses” test.  Justice Ginsburg made a couple of comments about how
there is more to the Sony opinion than just the “capable of
substantial noninfringing uses” phrase, but Grokster seemed to
have the better of the argument that, say what you will about
that phrase, it is in fact the standard that Sony establishes,
for better or worse.  Justice Breyer wondered whether Sony
wouldn’t work just as well if the Court struck out the words
“capable of” and just focused on the actual uses, but Grokster
answered that basically all of the alternative standards that had
been proposed in the case were worse for innovation than the
as-is Sony test.  There was a little sparring with Justices
Souter and Ginsburg about whether the Court should be making the
decisions in this area rather than Congress.  I don’t think
anybody expects the Court (especially this Court) to punt to
Congress, however, on this or any other issue that is colorably
subject to judicial resolution.

Some of the Justices seemed pretty troubled by the idea that
Grokster had engineered its system for “willful blindness” to the
infringing conduct of its users.  Grokster’s lawyer conceded, as
he had to, that one of the reasons Grokster designed its software
as it did was to avoid the Ninth Circuit’s decision in the
original Napster case (which held Napster liable because its
centralized file database gave it actual knowledge of what its
users were doing).  Grokster argued that designing around Napster
wasn’t its sole purpose, but it remains to be seen whether the
Justices think this is persuasive.  I think they made a little,
but not a lot, of headway on the “willful blindness” issue.

MGM’s rebuttal opened with a real howler, and I am a little
surprised that none of the Justices interrupted their lawyer to
challenge it, but he was speaking pretty quickly and forcefully,
so I guess they were inclined to let him sum up.  Addressing the
relief MGM was seeking, their lawyer said: Grokster is a machine
built upon inducing infringement and we are entitled to an
injunction shutting it down.  The obvious rejoinder, based on the
lower courts’ express findings in the case, is that an injunction
can’t shut down Grokster, the network, because it exists
completely apart from Grokster, the company.  If this was an
attempt at some sleight of hand with the technologically
unsophisticated judges, I don’t see it going anywhere, because
the questioning of both sides seemed to reflect that the Justices
have a hearteningly clear grasp of what the software does and
doesn’t do.  MGM also argued that the Ninth Circuit’s decision
was itself chilling technological innovation, although they
defined “innovation” as innovation authorized by copyright
holders.  MGM closed with its pity-the-starving-artists line,
complaining about the lost revenues from hypothesized sales it
says would have occurred absent file-sharing.

On balance, not quite as bad a day for Grokster as I think a lot
of people were expecting.  Not a sure (or even a probable)
victory for them by any means, but the Court did seem quite
attuned to the effects on innovation of whatever liability rule
it ultimately adopts.  None of the Justices was talking as if the
case could be disposed of on Sony alone, but there will be at
least a few votes against abandoning that standard altogether. 
Whether the Court can craft a marginal tweak of Sony that does as
little harm as possible is a question nobody can answer now, but
we will know in a couple of months.

Posted by Tim Armstrong on 3/29/05; 2:14:51 PM from the Cyberlaw
dept.

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James S. Tyre                              
mailto:[email protected]
Law Offices of James S. Tyre         
310-839-4114/310-839-4602(fax)
10736 Jefferson Blvd., #512               Culver City, CA
90230-4969
Co-founder, The Censorware Project            
http://censorware.net




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