|
BACKGROUND TO THE JUDGEMENT
Grokster and StreamCast both offered free software allowing users to share or “swap” any type of digital file through P2P networks. In P2P networks users’ computers communicated directly with each other without having to use a central server. This meant that neither company was aware when particular files were copied. The software distributed by Grokster and StreamCast was predominantly used to swap copyrighted music and video files without authorisation of the copyright holder. Neither company received revenue from users, but generated income by selling advertising that was streamed to users while using the software.
A group of copyright holders including motion picture studios, recording companies, songwriters and music publishers (MGM) sued Grokster and StreamCast for contributory copyright infringement. Both parties sought summary judgement in the District Court. The District Court held that Grokster and StreamCast were not liable for copyright infringement because they satisfied the test set out in an earlier Supreme Court decision, Sony Corporation of America v Universal City Studios, Inc. Under the Sony test, liability for contributory infringement does not attach to a manufacturer or distributor of a device that is capable of substantial non-infringing uses unless the manufacturer or distributor has actual knowledge of specific acts of infringement and fails to act on that knowledge. Since the P2P software was capable of substantial non-infringing uses and the use of that software did not provide Grokster and StreamCast with actual knowledge of specific acts of infringement, there was no liability for contributory copyright infringement.
On appeal, the Court of Appeals affirmed the District Court decision for the same reasons. MGM appealed to the Supreme Court.
THE SUPREME COURT JUDGEMENT
The Court held that a person who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties. Evidence of affirmative steps included advertising an infringing use and instructing how to engage in an infringing use.
On the basis of this test, Grokster and StreamCast were liable for inducing copyright infringement. The evidence showed that both companies had distributed their free P2P software with the clear objective that recipients use it to download copyrighted works, and took active steps to encourage the infringement. The Court in particular highlighted the following aspects of their conduct:
• both companies sought to satisfy a known source of demand for copyright infringement by supplying services to the market comprising former Napster users;
• there was no attempt to develop filtering tools or other mechanisms to diminish the infringing activities;
• both companies had responded affirmatively to requests for help in locating and playing copyrighted materials; and
• the business models employed by both companies relied on high-volume use to generate advertising income, and the majority of that use was to download copyrighted works.
The Court also held that where the evidence shows statements or actions directed to promoting infringement, the Sony test will not prevent liability for inducement of copyright infringement. The Supreme Court returned the matter to the Court of Appeals for reconsideration of MGM’s motion for summary judgement.
COMMENT
In its judgement, the US Supreme Court recognised the need for balance between copyright protection and fostering innovation. Thus, the Supreme Court focussed on the conduct of Grokster and StreamCast and not on the technology itself (P2P software) to determine liability on the basis of inducement.
The Grokster test requires distribution and intent to encourage infringement to establish inducement liability. The corollary is that in the absence of intent, there is no liability for distribution of a device which satisfies the Sony test and thus the Court preserved the Sony test.
In the wake of the decision, Sharman Networks, who distributes the Kazaa P2P software, said that it is not affected by the Grokster decision because its user agreement included a provision requiring users not to infringe copyright when swapping files. However, it is not clear that this is sufficient to avoid liability. Grokster had sent emails warning users about infringing copyright when it received threatening notices from copyright holders, but never blocked anyone from continuing to use its software to share copyrighted files. A similar conclusion may be reached about Sharman Networks if the evidence indicates that this provision of the user agreement was never enforced.
APPLICATION TO AUSTRALIA
In Australia, a person infringes copyright if that person “authorises” a third party to commit an act of copyright infringement. It has been noted that “authorisation” in Australia is similar in operation to “contributory infringement” in the United States. Australian courts are already considering the effect of the Grokster decision.
In Universal Music Australia Pty Ltd v Sharman Licence Holdings Ltd [2005] FCA 1242 (5 September 2005), Justice Wilcox has found Sharman Networks liable for authorising copyright infringement by users of the Kazaa software. Although Justice Wilcox said little guidance was obtained from the Grokster decision in view of the factual and legal differences, his reasons follow a similar path as he noted that it was against Sharman Networks’ financial interest to inhibit swapping of copyrighted works and that Sharman Networks encouraged copyright infringement by its “Join the Revolution” and “Kazaa Revolution” campaigns on its website.
In addition, the recently signed Free Trade Agreement between the US and Australia may exert some influence on how the Grokster decision impacts the position in Australia.
Given the increasingly aggressive stance taken by copyright holders in the US, IT and multimedia companies should audit the capabilities of the software that they use or distribute to minimise their exposure to liability for contributory copyright infringement in the US. Companies should also be careful how they market their services and their software, since courts in the US are likely to scrutinise a company’s conduct and business plan in assessing its liability.
|
