Editor's note: The Associated Press reported that Grokster Ltd., which came out on the losing end of a Supreme Court decision, had agreed to shut down its file-swapping service and pay $50 million to settle music and movie piracy claims. The surprise settlement announced Nov. 7 permanently bans Grokster from participating, directly or indirectly, in the theft of copyrighted files and requires the company to stop giving away its software. Grokster executives said they would launch a legal, fee-based "Grokster 3G" service before year's end under a new parent company, believed to be Mashboxx of Virginia Beach, Va. Mashboxx, headed in part by former Grokster President Wayne Rosso, already has signed a licensing agreement with Sony BMG Music Entertainment.
WASHINGTON — Internet file-sharing services may be held responsible if they
intend for their customers to use software primarily to swap songs and movies
illegally, the Supreme Court ruled today, rejecting warnings that the lawsuits
would stunt growth of cool tech gadgets such as the next iPod.
decision in Metro-Goldwyn-Mayer
Studios v. Grokster, 04-480, sends the case back to a lower court, which
had ruled in favor of file-sharing services Grokster Ltd. and StreamCast
Networks Inc. on the grounds that the companies couldn’t be sued. The justices
said there was enough evidence of unlawful intent for the case to go to
File-sharing services shouldn’t get a free pass on bad behavior, justices
“We hold that one who distributes a device with the object of promoting its
use to infringe copyright, as shown by the clear expression or other affirmative
steps taken to foster infringement, is liable for the resulting acts of
infringement by third parties,” Justice David H. Souter wrote for the Court.
At issue was whether the file-sharing services should be held liable even if
they have no direct control over what millions of online users are doing with
the software they provide for free. As much as 90% of songs and movies copied on
the file-sharing networks are downloaded illegally, according to music industry
The entertainment industry said it needed protection against the billions of
dollars in revenue they lose to illegal swapping. Consumer groups worried that
expanded liability would stifle the technology revolution of the last two
decades that brought video cassette recorders, MP3 players and Apple’s iPod.
Companies will have to pay music and movie artists for up to billions in
losses if they are found to have promoted illegal downloading.
Two lower courts previously sided with Grokster without holding a trial. They
each based their decisions on the 1984 Supreme Court ruling that Sony Corp.
could not be sued over consumers who used its VCRs to make illegal copies of
The lower courts reasoned that, like VCRs, the file-sharing software could be
used for “substantial” legal purposes, such as giving away free songs, free
software or government documents. They also said the file-sharing services were
not legally responsible because they didn’t have central servers pointing users
to copyright material.
But in today’s ruling, Souter said lower courts could find the file-sharing
services responsible by examining factors such as how companies marketed the
product or whether they took easily available steps to reduce infringing
“There is substantial evidence in MGM’s favor on all elements of inducement,”
In the closely watched case, supporting the effort to sue the companies were
dozens of entertainment industry companies, including musicians Don Henley,
Sheryl Crow and the Dixie Chicks, as well as attorneys general in 40 states.
About 20 independent recording artists, including musician and producer Brian
Eno, rockers Heart and rapper-activist Chuck D, supported the file-sharing
technology to allow for greater distribution of their works.
Today’s ruling gives the entertainment industry another legal option to the
more costly and less popular route of going directly after millions of online
file-swappers believed to distribute songs and movies illegally.
It’s unclear how much the decision will actually deter the widespread problem
of piracy since software programs created abroad won’t be subject to the tougher
U.S. copyright laws. Still, analysts say the Court’s stern rebuke should provide
a boost to many file-sharing services that offer legal downloading for a
Industry observers have said a ruling against Grokster could also prompt
stiffer enforcement from European regulators, who were watching the case for
guidance on tackling copyright questions in their countries.
Recording companies in the United States have already sued thousands of
individual users; at least 600 of the cases were eventually settled for roughly