Grokster is a company that distributes software free of charge that enables copies of files on one computer to be transferred to another computer. Grokster was sued by MGM and other owners of copyrighted music and films with the claim that Grokster was facilitating the infringement of their copyrights. The Supreme Court decided unanimously that the evidence of contributory infringement by Grokster was sufficient to warrant a trial.
I do believe the case deserves a trial, and primarily for this reason I signed (without any compensation) an Amici Curiae brief submitted by several economists to the Supreme Court against Grokster. The arguments about infringement are set out in that brief and in Posner‚Äôs discussion. This software has few other uses so far other than to copy files from one computer to another, which often is a violation of copyright protection on the files copied. Although Grokster is not per se violating any copyright by producing this software, its software unquestionably facilitates these violations. It is also much more efficient to litigate against the contributory infringement of Grokster than to litigate against every college student and other individuals who are actually engaged in transferring files illegally.
The courts have held in the past that it is not contributory infringement if a company produces a product with sufficient sales for legitimate uses, even though it is sometimes used to violate either copyright or other laws. For example, it is legal to produce box-cutters, even though they have been used to commit terrorist acts. Posner gives other examples along similar lines.
But several things concern me about the issues raised by this and related court decisions. I basically do not trust the ability of judges, even those with the best of intentions and competence, to decide the economic future of an industry. Do we really want the courts determining when the fraction of the total value due to legal sales is high enough to exonerate manufacturers from contributory infringement? Neither the wisest courts nor wisest economists have enough knowledge to make that decision in a way that is likely to produce more benefits than harm. Does the fraction of legitimate value have to be higher than 50 per cent, 75 per cent, 10 per cent, or some other number? Courts should consider past trends in these percentages because new uses for say a software-legal or illegal- inevitably emerge over time as users become more familiar with its potential. Must courts have to speculate about future uses of software or other products, speculation likely to be dominated by dreams and hopes rather than firm knowledge?
Posner suggests requiring software producers to prevent the copying of CDs or other files with non-removable electronic tags placed on them by copyright owners. Unfortunately, this suggestion merely shifts the problem one stage backwards by providing incentives to other innovators to produce software that removes such tags!
My other concern is more strictly economic. The burglar using tools to prey open doors, safes, or windows, the good example Posner uses, is almost invariably producing harm through his activities. It is much less clear that the harm exceeds the benefits when someone buy files and then shares them with friends, and in many similar violations of intellectual property. A person might pay more for files that he expects to share with friends partly because to gain their goodwill, or partly because he can then share their files. Individuals may jointly pay for files if there is software that can be used to share them. In addition, free use of some files due to copying may encourage purchase of additional ones because the music or film copied whets the appetite for certain types of music, films, or other copyrighted material.
These points are not simply intellectual exercises, for at least some of the serious studies of the effects of copying and other apparent violations of intellectual property on sales do not show any strong negative effects, and sometimes even claim to find positive effects. Posner gives the example of Betamax, a losing competitor to the VCR. The movie industry opposed Betamax because they thought it would help destroy the sale of movies, but it failed to appreciate the eventual importance of videos to their overall market. There may also be conflicts among companies with copyrights, so that the majority might gain from a freer market and prefer to do nothing, while a few companies sue because the copying of their materials hurts them.
Experience and theory tells us that it is best to let markets rather than courts determine the evolution of industries-just remember the mess made of the telephone industry by Judge Greene. I increasingly believe that this principle applies also to alleged violations of intellectual property through contributory infringement. This form of legal remedy should be used but rarely.