Grokster, File Sharing, and Contributory Infringement--Posner

On the last day of its term (June 27), the Supreme Court decided the Grokster case, holding that the court of appeals had erred in affirming summary judgment for Grokster, a company that distributes free of charge software that enables computer owners to form "peer-to-peer" networks whereby a copy of a file in one computer can be transmitted to another computer. (There was another defendant as well, but I'll ignore that detail.) As explained in the Court’s majority opinion, "On the FastTrack network opened by the Grokster software, the user's request goes to a computer given an indexing capacity by the software and designated a supernode, or to some other computer with comparable power and capacity to collect temporary indexes of the files available on the computers of users connected to it. The supernode (or indexing computer) searches its own index and may communicate the search request to other supernodes. If the file is found, the supernode discloses its location to the computer requesting it, and the requesting user can download the file directly from the computer located. The copied file is placed in a designated sharing folder on the requesting user's computer, where it is available for other users to download in turn, along with any other file in that folder." Grokster was sued by owners of music and film copyrights, who complained that Grokster was facilitating the infringement of their copyrights. Instead of buying a CD or DVD, the owner of Grokster software could search the network composed of other owners of the software for a computer file containing the copyrighted music or film and if he found it copy the file. This would be infringement, and the Supreme Court ruled that there was enough evidence of "contributory infringement" by Grokster to warrant a trial. The Court was unanimous, but there are several opinions, and they are long and labored. The basic principles are simple, however, and a single, much shorter opinion would have sufficed. A contributory infringer is someone who facilitates infringement. By making the contributory infringer liable, the law reduces the cost of enforcing copyright, since it would be very costly for copyright owners to sue every person who is engaged in file sharing. The general approach is not limited to copyright law. For example, someone who sells burglar tools to a burglar is guilty of aiding and abetting if the burglar uses the tools to commit a burglary. And someone who induces a breach of contract is liable to the victim of the breach, even though the victim could just have sued the other party to the contract for breach of contract. But difficulties arise when a product has both lawful and unlawful uses. It would be ridiculous to hold sellers of butcher knives liable civilly or criminally if a purchaser used the knife to commit a murder, unless the seller knew that that was the intended use. And even when the seller knows that the use will be illegal, he may not be liable. A standard example is the dress shop that sells a dress to a woman whom the shop knows to be a prostitute planning to wear the dress in soliciting customers. The idea is that at least in the case of minor crimes, we don't want to put sellers at risk of civil or criminal liability for aiding and abetting because it would make them too careful about inquiring into the uses of their wares; the added transaction costs would exceed the benefits in reduced social costs of crime. In the case of Grokster and other companies that offer file-sharing services (or, in Grokster's case, just software, for unlike earlier file-sharing facilitators, such as Napster, Grokster does not copy files onto its own servers or use its servers to facilitate file sharing--it merely provides the software that enables computer owners to establish a network among themselves for sharing), there are potential lawful uses. This possibility was enough to convince the lower courts that Grokster was not a contributory infringer. Not all musical recordings or films are copyrighted (the copyrights might have expired); and in addition some producers of copyrighted works, especially if the producers are new and trying to establish a reputation (a new rock and roll band, for example), may want their works distributed as rapidly and as far as possible even at the sacrifice of royalties. In effect, these producers are willing to grant royalty-free licenses to the users of Grokster software. Nevertheless, the Court cited evidence indicating that most of the file sharing enabled by Grokster's software is, as Grokster well knew, infringing, just as most sales of burglar tools are to burglars, though some are to people who want to be able to break into their own house if they lock themselves out and others are to the police, or to the curious, or to would-be burglars who get cold feet before they commit their first burglary with the new tools. Contributory infringement would be an empty box if any lawful uses, however trivial in relation to the unlawful, enabled the contributory infringer to get off the hook on all uses of his product even though he knew that the vast majority were infringing. But that is not the end of the analysis. Some infringements, paradoxically, may actually benefit a copyright holder yet he may refuse to grant a royalty-free license because he thinks he can extract a royalty and thus have his cake and eat it too. People will pay more for a CD if they think they can share it with others over a peer-to-peer network, because then the CD becomes a form of currency for arranging advantageous swaps and even "buying" new friends. Then too, if you travel a lot and bring your computer with you, with file sharing you don't have to drag your favorite CDs along; file sharing in such a situation merely gives you better access to a product that you paid for--and you will pay more, if you have that better access, just as you would pay more for a cellphone that you could use in any country in the world. In addition, through file sharing you might develop a taste for a particular band or composer whose recordings you wouldn't have bought without the free exposure to them; this is file sharing as advertising of copyrighted recordings that is free to the copyright owner. But again, the mere possibility that infringement may confer benefits on copyright owners can't suffice to defeat a suit for contributory infringement any more than it could defeat a suit for direct infringement, as it is always possible to conjure up such possibilities. If the Grokster case is tried, the trial will provide an opportunity to compare the revenue loss to the copyright owners against the possible gains that I have listed. Unfortunately, subjecting providers of file-sharing software to the threat of trial places them at substantial risk, which may drive many of them from the market. The final argument against imposing liability on Grokster and similar enterprises without bothering with a trial is a kind of "infant industry" argument. The software industry is dynamic and there is concern that imposing liability on software producers may retard innovation, since even if the only or major current use of some type of software is to facilitate copyright infringement, the software may turn out to have important lawful uses if only it isn't strangled in the cradle. This is hard to credit in the case of file-sharing services and software, however, since there is an immense lawful demand. File sharing of noncopyrighted materials is fundamental to the Internet, and for that matter to the intelligence system--the Intelligence Reform Act passed last fall ordains the creation of an "Information Sharing Environment" to facilitate the sharing of data across the many databases used by federal intelligence agencies. Also, any diminished innovation due to contributory-infringement liability must be traded off against the enhanced innovation that can be expected if intellectual-property rights are strongly protected by the law. Grokster relied heavily on a case that the Supreme Court had decided many years ago involving Betamax, a predecessor to the VCR. At the time, the principal use of Betamax was to record television programs for later viewing. Insofar as the recording merely shifted the program to a more convenient viewing time, it clearly benefited the owners of the copyrights on the programs; but insofar as it enabled the viewer to erase the commercials, it hurt the copyright owners, whose remuneration depended on advertising revenues. The Supreme Court held that, given this dual-use situation, Sony, the manufacturer of the Betamax, was not a contributory infringer. The decision turned out to be fortunate for the film industry, because within a few years the sale and rental of home video recordings became a major channel of film distribution, which the studios had not anticipated. And so it is argued that file sharing of copyrighted music and film may also turn out to have unexpected benefits for the copyright owners themselves (beyond the modest benefits suggested earlier). But the logic of this argument is that there can never be liability for contributory infringement because the possibility can never be excluded that the product or service offered by the alleged contributory infringer, even if it is used exclusively by infringers, will turn out in the future to have substantial noninfringing uses. There is a possible middle way that should be considered, and that is to provide a safe harbor to potential contributory infringers who take all reasonable (cost-justified) measures to prevent the use of their product or service by infringers. The measures might be joint with the copyright owners. For example, copyright owners who wanted to be able to sue for contributory infringement might be required, as a condition of being permitted to sue, to place a nonremovable electronic tag on their CDs that a computer would read, identifying the CD or a file downloaded from it as containing copyrighted material. Software producers would be excused from liability for contributory infringement if they designed their software to prevent the copying of a tagged file. This seems a preferable approach to using the judicial system to make a case by case assessment of whether to impose liability for contributory infringement on Grokster-like enterprises.

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