Federal Court Refuses to Find Two Peer-to-Peer Service Providers Liable for Copyright Infringement: DMCA Subpoena Process Survives Constitutional Challenges and Applies to Non-Hosting ISPs
In a significant decision issued on April 25, 2003, a federal district judge in Los Angeles rejected claims that decentralized peer-to-peer networks were liable for copyright infringement. The court refused the request of motion picture and recording industry associations, professional songwriters and music publishers to shut down Grokster and StreamCast Networks, two companies that distribute free, peer-to-peer (“P2P”) software used for the exchange of copyrighted music, movies and other digital media over the Internet. MGM Studios, Inc. v. Grokster, Ltd., No. 01-08541, slip op. (C.D. Cal. Apr. 25, 2003). The plaintiffs argued that Grokster and StreamCast were liable for both contributory and vicarious copyright infringement in much the same manner as another California federal district court found that Napster would be secondarily liable for copyright infringement by end-users of Napster’s file sharing software. The Grokster court disagreed with the plaintiffs here, holding that Grokster and StreamCast, while operating in a manner “conceptually analogous” to Napster, were significantly different from Napster in their function and thus were not secondarily liable for their end-users’ copyright infringements.
While the district court’s opinion in Grokster provides greater assurances that ISPs will not be subject to liability where subscribers utilize P2P file sharing services, a second federal district court opinion reinforces the ability of copyright holders to utilize the Digital Millennium Copyright Act (“DMCA”) subpoena process to identify infringing end-users so that content owners may then pursue infringement claims directly against those end-users. On April 24, 2003, a federal district court in Washington, D.C., ruled that the subpoena provision under the DMCA does not violate the Constitution and that ISPs whose subscribers utilize P2P or other services to illegally exchange copyrighted material must respond to subpoenas seeking the identity of those subscribers suspected of copyright infringement. ISPs risk being found in contempt for ignoring the subpoenas and the court orders enforcing them. In re Verizon Internet Services, Inc., No. 03-MS-0040, slip op. (D.D.C. Apr. 24, 2003).
I. MGM Studios v. Grokster
Grokster distributes a branded version of Kazaa Media desktop software. StreamCast distributes its own software, called “Morpheus.” Both the Grokster and Morpheus platforms allow users to download software that enables users to share files with others. When launched on a user’s computer, both types of software automatically connect to a peer-to-peer network and make shared files available for transfer to any other user currently connected to the same peer-to-peer network. A user conducts a search to locate specific files. The software then displays a list of users who are currently sharing files that match the search criteria.
B. No Contributory Copyright Liability
There are two elements required to find liability for contributory copyright infringement: 1) knowledge and 2) material contribution. Thus, in order to be held liable for contributory infringement, a defendant must know or have reason to know of direct infringement and must materially contribute to that infringement.
Grokster and StreamCast know that “many if not all of [the] individuals who download their software subsequently use it to infringe copyrights.” Nevertheless, the court held that when a defendant makes a product capable of “substantial non-infringing uses,” being aware that infringing activity may occur in the future is insufficient to warrant contributory copyright liability. In other words, the defendant must have actual knowledge of specific acts of infringement, and he must have this knowledge at a time during which he materially contributes to the infringement and fails to act upon that knowledge. See A & M Records v. Napster, 239 F.3d 1004 (9th Cir. 2001). Because there are substantial non-infringing uses for Grokster’s and StreamCast’s software, such as sharing public domain materials, government documents and other non-copyrighted works, and because plaintiffs’ notices of infringing conduct were received after the infringements occurred, these defendants did not facilitate, and could not have done anything to stop, the alleged infringements by the end-users of the defendants’ software.
With respect to the second element required for liability—“material contribution”—liability exists if the defendant engages in personal conduct that encourages or assists the infringement. Thus, the critical question before the court was whether Grokster and StreamCast did anything, aside from distributing software, to actively facilitate—or whether they could have done anything to stop—their end-users’ infringing activities. The court held that neither Grokster’s nor StreamCast’s software facilitated the exchange of files between users in the way that Napster’s did. Napster indexed end-user’s files available for exchange and provided the network for that exchange, thus providing the “site and facilities” for direct infringement. Notably, unlike Napster, if either Grokster or StreamCast closed their doors and deactivated all computers within their control, users of their products could continue sharing files with little or no interruption.
In sum, like manufacturers of home video recorders, Grokster and StreamCast distribute a product which can be used for both lawful and unlawful purposes. Because there was no evidence of knowledge and active or substantial contribution to infringing activity while it occurred, the court found them not contributorily liable.
C. No Vicarious Copyright Liability
In order to establish vicarious copyright infringement liability, a plaintiff must show that the defendant: (1) received a financial benefit and (2) had the right and ability to supervise the infringing conduct.
With respect to the first element, the court held that Grokster and StreamCast clearly derive a financial benefit from infringing conduct, since the ability to trade copyrighted songs attracts many users of their software. However, the technology used by these defendants does not employ a central server or network, which means that neither Grokster nor StreamCast has the ability to supervise or control the infringing conduct. Indeed, Grokster’s software communicates with a network that does not even belong to it, but is the property of FastTrack. StreamCast uses the Gnutella network, an open-source network beyond the control of any single entity. Thus, the court held that Grokster and StreamCast do not have the ability to monitor and control infringing conduct, all of which occurs after their products have been downloaded by end-users. Again, this was a critical distinction from the operation of Napster.
As discussed in Part III below, the ruling in Grokster raises wide-ranging implications for copyright liability generally, DMCA compliance specifically and most likely sets the stage for a legislative rewrite of the manner in which copyrights can be policed and protected on the Internet.
II. RIAA v. Verizon
A federal district court in D.C. previously issued an opinion rejecting Verizon Internet’s effort to avoid complying with a DMCA subpoena served by owners of copyrighted music that had “evidence” of direct infringement by a subscriber using Verizon’s ISP service. See Update, Jan. 22, 2003. The court last week issued a follow-up opinion that affirms the ability of copyright holders to use the subpoena power to force ISPs to disclose the identity of subscribers allegedly engaging in copyright infringement.
In its second attempt to avoid having to comply with a DMCA subpoena served by the Recording Industry Association of America (“RIAA”), Verizon Internet argued that the DMCA’s subpoena provision violates the First Amendment rights of Internet users and unconstitutionally allows for the issuance of subpoenas without a true “case or controversy” pending in court concerning the alleged underlying infringement. The court rejected both of Verizon’s arguments. With respect to the First Amendment rights of Internet users, the court noted that copyright infringement is not “protected speech” under the First Amendment and that the DMCA does not attempt to restrict any form of speech. Instead, the DMCA subpoena process seeks only the identity of an alleged infringer. The court also ruled that subpoenas issued under the DMCA and served on passive conduit ISPs are valid and may be judicially enforced despite the lack of a case being initially brought against the ISP’s end-user who is the direct infringer. Having rejected both of Verizon’s grounds for challenging the DMCA subpoena, and finding no irreparable harm, the court declined to stay its earlier ruling requiring Verizon to comply with the subpoenas served by the RIAA, although it did temporarily delay the effective date of its Order to allow Verizon to seek immediate relief in the D.C. Circuit.
The Grokster decision handed a stunning setback to the record labels and movie studios that have sought to curb unauthorized downloading and exchanges of their copyrighted works over the Internet. It also applied common law copyright concepts to a new medium—P2P technology. Based on the specific technology used by Grokster and StreamCast, the court held that these P2P providers cannot be held secondarily liable for copyright infringement of which they are not aware until after it occurs.
Grokster provides support for the proposition that an ISP acting simply as a “passive conduit” to the Internet should not face copyright contributory or vicarious liability for past infringing conduct even if one of its subscribers downloaded infringing files via a P2P service. A copyright holder’s notices of copyright infringement are, in the words of the California district court, “irrelevant if they arrive when defendants do nothing to facilitate, and cannot do anything to stop, the alleged infringement.” Furthermore, providing Internet access is certainly equivalent to providing a product capable a “substantial non-infringing uses.”
Similarly, with respect to vicarious liability, if a P2P service provider does not have the right and ability to control infringing activity before it happens, then a passive conduit ISP most certainly does not. Such ISPs do not store any files or data on their servers and thus do not have the ability to locate, remove or disable access to infringing material.
As explained more fully in our prior CRB Update of Jan. 22, 2003, see CRB Update Jan. 22, 2003, the DMCA established “safe harbors” for ISPs who do not wish to test the scope of their potential monetary liability (under various theories of vicarious or contributory copyright infringement) for the activities of their customers. The Grokster decision concerns the underlying copyright liability that the DMCA’s “safe harbors” would protect against.
Grokster suggests that passive conduit ISPs without “advance” notice of copyright infringement are not secondarily liable under copyright law, and therefore would not need to avail themselves of the safeharbors of the DMCA. Nevertheless, even under the Grokster rationale, a passive conduit ISP may at some point have the requisite advance knowledge and the ability to stop a subscriber’s infringing activities by terminating the subscriber’s account after receiving a DMCA notice of copyright infringement. In order to receive protection against potential monetary liability under the DMCA, a passive conduit ISP must adopt and reasonably implement a policy of terminating the accounts of known repeat copyright infringers. In addition, Grokster places great weight on the specific architecture of networks. ISPs that store files on their servers might not be treated the same as those who use the same technology as that used by Grokster or StreamCast.
The key message in Grokster is that the judge believes that end-users, not P2P software distributors, should be held responsible for copyright infringement, and that any copyright protection responsibilities of new networks would be better left to Congress. In the meantime, ISPs should expect a new wave of DMCA subpoenas from copyright owners who will be emboldened by the second Verizon decision forcing ISPs to locate and identify subscribers suspected of engaging in infringing activities.
If you have further questions about either of these decisions and their implications, please contact us.