Supreme Court Rules Against Grokster: What it Means to CE Industry

Grokster and StreamCast lost their case against Hollywood when the Court ruled, in essence, that vendors cannot market products created ostensibly to flout the law, and they cannot promote the illegal use of their products.

In MGM Studios v. Grokster, the Court said there was enough evidence to suggest Grokster created its peer-to-peer (P2P) service for the express purpose of enabling illegal file-sharing of copyrighted music. True, Grokster and its ilk do allow the legitimate sharing of non-copyrighted material, but as Justice Souter said, "While there is doubtless some demand for free Shakespeare, ... users seeking top 40 songs ... are certain to be far more numerous than those seeking a free Decameron.” (The Decameron, of course, is the fourteenth-century book that inspired Shakespeare.)

Souter wrote, "The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement."

The Justices cited internal emails, along with advertisements that Grokster was an alternative to Napster.

In its unanimous ruling, the Court preserved the landmark 1984 Betamax decision, which affirmed the rights of manufacturers to market products that have substantial legal uses (recording TV shows for later viewing), even if they have infringing uses as well (recording TV movies for sale).

Consumer electronics and digital rights groups decried the ruling, claiming it puts an undue burden on technology developers to ensure they do not inadvertently induce users to break the law.

"Today the Supreme Court has unleashed a new era of legal uncertainty on America's innovators," said Fred von Lohmann, the senior intellectual property attorney for the Electronic Frontier Foundation. "The newly announced inducement theory of copyright liability will fuel a new generation of entertainment industry lawsuits against technology companies. Perhaps more important, the threat of legal costs may lead technology companies to modify their products to please Hollywood instead of consumers."

Similar rhetoric came from the Consumer Electronics Association, whose CEO and president Gary Shapiro said, "Innovators must now consider new murky legal rules and potentially overwhelming legal costs before bringing their product to market--or even moving forward with an innovative idea."

WHAT GROKSTER MEANS TO THE CE INDUSTRY

This information was inferred from various reports about Grokster and related issues. The questions and answers were assembled by CE Pro editor-at-large Julie Jacobson, and is not meant to take the place of professional legal advice. --Ed.

What does Grokster mean to the Kaleidescape lawsuit?

Probably nothing. Kaleidescape, a manufacturer of video servers, is not being sued by Hollywood for encouraging copyright infringement (the premise of Grokster). Instead, the company is being sued by the DVD CCA, which licenses DVD descrambling software. The DVD CCA claims Kaleidescape breached a contract with the licensor when it created a product that enables users to make permanent copies of DVDs on a hard drive--allegedly an application prohibited by the DVD CCA.

What about server manufacturers in general?

Yes, the Grokster case does create a problem for manufacturers of multimedia servers, including Kaleidescape. There is, however, a key distinction between Grokster (the company) and the server manufacturers in our industry. Grokster is a free service that, let’s face it, was created to help teenagers steal copyrighted music. Kaleidescape is a $27,000 (minimum) system that was created to serve rich people who probably aren’t in the habit of renting from Blockbuster, then returning DVDs after they’ve been ripped (off). Furthermore, unlike Grokster, whose ad revenues climb along with the infringing activity, Kaleidescape and the others do not benefit from the illegal activities of users. That the Supreme Court upheld Betamax is great news for Kaleidescape and others. In Grokster, the Justices said you can’t promote infringement, but you can still sell products (like VCRs or video servers) that could potentially be used for illegal purposes.

What should manufacturers do to avoid lawsuits in the wake of Grokster?

Gigi Sohn, the president of Public Knowledge, a public interest group focusing on digital rights, suggests discretion. In an online forum she writes, "They [manufacturers] would have to be very careful about what they say internally and to others about the ability of their product to be used for infringing purposes." In other words, if you’re aware of illegal uses, keep them to yourself.

What does the case mean for integrators?

It isn't clear. Grokster was about technology providers specifically, but it would not be a stretch to assume that distributors, installers or other types of resellers who promote the illegal use of otherwise legal products could be in trouble. We have been advised by attorneys, for example, not to publish information about ripping a DVD to a computer, since such advice would likely induce illegal activity--not by CE Pro readers, of course.

Related

Copy Protection Group Sues Kaleidescape, CE Pro, Feb. 2005

Industry Insider: DVD CCA Is an Innovation-Stifling Cartel, CE Pro, Feb. 2005