MGM v. Grokster

http://www.ca9.uscourts.gov/ca9/newopinions.nsf/E9CE41F2E90CC8D788256EF400822372/$file/0355894.pdf?openelement

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ü METRO-GOLDWYN-MAYER STUDIOS,
INC.; COLUMBIA PICTURES
INDUSTRIES, INC.; DISNEY
ENTERPRISES, INC.; PARAMOUNT
PICTURES CORPORATION; TWENTIETH
CENTURY FOX FILM CORPORATION;
UNIVERSAL CITY STUDIOS LLP, f/k/a
Universal City Studios, Inc.; NEW
LINE CINEMA CORPORATION; TIME
WARNER ENTERTAINMENT COMPANY,
LP; ATLANTIC RECORDING No. 03-55894
CORPORATION; ATLANTIC RHINO D.C. No. VENTURES, INC., d/b/a Rhino ý
CV-01-08541-SVW Entertainment, Inc.; ELEKTRA
ENTERTAINMENT GROUP, INC.;
LONDON-SIRE RECORDS, INC., LP;
WARNER BROTHERS RECORDS, INC.;
WEA INTERNATIONAL INC.; WARNER
MUSIC LATINA, INC., f/k/a WEA
Latina, Inc.; ARISTA RECORDS, INC.;
BAD BOY RECORDS; CAPITOL
RECORDS, INC.; HOLLYWOOD
RECORDS, INC.; INTERSCOPE
RECORDS; LAFACE RECORDS;
MOTOWN RECORD COMPANY; þ
11721
ü RCA RECORDS LABEL, a unit of
BMG Music d/b/a BMG
Entertainment; SONY MUSIC
ENTERTAINMENT, INC.; UMG
RECORDINGS, INC.; VIRGIN RECORDS
AMERICA, INC.; WALT DISNEY
RECORDS, a division of ABC, Inc.;
ZOMBA RECORDING CORP.,
Plaintiffs-Appellants,
ý v.
GROKSTER LTD.; STREAMCAST
NETWORKS, INC., f/k/a
Musiccity.Com, Inc.,
Appellees,
and
SHARMAN NETWORKS LIMITED; LEF
INTERACTIVE PTY LTD.,
Defendants. þ
ü JERRY LEIBER, individually d/b/a
Jerry Leiber Music; MIKE STOLLER, No. 03-55901
individually and d/b/a Mike Stoller D.C. No. Music; PEER INTERNATIONAL ý
CV-01-09923-SVW CORPORATION, PEER MUSIC LTD.,
SONGS OF PEER LTD.; CRITERION
MUSIC CORPORATION; þ
11722 METRO-GOLDWYN-MAYER v. GROKSTER
ü FAMOUS MUSIC CORPORATION,
BRUIN MUSIC COMPANY; ENSIGN
MUSIC CORPORATION; AND LET’S
TALK SHOP, INC., d/b/a Beau-DI-ODO
Music, on behalf of
themselves and all other similarly
situated,
Plaintiffs-Appellants,
v.
CONSUMER EMPOWERMENT BV, aka ý
Fasttrack; SHARMAN NETWORKS
LIMITED; LEF INTERACTIVE PTY
LTD.,
Defendants,
and
GROKSTER LTD.; STREAMCAST
NETWORKS, INC., f/k/a
Musiccity.Com, Inc.,
Defendants-Appellees. þ
ü METRO-GOLDWYN-MAYER STUDIOS,
INC.; COLUMBIA PICTURES
No. 03-56236 INDUSTRIES, INC.; DISNEY
ENTERPRISES, INC.; PARAMOUNT D.C. No. ý PICTURES CORPORATION; TWENTIETH
CV-01-08541-SVW
CENTURY FOX FILM CORPORATION; OPINION
UNIVERSAL CITY STUDIOS LLP, f/k/a
Universal City Studios, Inc.; þ
11723 METRO-GOLDWYN-MAYER v. GROKSTER
ü NEW LINE CINEMA CORPORATION;
TIME WARNER ENTERTAINMENT
COMPANY, LP; ATLANTIC
RECORDING CORPORATION; ATLANTIC
RHINO VENTURES, INC., d/b/a Rhino
Entertainment, Inc.; ELEKTRA
ENTERTAINMENT GROUP, INC.;
LONDON-SIRE RECORDS, INC., LP;
WARNER BROTHERS RECORDS, INC.;
WEA INTERNATIONAL INC.; WARNER
MUSIC LATINA, INC., f/k/a WEA
Latina, Inc.; ARISTA RECORDS, INC.;
BAD BOY RECORDS; CAPITOL
RECORDS, INC.; HOLLYWOOD
RECORDS, INC.; INTERSCOPE
RECORDS; LAFACE RECORDS; ý MOTOWN RECORD COMPANY; RCA
RECORDS LABEL, a unit of BMG
Music d/b/a BMG Entertainment;
SONY MUSIC ENTERTAINMENT, INC.;
UMG RECORDINGS, INC.; VIRGIN
RECORDS AMERICA, INC.; WALT
DISNEY RECORDS, a division of
ABC, Inc.; ZOMBA RECORDING
CORP.,
Plaintiffs-Appellants,
v.
GROKSTER LTD.; STREAMCAST
NETWORKS, INC., f/k/a
Musiccity.Com, Inc.,
Defendants-Appellees. þ
Appeal from the United States District Court
for the Central District of California
Stephen V. Wilson, District Judge, Presiding
11724 METRO-GOLDWYN-MAYER v. GROKSTER
Argued and Submitted
February 3, 2004—Pasadena, California
Filed August 19, 2004
Before: Robert Boochever, John T. Noonan, and
Sidney R. Thomas, Circuit Judges.
Opinion by Judge Thomas
11725 METRO-GOLDWYN-MAYER v. GROKSTER
COUNSEL
Russell J. Frackman and George M. Borkowski; Mitchell Silberberg,
et al., LLP; Los Angeles, California; for plaintiffs-
11727 METRO-GOLDWYN-MAYER v. GROKSTER
appellants Metro-Goldwyn-Mayer Studios, Bad Boy Records,
Capitol Records, Inc., Hollywood Records, Inc., Interscope
Records, Laface Records, Motown Record Co., RCA Records
Label, Sony Music Entertainment, Inc., UMG Recordings,
Inc., Virgin Records America, Inc., Walt Disney Records,
Inc., and Zomba Recording Corp.
Thomas G. Hentoff, David E. Kendall; Williams & Connolly;
Washington, DC; for plaintiffs-appellants Metro-Goldwyn-
Mayer Studios, Columbia Pictures Industries, Inc., Disney
Enterprises, Inc., Paramount Pictures Corp., Twentieth Century
Fox Film Corp., and Universal City Studios, LLP.
Robert M. Schwartz; O’Melveny & Myers, LLP; Los Angeles,
California, for Newline Cinema Corp., Time Warner
Entertainment Co., Atlantic Recording Corp., Atlantic Rhino
Ventures, Inc., Elektra Entertainment Group, Inc., London-
Sire Records, Inc., LP, Warner Brothers Records, Inc., WEA
International, Inc., Warner Music Latina, Inc., and Arista
Records, Inc.
Kelli L. Sager, Andrew J. Thomas, and Jeffrey H. Blum;
Davis, Wright, Tremaine, LLP, Los Angeles, California;
Carey Ramos; Paul, Weiss, Rifkind, Wharton & Garrison,
LLP; New York, New York, for plaintiffs-appellants Jerry
Leiber, Mike Stoller, Peer International Corp., Peer Music
Ltd., Songs of Peer Ltd., Criterion Music Corp., Famous
Music Corp., Bruin Music Co., Ensign Music Corp., and Let’s
Talk Shop, Inc.
Mark Lemley and Michael H. Page; Keker & Van Nest; San
Francisco, California; Jennifer Stisa Granick; Stanford Law
School; Stanford, California, for defendant-appellee Grokster
Ltd.
Cindy A. Cohn and Fred von Lohmann; Electronic Frontier
Foundation; San Francisco, California; Charles S. Baker;
11728 METRO-GOLDWYN-MAYER v. GROKSTER
Munsch, Hardt, Kopf & Harr, P.C.; Austin, Texas, for
defendant-appellee StreamCast Networks, Inc.
Hank L. Goldsmith; Proskauer, Rose LLP; Los Angeles, California,
for amici Bureau International des Societes Gerant Les
Droits D’enregistrement et de Reproduction Mecanique, et al.
John M. Genga; Paul, Hastings, Janofsky & Walker LLP; Los
Angeles, California, for amici Law Professors and Treatise
Authors Neil Boorstyn, Jay Dougherty, James Gibson, Robert
Gorman, Hugh Hansen, Douglas Lichtman, Roger Milgrim,
Arthur Miller, and Eric Schwartz.
Ian C. Ballon; Manatt, Phelps & Phillips, LLP; Los Angeles,
California, for amici American Film Marketing Association,
et al.
Jeff G. Knowles; Coblentz, Patch, Duffy & Bass; San Francisco,
California, for amici American Federation of Musicians,
et al.
Alan Malasky; Porter, Wright, Morris & Arthur, LLP; Washington,
DC, for amici The Commissioner of Baseball, et al.
Matthew S. Steinberg; Greenberg Traurig, LLP; Santa Monica,
CA for amici National Academy of Recording Arts &
Sciences, Inc.
Jennifer M. Urban; Samuelson Law, Technology and Public
Policy Clinic, University of California at Berkeley School of
Law; Berkeley, California, for amici 40 Intellectual Property
and Technology Law Professors.
Jason M. Mahler; Washington, DC, for amicus Computer &
Communications Industry Association, Netcoalition Industry
Association.
Christopher A. Hansen; ACLU Foundation; New York, New
York, for amici American Civil Liberties Union, et al. Roder-
11729 METRO-GOLDWYN-MAYER v. GROKSTER
ick G. Dorman; Hennigan, Bennett & Dorman, LLP; Los
Angeles, California, for amicus Sharman Networks Ltd.
OPINION
THOMAS, Circuit Judge:
This appeal presents the question of whether distributors of
peer-to-peer file-sharing computer networking software may
be held contributorily or vicariously liable for copyright
infringements by users. Under the circumstances presented by
this case, we conclude that the defendants are not liable for
contributory and vicarious copyright infringement and affirm
the district court’s partial grant of summary judgment.
I. Background
From the advent of the player piano, every new means of
reproducing sound has struck a dissonant chord with musical
copyright owners, often resulting in federal litigation. This
appeal is the latest reprise of that recurring conflict, and one
of a continuing series of lawsuits between the recording
industry and distributors of file-sharing computer software.
The plaintiffs in the consolidated cases (“Copyright Owners”)
are songwriters, music publishers, and motion picture
studios who, by their own description, “own or control the
vast majority of copyrighted motion pictures and sound
recordings in the United States.”1 Defendants Grokster Ltd.
and StreamCast Networks, Inc. (“Software Distributors”) are
companies that freely distribute software that allows users to
share computer files with each other, including digitized
1The plaintiffs in the Leiber case represent a certified class of over
27,000 songwriters and music publishers. The plaintiffs in the MGM case
include most of the major motion picture studios and recording companies.
11730 METRO-GOLDWYN-MAYER v. GROKSTER
music and motion pictures. The Copyright Owners allege that
over 90% of the files exchanged through use of the “peer-topeer”
file-sharing software offered by the Software Distributors
involves copyrighted material, 70% of which is owned by
the Copyright Owners. Thus, the Copyright Owners argue, the
Software Distributors are liable for vicarious and contributory
copyright infringement pursuant to 17 U.S.C. §§ 501-13
(2000), for which the Copyright Owners are entitled to monetary
and injunctive relief. The district court granted the Software
Distributors partial summary judgment as to liability
arising from present activities and certified the resolved questions
for appeal pursuant to Fed. R. Civ. P. 54(b). Metro-
Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 259 F. Supp.
2d 1029 (C.D. Cal. 2003) (“Grokster I”).
To analyze the legal issues properly, a rudimentary understanding
of the peer-to-peer file-sharing software at issue is
required — particularly because peer-to-peer file sharing differs
from typical internet use. In a routine internet transaction,
a user will connect via the internet with a website to obtain
information or transact business. In computer terms, the personal
computer used by the consumer is considered the “client”
and the computer that hosts the web page is the “server.”
The client is obtaining information from a centralized source,
namely the server.
In a peer-to-peer distribution network, the information
available for access does not reside on a central server. No
one computer contains all of the information that is available
to all of the users. Rather, each computer makes information
available to every other computer in the peer-to-peer network.
In other words, in a peer-to-peer network, each computer is
both a server and a client.
Because the information is decentralized in a peer-to-peer
network, the software must provide some method of cataloguing
the available information so that users may access it. The
software operates by connecting, via the internet, to other
11731 METRO-GOLDWYN-MAYER v. GROKSTER
users of the same or similar software. At any given moment,
the network consists of other users of similar or the same software
online at that time. Thus, an index of files available for
sharing is a critical component of peer-to-peer file-sharing
networks.
At present, there are three different methods of indexing:
(1) a centralized indexing system, maintaining a list of available
files on one or more centralized servers; (2) a completely
decentralized indexing system, in which each computer maintains
a list of files available on that computer only; and (3) a
“supernode” system, in which a select number of computers
act as indexing servers.2
The first Napster system employed a proprietary centralized
indexing software architecture in which a collective
index of available files was maintained on servers it owned
and operated. A user who was seeking to obtain a digital copy
of a recording would transmit a search request to the Napster
server, the software would conduct a text search of the centralized
index for matching files, and the search results would
be transmitted to the requesting user. If the results showed
that another Napster user was logged on to the Napster server
and offering to share the requested recording, the requesting
user could then connect directly with the offering user and
download the music file.3
2This is an extremely simplistic overview of peer-to-peer file-sharing
networks. There are a number of more complete descriptions available.
See, e.g., Yochai Benkler, Coase’s Penguin, or, Linux and The Nature of
the Firm, 112 Yale L.J. 369, 396-400 (2002); Jesse M. Feder, Is Betamax
Obsolete?: Sony Corp. of America v. Universal City Studios, Inc. in the
Age of Napster, 37 Creighton L. Rev. 859, 862-68 (2004).
3A more complete description of the Napster system is contained in
A&M Records v. Napster, 239 F.3d 1004, 1011-12 (9th Cir. 2001)
(“Napster I”) and A&M Records v. Napster, 114 F. Supp. 2d 896, 905-08
(N.D. Cal. 2000). The Napster system as described in this opinion and in
the Napster cases is no longer being used by the company that purchased
the Napster assets.
11732 METRO-GOLDWYN-MAYER v. GROKSTER
Under a decentralized index peer-to-peer file-sharing
model, each user maintains an index of only those files that
the user wishes to make available to other network users.
Under this model, the software broadcasts a search request to
all the computers on the network and a search of the individual
index files is conducted, with the collective results routed
back to the requesting computer. This model is employed by
the Gnutella software system and is the type of architecture
now used by defendant StreamCast. Gnutella is open-source
software, meaning that the source code is either in the public
domain or is copyrighted and distributed under an opensource
license that allows modification of the software, subject
to some restrictions.
The third type of peer-to-peer file-sharing network at present
is the “supernode” model, in which a number of select
computers on the network are designated as indexing servers.
The user initiating a file search connects with the most easily
accessible supernode, which conducts the search of its index
and supplies the user with the results. Any computer on the
network could function as a supernode if it met the technical
requirements, such as processing speed. The “supernode”
architecture was developed by KaZaa BV, a Dutch company,
and licensed under the name of “FastTrack” technology.4
Both Grokster and StreamCast initially used the FastTrack
technology. However, StreamCast had a licensing dispute
with KaZaa, and now uses its own branded “Morpheus” version
of the open-source Gnutella code. StreamCast users connect
to other users of Gnutella-based peer-to-peer file-sharing
software.5 Both Grokster and StreamCast distribute their sepa-
4Since the litigation in this case began, control of the FastTrack software
passed from KaZaa to Sharman Networks. KaZaa was named as a
defendant in this action, but eventually ceased defending and default judgment
was entered against it.
5The owners of the FastTrack Software successfully prevented users of
the StreamCast version of FastTrack from being able to connect to the
11733 METRO-GOLDWYN-MAYER v. GROKSTER
rate softwares free of charge. Once downloaded onto a user’s
computer, the software enables the user to participate in the
respective peer-to-peer file-sharing networks over the internet.6
Users of the software share digital audio, video, picture,
and text files. Some of the files are copyrighted and shared
without authorization, others are not copyrighted (such as
public domain works), and still others are copyrighted, but the
copyright owners have authorized software users in peer-topeer
file-sharing networks to distribute their work. The Copyright
Owners assert, without serious contest by the Software
Distributors, that the vast majority of the files are exchanged
illegally in violation of copyright law.
II. Analysis
The question of direct copyright infringement is not at issue
in this case. Rather, the Copyright Owners contend that the
Software Distributors are liable for the copyright infringement
of the software users. The Copyright Owners rely on the two
recognized theories of secondary copyright liability: contributory
copyright infringement and vicarious copyright infringement.
Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir.
2004). We agree with the district court’s well reasoned analysis
that the Software Distributors’ current activities do not
give rise to liability under either theory.
Grokster and KaZaa users of FastTrack by using a software upgrade that
was not sent to StreamCast users. Peer-to-peer file-sharing software
upgrades can be coded in a way that prevents those who do not accept the
upgrade from communicating with those who do, but those users who do
not accept an upgrade may still be able to communicate with each other.
The record indicates this has already occurred, with a number of nonupgraded
users still being able to communicate and share files with each
other.
6A more detailed description of each system is contained in the district
court opinion in this case. Grokster I, 259 F. Supp. 2d at 1031-33.
11734 METRO-GOLDWYN-MAYER v. GROKSTER
A. Contributory Copyright Infringement
[1] The three elements required to prove a defendant liable
under the theory of contributory copyright infringement are:
(1) direct infringement by a primary infringer, (2) knowledge
of the infringement, and (3) material contribution to the
infringement. Id. The element of direct infringement is undisputed
in this case.
1. Knowledge
Any examination of contributory copyright infringement
must be guided by the seminal case of Sony Corp. of America
v. Universal City Studios, Inc., 464 U.S. 417 (1984) (“Sony-
Betamax”). In Sony-Betamax, the Supreme Court held that the
sale of video tape recorders could not give rise to contributory
copyright infringement liability even though the defendant
knew the machines were being used to commit infringement.
In analyzing the contours of contributory copyright infringement,
the Supreme Court drew on the “staple article of commerce”
doctrine from patent law. Id. at 440-42. Under that
doctrine, it would be sufficient to defeat a claim of contributory
copyright infringement if the defendant showed that the
product was “capable of substantial” or “commercially significant
noninfringing uses.” In applying this doctrine, the Court
found that because Sony’s Betamax video tape recorder was
capable of commercially significant noninfringing uses, constructive
knowledge of the infringing activity could not be
imputed from the fact that Sony knew the recorders, as a general
matter, could be used for infringement. Id. at 442.
[2] In Napster I, we construed Sony-Betamax to apply to
the knowledge element of contributory copyright infringement.
Napster I held that if a defendant could show that its
product was capable of substantial or commercially significant
noninfringing uses, then constructive knowledge of the
infringement could not be imputed. Rather, if substantial noninfringing
use was shown, the copyright owner would be
11735 METRO-GOLDWYN-MAYER v. GROKSTER
required to show that the defendant had reasonable knowledge
of specific infringing files.7 Napster I, 239 F.3d at 1027; see
also A&M Records v. Napster, 284 F.3d 1091, 1095-96 (9th
Cir. 2002) (“Napster II”).8
Thus, in order to analyze the required element of knowledge
of infringement, we must first determine what level of
knowledge to require. If the product at issue is not capable of
substantial or commercially significant noninfringing uses,
then the copyright owner need only show that the defendant
had constructive knowledge of the infringement. On the other
hand, if the product at issue is capable of substantial or commercially
significant noninfringing uses, then the copyright
owner must demonstrate that the defendant had reasonable
knowledge of specific infringing files and failed to act on that
knowledge to prevent infringement. See Napster I, 239 F.3d
at 1027.
7In full, the test adopted in Napster I for defendants whose products are
capable of substantial or commercially significant noninfringing uses is
that “contributory liability may potentially be imposed only to the extent
that the defendant (1) receives reasonable knowledge of specific infringing
files . . . ; (2) knows or should know that such files are available on the
Napster system; and (3) fails to act to prevent viral distribution of the
works.” 239 F.3d at 1027. At this juncture, however, our focus is the standard
of knowledge to be applied.
8After Napster I was decided, the district court on remand required
plaintiffs to give Napster notice of specific infringing files, and then
required Napster to continually search its index and block all files containing
the particular works at issue. Napster II, 284 F.3d at 1095-96. The
plaintiffs appealed, arguing that “Napster should be required to search for
and to block all files containing any protected copyrighted works, not just
those works with which plaintiffs have been able to provide a corresponding
file name.” Id. at 1096. We found that the district court had not “committed
any error of law or abused its discretion,” id., and that “[t]he notice
requirement abide[d] by our holding that plaintiffs bear the burden to provide
notice to Napster of copyrighted works and files containing such
works available on the Napster system before Napster has the duty to disable
access to the offending content.” Id. (internal quotation marks omitted).
11736 METRO-GOLDWYN-MAYER v. GROKSTER
[3] In this case, the district court found it undisputed that
the software distributed by each defendant was capable of
substantial noninfringing uses. Grokster I, 259 F. Supp. 2d at
1035. A careful examination of the record indicates that there
is no genuine issue of material fact as to noninfringing use.
Indeed, the Software Distributors submitted numerous declarations
by persons who permit their work to be distributed via
the software, or who use the software to distribute public
domain works. See id. One striking example provided by the
Software Distributors is the popular band Wilco, whose
record company had declined to release one of its albums on
the basis that it had no commercial potential. Wilco repurchased
the work from the record company and made the
album available for free downloading, both from its own website
and through the software user networks. The result
sparked widespread interest and, as a result, Wilco received
another recording contract. Other recording artists have
debuted their works through the user networks. Indeed, the
record indicates that thousands of other musical groups have
authorized free distribution of their music through the internet.
In addition to music, the software has been used to share
thousands of public domain literary works made available
through Project Gutenberg as well as historic public domain
films released by the Prelinger Archive. In short, from the evidence
presented, the district court quite correctly concluded
that the software was capable of substantial noninfringing
uses and, therefore, that the Sony-Betamax doctrine applied.
[4] The Copyright Owners submitted no evidence that
could contradict these declarations. Rather, the Copyright
Owners argue that the evidence establishes that the vast
majority of the software use is for copyright infringement.
This argument misapprehends the Sony standard as construed
in Napster I, which emphasized that in order for limitations
imposed by Sony to apply, a product need only be capable of
substantial noninfringing uses. Napster I, 239 F.3d at 1021.9
9We are mindful that the Seventh Circuit has read Sony’s substantial
noninfringing use standard differently. In re Aimster Copyright Litig., 334
11737 METRO-GOLDWYN-MAYER v. GROKSTER
In this case, the Software Distributors have not only shown
that their products are capable of substantial noninfringing
uses,10 but that the uses have commercial viability. Thus,
applying Napster I, Napster II, and Sony-Betamax to the
record, the district court correctly concluded that the Software
Distributors had established that their products were capable
of substantial or commercially significant noninfringing uses.
Therefore, the district correctly reasoned, the Software Distributors
could not be held liable for constructive knowledge
of infringement, and the Copyright Owners were required to
show that the Software Distributors had reasonable knowledge
of specific infringement to satisfy the threshold knowledge
requirement.
[5] Having determined that the “reasonable knowledge of
specific infringement” requirement applies here, we must then
decide whether the Copyright Owners have raised sufficient
genuine issues of material fact to satisfy that higher standard.
As the district court correctly concluded, the time at which
such knowledge is obtained is significant. Because contribu-
F.3d 643, 651 (7th Cir. 2003). It determined that an important additional
factor is how “probable” the noninfringing uses of a product are. Id. at
653. The Copyright Owners urge us to adopt the Aimster rationale. However,
Aimster is premised specifically on a fundamental disagreement with
Napster I’s reading of Sony-Betamax. We are not free to reject our own
Circuit’s binding precedent. See Montana v. Johnson, 738 F.2d 1074,
1077 (9th Cir. 1984) (holding that only this court sitting en banc may
overrule a prior decision by this court). Even if we were free to do so, we
do not read Sony-Betamax’s holding as narrowly as does the Seventh Circuit.
Regardless, it is not clear that application of the Aimster rationale
would assist the Copyright Owners here. Implicit in the Aimster analysis
is that a finding of substantial noninfringing use, including potential use,
would be fatal to a contributory infringement claim, regardless of the level
of knowledge possessed by the defendant. In Aimster, no evidence was
tendered of any noninfringing product use.
10Indeed, even at a 10% level of legitimate use, as contended by the
Copyright Owners, the volume of use would indicate a minimum of hundreds
of thousands of legitimate file exchanges.
11738 METRO-GOLDWYN-MAYER v. GROKSTER
tory copyright infringement requires knowledge and material
contribution, the Copyright Owners were required to establish
that the Software Distributors had “specific knowledge of
infringement at a time at which they contribute[d] to the
infringement, and [ ] fail[ed] to act upon that information.”
Grokster I, 259 F. Supp. 2d at 1036 (citing Napster I, 239
F.3d at 1021). As the district court correctly observed, and as
we explain further in our discussion of material contribution,
“Plaintiffs’ notices of infringing conduct are irrelevant,”
because “they arrive when Defendants do nothing to facilitate,
and cannot do anything to stop, the alleged infringement” of
specific copyrighted content. Id. at 1037. See Napster II, 284
F.3d at 1096 (“[P]laintiffs bear the burden to provide notice
to Napster of copyrighted works and files containing such
works available on the Napster system before Napster has the
duty to disable access to the offending content.”) (internal
quotation marks omitted) (emphasis added).
[6] In the context of this case, the software design is of
great import. As we have discussed, the software at issue in
Napster I and Napster II employed a centralized set of servers
that maintained an index of available files. In contrast, under
both StreamCast’s decentralized, Gnutella-type network and
Grokster’s quasi-decentralized, supernode, KaZaa-type network,
no central index is maintained. Indeed, at present, neither
StreamCast nor Grokster maintains control over index
files. As the district court observed, even if the Software Distributors
“closed their doors and deactivated all computers
within their control, users of their products could continue
sharing files with little or no interruption.” Grokster I, 259 F.
Supp. 2d at 1041.
[7] Therefore, we agree with the district court that the Software
Distributors were entitled to partial summary judgment
on the element of knowledge.
2. Material Contribution
We also agree with the district court that with respect to
their current software distribution and related activities,
11739 METRO-GOLDWYN-MAYER v. GROKSTER
defendants do not materially contribute to copyright infringement.
In Napster I, we found material contribution after reciting
the district court’s factual finding that “Napster is an integrated
service.” 239 F.3d at 1022. We “agree[d] that Napster
provides the site and facilities for direct infringement.” Id.
(internal quotation marks omitted). We further cited the holding
of Netcom, which found “substantial participation” based
on Netcom’s “failure to cancel [a user’s] infringing message
and thereby stop an infringing copy from being distributed
worldwide.” Id. (quoting Religious Tech. Ctr. v. Netcom On-
Line Communication Servs., 907 F. Supp. 1361, 1372 (N.D.
Cal. 1995)) (alteration in original). We have also found material
contribution where a defendant operated a swap meet at
which infringing products were sold and provided utilities,
parking, and advertising. Fonovisa, Inc. v. Cherry Auction,
Inc., 76 F.3d 259, 261, 264 (9th Cir. 1996).
As indicated by the record, the Software Distributors do not
provide the “site and facilities” for infringement, and do not
otherwise materially contribute to direct infringement.
Infringing messages or file indices do not reside on defendants’
computers, nor do defendants have the ability to suspend
user accounts. Grokster I, 259 F. Supp. 2d at 1037,
1039-41.
[8] While material contribution can be established through
provision of site and facilities for infringement, followed by
a failure to stop specific instances of infringement once
knowledge of those infringements is acquired, the Software
Distributors have not provided the site and facilities for
infringement in the first place. If the Software Distributors
were true access providers, failure to disable that access after
acquiring specific knowledge of a user’s infringement might
be material contribution. Netcom, 907 F. Supp. at 1375. Or,
if the Software Distributors stored files or indices, failure to
delete the offending files or offending index listings might be
11740 METRO-GOLDWYN-MAYER v. GROKSTER
material contribution. Napster I, 239 F.3d at 1022. However,
the Software Distributors here are not access providers, and
they do not provide file storage and index maintenance.
Rather, it is the users of the software who, by connecting to
each other over the internet, create the network and provide
the access. “Failure” to alter software located on another’s
computer is simply not akin to the failure to delete a filename
from one’s own computer, to the failure to cancel the registration
name and password of a particular user from one’s user
list, or to the failure to make modifications to software on
one’s own computer.
[9] The Copyright Owners have not provided evidence that
defendants materially contribute in any other manner. Stream-
Cast maintains an XML11 file from which user software periodically
retrieves parameters. These values may include the
addresses of websites where lists of active users are maintained.
The owner of the FastTrack software, Sharman, maintains
root nodes containing lists of currently active supernodes
to which users can connect. Both defendants also communicate
with users incidentally, but not to facilitate infringement.
All of these activities are too incidental to any direct copyright
infringement to constitute material contribution. No
infringing files or lists of infringing files are hosted by defendants,
and the defendants do not regulate or provide access.
[10] While Grokster and StreamCast in particular may seek
to be the “next Napster,” Grokster I, 259 F. Supp. 2d at 1036,
the peer-to-peer file-sharing technology at issue is not simply
a tool engineered to get around the holdings of Napster I and
Napster II. The technology has numerous other uses, significantly
reducing the distribution costs of public domain and
permissively shared art and speech, as well as reducing the
centralized control of that distribution. Especially in light of
11XML is an abbreviation for Extensible Markup Language. A markup
language the reader may be more familiar with is HTML, which stands for
HyperText Markup Language.
11741 METRO-GOLDWYN-MAYER v. GROKSTER
the fact that liability for contributory copyright infringement
does not require proof of any direct financial gain from the
infringement, we decline to expand contributory copyright liability
in the manner that the Copyright Owners request.
B. Vicarious Copyright Infringement
[11] Three elements are required to prove a defendant
vicariously liable for copyright infringement: (1) direct
infringement by a primary party, (2) a direct financial benefit
to the defendant, and (3) the right and ability to supervise the
infringers. Napster I, 239 F.3d at 1022. “Vicarious copyright
liability is an ‘outgrowth’ of respondeat superior,” imposing
liability on those with a sufficiently supervisory relationship
to the direct infringer. Id. (citing Cherry Auction, 76 F.3d at
262). In Napster I, we held that Sony-Betamax “has no application
to . . . vicarious copyright infringement” because the
issue of vicarious liability was “not before the Supreme
Court” in that case. Id.
The elements of direct infringement and a direct financial
benefit, via advertising revenue, are undisputed in this case.
1. Right and Ability To Supervise
We agree with the district court that there is no issue of
material fact as to whether defendants have the right and ability
to supervise the direct infringers in this case. Allocation of
liability in vicarious copyright liability cases has developed
from a historical distinction between the paradigmatic “dance
hall operator” and “landlord” defendants. Cherry Auction, 76
F.3d at 262. The dance hall operator is liable, while the landlord
escapes liability, because the dance hall operator has the
right and ability to supervise infringing conduct while the
landlord does not. Id. Thus, the “right and ability to supervise”
describes a relationship between the defendant and the
direct infringer.
11742 METRO-GOLDWYN-MAYER v. GROKSTER
A salient characteristic of that relationship often, though
not always, is a formal licensing agreement between the
defendant and the direct infringer. See, e.g., Napster I, 239
F.3d at 1023; Cherry Auction, 76 F.3d at 261; Shapiro, Bernstein
& Co. v. H.L. Green Co., 316 F.2d 304, 306 (2d Cir.
1963) (cited as the landmark case in Cherry Auction, 76 F.3d
at 262). Indeed, Napster I found especially important the fact
that Napster had an express policy reserving the right to block
infringers’ access for any reason. 239 F.3d at 1023 (“[A]bility
to block infringers’ access to a particular environment for any
reason whatsoever is evidence of the right and ability to
supervise.”).
In Cherry Auction, we held that the right and ability to
supervise existed where a swap meet operator reserved the
right to terminate vendors for any reason, promoted the swap
meet, controlled access by customers, patrolled the meet, and
could control direct infringers through its rules and regulations.
76 F.3d at 262-63. Similarly in Napster I, we found
Napster had the right and ability to supervise Napster users
because it controlled the central indices of files, users were
required to register with Napster, and access to the system
depended on the validity of a user’s registration. 239 F.3d at
1011-12, 1023-24.
[12] It does not appear from any of the evidence in the
record that either of the defendants has the ability to block
access to individual users. Grokster nominally reserves the
right to terminate access, while StreamCast does not maintain
a licensing agreement with persons who download Morpheus.
However, given the lack of a registration and log-in process,
even Grokster has no ability to actually terminate access to
filesharing functions, absent a mandatory software upgrade to
all users that the particular user refuses, or IP addressblocking
attempts.12 It is also clear that none of the communi-
12IP address-blocking will not be effective against a user who, like most
persons, does not have a permanent IP address, but is rather assigned one
each time he connects to the Internet.
11743 METRO-GOLDWYN-MAYER v. GROKSTER
cation between defendants and users provides a point of
access for filtering or searching for infringing files, since
infringing material and index information do not pass through
defendants’ computers.
[13] In the case of StreamCast, shutting down its XML file
altogether would not prevent anyone from using the Gnutella
network. In the case of Grokster, its licensing agreement with
KaZaa/Sharman does not give it the ability to mandate that
root nodes be shut down. Moreover, the alleged ability to shut
down operations altogether is more akin to the ability to close
down an entire swap meet or stop distributing software altogether,
rather than the ability to exclude individual participants,
a practice of policing aisles, an ability to block
individual users directly at the point of log-in, or an ability to
delete individual filenames from one’s own computer. See
Napster I, 239 F.3d at 1023-24; Cherry Auction, 76 F.3d at
261-62. The sort of monitoring and supervisory relationship
that has supported vicarious liability in the past is completely
absent in this case.
The district court here found that unlike Napster, Grokster
and StreamCast do not operate and design an “integrated service,”
Grokster I, 259 F. Supp. 2d at 1045, which they monitor
and control. We agree. The nature of the relationship
between Grokster and StreamCast and their users is significantly
different from the nature of the relationship between a
swap meet operator and its participants, or prior versions of
Napster and its users, since Grokster and StreamCast are more
truly decentralized, peer-to-peer file-sharing networks.
The district court correctly characterized the Copyright
Owners’ evidence of the right and ability to supervise as little
more than a contention that “the software itself could be
altered to prevent users from sharing copyrighted files.”
Grokster I, 259 F. Supp. 2d at 1045. In arguing that this ability
constitutes evidence of the right and ability to supervise,
the Copyright Owners confuse the right and ability to super-
11744 METRO-GOLDWYN-MAYER v. GROKSTER
vise with the strong duty imposed on entities that have already
been determined to be liable for vicarious copyright infringement;
such entities have an obligation to exercise their policing
powers to the fullest extent, which in Napster’s case
included implementation of new filtering mechanisms. Napster
II, 284 F.3d at 1098 (“The tolerance standard announced
applies only to copyrighted works which Plaintiffs have properly
noticed as required by the modified preliminary injunction.
That is, Napster must do everything feasible to block
files from its system which contain noticed copyrighted
works.”) (emphasis added). But the potential duty a district
court may place on a vicariously liable defendant is not the
same as the “ability” contemplated by the “right and ability to
supervise” test. Moreover, a duty to alter software and files
located on one’s own computer system is quite different in
kind from a duty to alter software located on another person’s
computer. We agree with the district court that possibilities
for upgrading software located on another person’s computer
are irrelevant to determining whether vicarious liability exists.
Grokster I, 259 F. Supp. 2d at 1045; see also Napster I, 239
F.3d at 1024 (“Napster’s reserved ‘right and ability’ to police
is cabined by the system’s current architecture.”).
C. Turning a “Blind Eye” to Infringement
The Copyright Owners finally argue that Grokster and
StreamCast should not be able to escape vicarious liability by
turning a “blind eye” to the infringement of their users, and
that “[t]urning a blind eye to detectable acts of infringement
for the sake of profit gives rise to liability.” Napster I, 239
F.3d at 1023. If the Software Distributors had a right and ability
to control and supervise that they proactively refused to
exercise, such refusal would not absolve them of liability. See
id. However, although that rhetoric has occasionally been
employed in describing vicarious copyright infringement,
there is no separate “blind eye” theory or element of vicarious
liability that exists independently of the traditional elements
of liability. Thus, this theory is subsumed into the Copyright
11745 METRO-GOLDWYN-MAYER v. GROKSTER
Owners’ claim for vicarious copyright infringement and necessarily
fails for the same reasons.
III.
Resolution of these issues does not end the case. As the district
court clearly stated, its decision was limited to the specific
software in use at the time of the district court decision.
The Copyright Owners have also sought relief based on previous
versions of the software, which contain significant—and
perhaps crucial—differences from the software at issue. We
express no opinion as to those issues.
As to the question at hand, the district court’s grant of partial
summary judgment to the Software Distributors is clearly
dictated by applicable precedent. The Copyright Owners urge
a re-examination of the law in the light of what they believe
to be proper public policy, expanding exponentially the reach
of the doctrines of contributory and vicarious copyright
infringement. Not only would such a renovation conflict with
binding precedent, it would be unwise. Doubtless, taking that
step would satisfy the Copyright Owners’ immediate economic
aims. However, it would also alter general copyright
law in profound ways with unknown ultimate consequences
outside the present context.
Further, as we have observed, we live in a quicksilver technological
environment with courts ill-suited to fix the flow of
internet innovation. AT&T Corp. v. City of Portland, 216 F.3d
871, 876 (9th Cir. 1999). The introduction of new technology
is always disruptive to old markets, and particularly to those
copyright owners whose works are sold through wellestablished
distribution mechanisms. Yet, history has shown
that time and market forces often provide equilibrium in balancing
interests, whether the new technology be a player
piano, a copier, a tape recorder, a video recorder, a personal
computer, a karaoke machine, or an MP3 player. Thus, it is
prudent for courts to exercise caution before restructuring lia-
11746 METRO-GOLDWYN-MAYER v. GROKSTER
bility theories for the purpose of addressing specific market
abuses, despite their apparent present magnitude.
Indeed, the Supreme Court has admonished us to leave
such matters to Congress. In Sony-Betamax, the Court spoke
quite clearly about the role of Congress in applying copyright
law to new technologies. As the Supreme Court stated in that
case, “The direction of Art. I is that Congress shall have the
power to promote the progress of science and the useful arts.
When, as here, the Constitution is permissive, the sign of how
far Congress has chosen to go can come only from Congress.”
464 U.S. at 456 (quoting Deepsouth Packing Co. v. Laitram
Corp., 406 U.S. 518, 530 (1972)).
In this case, the district court correctly applied applicable
law and properly declined the invitation to alter it. We affirm
the district court, and remand for resolution of the remaining
issues.
AFFIRMED.
11747 METRO-GOLDWYN-MAYER v. GROKSTER