United States Court of Appeals,
Ninth Circuit.
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 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; 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.,
Appellees,
and
Sharman Networks Limited; LEF Interactive PTY Ltd., Defendants.
Jerry Leiber, individually d/b/a Jerry Leiber Music; Mike Stoller,
individually and d/b/a Mike Stolller Music; Peer International Corporation,
Peer Music Ltd., Songs of Peer Ltd.; Criterion Music Corporation; Famous
Music Corporation, Bruin Music Company; Ensign Music Corporation; and Let's
Talk Shop, Inc., d/b/a Beau-DI-O-DO Music, on behalf of themselves
and all
other similarly situated, Plaintiffs-Appellants,
v.
Consumer Empowerment BV, aka Fasttrack; Sharman Networks Limited; LEF
Interactive PTY Ltd., Defendants,
and
Grokster Ltd.; Streamcast
Networks, Inc., f/k/a Musiccity.Com, Inc.,
Defendants-Appellees.
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 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; 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.
Nos. 03-55894, 03-55901, 03-56236.
Argued and Submitted Feb. 3, 2004.
Filed Aug. 19, 2004.
Background:
Songwriters, music publishers, and motion picture studios brought
copyright infringement action against distributors of peer-to-peer file-sharing
computer networking software. The United States District Court for the Central
District of California, Stephen
V. Wilson, J., 259
F.Supp.2d 1029, granted partial summary judgment
in favor of the distributors on issues of contributory and vicarious
infringement, and plaintiffs appealed.
Holdings: The Court of Appeals, Thomas, Circuit Judge, held that:
(1) distributors did
not have knowledge of copyright infringement by users of the software, as element
of contributory infringement, and
(2) distributors did
not have right and ability to supervise the direct copyright infringers who
used their software, as required to impose vicarious liability.
Affirmed.
West Headnotes
[1] Copyrights and Intellectual Property 
77
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.
17
U.S.C.A. § § 501-513.
[2] Copyrights and Intellectual Property 77
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 to show contributory 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. 17
U.S.C.A. § § 501-513.
[3] Copyrights and Intellectual Property 77
Peer-to-peer
file-sharing computer networking software was capable of substantial or
commercially significant noninfringing uses, and thus, distributors of the
software could not be held liable for constructive knowledge of infringement,
and copyright owners were required to show that the distributors had reasonable
knowledge of specific infringement to satisfy the threshold knowledge
requirement of contributory infringement; software had been used to distribute
public domain works and works of musicians without recording contracts. 17
U.S.C.A. § § 501-513.
[4] Copyrights
and Intellectual Property 77
Distributors
of peer-to-peer file-sharing computer networking software did not have
knowledge of copyright infringement by users of the software, as element of
contributory infringement; software used
either decentralized or a "supernode" indexing system rather than a
centralized system, and permitted users to continue sharing files with little
or no interruption even if the distributors closed their doors and deactivated
all computers within their control. 17
U.S.C.A. § § 501-513.
[5] Copyrights and Intellectual Property 67.3
Distributors
of peer-to-peer file-sharing computer networking software did not materially
contribute to copyright infringement by users of the software, as element of
contributory infringement; infringing
messages or file indices did not reside on distributors' computers, nor did
they have the ability to suspend user accounts.
17
U.S.C.A. § § 501-513.
[6] Copyrights and Intellectual Property 77
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.
17
U.S.C.A. § § 501-513.
[7] Copyrights and Intellectual Property 77
Vicarious
copyright liability is an outgrowth of respondeat superior, imposing liability
on those with a sufficiently supervisory relationship to the direct
infringer. 17
U.S.C.A. § § 501-513.
[8] Copyrights and Intellectual Property 77
Distributors
of peer-to-peer file-sharing computer networking software did not have right
and ability to supervise the direct copyright infringers who used their
software, as required to impose vicarious liability; distributors did not have the ability to
block access to individual users, and none of the communication between distributors and users
provided a point of access for filtering or searching for infringing files,
since infringing material and index information did not pass through their
computers. 17
U.S.C.A. § § 501-513.
[9] Copyrights and Intellectual Property 77
Possibilities
for upgrading software located on another person's computer are irrelevant to
determining whether vicarious liability for copyright infringement exists. 17
U.S.C.A. § § 501-513.
[10] Copyrights and Intellectual Property 77
There is
no separate "blind eye" theory or element of vicarious liability for
copyright infringement that exists independently of the traditional elements of
liability.
*1156 Russell
J. Frackman (argued) and George
M. Borkowski;
Mitchell Silberberg, et al., LLP;
Los Angeles, CA; for
plaintiffs-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, CA, 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.
*1157 Kelli
L. Sager, Andrew
J. Thomas, and Jeffrey
H. Blum;
Davis, Wright, Tremaine, LLP, Los Angeles, CA; Carey
R. Ramos (argued); Aidan
Synnott and Theodore
K. Cheng, Paul, Weiss, Rifkind, Wharton &
Garrison, LLP; New York, NY, 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 (argued);
Keker & Van Nest; San Francisco, CA;
Jennifer
Stisa Granick;
Stanford Law School; Stanford,
CA, for defendant-appellee Grokster Ltd.
Cindy
A. Cohn and Fred
von Lohmann (argued); Electronic Frontier Foundation; San Francisco, CA; Charles
S. Baker;
Munsch, Hardt, Kopf & Harr, P.C.;
Austin, TX, for defendant-appellee StreamCast Networks, Inc.
Hank
L. Goldsmith;
Proskauer, Rose LLP; Los Angeles,
CA, 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, CA, 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, CA, for amici American Film Marketing Association, et al.
Jeff
G. Knowles;
Coblentz, Patch, Duffy & Bass;
San Francisco, CA, for amici American Federation of Musicians, et al.
Alan
Malasky;
Porter, Wright, Morris & Arthur, LLP; Washington, DC, for amicus National Ass'n of
Recording Merchandisers, Inc.
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, CA, 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, NY,
for amici American Civil Liberties Union, et al. Roderick
G. Dorman;
Hennigan, Bennett & Dorman, LLP;
Los Angeles, California, David
B. Casselman, Wasserman, Comden, Casselman &
Pearson, LLP, Los Angeles, CA, for amicus Sharman Networks Ltd.
Robert
E. Kohn, Santa Monica, CA, for amici Consumer
Electronics Association and Home Recording Rights Coalition.
Appeal from the United States District Court
for the Central District of California;
Stephen V. Wilson, District Judge, Presiding. D.C. Nos. CV-01-
08541-SVW, CV-01-09923-SVW, CV-01-08541-SVW.
Before: BOOCHEVER, NOONAN, and THOMAS, Circuit Judges.
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.
*1158 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." [FN1] 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 music and motion pictures.
The Copyright Owners allege that over 90% of the files exchanged through
use of the "peer-to-peer" 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 ").
FN1. The 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.
To analyze the legal issues properly, a
rudimentary under-standing 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 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 *1159 computer only; and (3)
a "supernode" system, in which a select number of computers act as
indexing servers. [FN2]
FN2. This 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).
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. [FN3]
FN3. A 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.
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 open-source 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. [FN4]
FN4. Since 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.
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. [FN5] Both Grokster *1160
and StreamCast distribute their separate 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. [FN6]
FN5. The owners of
the FastTrack Software successfully prevented users of the StreamCast version
of FastTrack from being able to connect to the 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.
FN6. A 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.
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-to-peer
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.
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, 104 S.Ct. 774, 78 L.Ed.2d 574 (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.
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. *1161
Rather, if substantial noninfringing use was shown, the copyright owner would
be required to show that the defendant had reasonable knowledge of specific
infringing files. [FN7] 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 "). [FN8]
FN7. In 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.
FN8. After 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).
[2] 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.
[3] [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 *1162
noninfringing uses and, therefore, that the Sony-Betamax doctrine
applied.
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. [FN9]
FN9. We are mindful
that the Seventh Circuit has read Sony's substantial noninfringing use
standard differently. In
re Aimster Copyright Litig.,
334 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.
In this case, the Software Distributors have
not only shown that their products are capable of substantial noninfringing
uses, [FN10] 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.
FN10. Indeed, 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.
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 contributory 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.") *1163
(internal quotation marks omitted) (emphasis added).
[4] 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.
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
[5] We also agree with the district court that with respect to
their current software distribution and related activities, 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.
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 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 *1164 list, or to the failure to make modifications
to software on one's own computer.
The Copyright Owners have not provided
evidence that defendants materially contribute in any other manner. StreamCast maintains an XML [FN11] 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.
FN11. XML 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.
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 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
[6][7] 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
[8] 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.
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;
*1165Shapiro,
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.
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
address-blocking attempts. [FN12] It is also clear
that none of the communication 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.
FN12. IP
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.
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.
[9] 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 *1166 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 supervise 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
[10] 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 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.
*1167 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 well-established 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 liability 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, 104 S.Ct. 774 (quoting Deepsouth
Packing Co. v. Laitram Corp.,
406 U.S. 518, 530, 92 S.Ct. 1700, 32 L.Ed.2d 273 (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.
380 F.3d 1154, 2004 Copr.L.Dec. P 28,862, 72
U.S.P.Q.2d 1244, 04 Cal. Daily Op. Serv. 7624, 2004 Daily Journal D.A.R. 10,274
END OF
DOCUMENT