Lessig

Grokster has won MGM v. Grokster. (By Grokster I mean "Streamcast & Grokster," hereinafter)

Analysis

The Ninth Circuit has decided that, on the facts developed, Grokster-style P2P technology is an easy case under Sony. For those unfamiliar with Sony, that decision held VCR manufacturers are not liable for copyright infringement practiced by owners of VCRs. The Court ruling recognized, in other words, that the P2P filesharing technology in programs like KaZaA falls into the same category as typewriters, photocopiers, VCRs, and pencils. All are tools that whose usage is not supervised by the manufacturer, that can be used for both legitimate and illegitimate purposes. All are tools that do not attract copyright liability for the manufacturer.

The opinion turns on facts rather than law. Two crucial factual findings accepted by the Court are basically the case. First, the court concludes that P2P is �capable of substantial non-infringing use�:

"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 use the software to distribute public domain works. [Example of popular band Wilco, who became successful via the P2P music distribution] ... In short, from the evidence presented, the district court quite correctly concluded that the software was capable of substantial non-infringing uses and, therefore, that the Sony-Betamax doctrine applied."

The second factual matter is whether Grokster "contributed" to infringement by its users. The Court found that Grokster does not provide the "site and facilities" for infringement:

"[Grokster et al.] are not access providers, and they do not provide file storage and index maintenance. Rather, it is the users of the software who ... create the network and provide the access." This, of course, is the major factual distinction from the Napster case, as Napster did provide an index and servers that were the "site and facilities" for infringement.

With these two factual findings in place, victory under Sony follows directly. The design of KaZaA with Napster in mind, and the successful development of these facts by Grokster�s lawyers at the EFF (Fred von Lohmann among them), is why Grokster won.

The court writes with a self-consciousness of the effects of copyright for innovation policy. It, in other words, writes in Silicon Valley language rather than Hollywood. The word �piracy� is not in the opinion, nor is �stealing.� Instead, words that could have been penned by Schumpeter: "the introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through established distribution mechanisms.� Does it matter in the long run if the recording industry is hurt? Not really, suggests the court: �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 karoke machine, or an MP3 player.�

The opinion is not without its weaknesses, particularly with a view to Supreme Court review. The most obvious weakness relates to the �blind eye� or �willful blindness� issue. On one account, Grokster escaped liability because it deliberately created a P2P network over which it had no control over specific file transfers. If it is trivially easy to create a network that makes it easy to stop copyright infringement, cannot Grokster be accused of trying to make an �end run� around the law, or making itself �willfully blind� to the infringements it is contributing to? This is the more important of two crucial differences with the Aimster decision penned by Judge Posner. Posner said in dicta that �One who, knowing or strongly suspecting that he is involved in shady dealings, takes steps to make sure that he does not acquire full or exact knowledge of the nature and extent of those dealings is held to have [knowledge sufficient for copyright infringement.� Arguably � constructing a system that deliberately left Grokster uninformed and incapable of stopping infringement � is what Grokster did here.

It�s a weakness because the Ninth�s circuit treatment of this issue is cursory: �There is no separate �blind eye� theory or element of vicarious liability�� If this case makes it to the Supreme Court, I would expect everything to turn on this issue. Grokster, of course, can argue that making itself �willfully blind� is actually a better P2P design, and not just a ruse to get around copyright infringement.

But let�s return to the end result. The sale and design of P2P filesharing technology has just been legalized in California. Whether legalizations spreads depends on Supreme Court cert. policy (more on this latter), and that place called Congress and its Act called Induce.

So the question on Grokster-watchers' minds: Cert? (For non-lawyers: will the Supreme Court hear this case?)
My guess is yes, for 7 reasons, ranging from the more to less legal:

1. These is a stated legal conflict on the Sony standard as between the 7th and 9th Circuits;
2. The 7th and 9th Circuits disagree (albeit in partially in dicta) on the relevance of willful blindness to secondary liability;
3. The Court has these matters in hand: it has granted cert. in many similar cases historically (Sony, 1980s, White-Smith (the Piano Roll case) 1909, Teleprompter and Fortnightly (Cable / Broadcast, 1960s & 1970s);
4. The Court has a vague sense that some far-out stuff is going on in the field of "Computer Law" that maybe it should check out;
5. Law clerks use P2P technology to plan basketball games;
6. JJs. Stevens and Breyer deeply dig this stuff;

And most importantly,

7. The Court loves to be the center of attention, and this would make it so.

So will MGM v. Grokster fasttrack the Induce Act, as many (here Seth F.) think?

Hard to say, but there are some reasons, both from theory and history, to think that it won't. First, the Grokster decision, by creating a Circuit split, actually creates legal uncertainty that may slow down settlement. Both sides now have a chance to win outright in the Supreme Court. This probably matters more to the electronics industry-- with a chance to get everything they want through the Supreme Court, the attraction of settlement decreases.

Second, the story of Sony itself was similar in some ways. During the litigation, both sides had proposed legislation that would have settled Sony with one a various royalty schemes. After Sony came down from the Supreme Court, Sony stopped wanting to negotiate, and the MPAA reevaluated its stance and decided to take a softer line. Now history may not necessarily repeat itself, and Sony the company is a much more reputable player than KaZaA, but that's the closest parallel.

Third, and finally, particularly if the Court grants cert., Congress may be reluctant to act in the midst of ongoing litigation. Congress likes reversing decisions, as opposed to deciding them itself -- that has too much of a "bill of attainder" feeling.

In other words, much in my opinion turns on whether cert. is granted. See previous post.

Larry has kindly offered me the opportunity to host his blog for a week. My plan is to use the opportunity primarily to catalyze a discussion of the current crisis in the entertainment industry and what potential solutions to it are both attractive and practicable. I recently published a book on the subject: Promises to Keep � Technology, Law, and the Future of Entertainment. The Introduction, which lays out the argument of the book as a whole, and Chapter 6, which has proven to be its most controversial piece, are available online. The book itself can be purchased through any online bookstore.

I thought I�d begin by briefly summarizing the argument of the first chapter, and then ask whether, particularly in light of some recent articles and developments, the argument holds up.

Several of the interesting and challenging responses to my original post focused on the merits and demerits of my contention that an alternative compensation system (ACS) would be superior to the copyright system as a way of compensating the creators of recorded entertainment that is distributed online. I had originally intended to save discussion of that topic for later in the week. But it�s understandable that people want to take it up now, so here goes�. I�ll begin with a very brief summary (taken from the Introduction to the book) of my variant of this idea, then address a few of the more serious objections to such a system.

A sufficient number of interesting responses have been made to my original post on Alternative Compensation Systems that I thought I�d start a new thread. I can�t hope to address all of the themes that have been raised, but here are a few:

From the last set of interesting reactions to my proposal for an Alternative Compensation System, I�ve culled a few especially sharp-edged objections. After trying to address them, I turn to the difficult question of what sort of regime is likely to emerge in the entertainment industry if we don�t move toward an ACS.

In this, my final, post, I�d like to take up the troublesome topic of price discrimination � both with respect to the distribution of audio and video recordings and with respect to sales of pharmaceutical products. My own view, which I�ll try to explain briefly, is that (a) we are likely to see much more price discrimination by the providers of these goods in the near future; (b) price discrimination in the context of entertainment is, on balance, bad; and (c) price discrimination in the context of drugs is, on balance, good. Judgments (b) and (c) are tentative and surely debatable; I�m hoping to elicit reactions.

I dumped the following into the veins of the email system, one to each person who had signed a petition asking for reform of the copyright system.

Sorry about the intrusion, but an important opportunity has come up for you to have a positive impact on the direction of copyright law and I wanted to let you know about it directly. Thanks to some prodding by a couple of great US Senators, the copyright office is currently considering whether to recommend changes to copyright law that will make it easier and cheaper for you to use "orphaned works" -- works that remain under copyright but whose "owner" can't be found. As many of you have written me, this is a real problem that affects thousands of innovative people every year. But the copyright office still needs some convincing.

To convince them, we need your help. If you have a relevant story, or a perspective that might help the Copyright Office evaluate this issue, I would be grateful if you took just a few minutes to write an email telling them your story. The most valuable submissions will make clear the practical burden the existing system creates. (One of my favorite stories is about a copy-shop's refusal to enlarge a 60 year old photo from an elementary school year book for a eulogy because the copyright owner couldn't be found.) Describe instances where you wanted to use a work, but couldn't find the owner to ask permission. Explain how that impacted your ability to create. Or pass this email on to someone who you know might have a useful story to add.

The Copyright Office is already overworked and understaffed, so I'm not asking that you stuff their inbox with demands for action, or anything like that. They are not Congress. They are not even the FCC. Their role here is as fact-finder, so "just the facts, ma'am." (Oops, do I need permission to use that?)

Everything you need to do this is online at http://eldred.cc. We've explained exactly what the copyright office is asking for, how and where to submit your email, and provided some examples of stories we've heard from others about how their creativity has been stalled when they've tried to use orphan works. If you have questions, there's a contact email there for people who can help you out.

In spite of my usual pessimism, I think we have a real opportunity here to move the law in a positive direction. Please help us "promote the Progress of Science" (and that text is in the public domain), by
showing the Copyright Office where unnecessary regulation hampers progress.

Stupidly, I did the sending myself, and so stupidly (but predictably), I failed to click the signature box, so it didn't have the requisite "opt out link." That was a mistake, and I apologize for it, but the missive brought a bunch of angry emails about my "spamming" them.

Those complaints evince the unfortunate shift in meaning of the term "spam." As my post does not ask for money or propose a commercial transaction, it is non-commercial. It is therefore bulk email, but not, in my view, spam. More importantly, while people should do what I stupidly didn't do (include an opt-out option), and people should not do what I've not done (abuse a list -- this is the second time in almost two years that I've used the list), we should not be stigmatizing the use of bulk mail for political or policy related purposes.

The good stuff on "fair use" just won't stop coming (if only now we could get some good judicial decisions). The Brennan Center at NYU Law School has a great new report. Download it here.

The 10th Circuit decided our appeal in Golan v. Gonzales today. In a unanimous vote, the Court held that the "traditional contours of copyright protection" described in Eldred as the trigger for First Amendment review extend beyond the two "traditional First Amendment safeguards" mentioned by the Court in that case. It thus remanded the case to the District Court to evaluate section 514 of the Uruguay Round Agreements Act (“URAA”) under the First Amendment, which removed material from the public domain.

This is a very big victory. The government had argued in this case, and in related cases, that the only First Amendment review of a copyright act possible was if Congress changed either fair use or erased the idea/expression dichotomy. We, by contrast, have argued consistently that in addition to those two, Eldred requires First Amendment review when Congress changes the "traditional contours of copyright protection." In Golan, the issue is a statute that removes work from the public domain. In a related case now on cert to the Supreme Court, Kahle v. Gonzales, the issue is Congress's change from an opt-in system of copyright to an opt-out system of copyright. That too, we have argued, is a change in a "traditional contour of copyright protection." Under the 10th Circuit's rule, it should merit 1st Amendment review as well.

I suspect this decision will weigh heavily in the Supreme Court's determination whether to grant review in the Kahle case. It also nicely demonstrates the wisdom in this part of the Eldred decision (don't get me started on the Progress Clause part of the decision...) The rule of Eldred, as interpreted by the 10th Circuit (and by us) is that Congress gets a presumption of First Amendment constitutionality when it legislates consistent with its tradition. But when it changes that tradition, its changes must be scrutinized under the First Amendment. This is an interesting constitutional argument -- echoing some of Justice Scalia's jurisprudence, as we argue in the cert petition. And it also makes a great deal of sense: practices unchanged for 200 years are less likely to raise First Amendment problems (but see ...); but whether or not immunity is justified for them, it is certainly not justified for practices that deviate from Congress' tradition.

The opinion by Judge Henry is well worth the read. The argument was one the best I have seen. All three judges knew the case cold. It is a measure of how good courts can be that they took such care to review this case.

Thanks to everyone on our team that made this possible. First the clients -- Lawrence Golan, the Richard Kapp Estate, S.A. Publishing, Symphony of the Canyons, Ron Hall and John McDonough (all of whom use and build upon material in the public domain; all of whom were negatively affected by Congress's removal of material from the public domain). But also and especially to the gaggle of fantastic lawyers who supported us in the case -- the Denver firm of Wheeler, Trigg, Kennedy, and Stanford CIS lawyers Chris Sprigman, Ed Lee, Jennifer Granick, David Olson, David Levine, Colette Vogel, Elizabeth Rader and Lauren Gelman (Tony Falzone came on afterwards).