The Grokster Decision: Winning a Battle to Lose a War?

Posted on June 27th, 2005 by

The Supreme Court’s decision in MGM v. Grokster is interesting not only in its own right, but also as an occasion to think deeply about the recording and movie industries’ strategies. Why exactly do they want to face adversaries who are ever more difficult to hold liable? There may actually be a sensible answer.

The case involves two companies, Grokster and StreamCast, that distribute software (Grokster and Morpheus, respectively) that is widely used to “share” copyrighted songs, movies, and other material without the copyright holders’ permissions, though it can be (and is) used for other purposes as well. The music and movie industries are trying to hold Grokster and StreamCast liable for the copyright infringment committed by their customers. The Ninth Circuit Court of Appeals, relying on the 1984 Supreme Court decision of the Sony Betamax case, rejected this liability claim because the software has a real (not just theoretical) potential for non-infrininging use, even if the dominant use today is infringing.

One option for the Supreme Court was to narrow the Sony precedent, so that it would protect only technologies with a higher proportion of non-infringing use than Grokster and Morpheus. For reasons that merit a commentary of their own, I’m glad the Court did not go this route. (An interesting skirmish on this topic took place in the concurring opinions. Three justices expressed support for narrowing the Sony safe-harbor, three justices expressed support for leaving it broad, and three remained silent.)

Instead, the Court unanimously chose to send the case back to the 9th Circuit with instructions to consider whether Grokster and Morpheus had shown overt signs of actively and intentionally inducing copyright infringement. (The Justices rather clearly signaled that they expect the court of appeals to find such behavior did in fact occur.) If so, then the Sony case is irrelevant, because (according to today’s opinion) it only applies to cases where the only reason for secondary liability is the mere act of distributing the infringement tool. For those cases (a naive, blameless maker of a tool that turns out to be great for infringement), the Sony standard stands in its pre-existing form: a capability for substantial noninfringing use is enough of a defense. However, the Court made clear that they expect Grokster and StreamCast to fall into a different category: those who intentionally induce copyright infringement. For them, the Sony standard is irrelevant.

My preceding capsule summary is all well and good for understanding today’s decision itself, but what of the bigger picture? What is the strategic signficance?

If , as seems likely, Grokster and Morpheus are shut down, their role in the overall file-sharing ecosystem will simply be taken by others. There may be some role for similar commercial products from difficult-to-sue offshore companies, but in the long run, the dominant role is likely to be played by open source software. The days when a quick buck could be made by exploiting file sharers as an advertising audience will be over. But the file sharing itself will continue.

So, why then did the recording and movie industries persue this case? They aren’t dumb. Why would they choose to win a battle, if it seems inevitable that they will then lose the war? Why (starting with Napster, and now Grokster and Morpheus) do they seem determined to kill off the easy adversaries, so as to allow the hard ones to flourish?

To understand this strategic conundrum, you need to think about what the eventual end-game will be. Eventually the “content” industries will go to Congress, explain that all attempts to enforce their copyrights have proved futile, and ask for a generous compulsory license fee, in which they receive revenue without needing to control copying.

Originally I misunderstood this endgame. I was thinking of the eventual compulsory licensing regime as something effectively “negotiated” between the content industries and the consumers, with the Congress just endorsing the outcome. Thinking in those terms, the strategy of putting off the negotiation until all else failed made no sense. The industry would just lose any possible bargaining power it has. By negotiating only when they had no other choice left, they would be forced to accept any offer the consumers made, no matter how stingy.

But now I realize that this negotiation model is flawed. The industry will come to Congress not as negotiators but as supplicants. They will tell a tale of woe. They will be the underdogs. They will beg for relief from the terrible position they have been forced into. The more pitiful they can be, the more generous of a compulsory licensing regime they can hope for. To make this work, they need to drive away every opponent with whom negotiation would be possible.



  1. Myu says:

    this just goes to show how corrupt the judicial system is in the U.S. the bastard supreme court judges (probably republican no doubt) always side with the mega-multi-billion dollar industires. the recording/film industry pulls a little strings here, pays a little there, and there you go – they get their decision. yet another example of how corrupt and unreliable the courts have become. one way or another, this is all george bush’s fault and he and his corrupt neo-con goons should have never been allowed to hijack the office. now we’re getting all kinds of this crap happening, from people’s basic freedoms being taken away to environmental laws being rolled back and now they even want to “regulate” the internet. check this article out:

    why don’t they try regulating their own a$$es? seeing as they’re the ones out of control. incompetent fools!

  2. tdonoughue says:

    Compliments first to Max on an excellent analysis.

    I don’t believe that the first option that Max explored (that the Court did not take–namely narrowing Betamax to situations where there is mostly non-infringing actual use) was ever really an option. Such a construction of the statute would be extremely strained. The fact of the matter is that Congress has not seen fit to outlaw Grokster, et al. It would take an extremely activist Court to go out and make such law on its own. Not even in Marbury, I submit, have you seen such an activist Court, no less today.

    Which leads me to present potential endgame Part II (the sequel): The recording industry cries to Congress, but why opt for what could be relatively nominal royalties that are controlled by the government? Instead I think it is likely that they will ask Congress to simply outlaw file sharing systems such as Grokster (on the same argument Max anticipates).

    Once this is done, the industry need not invest in new technologies, but can continue to sell the old technologies at a large profit.

    Sad, but foreseeable.