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 Robert J. Yarbrough
Patent Attorney

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Indirect Infringement of Copyright

Robert J. Yarbrough
2005

   This article considers court cases addressing whether a provider of a copying technology is liable for indirect infringement of copyright where other persons use the technology to copy protected works.

1.       Sony Corporation of America v Universal City Studios, 464 U.S. 417 (1984)   

   a.       Summary  At its core, the Sony case dealt with the tension between the public interest in promoting technological development that may allow copying and the public interest in encouraging creative, copyrightable works.  The Sony Court came down firmly on the side of technological development.  By analogy to the “article of commerce” doctrine under patent law, the Court found that selling a copying device that is “widely used” for a legitimate use or that is “merely capable of a substantial noninfringing use” does not render the distributor liable for contributory infringement.   

   b.       Discussion  The issue was whether marketing of video cassette recorders (“VCRs”) which could be used to copy protected works was enough to impose liability for contributory infringement.  In a five to four decision, the Court concluded that Sony was not liable for contributory infringement because VCRs had the substantial legitimate use of “time shifting” of television programs, which was a “fair use” of the copyrighted material.   

    The studios argued “active inducement” and “contributory” infringement on the part of Sony, by analogy to the patent law at 35 U.S.C. 271(b) and (c), relying on Kalem v Harper Bros., 222 U.S. 55 (1911).  In Kalem, a film was made based on the book ‘Ben Hur’ for the purpose of commercial exhibition.  The producers advertised the film.  The producers did not actually exhibit the film, but provided the film to jobbers for exhibition.  The Court (per Justice Holmes) determined that the producers were liable for contributory copyright infringement.

    The Court distinguished Kalem since the producers in Kalem actually supplied the copied work to the jobbers, while Sony only supplied copying equipment and did not actually copy the work.  The Court concluded that no copyright legal theory addressed this situation and again applied a patent law analogy.  The Court stated that the patent cases provide that a patent holder can extend the patent monopoly to control distribution of a non-patented article only if the article is “unsuited for any commercial noninfringing use.”   The Court concluded “…the sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes.  Indeed, it need merely be capable of substantial noninfringing uses.”  

   The Court then turned its attention to whether the Sony device was widely used for noninfringing uses or whether is was capable of substantial noninfringing uses.  The Court found from a review of the facts that the principal use of the device was for ‘time shifting’ television programs, which was a fair use of the copyrighted material so copied.  The Court examined the economic effect of time shifting on the plaintiffs and concluded that it was negligible and if anything was beneficial by causing greater exposure to their programs.    The Court considered unimportant that infringing uses of the device, such as building libraries of recorded programs, were possible and were actively advertised by Sony as a reason to purchase the machine.  The Court considered important that the plaintiffs provided less than 10% of the TV programming available and that a taping of a significant portion of TV shows was allowed by the copyright owners.

    The majority does not appear to directly address the ‘active inducement’ theory of liability.  In dissent, Justice Blackmun takes the majority to task for ignoring the statutory restrictions of the ‘fair use’ doctrine (“criticism, comment, news reporting, teaching… scholarship and research”) and for creating instead a general concept of ‘rule of reason’ to determine when an activity is a ‘fair use.’  The dissent addresses each of the statutory factors in turn, and concludes that time shifting is not ‘fair use.’  The dissent adopts the analogy that time shifting of a copyrighted work for personal use is like wearing stolen jewelry rather than selling it.  The dissent accuses the majority of confounding the issues of liability and remedy.  The dissent believes that a technological remedy may well exist that would allow continued use of Sony’s recording technology to time shift programs whose owners have no objection to time shifting and to protect the interests of copyright owners who do object to time shifting.

2.       A&M Records v Napster, 239 F.3d 1004 (9th Cir. 2001)

    a.       Summary  The Ninth Circuit applied the Sony decision as controlling whether a technology provider has “knowledge” of direct infringement for the purposes of an evaluation of contributory infringement. The Court nonetheless found that Napster exhibited the necessary knowledge of direct infringement because Napster failed to block infringing content.  The rather tortured treatment of Sony appears to illustrate the difficulty of fitting that decision into a rigid analysis of indirect liability theory.

    b.       Discussion  Napster is a decision on appeal from a grant of a preliminary injunction against the defendant issued by the trial court.  The Ninth Circuit disagreed with some of the reasoning of the trial court, but agreed with the result.  The decision effectively shut down Napster.

    Napster operated a peer-to-peer network.  A user downloaded free software from Napster and logged onto the Napster server.  Using the Napster software, the user would copy a CD into MP3 format onto the hard drive of the user’s computer.  While logged on, the user could search directories of titles uploaded from the computers of other users.  The directories were maintained on the Napster servers.  While logged on to Napster, the user could download an MP3 files directly from the computer of another user who also was logged on to Napster.

    Surveys showed that 70% of the content available through the Napster servers was owned by the plaintiffs and all was subject to copyright protection.  The plaintiffs sought to enjoin Napster’s activities on either a theory of contributory infringement of vicarious (inducing) infringement.   The Ninth Circuit first noted that direct infringement must be shown before a claim for indirect infringement can be successful.  The Court found that the peer-to-peer file sharing was unauthorized reproduction and distribution of a copyrighted work and hence was a direct infringement.  Napster argued that the peer-to-peer direct infringement was subject to the affirmative defense of ‘fair use’ and that since the fair use excused the direct infringement, there could be no indirect infringement. 

    The Court examined each of the statutory requirements for ‘fair use’ from 17 U.S.C. 107.  The Ninth Circuit found Napster deficient as to each factor; namely:  (1) The Court found that the “purpose and character” of the use did not transform the work and was merely a new way of transmitting the same work.  The direct infringement also was for a commercial purpose (saving the cost of purchase).  These elements argued against fair use.  (2) The Court found that the “nature of the use” turned on the nature of the work and that creative works of the Plaintiffs were subject to the highest degree of protection, compared to, say, a news program.  This factor also argued against fair use.  (3) The Court noted that the entire work is copied, which argued against fair use.  (4) The effect on the market for the copyrighted work is to lose sales for the copyright owner, which argues against fair use.  The Court had little trouble finding no ‘fair use’ on the part of the direct infringers.

    The Court next turned to contributory infringement.  The Court stated that contributory infringement exists where a person “with knowledge of the infringing activity induces, causes or materially contributes” to the infringing conduct.   The Court considered whether Napster had ‘knowledge.’  The Court applied the Sony case to the question of ‘knowledge.’  The Court concluded that it would not impute knowledge to Napster because Napster had a copying technology or because a substantial use of that technology was for direct infringement of the plaintiff’s works.  The Court was persuaded that Napster satisfied the ‘knowledge’ requirement because it had the power to block the infringing content from its index but failed to do so, even after notice from plaintiffs.  The Court concluded that Napster ‘materially contributed’ to the infringing activity by maintaining its directory system.  Napster therefore was a contributory infringer.  

    The Court similarly considered the issue of whether Napster was a “vicarious” infringer.  The Court stated that vicarious liability will arise where a person has the “right and ability” to supervise infringing conduct, but fails to do so, and the person has a “direct financial interest” in the infringing conduct.  In the case before the Ninth Circuit, Napster had both the right and ability to supervise and a direct financial interest.  Napster therefore was subject to vicarious liability.  The Court remanded to the trial court to amend the injunction to require Napster to remove copyrighted content upon actual notice from plaintiffs.

3.       Metro-Goldwyn-Mayer Studios v Grokster, 545 U.S. ___, 125 S.Ct 2764 (2005)  

  a.       Summary  The Supreme Court in Grokster borrowed an “inducement” theory of liability from patent law and held that a person who distributes a product with the object of promoting infringement of copyright is liable for infringement.  The person’s purpose is inferred from ‘clear expression’ or ‘affirmative steps.’

   b.       Discussion    No sooner was Napster dead than other providers stepped in to take its place.  Those other providers were Grokster and StreamCast Networks, two suppliers of peer-to-peer file sharing software.  StreamCast Networks in particular directly targeted the universe of former Napster users as its target client base.  The Grokster’s and StreamCast Network’s  software allowed users to share electronic files, including copyrighted music and video files, directly from one user’s computer to another.  Both defendant’s software operated in a similar fashion.  The software set up certain user’s computers as ‘nodes’ that maintained indexes of files available for download on other computers associated with that node.  If a user sought to download a particular file, the user conducted a search of the indexes contained in the nodes.  Once the file was located, the user downloaded the file directly from the computer of the other user.

   The use of the nodes differentiated the Grokster and StreamCast platforms from that of Napster.  Neither Grokster nor StreamCast maintained databases of the available files and the files were not stored on the Grokster or StreamCast servers.   Grokster and StreamCast generated revenue by selling advertising.  The more subscribers to their software, the greater their advertising revenue.  Neither Grokster nor StreamCast directly infringes any copyright.  They merely supply a product that is capable of allowing infringement by other persons.  Grokster and StreamCast argued that their software products were capable of substantial noninfringing uses and that they therefore were not liable for contributory copyright infringement under the Sony decision.

   Both the trial court and the Ninth Circuit agreed with Grokster and StreamCast, based on Sony.  On appeal from a grant of summary judgment for defendants, the Supreme Court interpreted the Sony decision as based on imputing the intent of the accused infringer from the design and distribution of a product.   The Court concluded that under the Sony ‘article of commerce’ theory adopted from patent law, if the only use for a product is to infringe, a court should infer that the intent of the distributor of that product is to infringe and impose liability

   The Court did not use the term ‘safe harbor,’ but appears to directly repudiate that Sony created a ‘safe harbor’ for persons distributing copying technology.  The Court states the Ninth Circuit read the Sony decision too broadly by finding that Sony relieved Grokster and StreamCast from liability under all theories.  Having read ‘intent’ into Sony, the Court then adopted another patent law theory of liability into copyright law, that of “inducement of infringement.”  The Court described “inducement of infringement” in the patent context as follows:  Evidence of ‘active steps…taken to encourage direct infringement,’ (citation omitted), such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe, and a showing that infringement was encouraged overcomes the law’s reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use (citation omitted).

   The Court stated its new theory of inducement of copyright infringement as follows:

...[T]he inducement rule, too, is a sensible one for copyright.  We adopt it here, holding that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties. … The inducement rule… premises liability on purposeful, culpable expression and conduct….

 The Court found clear intent based on the actions of the defendants to infringe copyrights, including advertising copyrighted content, offering technical support in downloading copyrighted materials and targeting the Napster market of direct infringers.  The Court also found persuasive that the defendants did not attempt to filter the copyrighted content and that the defendants profited from the direct infringement through advertising.  The scale of the direct infringement, which the Court stated was ‘massive,’ also appears to have been a factor.  The Court reversed the grant of summary judgment for defendants.

    Two concurring opinions were filed.  Justice Ginsburg, joined by Rehnquist and Kennedy, opined that the Ninth Circuit read Sony too broadly when it found that the defendants had shown substantial noninfringing uses.  Justice Ginsburg felt that Grokster’s and StreamCasts evidence of noninfringing uses were mere declarations and would not support summary judgment in the face of overwhelming evidence of large scale infringement.   Justice Breyer, joined by Justices Stevens and O’Connor disagrees with J. Ginsburg.  Justice Breyer felt that the Ninth Circuit correctly interpreted Sony and that the case is better left to the new rule of law enunciated by the majority.