Amicus Curiae Brief — Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd.

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No. 04-480 rn

— | JAN 2

— ;

In the Supreme Court of the United States

METRO-GOLDWYN-MAYER STUDIOS INC... ET AL..

PETITIONERS

GROKSTER, LTD., ET AL.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONERS

DAVID O. CARSON

General Counsel

lnited States ¢ opyright

Offices

Washington, DC.) 20559

JAMES A. TOUPIN

* 7 0 }

(re vera ( (sie risel

JOHN M. WHEALAN

Dh puty General Counsel for

lutellectual Property Law

Patent and Trademark

Ontties

Alerandria, Va. 22.212

PAUL D. CLEMENT

Acting Solicitor General

Counsel of Record

PETER D. KEISLER

Assistant Attorne 4 General

THOMAS G. HUNGAR

5. pute Solicitor Cr rie ral

/ /

Assistant to the Seto,

6. hie ral

SSR. MCINTOSH

ANTHONY A. YANG

LEWISS. YELIN

Attorne Ys

Department of Justice

Wash ngton, DC. 20520-0001

(202) al 4g-22]i

—

DOUGLAS H. HALLWARD-DRIEMEIER

QUESTION PRESENTED

Whether the court of appeals erred in holding that pro-

viders of “file sharing” network software cannot be held sec-

ondarily liable for copyright infringement even though the

vast majority of uses of the providers’ networks constitute

(I)

Interest of the United States

Statement

Summary of argument

nate oe

TABLE OF CONTENTS

The court of appeals erred in holding that

defendants who base their business models on

the “draw” of copyright infringement can escape

liability for contributory infringement merely

by identifying minor noninfriging uses

A. Sony demands “effective—not merely

symbolic—protection” against copyright

infringement

B. The court of appeals’ approach would render

the Sony standard virtually insurmountable

C. The “commercially significant noninfringing

uses” test looks to whether the defendant's

business is so tied to infringing uses that it

is not genuinely engaged in an area of

commerce “substantially unrelated” to

infringement

1. The test for commercial significance

should focus on the relative significance

of the infringing and noninfringing uses

to the defendant’s business

a. How the product is marketed ................

b. The product's efficiency for

performing noninfringing uses

ec. Steps taken to eliminate or dis-

courage infringing uses

(III)

TABLE OF CONTENTS—Continued: Page

2. The record in this case reveals a genuine

dispute of material fact over the question

whether respondent's businesses are

“substantially unrelated” to copyright

infringement 21

II. Respondents may be liable under the more

general rule of contributory copyright infringe-

ment for their active rule in inducing copyright

infringement 27

Conclusion 30

TABLE OF AUTHORITIES

Cases:

A&M Records, Inc. v. Abdallah, 948 F. Supp. 1449

(C.D. Cal. 1996) 16

A & M Records, Inc. v. Napster, Inc., 239 F.3d

1004 (9th Cir. 2001) 18, 24

Adobe Sys. Inc. v. Canus Prods., Inc., 173 F.

Supp.2d 1044 (C.D. Cal. 2001) 15, 17, 27

Aimster Copyright Litig., In re, 334 F.3d 643 (7th

Cir. 2008) 13, 16, 18, 20, 30

Cable/Home Communication Corp. v. Network

Prods., Inc., 902 F 2d 829 (11th Cir. 19990) .............. 8, 18,28

Fonovisa, Inc. v. Cherry Auction, Inc., 76 F 3d 259

(9th Cir. 1996) 15, 16, 20, 21, 29

Fromberg, Inc. v. Thornhill, 315 F 2d 407 (Sth

Cir. 1963) 19

Gershwin Publ g Corp. v. Columbia Artists Mgmt.

Inc., 443 F 2d 1159 (2d Cir. 1971) ........... 4, 7, 8, 16, 20, 21, 28

Inwood Labs., Inc. v. Ires Labs., Inc., 456 US. 844

(1982) 28

Johnson & Johnson v. W. L. Gore & Assocs., Inc.,

436 F. Supp. 704 (D. Del. 1977) 19

Cases Continued:

Kalem Co. v. Harper Bros., 222 U.S. 55 (1911)

Matthew Bender & Co. v. West Publ g Co., 158 F 3d

693 (2d Cir. 1998), cert. denied, 526 U.S. 1154 (1999)

Shapiro, Bornstein & Co. v. H.L. Green Co., 316 F.2d

304 (2d Cir. 1963)

Shumaker v. Gem Mfg. Co., 311 F.2d 273 (7th

Cir. 1962)

Sony Corp. of Am. v. Universal City Studios, Inc.,

464 U.S. 417 (1984) passim

Statutes and rule:

17 U.S.C. 506

17 U.S.C. Se

17 U.S.C. 512

17 USC. 701

Digital Millennium Copyright Act, Pub. L. No.

105-304, 112 Stat. 2860

17 U.S.C. 12012)

35 U.S.C. 2(BX8)-(12)

35 U.S.C. 271(b)

35 US.C. 271(c)

Miscellaneous:

Douglas F. Gray, Peer-to-Peer Technology Exists

Beyond Napster, PC Worid (Mar. 15, 2001) <www.

peworld.comnews/article/O aid. 446 70, 00-299

H.R. Rep. No. 1476, 94th Cong., 2d Sess. (19760

Lionshare: Connecting and Extending Peer-to-Peer

Networks, A Penn State Proposal To The Andrew

W. Mellon Foundation <lionshare.its.psu.edu/main/

info/docspresentation/lionshare__mellon__pdf> .............

—

* In the Supreme Court of the United States

Miscellaneous Continued: Page /

Lionshare: Connecting and Extending Peer-to-Peer No. 04-480

Networks, Lionshare Whitepaper (Oct. 2004)

<lionshare.its.psu.edu/main/info/doespresentation METRO-GOLDWYN-MAYER STUDIOS INC., ET AL.,

/Lionshare WP. pdf- 25 PETITIONERS

Morpheus ™ Launches 4.5 with NEOnet Next

Generation Peer-to-Peer Technology Developed by U.

Harvard Computer Scientists (Oct. 6, 2004) <www.

streamcastnet works.com/F ullpress.html> 25 GROKSTER, LTD., ET AL.

New Morpheus™ 4 Software Released Today

Connects Users of All Major Peer-to-Peer

File-Sharing Networks (Feb. 3, 2004) <www. ON WRIT OF CERTIORARI

streamcastnet works.com/Fullpress.html> 25 TO THE UNITED STATES COURT OF APPEALS

New Morpheus™ 3.2 File-Sharing Software Released FOR THE NINTH CIRCUIT

with Innovative Privacy and Security Features

(July 15, 2003) <www.streamcastnet works.com/

Fullpress.html> 25 AS r 2

N SUPPORTING PETITIONERS

Report of the Department of Justice Task Force

on Intellectual Property (Oct. 2004) 2.

INTEREST OF THE UNITED STATES

This case presents the question of the correct legal stan-

dard to govern claims of secondary liability for copyright in-

fringement asserted by copyright owners against the pro-

viders of Internet music and movie-swapping networks

based on the large volume of piracy that users engage in

over those networks. The United States has a substantial

interest in meaningful and effective protection of intellectual

property, which represents a significant portion of the Na-

tion’s economy and exports. The United States Copyright

Office, which administers the Copyright Act, 17 U.S.C. 701,

and the United States Patent and Trademark Office, which

advises the President and other agencies on matters of in-

tellectual property policy, 35 U.S.C. 2(b)(8)-(12), have been

particularly active in advocating the effective protection of

intellectual property. The Department of Justice, which has

(1)

responsibility for prosecuting criminal violations of the

pal role of civil enforcement in the effort to combat copyright

violations. See Report of the Department of Justice Task

Force on Intellectual Property 39 (Oct. 2004). At the same

time, the United States has a considerable interest in fos-

tering robust technological development and the beneficial

use of digital technologies, including the peer-to-peer file-

sharing technology involved in this case. The United States

believes that the law of secondary liability for copyright

infringement, as set forth below, strikes an appropriate

balance between those legitimate concerns.

STATEMENT

This case concerns the considerable volume of copyright

infringement that is taking place among users of respon-

dents’ networking software. Though petitioners’ evidence

indicates that respondents have built their businesses

around the enormous volume of copyright infringement that

their networks facilitate, the court of appeals held that

respondents cannot be held secondarily liable for that

infringement because the software that respondents provide

is also capable of non-infringing uses. The position of the

United States is that the court of appeals erred in adopting

an unduly narrow view of the scope of secondary liability for

1. Peer-to-peer (P2P) computing technology enables us-

ers of a particular P2P network to access and copy files that

are located on the computers of other users who are logged

in to the network. Unlike traditional Internet transactions,

in which a user’s computer obtains information from a spe-

cific website operated by a central computer “server,” P2P

networking software gives users direct access to the com-

puters of other users on the network. Pet. App. 4a. P2P file-

sharing software thus performs two principal functions:

First, it searches for and locates files that are available on

the various “peer” computers linked to the network, and

second, it enables a user to retrieve and copy the desired

files directly from such computers.

Respondents Grokster and StreamCast offer their soft-

ware to users for free. Pet. App. 3a, 7a. Respondents de-

rive their revenue from advertising that is displayed when a

user accesses the P2P network. See id. at 50a. The “vast

majority” of files exchanged through Grokster and Stream-

Cast’s P2P networks “are exchanged illegally in violation of

If credited, petitioners’ evidence could support a finding

that respondents adopted a deliberate policy to build their

P2P networks around the “draw” to new users of the ability

to download copyrighted material for free. Pet. App. 49a-

50a. Petitioners’ evidence indicates that respondents set out

to attract former users of the Napster file-sharing system,

id. at 35a, which shut down after it was held secondarily

liable for the copyright infringement of its users, to serve as

a core base of users whose own files of copyrighted materials

would serve to attract new users, id. at 50a, thereby

increasing respondents’ revenue, ibid.

2. Petitioners include most of the major motion picture

studios and recording companies as well as a certified class

of over 27,000 songwriters and music publishers. Pet. App.

3a-4a & n. I. Petitioners brought suit against respondents

Grokster and StreamCast for copyright infringement. The

district court entered partial summary judgment in favor of

respondents on the ground that respondents’ software is ca-

! The United States has been unable to review the bulk of the sum-

mary judgment record in this case because it was filed under seal and re-

spondents (citing a concern about the possibility of a criminal investiga-

tion) declined to consent to our review. Accordingly, our discussion of the

evidence is necessarily based upon those portions of the record that were

not sealed or have been made public, and on statements regarding the re-

cord in the parties’ briefs and in the opinions below.

pable of noninfringing uses and respondents do not have the

ability to control their customers’ use. Pet. App. 54a.

The Ninth Circuit affirmed. Pet. App. la-22a. Construing

Sony Corp. of America v. Universal City Studios, Inc., 464

U.S. 417 (1984), the court of appeals held that respondents

could not be held contributorily liable for the copyright in-

fringement of their users if the networks were “capable of

substantial noninfringing uses.” Pet. App. lla. While peti-

tioners had asserted, without contradiction, that “the vast

majority of the software use is for copyright infringement,”

the court of appeals held that respondents’ evidence of non-

infringing uses—new artists who had willingly distributed

their works on the Internet for free and organizations that

made available public domain literary works and historic

films—was sufficient under Sony to defeat liability. Id. at

lla-12a.

Like the district court, the court of appeals also rejected

petitioners’ claim of vicarious copyright infringement, hold-

ing that respondents do not retain a practical ability to cut

off infringing users, Pet. App. 17a, and that respondents had

no affirmative duty to alter their software in a manner that

would prevent copyright infringement, id. at 17a-18a.

SUMMARY OF ARGUMENT

Although the Copyright Act does not expressly provide

for the imposition of secondary liability for copyright in-

fringement, this Court has recognized that there are

“circumstances in which it is just to hold one individual

accountable for the [copyright infringement] of another.”

Sony Corp. of America v. Universal City Studios, Inc., 464

U.S. 417, 434-435 (1984). Contributory liability applies to

“one who, with knowledge of the infringing activity, induces,

causes or materially contributes to the infringing conduct of

another.” Gershwin Publishing Corp. v. Columbia Artists

Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971).

I. In Sony, the Court stated that a seller of a product

that enables copyright infringement may be held liable if the

product is not “capable of commercially significant nonin-

fringing uses.” 464 U.S. at 442. The court of appeals held

that, even accepting that 90% or more of the uses of respon-

dents’ file-sharing networks are infringing, the mere fact

that the systems are “capable” of noninfringing transfers

precluded liability under Sony, notwithstanding the rela-

tively trivial proportion and commercial significance of such

uses. Pet. App. lla. The Ninth Circuit’s approach would

eviscerate the “effective” protection against copyright in-

fringement that Sony demands. 464 U.S. at 442.

Although Sony did not give precise content to the term

“commercially significant,” commercial significance should

be evaluated in the context of the particular defendant’s

business, as opposed to the technology in the abstract.

While P2P technology unquestionably can be employed for a

variety of legitimate purposes without giving rise to ram-

pant copyright infringement, the record (read in the light

most favorable to petitioners) suggests that respondents

have built their particular P2P networks around the “draw”

of massive copyright infringement. Respondents therefore

cannot evade liability under Sony merely by pointing to

other, legitimate, uses of the technology.

The touchstone for liability under Sony is whether the de-

fendant is engaged in a business “substantially unrelated” to

the extent to which the defendant’s product is, or reasonably

foreseeably will be, utilized for infringement and, re-

latedly, the extent to which the defendants’ particular busi-

ness depends on such illicit uses. If the defendant’s product

is overwhelmingly used for infringing purposes, and the

viability of the defendant’s business depends on the revenue

and consumer interest generated by such infringement, such

evidence alone suffices to support liability under Sony.

Where the predominance of infringing uses is less stark, a

court might also look to other indicia, including how the

defendant marketed the product, whether the product would

be efficient for the asserted noninfringing uses, and whether

the defendant failed to take easily available steps to reduce

the infringing uses or to focus on legitimate uses.

Petitioners’ evidence suffices to preclude summary judg-

ment under that standard. Apparently, the overwhelming

use of respondents’ networks is infringing, and it appears

likely that most if not all of respondents’ revenues are de-

rived from that infringement. The illicit ability to obtain

copyrighted material for free is, as the district court recog-

nized, the “draw” that attracts users to respondents’ sys-

tems and produces the critical mass of participants that is

essential to respondents’ success. Pet. App. 49a-50a.

The other relevant indicia of contributory infringement

could also be found to support the imposition of liability. Pe-

titioners marketed their networks’ capacity for infringing

uses in order to build a critical mass of users. Moreover, it is

unclear that respondents’ systems are particularly efficient

for the potential noninfringing uses cited by the court of ap-

peals. Finally, petitioners offered evidence that respondents

could, with relative ease, have implemented technology that

would substantially reduce the infringement occurring on

respondents’ networks and focus the uses of the technology

on lawful copying.

II. Even leaving aside the particular rule of contributory

liability articulated in Sony, respondents might also be found

liable for their active inducement of the infringement com-

mitted by their users. Petitioners’ evidence could support a

finding that the copyright infringement that takes place on

respondents’ networks did not simply “happen” but was the

result of active and intentional steps on the part of respon-

dents to induce such infringement, which was essential to

respondents’ business model.

ARGUMENT

Although the Copyright Act, unlike the Patent Act, “does

not expressly render anyone liable for infringement commit-

ted by another,” this Court has long recognized that there

are “circumstances in which it is just to hold one individual

accountable for the |copyright infringement] of another.”

Sony Corp. of America v. Universal City Studios, Inc., 464

U.S. 417, 434-435 (1984) (citing Kalem Co. v. Harper Bros.,

222 U.S. 55 (1911)). Congress has not prescribed particular

standards for secondary liability for copyright infringement,

but it has recognized the doctrine’s existence. See H.R. Rep.

No. 1476, 94th Cong., 2d Sess. 61 (1976). Indeed, Congress

expressly recognized and preserved the state of secondary

liability in the recent Digital Millenium Copyright Act

(DMCA), Pub. L. No. 105-304, 112 Stat. 2860, by stating that

“{njothing in this section shall enlarge or diminish vicarious

or contributory liability for copyright infringement.” 17

U.S.C. 1201 (¢)(2).

Courts have recognized two general categories of secon-

dary copyright liability: (1) “contributory infringement” li-

ability, which is imposed upon “one who, with knowledge of

the infringing activity, induces, causes or materially contrib-

utes to the infringing conduct of another,” Gershwin Pub-

lishing Corp. v. Columbia Artists Management, Inc., 443

F. 2d 1159, 1162 (2d Cir. 1971); and (2) “vicarious” liability,

which is imposed upon one who “has the right and ability to

supervise the infringing activity and also has a direct finan-

cial interest in such activities,” ibid. While “vicarious” li-

2 With the exception of notes 3 and 6, infra, the focus of this brief is

limited to the applicable theories of contributory liability. As appropriate,

however, the brief draws upon cases decided under the label of vicarious

liability to inform the understanding of the elements of contributory

liability. See Sony, 464 U.S. at 435 n.17 (recognizing that the lines

between direct, contributory, and vicarious copyright liability often “‘are

not clearly drawn’” and that secondary liability claims may require courts

ability focuses on the secondary infringer’s relationship to

the primary infringer—.e., the ability to “police the infring-

ing conduct” (coupled with a financial benefit from failing to

do so)—the doctrine of contributory infringement is prem-

ised on the defendant’s own conduct that induces or contrib-

utes to the primary infringement. /d. at 1162-1163.

There are, in turn, two distinct strands of contributory li-

ability that are implicated in this case: (1) where the defen-

dant’s role in facilitating the infringement is limited to pro-

viding the machinery or service that facilitates the infringe-

ment, e.g., Sony, 464 U.S. at 439, 442; and (2) where the

defendant, above and beyond the sale of the product,

actively induces the infringement, e.g., Cable/Home Com-

munication Corp. v. Network Productions, Inc., 902 F.2d

829, 846 (11th Cir. 1990). See Matthew Bender & Co. v. West

Publishing Co., 158 F.3d 693, 706 (2d Cir. 1998) (recognizing

distinct theories of contributory liability), cert. denied, 526

U.S. 1154 (1999). For the reasons set forth below, the court

of appeals erred in holding that petitioners could not, as a

matter of law, establish respondents’ contributory liability

for infringement under those theories.

I. THE COURT OF APPEALS ERRED IN HOLDING

THAT DEFENDANTS WHO BASE THEIR BUSINESS

MODELS ON THE “DRAW” OF COPYRIGHT IN-

FRINGEMENT CAN ESCAPE LIABILITY FOR CON-

TRIBUTORY INFRINGEMENT MERELY BY IDENTI-

FYING MINOR NONINFRINGING USES

In Sony, the Court addressed a particular category of con-

tributory liability, in which the secondary infringement claim

is premised solely on the defendant’s sale of a product that

facilitates the underlying infringement. 464 U.S. at 439.

Drawing upon analogous principles of patent law, the Court

to address pertinent “arguments and case law which may also be

forwarded under * * * other labels”).

held that contributory copyright liability may appropriately

be imposed upon the purveyors of “products or activities

that make such duplication possible,” but only if those prod-

ucts or activities are not “capable of commercially significant

noninfringing uses.” Id. at 442.

The decision below misconstrues the standard for liability

articulated in Sony. In concluding that mere anecdotal evi-

dence of relatively trivial noninfringing use is sufficient to

negate liability, without regard to the commercial signifi-

cance of those noninfringing-uses, the court of appeals effec-

tively eliminated the category of contributory liability ree-

ognized in Sony. Properly understood, however, Sony per-

mits imposition of liability for contributory infringement

when the infringing uses of a defendant’s product are so cen-

tral to the defendant’s business model that it is not genuinely

engaged in an area of commerce “substantially unrelated” to

dence could support such a finding here.

A. Sony Demands “Effective—Not Merely Symbolic—

Protection” Against Copyright Infringement

In Sony, this Court was called upon to decide whether a

business may be held secondarily liable for selling copying

equipment “with constructive knowledge of the fact that its

customers may use that equipment to make unauthorized

copies of copyrighted material.” 464 U.S. at 439. The defen-

dant in Sony manufactured and sold Betamax video tape re-

corders (VTRs), which were capable of recording television

broadcasts.

Balancing the legitimate demand for “effective—not

merely symbolic—protection” of copyrights against the right

of businesses “freely to engage in substantially unrelated ar-

eas of commerce,” the Court held that the bare sale of

equipment that is capable of being used for copyright in-

fringement will not constitute contributory infringement if

the “product is widely used for legitimate, unobjectionable

purposes.” 464 U.S. at 442. Put another way, the Court ex-

plained, liability is inappropriate based on the mere sale of

an article of commerce if the product is “capable of substan-

tial noninfringing uses,” i.e., “capable of commercially sig-

nificant noninfringing uses.” Ibid (emphasis added).

The Court found it unnecessary to “give precise content to

the question of how much use is commercially significant”

because “a significant number” of the uses before the Court

were noninfringing. Sony, 464 U.S. at 442. The Court first

noted the existence of “a significant quantity of broadcasting

whose copying is now authorized,” including telecasts of the

major sports leagues and Public Broadcasting Service pro-

grams, id. at 444-445, circumstances that “create[d] a sub-

stantial market for a noninfringing use” of the defendant’s

products, id. at 447 n.28.

The Court did not, however, rest its decision on those ex-

amples of authorized copying alone. Rather, the Court went

on to hold that time-shifting of broadcast programs to enable

viewing at more convenient times—the “primary use of the

[VTR] machine,” 464 U.S. at 423—was a fair and nonin-

fringing use, even when unauthorized. See id. at 447-455. In

light of the fact that the primary use of VTRs was lawful, the

Court held that Sony was not liable for the infringement of

its customers. /d. at 442, 456.

Four Justices dissented. Sony, 464 U.S. at 457 (Blackmun,

J., joined by Marshall, Powell, and Rehnquist, JJ.). The fun-

damental point of disagreement between the dissenters and

majority was whether unauthorized time-shifting was fair

use. See id. at 482-483. “Because * * * time-shifting is the

primary use of VTR’s,” the dissent acknowledged that the

majority's fair-use holding, “if correct, would settle the issue

of Sony’s liability under almost any definition of contributory

infringement.” Jd. at 493. Because the dissenters disagreed

with the majority regarding fair use, however, they had to

reach the further question (left unresolved by the majority)

of “the amount of noninfringing use that a manufacturer

must show.” /d. at 498. The proper question, the dissenters

explained, was the commercial viability of the product if

limited to noninfringing uses: IIlf no one would buy the

product for noninfringing purposes alone, it is clear that the

manufacturer is purposely profiting from the infringement,

and that liability is appropriately imposed.” /d. at 491.

n. The Court of Appeals’ Approach Would Render The

Sony Standard Virtually Insurmountable

The relationship between infringing and noninfringing

uses in this case is essentially the opposite of the situation

before the Court in Sony in light of the majority’s fair use

holding. The record shows that respondents’ software is

overwhelmingly used for the unlawful copying of copy-

righted works. Petitioners apparently offered evidence that

illegal trading of copyrighted works accounted for at least

90%, and perhaps more, of the files distributed on respon-

dents’ networks. Pet. 9-10 & n.7; Pet. App. 4a. The Ninth

Circuit nevertheless concluded that the residuum of nonin-

fringing uses was sufficient as a matter of law to foreclose

liability under Sony. See id. at 10a-12a.

In so holding, the court of appeals fundamentally miscon-

strued Sony’s requirement that noninfringing uses be “com-

mercially significant.” The court of appeals relied primarily

on evidence that certain files—including public domain

works and songs by artists who had au*horized free distribu-

tion of their music—couid be transferred over respondents’

networks without infringing copyrights, and anecdotal evi-

dence that such distribution had been significant to the

commercial success of at least one band, Wilco. See Pet.

App. 10a-lla. The court of appeals refused to consider

whether the small fraction of file-transfers represented by

such anecdotal evidence was “commercially significant” to

respondents’ businesses. Indeed, the court of appeals spe-

cifically refused to consider the relative frequency of in-

fringing and non-infringing uses of respondents’ networks as

part of the “commercially significant” inquiry. See id. at 1la-

12a n.9.

Under the standard employed by the court of appeals,

therefore, even relatively trivial noninfringing uses will

suffice to defeat secondary liability under Sony. That

standard renders Sony’s recognition of contributory liability

virtually a dead letter; copy-facilitating products are almost

always capable of copying public domain works, and thus

would satisfy the Ninth Circuit’s test.

This Court’s decision in Sony does not support that ap-

proach. If evidence of small classes of authorized copying

were sufficient to satisfy the “commercially significant”

standard, the Sony majority would not have needed to reach

the fair-use issue that divided the Court. The relatively sub-

stantial (compared to this case) authorized time-shifting in

that case, which included telecasts of the major professional

sports leagues and 58% of PBS programs, 464 U.S. at 444-

446, would have been more than sufficient to satisfy the

Ninth Circuit’s version of the “commercial significance” test.

In reality, the Court did not rest its holding on those nonin-

fringing uses, but instead went on to consider whether unau-

thorized time-shifting was a fair use. Id. at 447-455. Indeed,

all nine Justices appeared to agree that resolution of the fair-

use question was necessary in order to decide the “commer-

cial significance” question.

Nor can the court of appeals’ refusal to consider the rela-

tive significance of infringing and noninfringing uses be jus-

tified by noting, as both the court of appeals and respondents

do, that the Sony test asks whether the defendant’s product

is “capable of substantial noninfringing uses.” Pet. App. Ila,

Br. in Opp. 20-21 (characterizing Sony as adopting a mere

capability’ standard”). The Court’s reference to a product’s

“capable” and “potential” uses, 464 U.S. at 442, merely clari-

fies that the test is not limited to a snapshot of a single mo-

ment in time. Courts can, and should, take into account the

product’s realistic prospects for future viability based on

noninfringing uses. Id. at 444 (noting VTR’s “significant po-

tential for future authorized copying”). Considering a prod-

uct’s potential for future commercial utility in addition to its

current value is particularly important for new products and

businesses, which may take time to reach their potential.

Nonetheless, Sony's directive to consider “substantial nonin-

fringing uses, present or prospective” requires more than a

showing that the product “could be used in noninfringing

ways,” In re Aimster Copyright Litig., 334 F.3d 643, 650, 651

(7th Cir. 2003) (Aimster). Instead, the question is whether

the actual uses are, or are sufficiently likely to become,

In Sony, there was a “significant likelihood” that a sub-

stantial amount of Betamax recording would be noninfring-

ing, see 464 U.S. at 456, but the evidence cited by the Ninth

Circuit in no way compels such a finding here. The court of

appeals’ reliance on the bare potential for noninfringing uses,

without any attempt to assess the present or future signifi-

cance of such uses to the respondents’ businesses, effectively

reads Sony’s requirement of commercial significance out of

the standard and all but precludes contributory liability un-

der Sony. That result cannot be squared with Sony itself.

C. The “Commercially Significant Noninfringing Uses”

Test Looks To Whether The Defendant's Business Is

So Tied To Infringing Uses That It Is Not Genuinely

Engaged In An Area Of Commerce “Substantially Un-

related” To Infringement

Sony’s reference to a product’s capacity for noninfringing

uses likewise does not call for an evaluation of the technol-

ogy in the abstract. Rather, the proper focus is on the de-

fendant’s particular business and implementation—of the

terest to be balanced against the interest of copyright own-

ers is “the right[{] of others freely to engage in substantially

unrelated areas of commerce.” 464 U.S. at 442. Thus, it is

evident that the Court intended the “commercial signifi-

cance” of the noninfringing uses to be determined with ref-

erence to the nature of the seller’s business. If the defen-

dant’s business model is built around the draw of copyright

infringement, the defendant is not engaged in a “substan-

tially unrelated area{] of commerce.” Ibid.

J. The Test For Commercial Significance Should

Focus On The Relative Significance Of The

Infringing And Noninfringing Uses To The

Defendant's Business

Sony indicates, at least implicitly, that the “commercially

significant” test requires a comparison between the prod-

uct’s infringing and noninfringing uses. The Court noted

that time-shifting was the “principal,” 464 U.S. at 421, and

“primary,” id. at 423, use of the VTR and therefore “plainly

satisfie[d]” the “commercially significant” standard, id. at

442. See id. at 443 (suggesting that because the plaintiffs

owned only 10% of copyrighted programming, 90% of

programming might conceivably be copied without objec-

tion); ef. id. at 493 (Blackmun, J., dissenting) (opining that

“the percentage of legal versus illegal home-use recording”

was “essential” to resolving the question of contributory li-

ability). While it may be difficult to fix a precise percentage

as the necessary threshold for noninfringing uses, Sony

makes clear that when a product’s “primary” use is nonin-

fringing, the “commercially significant noninfringing use”

standard is easily satisfied. On the other hand, the Court’s

careful consideration of whether time-shifting was a fair use

indicates that the Court would have reacted quite differently

to a product—such as a VTR with recording, but no

playback, capacity—that while theoretically capable of

noninfringing uses, appeared to be designed to facilitate

infringement. More broadly, if there is a “symbiotic

relationship” between the provider of a product or service

and the infringing uses of that product, such that “the very

success of the [defendant’s] venture depends on the coun-

terfeiting activity,” and the seller is trading on the “draw” of

infringement, Adobe Sys. Inc. v. Canus Productions, Inc.,

173 F. Supp. 2d 1044, 1051 (C.D. Cal. 2001), a factfinder can

readily infer that the defendant is not engaged in a “sub-

stantially unrelated area of commerce.”

This approach finds considerable support in the case law.

Courts applying either general rules of contributory copy-

right liability or the more particular rule of Sony have

looked to the centrality of copyright infringement to the de-

fendant’s business. In Fonovisa, Inc. v. Cherry Auction,

Inc., 76 F.3d 259 (9th Cir. 1996), for example, the court con-

sidered a claim of contributory copyright liability against the

operator of a swap meet. The operator provided “space,

utilities, parking, advertising, plumbing, and customers” for

the meets, at which “massive quantities” of infringing activ-

ity took place, as evidenced by the seizure of 38,000 counter-

feit recordings. /d. at 261, 264. The provider of the meet de-

rived revenue from the rental of booths to individual vendors

as well as “admission fees, concession stand sales and park-

ing fees, all of which flow[ed] directly from customers who

wantled] to buy the counterfeit recordings at bargain

basement prices.” Id. at 263. The court had little difficulty”

in concluding that the defendant was contributorily liable for

providling] the environment and the market for counterfeit

recording sales to thrive.” /d. at 264.

Similarly, in the landmark Gershwin Publishing case, the

Second Circuit upheld contributory liability against the de-

fendant, Columbia Artists Management, Inc. (CAMI), based

on its “pervasive participation” in ereatlingl the

audience as a market for these artists” to perform copy-

righted music. 443 F.2d at 1163. CAMI’s employees formed

local concert associations throughout the country that

provided audiences for the infringing performances, and the

artists, in turn, paid CAMI a percentage of their fee “for

services rendered * * * in the formation and direction of

local associations.” Id. at 1161. In Gershwin, like Fonovisa,

the infringing sale or performance of copyrighted material

was the “‘draw’ for customers,” Fonovisa, 76 F.3d at 263,

around which the defendant had built its business.

Other courts have also applied a similar analysis under

Sony in cases involving the sale of products or services. In

Aimster, the Seventh Circuit noted that the law of aiding

and abetting generally distinguishes between a business that

sells a good that is typically used for entirely proper

purposes, but is capable of illicit uses, and the purveyor of a

good that, while entirely capable of legitimate use, is

virtually never used in that manner. See 334 F.3d at 651.

Whereas the former situation “corresponds to Sony,” the

court recognized that Aimster’s P2P music-sharing service

was like the latter, “capable of noninfringing uses but in fact

* * * used only to infringe.” Ibid. A further example is

provided by A&M Records, Inc. v. Abdallah, 948 F. Supp.

1449 (C.D. Cal. 1996), in which the district court imposed

contributory liability on the provider of blank “time-loaded”

audio-tapes that the defendant manufactured to run for a

certain length of time specified by the customer, which

facilitated the production of pirated tapes. Id. at 1453.

While recognizing that the defendant “had some legitimate

customers for his time-loaded cassettes,” id. at 1456 & n.5,

the court held that those legitimate purposes “are

insubstantial given the number of Mr. Abdallah’s customers

that were using them for counterfeiting,” id. at 1456, and

who accounted for 70% of the defendant’s sales, id. at 1458

n.6.

Against this backdrop, it is clear that the Ninth Circuit

erred in analyzing the issue of commercial significance from

the standpoint of the start-up bands who allegedly benefited

2 OKT =

from consensual distribution over respondents’ networks.

The proper focus of the Sony inquiry is on the commercial

significance to the defendant’s business of the noninfringing

use in comparison to the infringing use. This is clear from

the Sony decision itself, which focuses, not just on the prod-

uct’s impact on PBS or major league sports, but on the

broader uses of the defendant’s product. A company that

builds its business around the “draw” of copyright infringe-

ment, such that “the very success of the [defendant’s] ven-

ture depends on the counterfeiting activity,” Adobe Sys., 173

F. Supp. 2d at 1051, is not one that is engaged in an area of

commerce “substantially unrelated” to copyright infringe-

ment, and should therefore not be allowed to cite its

product’s “mere capability” for non-infringing uses, Br. in

Opp. 21, as a sufficient defense to contributory liability.

Thus, the relative significance to the defendant’s business of

a product’s infringing versus noninfringing uses serves as

the primary metrie for measuring whether the seller's

product has commercially significant noninfringing uses.

When (as is apparently true on this record) the nonin-

fringing uses are vastly outweighed by the infringing uses

and constitute 10% or less of the total, and the viability of

the defendant’s business is dependent on the revenue and

consumer interest generated by such infringement, a fact-

finder can readily find that the defendant’s product lacks

commercially significant noninfringing uses. By contrast,

when noninfringing uses predominate, plaintiffs will not pre-

vail. In closer cases, it will often be appropriate for the court

to look to subsidiary indicia that may shed additional light on

the question whether the defendant is genuinely engaged in

an area of commerce substantially unrelated to infringement.

Those factors include (a) how the defendant markets the

product; (b) the efficiency of the product for noninfringing

uses; and (c) what steps the seller has taken to eliminate or

discourage infringing uses.

(a) How the product is marketed. In Sony, the Court em-

phasized that the defendant had not “influenced or encour-

aged” unlawful copying with its “advertisements.” 464 U.S.

at 438. Although the test of “commercially significant nonin-

fringing uses” is an objective one, the defendant's marketing

may provide objective evidence of the “area of commerce” in

which the defendant operates or indicate whether nonin-

fringing uses are, in fact, commercially significant. That is

especially so where, as here, the success of the defendant’s

business is inseparable from the network of users it has as-

sembled. A P2P network that markets itself as a community

of atomic physicists interested in sharing their research is

engaged in a different line of business from a network that

markets itself as a group of music-swappers.

Several lower courts, applying Sony, have recognized the

significance of the defendant’s marketing as evidence of the

relative significance of infringing versus noninfringing uses.

In Aimster, for example, the defendant’s “tutorial [gave] as

its only examples of file sharing the sharing of copyrighted

music.” 334 F.3d at 651. Similarly, in A & M Records, Inc. v.

Napster, Inc., 239 F.3d 1004 (9th Cir. 2001) (Napster I), the

court of appeals noted that defendants had “promoted the

site with screen shots listing infringing files,” id. at 1020 n.5

(citation omitted), and in Cable/Home Communication, the

defendant had “advertised these devices primarily as in-

fringement aids and not for legitimate, noninfringing uses,”

902 F.2d at 846. The fact that a seller markets its product

for infringing uses is evidence that the seller is not engaged

in a “substantially unrelated areal] of commerce,” and that

the noninfringing uses are not commercially significant.

Sony, 464 U.S. at 442.

(b) The product's efficiency for performing noninfringing

uses. Several cases construing 35 U.S.C. 271(c), the patent

law analog upon which Sony relied, recognize that an impor-

tant indicator of whether a proffered noninfringing use is

“significant” is whether the product performs the nonin-

fringing use efficiently, as compared to other available alter-

natives. If other products would serve the noninfringing use

more efficiently, such that the relevant product has a com-

parative advantage only for infringing uses, that will gener-

ally be strong evidence that customers are not buying the

defendant’s product for that purpose.

In one notable case, Fromberg, Inc. v. Thornhill, 315 F.2d

407 (5th Cir. 1963), the defendant contended that its rubber

plugs, which were suitable for use in the plaintiffs patented

process for repairing tubeless tires, could also be used with a

standard tire repair needle. Id. at 414. In remanding, the

Fifth Circuit noted its skepticism of that proffered use, in

light of the fact that defendant’s product cost three times

more than an ordinary plug. Id. at 414 n.19, 415. See gener-

ally Shumaker v. Gem Mfg. Co., 311 F.2d 273 (7th Cir. 1962)

(defendant sold product in pairs, whereas noninfringing use

required only single item); Johnson & Johnson v. W. L. Gore

& Assocs., Inc., 436 F. Supp. 704, 727 n.41 (D. Del. 1977)

(noting that “much larger rolls than those sold by defendant

are required” for the proffered noninfringing use).

uses. Evidence that a provider has, or has not, taken steps

to deter infringing uses may, in an appropriate case, also be

probative of the true nature of the defendant’s business, es-

pecially in cases in which infringing uses predominate. Pro-

duct manufacturers do not have an independent legal duty

under copyright law to modify their products so as to control

their customers’ infringing conduct.’ Sony, for instance, had

—

3 To the extent that petitioners’ argument concerning vicarious liabil-

ity could be construed as suggesting the imposition of such an obligation,

such a rule is neither desirable nor supported by precedent. In many

situations in which a party derives a financial benefit from the actions of

another, it is possible for the parties to structure their relationship in a

fashion that would permit one party to exercise control over the other,

no obligation to incorporate monitoring devices into its

recorders to deter copyright infringement. Sony, 464 U.S. at

437. When, however, a defendant’s product is over-

whelmingly put to infringing uses and the defendant fails to

take even inexpensive and readily available steps to combat

such infringement and focus users on legitimate uses of the

product, such refusal could, if not explained on other

grounds, bolster the inference that infringement is central to

the defendant’s enterprise. See Fonovisa, 76 F.3d at 264

(noting that the swap meet organizer had refused to cooper-

ate with efforts to identify the primary infringers who were

essential to the defendant’s business).

As importantly, when the seller of a product with signifi-

cant noninfringing uses has taken reasonably available steps

to deter infringing uses and focus users on legitimate uses,

evidence of such conduct would be relevant in demonstrating

that the seller’s business is “substantially unrelated” to

ual infringing uses inherent in the technology. As the Court

recognized in Sony, if “millions of [customers]” want to make

such as by leasing, rather than selling, a product on terms that allow con-

tinued supervision over its use. The “right and ability to supervise” ele-

ment of vicarious liability, see Gershwin, 443 F.2d at 1162, has never, to

our knowledge, been held to be satisfied by the mere fact that the defen-

dant could restructure its relations or its product to obtain such an ability.

Rather, the law of vicarious liability looks at the extent of control the de-

fendant actually possesses. See id. at 1163 (despite lack of “formal con-

trol,” defendant’s practical control over local concert associations put it “in

a position to police the infringing conduct”); Shapiro, Bernstein & Co. v.

H. L. Green Co, 316 F.2d 304, 306 (2d Cir. 1963) (emphasizing that depart-

ment store retained “unreviewable discretion’ * * * to discharge any

employee (of the record department] believed to be conducting himself

improperly”). The imposition of an independent obligation to arrange

one’s product or relations in a way to permit the seller to retain control

would have the undesirable effect of chilling technological innovation and

constraining the product development options of developers of software

and other digital technologies.

noninfringing uses of a product or service, “the business of

supplying the equipment that makes such [uses] feasible

should not be stifled simply because the equipment is used

by some individuals to make unauthorized reproductions” of

copyrighted works. 464 U.S. at 446.

Congress recognized as much in the DMCA, which created

statutory safe harbors for Internet service providers who

take designated steps to combat infringing uses of their

services. See 17 U.S.C. 512(c) and (i). The same considera-

tions that underlay this Court’s balancing approach in Sony,

and that informed the DMCA safe harbor provisions, sup-

port the conclusion that if a product or service provider

takes reasonable steps to combat infringing uses and chan-

nels users toward legitimate uses, the continued presence of

some infringing uses will not defeat evidence that the service

has “commercially significant noninfringing uses” for other

customers.

2. The Record In This Case Reveals A Genuine Dispute

Of Material Fact Over The Question Whether Respon-

dents’ Businesses Are “Substantially Unrelated” To

Viewed most favorably to petitioners, the record in this

case would appear to permit a finding that respondents are

in the business of promoting a music and movie “swap meet,”

in which at least 90% of the music or movies traded are pi-

rated and the opportunity for unlawful copying is the “draw”

for respondents’ businesses. On analogous facts, courts have

correctly recognized the propriety of imposing contributory

liability on the business that creates the market for such

infringement. See Fonovisa, 76 F.3d at 261, 264; Gershwin

Publishing, 443 F.2d at 1162. The courts below therefore

erred in granting summary judgment for respondents.

The proper focus of inquiry in this case is not P2P technol-

ogy in the abstract, but the businesses that respondents

have built around their particular implementation of that

technology. There is no question that, as a general matter,

P2P technology has the potential to be employed in many

noninfringing ways and that it can have considerable com-

mercial value to businesses, universities, and other organiza-

tions. P2P technology allows individuals to form electronic

communities in which they may share information of com-

mon interest with each other in a decentralized and techno-

logically efficient manner. As an example, a company could

utilize P2P technology to facilitate distribution of materials

among employees, while reducing demand on its central

servers. See Douglas F. Gray, Peer-to-Peer Technology

Exists Beyond Napster, PC World (Mar. 15, 2001) <www.pe

world.com/news/article/0,aid,44670,00.asp> (last visited Jan.

19, 2005). Penn State University is developing P2P software

that will allow faculty and students to create private sharing

groups for disseminating research and teaching aids or com-

pleting group assignments. See Lionshare: Connecting and

Extending Peer-to-Peer Networks, A Penn State Proposal to

the Andrew W. Mellon Foundation 14-16 lionshare.

its.psu.edu/main/info/docspresentation/lionshare_mellon_pdf

(last visited Jan. 19, 2005).

While there are clearly legitimate business models based

on the development of P2P communities for noninfringing

uses, petitioners’ evidence suggests that those are not the

areas of commerce in which respondents operate. According

to petitioners, at least 90% of the file-sharing on respon-

dents’ networks involves infringing transfers of copyrighted

material. Pet. 9-10 & n.7. Unlike Sony, there is no question

here about fair use or the kind of copying most owners of

copyrights would allow. This case involves perfect digital

copying of the entirety of the work. Construed most favora-

bly to petitioners, the evidence suggests that respondents

have developed vast networks of members whose only com-

mon characteristic is apparently their desire to download

copyrighted music and movie files without paying for them.

“{I)ndividuals are attracted to lrespondents'] software be-

cause of the ability to acquire copyrighted material free of

charge.” Pet. App. 50a (emphasis added).

Moreover, respondents’ revenue stream is based directly

on their ability to increase the volume of their users’ over-

whelmingly infringing uses. As the district court concluded,

it is clear that [respondents] derive a financial benefit from

the infringing conduct.” Pet. App. 49a. Each time a user ac-

cesses respondents’ networks, it triggers a flow of ads for

which respondents receive compensation. Pet. 4. “The more

individuals who download the software, the more advertising

revenue [respondents] collect.” Pet. App. 50a.

To be sure, respondents generate advertising income from

use of the networks without regard to whether the copying

is lawful or unlawful. But here the overwhelming proportion

of uses—each of which adds to respondents’ bottom line—is

infringing, and there appears to be no evidence that nonin-

fringing uses by respondents’ users are, or are likely to be-

come, commercially significant in the relevant sense. The

courts below did not suggest otherwise; instead, they based

their holdings on the fact that certain content providers had

consented to the sharing of their materials over respondents’

networks. But, as noted, petitioners presented evidence that

such noninfringing uses accounted for 10% or less of files

downloaded using respondents’ networks, and the lower

courts cited no evidence, much less uncontroverted evidence,

that the relative frequency of infringing to noninfringing

uses was likely to change over time.

To the contrary, there is every reason to suspect that re-

spondents’ networks, having been built initially around the

draw of illegally downloaded copyrighted material, are likely

to remain centered around that activity. A file-sharing

network (like a swap meet) is attractive to the extent that

users think they are likely to find what they are looking for

there. See Napster I, 239 F.3d at 1023 (recognizing that

“(mjore users register with the Napster system as the ‘qual-

ity and quantity of available music increases’”) (citation

omitted). A network provider whose business is built

around the volume of use thus first needs to establish a criti-

cal mass of members offering files of interest to others be-

fore new users will want to join. Once the network has ac-

quired a reputation for offering files of a certain kind, new

users drawn to the network will tend to reinforce that char-

acteristic. As the district court recognized, It he ability to

trade copyrighted songs and other copyrighted works cer-

tainly is a ‘draw’ for many users of Defendants’ software,”

and defendants’ user base numbers in the tens of millions

“/ajs a result” of that draw. Pet. App. 49a-50a. The courts

below offered no reason to expect that the file-sharing inter-

ests of respondents’ user base will dramatically change in the

future.

The overwhelming predominance of infringing uses of re-

spondents’ networks, and the centrality of copyright in-

fringement to the viability of respondents’ businesses—both

in the sense of serving as the “draw” around which respon-

dents’ user base was formed and as the continuing source of

respondents’ revenues—would, if proven, satisfy Sonys test

for liability. Even if the evidence were less clear on those

issues, moreover, the record relating to the other relevant

indicia might also support the conclusion that respondents’

businesses are not “substantially unrelated” to copyright

infringement.

Petitioners’ evidence indicates that respondents “mar-

keted themselves [to the public] as ‘the next Napster,’” Pet.

App. 35a, in order to attract Napster’s users should Nap-

ster’s own system be shut down for copyright infringement.

Pet. 6 (quoting JER 3537). They have touted their systems’

ability to locate “the specific file that a user wants,” from a

network of millions of users, including from multiple sources

at the same time, and all in a way that “one user does not

know the identity of the other It is no accident, therefore,

that the overwhelming percentage of uses of respondents’

networks is for infringement. They have marketed them-

selves as optimally designed for that purpose.”

Moreover, the court of appeals made no effort to assess

the relative efficiency of respondents’ systems for the poten-

tial noninfringing uses the court identified. In contrast to

infringing downloads, which are available from legitimate

sources only for a fee, the legitimately shared public domain

works and other files on which the ccurt of appeals relied

could apparently also be located using conventional search

engines and downloaded directly from the content providers’

websites for free. See Pet. Arp. Ila (Wilco album available

from band’s website); Newby Decl. J 3 (same for Project

Gutenberg collection); Prelinger Decl. J 11, 14 (same for

Prelinger Archive). The court of appeals made no assess-

ment of whether someone in search of public domain materi-

als or Wilco songs would obtain it more efficiently using re-

spondents’ networks or by using a traditional search engine

See Morpheus™ Launches 4.5 with NEOnet Nert Generation Peer-

to-Peer Technology Developed by Harvard Computer Scientists (Oct. 6,

2004); New Morpheus™ 4 Software Released Today Connects Users of All

Major Peer-to-Peer File-Sharing Networks (Feb. 3, 2004); New

Morpheus™ 3.2 File-Sharing Software Released with Innovative Privacy

and Security Features (July 15, 2008). Each of those news releases may

be found at: ww. streameastnet works. com / Full Press. html (last visited

Jan. 19, 2005).

® Respondents’ business model stands in stark contrast to Penn

State’s Lionshare, which uses P2P technology to build a virtual “commu-

nity” based on principles of authentication, authorization and access con-

trol, which enable the network to confirm a user's identity, permit users to

identify the individuals or groups who may have access to a file and, if

necessary, allow the network operator to track those who engage in

improper activity. Lionshare: Connecting and Extending Peer-to-

Peer Networks, Lionshare Whitepaper 2, 3, 10-11 (2004)

to locate the content provider's site, where the user could

obtain additional information about the group and could be

relatively confident that the file is what it purports to be and

is free of viruses or other corruption. Nor did the court of

appeals assess whether, if respondents’ systems were lim-

ited to noninfringing uses, they would have been able to

generate and retain the critical mass of users necessary to

make the system functional for noninfringing searches. If

the system could not develop and survive on the basis of

noninfringing transfers, it is unlikely to be an efficient

mechanism for such noninfringing uses.

Finally, petitioners presented evidence indicating that, as

characterized by the district court, filtering technology could

be implemented “with relative ease” and would allow re-

spondents’ networks to “block out a substantial percentage”

of copyrighted materials. Pet. App. 52a. While there is no

independent duty under copyright law to monitor the uses to

which customers put one’s products, see note 3, supra, if a

factfinder credited petitioners’ evidence that there are read-

ily available, easily implemented, and cost-effective safe-

guards, respondents’ failure to implement them, in the face

of the overwhelmingly illegal uses to which their products

are allegedly put, would provide additional probative

evidence that respondents’ businesses are not “substantially

unrelated” to copyright infringement. While respondents

strenuously dispute the effectiveness of such technology and

the ease with which it could be implemented, the court of ap-

peals was wrong to ignore the relevance of this issue to the

question whether summary judgment could be granted in

respondents’ favor.

In short, petitioners’ evidence would support a finding

that respondents’ businesses are the Internet equivalent of

the pirate swap meet at issue in Fonovisa. Of course, not all

flea markets or swap meets are built on the lure of copyright

infringement, and not all P2P networks are either. But the

evidence, taken in the light most favorable to petitioners,

would support a finding that the “draw” of copyright in-

fringement is so central to respondents’ businesses that “the

very success of the [respondents’] venture depends on the

counterfeiting activity,” Adobe Sys., 173 F. Supp. 2d at 1051;

see Pet. App. 49a. Summary judgment was therefore inap-

propriate under Sony.

Il. RESPONDENTS MAY BE LIABLE UNDER THE

MORE GENERAL RULE OF CONTRIBUTORY

ROLE IN INDUCING COPYRIGHT INFRINGEMENT

Even if the Court were to conclude that respondents are

not liable under the particular version of contributory liabil-

ity discussed in Sony, they might still be liable for their role

in actively inducing copyright infringement. Sony estab-

lishes a particular rule of contributory liability for cases in

which the assertion of secondary liability rests solely “on the

fact that [the defendant] has sold equipment with construc-

tive knowledge of the fact that its customers may use that

equipment to make unauthorized copies of copyrighted ma-

terial.” 464 U.S. at 439. See id. at 440 (drawing upon 35

U.S.C. 271(c), which, as the Court summarized, establishes a

rule of liability “predicated entirely on the sale of an article

of commerce that is used by the purchaser to infringe a pat-

ent” (emphasis added)). Thus, while respondents refer to the

rule in Sony as the “Betamaz defense,” Br. in Opp. 23, 25, 26,

it is important to clarify that the existence of “commercially

significant noninfringing uses” is a “defense” only against

liability based exclusively on the sale of a product. Sony, 464

U.S. at 442. Success on that issue would not preclude a

manufacturer’s liability under other standards, including the

active inducement prong of contributory liability. See id. at

438 (noting that Sony’s advertisements had not “influenced

or encouraged” infringement); id. at 439 & n.19 (Sony did

“not ‘intentionally indueſe] its customers to make infringing

uses of respondents’ copyrights, nor does it supply its prod-

ucts to identified individuals known by it to be engaging in

continuing infringement”). In this case, it appears that the

record (read most favorably to petitioners) would support a

finding that respondents are liable for their active role in in-

ducing their users’ copyright infringement.

The active inducement prong of contributory infringement

liability permits liability to be imposed on “one who, with

knowledge of the infringing activity, induces * * * the in-

fringing conduct “f another.” Gershwin, 443 F.2d at 1162.

Inducement is, as the Court recognized in Sony, also recog-

nized as a basis for secondary liability in other areas of in-

tellectual property law, including patent law, 35 U.S.C.

271(b) (“Whoever actively induces infringement of a patent

shal! be liable as an infringer.”), and trademark law, /mwood

Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 854-855 (1982)

(recognizing contributory liability for one who “intentionally

inducies]” another to infringe a trademark). See Sony, 464

U.S. at 435, 439 n.19. In the copyright context, the tradi-

tional standard has been deemed satisfied by the defendant's

“pervasive participation” in “creat{ing] the * audience“

for infringing performances, Gershwin, 443 F.2d at 1163, or

where the defendant actively “encouraged” the infringe-

ment, Cable/Home Communication, 902 F 2d at 846.

Petitioners’ evidence could support a finding that respon-

dents do far more than merely provide a software product.

Rather, they “set out deliberately to induce or aid infringe-

ment on an unprecedented scale,” Pet. 23, by establishing an

electronic swap meet for pirated music and movies. As dis-

cussed, respondents “marketed themselves [to the public] as

‘the next Napster, Pet. App. 35a, in order to be positioned

“to capture the flood of [Napster’s] 32 million users that

[would] be actively looking for an alternative“ should Nap-

ster’s own Internet piracy forum be shut down. Pet. 6

(quoting JER 3537). Those marketing efforts were central

to the success of respondents’ businesses, which depend

upon attracting a critical mass of music-swappers who serve

as the “draw” for additional customers and revenue. Pet.

App. 49a; see Fonovisa, 76 F.3d at 263-264.

According to petitioners, moreover, the evidence shows

that respondents’ networks have been “designed and modi-

fied to best enable and facilitate the infringement of copy-

righted works,” MGM Pet. C.A. Br. 8; see p. 25 & n. 4, supra,

and that respondents have marketed their networks as

optimally suited for infringement, such as by emphasizing

the anonymity of copying and advertising how many tracks a

search for Madonna retrieved on StreamCast as opposed to a

legitimate service, MGM Pet. C.A. Br. 28 (citing JER 4627).

Petitioners indicate that respondents “advised their users

how to download copyrighted works, including The Matriz,

Blair Witch Project, Tomb Raider, Pearl Harbor, Lord of the

Rings, Resident Evil, and Big Fat Liar,” and “included in

promotional materials search results featuring The Eagles

Greatest Hits * * * as well as music by Sting, Puff Daddy,

Shania Twain, Bruce Springsteen, Miles Davis, Carlos San-

tana, and John Lee Hooker.” Id. at 29, 30-31 (record cita-

tions omitted). Under those circumstances, even if the avail-

ability of noninfringing works on respondents’ networks

were enough to establish “commercially significant nonin-

fringing uses,” that would not negate respondents’ potential

liability for their active inducement of infringement.

The court of appeals held that respondents could not be

held liable under the doctrine of contributory liability be-

cause they lacked “reasonable knowledge of specific [acts of]

infringement” at the time those acts took place. Pet. App.

12a. But, as the Seventh Circuit recognized, a defendant’s

“(willful blindness” is not a defense against contributory li-

ability. Aimster, 334 F.3d at 650. See id. at 650-651 (“[A]

service provider that would otherwise be a contributory in-

fringer does not obtain immunity by using encryption to

shield itself from actual knowledge of the unlawful purposes

for which the service is being used.“). If respondents have

“intentionally structured their businesses to avoid secondary

liability for copyright infringement,” Pet. App. 54a, those

efforts “to remain ignorant of users’ real names and IP ad-

dresses ‘since they are exchanging pirated music,’” id. at

35a, could suffice to establish that they had constructive

knowledge of their users’ acts of infringement.

CONCLUSION

The judgment of the court of appeals should be reversed

and the case remanded for further proceedings.

Respectfully submitted.

PAUL D. CLEMENT

Acting Solicitor General

Davm O, CARSON PETER D. KEISLER

General Counsel ,

United States Copyright 3 Attorney General

Office MAS fee

JAMES A. TOUPIN Deputy Solicitor General

General Counsel DOUGLAS H. HALLWARD-DRIEMEIER

Assistant to the Solicitor

JOHN M. WHEALAN —

Deputy General Counsel for R. Mel

Intellectual Property Law Scott R. MCINTOSH

Patent and Trademark —— A. YANG

Office EWIS S. YELIN

Attorneys

JANUARY 2005

® Because the judgment of the court of appeals should be reversed for

the reasons set forth above, there is no need for the Court to address peti-

tioners’ theory of vicarious liability. We note, however, that the “ability to

supervise” element of that doctrine cannot be satisfied by proof that re-

spondents could have modified their products so as to retain control over

their users’ conduct, because there is no independent legal duty to modify

one’s product or arrangements with users to allow for the exercise of such

control. See note 3, supra.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.