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

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e--.--—__ —

Supren

sourt, U.S.

FILED

(7) JAN 24 2005

No. 04-480 OFFICE OF THE CLERK

IN THE

Supreme Court of the Gnited States

METRO-GOLDWYN-MAYER STUDIOS INC. ef al.,

Petitioners,

Vv.

GROKSTER, LTD. et ai.,

Respondents.

On Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

BRIEF AMICUS CURIAE OF

AMERICANS FOR TAX REFORM

IN SUPPORT OF PETITIONERS

CARTER G. PHILLIPS*

ALAN CHARLES RAUL

JAY T. JORGENSEN

ROBERT N. HOCHMAN

Eric A. SHUMSKY

BRIAN M. PALMER

SIDLEY AUSTIN BROWN

& WOopD LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

Counsel for Amicus Curiae

January 24, 2005 * Counsel of Record

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 -— WasHinGTON, D. C. 20001

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QUESTION PRESENTED

Whether the Ninth Circuit erred in concluding, contrary to

long-established principles of secondary liability in copyright

law (and in acknowledged conflict with the Seventh Circuit),

that the Internet-based “file sharing” services Grokster and

StreamCast should be immunized from copyright liability for

the millions of daily acts of copyright infringement that occur

on their services and that constitute at least 90% of the total

use of the services.

TABLE OF CONTENTS

Page

QUESTION PRESENTED. ..........::sssessssesssssesssseessneeessvess

TABLE OF AUTHORITIES ............s::sssesssssessssesssnseesseees iv

INTERESTS OF AMICUS CURIAE .......sc.ccvesssvessss0e00000s !

INTRODUCTION AND BACKGROUND ............000000 !

SUMMARY OF ARGUMENT ..........::::ssessssesssseessneeesnes 2

chalice iiiintes ns icatlinnasniiey seialtieinatnic 4

I. PROTECTING INTELLECTUAL PROPERTY

AS FULLY AS TANGIBLE PERSONAL PROP-

ERTY SERVES THE PUBLIC INTEREST............ 4

A. Copyrights Are A Form Of Property That Has

Been Fully Protected By Federal Law Since

Fe Fe cenrssesemenssnemassgneenmneeeen 4

B. Intellectual Property Rights Require Vigilant

Protection In The Digital Age ................csceee 8

Il. RESPONDENTS’ BUSINESS MODEL IS UN-

LAWFUL BECAUSE IT SEEKS TO PROFIT

FROM INDUCING THE THEFT OF PERSON-

es | Tn 10

Ill. THIS COURT’S DECISION IN SONY HAS NO

APPLICABILITY HERE...............0..ccccscssscoscessesseees 13

CONCLUSION .............sscsscsscsssrsssessevensensssssesessnssscsossensees 18

(iii)

hii

TABLE OF AUTHORITIES

CASES Page

A&M Records, Inc. v. Napster, Inc., 114 F. Supp.

2d 896 (N.D. Cal. 2000), aff'd in part & rev'd

in part, 239 F.3d 1004 (9th Cir. 2001)................. 10

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

OU 10

American Geophysical Union v. Texaco Inc., 802

F. Supp. | (S.D.N.Y. 1992), aff'd, 60 F.3d 913

oe ee en 6

Burrows-Giles Lithographic Co. v. Sarony, 111

Ef ene 6

Folsom v. Marsh, 9 F. Cas. 342 (C.C.D. Mass.

es See 6

Eldred v. Ashcroft, 537 U.S. 186 (2003)................ 6

Goldstein v. California, 412 U.S. 546 (1973)......... 6

New York Times Co. v. Tasini, 533 U.S. 483

GERRI P cecssccenmstocieisenninseuinctantieginigtstenetamteadictnntineis 9

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

464 U.S. 417 (1984)... 13, 14, 15, 16, 17

CONSTITUTION AND STATUTES

ae 5,9

Sound Recording Amendment Act of 1971, Pub.

Se 6

Co) 8 DD 5

INTERNATIONAL AGREEMENTS

Agreement on Trade-Related Aspects of

Intellectual Property Rights, Apr. 15, 1994,

Marrakesh Agreement Establishing the World

Trade Organization, Annex IC, Legal

Instruments-Results of the Uruguay Round vol.

DE, FS Rae GS Gee cecennenteenahntmmninn

TABLE OF AUTHORITIES—continued

Berne Convention for the Protection of Literary

and Artistic Works, Sept. 9, 1886, 828 U.N.T.S.

SEO cosesrpsscarssnnsenmsinniciintecanitastbianmsaiseniguetteampilane

FOREIGN CASE

Proceeding, Donaldson v. Beckett, | Eng. Rep.

837 (H.L. 1774), available at http://www.

copyrighthistory.com/donaldson.htm .................

FOREIGN STATUTE

SCHOLARLY AUTHORITIES

Frank L. Easterbrook, Cyberspace and the Law of

the Horse, 1996 U. Chi. Legal F. 207..................

Jon M. Garon, Normative Copyright: A Con-

ceptual Framework for Copyright Philosophy

and Ethics, 88 Cornell L. Rev. 1278 (2003)........

Lyman Ray Patterson, Copyright in Historical

Richard A. Posner, Economic Analysis of Law

es SL ee

Alfred C. Yen, Restoring the Natural Law: Copy-

right as Labor and Possession, 51 Ohio St. L. J.

ff Se a Cy ee

OTHER AUTHORITIES

The Federalist No. 43 (James Madison) .................

William Enfield, Observations on Literary

Lev Grossman, /t's All Free, Time, May 5, 2003 ...

TABLE OF AUTHORITIES—continued

Lawrence R. Hefter & Robert D. Litowitz, What

is Intellectual Property? (Nov. 1999), available

at http://usinfo.state.gov/products/pubs/intelprp

1 Melville B. Nimmer & David Nimmer, Nimmer

6D CO ERE GOO ncccecesescnsstensrcceentimeremenaneene

Honorable Richard Posner, The Economics

Structure of Intellectual Property Law, Address

at the American Enterprise Institute (Nov. 19,

2002), available at http://techlawjournal.com/

intel pro/2002 1 119.aSP............rcereeereeseesseesersenes

Eric H. Smith, Foreword to Stephen E. Siwek,

Int'l Intellectual Prop. Alliance, Copyright

Industries in the U.S. Economy: The 2004

Report (2004), available at http://www.iipa.

com/pdf/2004_SIWEK_FULL.pdf......................

Page

INTERESTS OF AMICUS CURIAE'

Amicus Curiae Americans for Tax Reform (“ATR”) is a

coalition of individuals, taxpayer groups and businesses

concerned with promoting a vibrant economy through tax

policy, spending reduction, a balanced budget and restoring

accountability to elected officials. In support of all of these

goals, ATR seeks a government that adheres to constitutional

norms and this Nation’s founding principles of promoting free

markets and protecting property rights. As a supporter of

these ideals, ATR opposes any result in this cage_that would

sanction the widespread theft of property that has been

encouraged and facilitated by Respondents. Such a result

would undermine this country’s constitutionally rooted and

long-established protections for copyright, because it would

render a black market in copyrighted works functionally

immune from suit, and thereby profoundly distort the proper

functioning of legal markets in copyrighted works.

INTRODUCTION AND BACKGROUND

For generations, the concept of personal property rights and

the knowledge that the law will protect personal property

from theft have provided individuals with a compelling

incentive to work, to create new items of commerce, and

thereby to benefit themselves and society. From the

beginning of our Republic, those incentives have been applied

to the intangible product of American genius. As a result,

incentive to create and publish an ever-increasing array of

materials to educate, empower and entertain. That system of

' Pursuant to Supreme Court Rule 37.6, amicus curiae states that

counsel for amicus authored this brief in its entirety. No person or entity

other than amicus, its members, and its counsel made a monetary

contribution to the preparation of this orief. Letters of consent from all

parties have been filed with the Clerk of the Court.

legal protection for intellectual work product is the father of

the modern electronic revolution.

Ironically,. Respondents, while benefiting from the

innovations sparked by intellectual property protections, have

used those innovations to facilitate and profit from the

destruction of property rights. This case tests whether the

protections for personal property rights that have provided the

foundation for our economy will continue in the modern,

online environment. In previous cases, this Court has

indicated that the protections historically afforded to

methods of creating, storing and sharing intellectual property.

The Court should_reaffirm that principle here by applying the

age-old principle that those who induce the violation of

intellectual property rights are secondarily liable for that

violation.

SUMMARY OF ARGUMENT

Our Nation’s history has shown that the predictable and

robust protection of personal property rights provides

innumerable benefits. Protecting personal property from theft

gives every person a healthy incentive to produce items or

services that are valuable to society. Since the Founding,

intellectual property has been among the products of personal

labor that have received the protections of federal law. As a

result, modern American consumers enjoy a rich and diverse

selection of artistic, educational, and technical works.

The Ninth Circuit's decision undermines these time-

honored protections for personal property. In focusing on the

question of the technology that Respondents use to induce

recognize that facilitating and profiting from theft on the

Internet is no different from facilitating and profiting from

theft in any other context. It is Respondents’ business model,

not the technology they use to effectuate that model, that

merits legal sanction.

Given these fundamental principles, and the manner in

which Respondents flout them, it is no surprise that this

Court's decision in Sony is inapplicable here, for at least three

reasons. Although Respondents seek to wrap themselves in

the protection of Sony, this reliance is misplaced. Unlike this

case, Sony involved a claim of secondary infringement based

on nothing more than the mere sale of a potentially infringing

product; this case, by contrast, involves a business whose

very purpose and goal is to encourage and profit from

infringement. Although technology purveyors who sell a

product with substantial noninfringing uses are justifiably

protected by .Sony; Respondents do not qualify for that

protection because they distributed and marketed their service

by touting its usefulness in the commission of copyright

infringement and with the intent to profit from such

infringement. Furthermore, Sony dealt with the circum-

stances under which constructive knowledge could be

inferred from a defendant's conduct. But in this case, no such

inferences are required—the evidence abundantly demon-

strates that Respondents had active knowledge of the

infringement that occurs via their software. Finally, Sony was

a case in which the underlying conduct was blameless, as this

Court concluded that most uses of the product were fair.

Here, not even Respondents have made such a claim. This is

a case about widespread and blatant copyright infringement,

all encouraged by and to the profit of Respondents.

ARGUMENT

I. PROTECTING INTELLECTUAL PROPERTY AS

FULLY AS TANGIBLE PERSONAL PROPERTY

SERVES THE PUBLIC INTEREST.

A. Copyrights Are A Form Of Property That Has

Been Fully Protected By Federal Law Since The

Founding.

At least since passage of the 1710 Statute of Anne, Anglo-

American law has recognized copyright as a property interest.

8 Ann., c. 19, § 1 (1710) (Eng.). Through that landmark Act,

Parliament recognized the benefits that intellectual property

rights offer: profits for authors and progress for society.

Vesting a property right in authors incentivizes the cultivation

and development of creative expression, just as real property

rights promote the cultivation and development of land.

Early judges and commentators joined in adapting a

Lockean view of property, which would later become the

keystone of our Declaration of Independence, to the field of

Eng. Rep. 837 (H.L. 1774) (Lord Chief Baron Smythe),

available at http://www.copyrighthistory.com/donaldson.html

(“property did exist previous to publication, and that

publication could not alter it; for that publication neither

made it a sale, a gift, a forfeiture, nor an abandonment, which

were the only ways that a person could part with his

property”); William Enfield, Observations on Literary

Property 21 (1774) (“Labour gives a man a natural right of

property in that which he produces[.] [L]iterary compositions

are the effect of labour; authors have therefore a natural right

of property in their works.”), quoted in Jon M. Garon,

Normative Copyright: A Conceptual Framework for

1296 & n.94 (2003); see generally Garon, supra. Several

states, even before the adoption of the Constitution, had also

equated the need to protect the fruits of intellectual labor with

the need to protect the fruits of manual labor. E.g., 1783 N.H.

Laws 305 (noting that government encourages human

progress by providing the “legal security of the fruits of

[human] study and industry [and that] no property [is] more

peculiarly a man’s own than that which is produced by the

labor of his mind”), quoted in Alfred C. Yen, Restoring the

Natural Law: Copyright as Labor and Possession, 51 Ohio

St. L. J. 517, 529 n.79 (1990) (and citing other similar state

statutes from the period).”

In light of this already solid foundation that existed for

intellectual property by 1787, it is unsurprising that the

Framers embraced intellectual property as essential to the

Nation’s future. U.S. Const. art. 1, § 8, cl. 8. James Madison

wrote of the Copyright Clause, “The utility of this power will

scarcely be questioned.” The Federalist No. 43. There were

apparently few who doubted that, as Madison recognized, the

“public good fully coincides - . . with the [intellectual

property] claims of individuals.” /d. One prominent

commentator has observed that “the men who wrote the

Constitution regarded the system of private property per se as

in the public interest. In according property status to

interest... .” 1 Melville B. Nimmer & David Nimmer,

Nimmer on Copyright § 1.03[A], at 1-90 (2004) (footnote

omitted).°

? By the time the Framers gathered for the Constitutional Convention,

twelve of the thirteen original colonies had adopted some form of

intellectual property regime. Lyman Ray Patterson, Copyright in

Historical Perspective 194 (1968).

* The modern mind has no difficulty equating intellectual with tangible

personal property. | Nimmer & Nimmer, supra, § 1.03/A], at 1-90 (“[t}he

fruits of an author’s labor scem to be no less deserving of the privileges

and status of ‘property’ than are the more tangible creative efforts of other

laborers”); Richard A. Posner, Economic Analysis of Law 38 (4th ed.

1992) (“the economist experiences no sense of discontinuity in moving

from physical to intellectual property”).

The Framers recognized that the law generally protects rea!

and personal property in order to protect the progress society

has already made, but that the specific protections of

intellectual property promote future progress. The Founders

of our young Nation were keenly aware of the need to achieve

a level of economic advancement that would put the Nation

on par with its European forebearers. Accordingly, the

Framers understood that protecting intellectual property

would help ensure that the newly united States would not lag

in developing a marketplace of ideas behind their European

rivals. Put simply, copyright incentivizes private individuals

to create works that benefit the public as a whole.

This Court has recognized that copyright protection serves

the public by securing rewards to the efforts of individuals.

“[Cjopyright law celebrates the profit motive, recognizing

that the incentive to profit from the exploitation of copyrights

will redound to the public benefit by resulting in the

proliferation of knowledge.” American Geophysical Union v.

Texaco Inc., 802 F. Supp. 1, 27 (S.D.N.Y. 1992), aff'd, 60

F.3d 913 (2d Cir. 1994), quoted in Eldred vy. Ashcroft, 537

U.S. 186, 212 n.18 (2003).

The public benefits derived from the protection of

individual rights in copyright have led the Nation consistently

to expand the availability of intellectual property nghts. See,

e.g., Copyright Act of 1909, ch. 320, 35 Stat. 1075; Sound

Recording Amendment Act of 1971, Pub. L. No. 92-140, 85

Stat. 391; Folsom v. Marsh, 9 F. Cas. 342, 347 (C.C.D. Mass.

1841) (No. 4901) (Story, J.) (attributing public availability of

Founding Fathers’ papers to copyright protection); Burrows-

Giles Lithographic Co. v. Sarony, 111 U.S. 53 (1884)

(extending copyright to photographs); Goldstein v.

California, 412 U.S. 546, 561 (1973) (further extending

intellectual or aesthetic labor”). Today, intellectual property

rights are equally important on the international stage. One

commentator has noted that “[c]ountries with innovative local

industnes almost invariably have laws to foster innovation by

regulating the copying of inventions, identifying symbols, and

creative expressions.” Lawrence R. Hefter & Robert D.

Litowitz, What is Intellectual Property?, http://usinfo.

State.gov/products/pubs/intelprp/homepage.htm (Nov. 1999).

Moreover, the United States is a party to several international

accords protecting intellectual property rights. See, e.g.,

Agreement on Trade-Related Aspects of Intellectual Property

Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the

World Trade Organization, Annex IC, Legal Instruments—

Results of the Uruguay Round, vol. 31, 33 1.L.M. 81 (1994);

Berne Convention for the Protection of Literary and Artistic

Works, Sept. 9, 1886, 828 U.N.T.S. 221.

The Framers’ vision of a nation driven forward based, in

part, on the fruits of intellectual labor has been realized

perhaps beyond their capacity to imagine. The importance of

overstated. In 2002, core copyright industries* accounted for

$626.6 billion, or 6% of the total U.S. gross domestic product.

Eric H. Smith, Foreword to Stephen E. Siwek, Copyright

Industries in the U.S. Economy: The 2004 Report, Int'l

Intellectual Prop. Alliance, (2004), available at http://www.

iipa.com/pdf/2004_SIWEK FULL.pdf. These _ industries

employ 4% of U.S. workers. Between 1997 and 2001, the

industries grew at 3.19% per year, more than double the

employment rate increase for the rest of the economy. In

2002, copyright industries accounted for $89.26 billion in

foreign sales and exports. /d. All of this, of course, does not

even begin to include the value to our economy and to our

standard of living that is contributed by the protection of

patent rights. In sharp contrast to the economy as a whole,

there is an intellectual property trade surplus, i.e., the U.S.

exports much more valuable intellectual property than it

* This group includes industries whose primary purpose is to produce or

distribute copyright materials, eg., newspapers, book puulishing,

recording, music, motion pictures, television broadcasting, and software.

imports. Honorable Richard Posner, The Economic Structure

of Intellectual Property Law, Address at the American

Enterprise Institute (Nov. 19, 2002), available at http://

www .techlawjournal.com/intelpro/2002 11 19.asp.

B. Intellectual Property Rights Require Vigilant

Protection In The Digital Age.

For as long as our law has recognized the immense benefits

of intellectual property nghts, there have been free riders and

thieves who violate the law. The Statute of Anne explicitly

stated that “persons[] have of late frequently taken the Liberty

of Printing . . . Books, and other Writings, without the

Consent of the Authors . . . to their very great Detriment, and

too often to the Ruin of them and their Families.” 8 Ann., c.

19, § 1 (1710) (Eng.).

Nearly three centuries later, the threats to our intellectual

property system posed by piracy take technologically

advanced forms. But the new dressing in which we find

modern piracy does not change its nature. Theft is theft.

Intentionally enabling and profiting from the theft of others

harms us all. The proper functioning of our free enterprise

system requires effective recourse for property holders when

their rights are invaded. Respondents are enabling and

profiting from massive theft. The law must respond.

The technologically advanced nature of the theft that leads

to Respondents’ profits only enhances its impact. No longer

does intellectual property piracy depend upon costly

machines and time-consuming copying processes. Low cost

computers and the Internet make piracy fast and easy. The

impact is staggering. The music, mo.ion picture, and video

game industries all report enormous losses on account of

piracy: 111,000 jobs in the software industry, $4 billion in

music sales, $3 billion in film sales, and $3 billion more in

lost video game sales. Garon, supra, at 1280.

Happily, the law is general enough and adaptable enough to

meet the needs of our technologically advanced society and

protect our intellectual property system from the massive theft

taking place at the behest of Respondents. As Petitioners and

other amici have demonstrated, and thus it does not require an

extended discussion here, standard rules of secondary liability

in copyright law apply to Respondents and warrant imposing

liability against them.* This is not surprising. The Internet,

though technologically foreboding, is no less amenable to the

application of the sound general rules of law that have served

our Nation and its economy well for centuries. See Frank H.

Easterbrook, Cyberspace and the Law of the Horse, 1996 U.

Chi. Legal F. 207, 208 (“Develop a sound law of intellectual

property, then apply it to computer networks.”). Through

three centuries, an effective legal framework has fostered

unimaginable innovations in technology, communications,

art, literature, film and music. No competent body has yet

determined that there is anything unique to the digital age that

would justify an abandonment of the same system that has

brought such profound gifts to society. When the Framers

empowered Congress to “securfe] . . . to Authors and

Inventors the exclusive Right to their respective Wniting and

Discoveries,” they surely meant “exclusive” without any

unexpressed exception for new methods. of copying and

distribution. Const. art. 1, § 8, cl. 8 (emphasis added). The

teaching of New York Times Co. v. Tasini confirms precisely

this point: the Court found “no basis . . . to shrink authorial

rights” simply because copyrighted works had moved into the

digital world. 533 U.S. 483, 506 (2001). Thus, this Court

ensured that the rights of authors wou!d remain fully

protected even as their creative expression migrates into

cyberspace. There is no reason to think that now is the time

to start developing an “Internet” exception to the laws that

protect property rights.

* See Brief Amici Curiae of States and Territories in Support of

Petitioner, No. 04-480 (U.S. filed Jan. 24, 2005).

Il. RESPONDENTS’ BUSINESS MODEL IS UN-

LAWFUL BECAUSE IT SEEKS TO PROFIT

FROM INDUCING THE THEFT OF PERSONAL

PROPERTY.

The Ninth Circuit's decision below must be rejected

because it adopts the wrong focus. The Ninth Circuit treated

this case as addressing the lawfulness of a particular

technology, but it is Respondents’ business model, and not

the technology by which they effectuate that model, tuat is

really at issue. If personal property is to be respected,

Respondents’ conduct must be illegal whether the technology

they use is on the cutting edge of development or centuries

old.

Respondents’ entire business model is based upon

encouraging the mass theft of copyrighted works over their

peer-to-peer (“P2P”’) networks and profiting from the volume

of theft that occurs. The record on this point is clear.

Respondents designed their networks with the express goal of

emulating Napster’s infringement-based business model. See

JA 738-739, 744-745, 749, 835, 836, 858-862, 864-865, 992-

998. At that time, Napster (which was the first large-scale

P2P network) was a notorious haven for copyright

infringement, with millions of copyrighted works being

illegally copied on a daily basis. See A&M Records, Inc. v.

Napster, Inc., 114 F. Supp. 2d 896, 911 (N.D. Cal. 2000),

aff'd in part & rev'd in part, 239 F.3d 1004 (9th Cir. 2001)

(“as much as eighty-seven percent of the files available [for

free duplication] on Napster may be copyrighted”); Napster,

239 F.3d at 1013-14 (noting the District Court’s finding that

that “‘a majority of Napster users use the service to download

and upload copyrighted music . . . [in] . . . direct infringe-

ment’” of the relevant copyrights) (quoting A&M Records,

Inc. v. Napster, Inc., Nos. 99-5183, 00-0074, 2000 WL

1009483, at *1 (N.D. Cal. July 26, 2000) (transcript of

proceedings)). Respondents’ original software operated in

substantially the same manner as Napster, and Respondents

even mimicked Napster’s name for the original version of

their service. See JA 250-251, 531, 579-586, 758-759.

Significantly, when the federal courts enjoined Napster from

continuing its infringement-driven business, Respondents did

not show any signs of concern that perhaps their services

were being used in an unintended unlawful manner. Rather,

Respondents demonstrated that they intended the logical

result of the actions they had taken in creating an

infringement-based P2P service. In fact, Respondents

vigorously marketed their services as an alternative for

Napster’s previous users. See, eg, Pet. App. 35a

(Respondents promoted themselves as “‘the next Napster’”);

JA 749, 861-862 (Respondents dec'ared that their networks

would “Do Napster better”); JA 836, 858-863, (StreamCast

advertised its network as “The #1 Alternative to Napster” and

the “Alternative Napster Network’’).

The intent behind Respondents’ efforts to identify

themselves with Napster is clear. Like Napster, Respondents

have structured their business model so that they receive

increased advertising revenues as the volume of traffic on

their networks increases. See JA 72, 258, 572, 759-760.

Under Respondents’ volume-based business model,

Respondents profit from each instance of illegal traffic.° Asa

result, Respondents have no incentive to discourage illegal

file sharing. To the contrary, Respondents have every

incentive to promote the idea that copyrighted works may be

duplicated on their networks for free. Respondents have

acted upon that incentive. For example, at one time

Respondents required users to create a unique username and

* Respondents and other similar P2P networks have succeeded in their

efforts to foster illegal infringement of property rights. During the

proceedings before the District Court in this case, more than 90% of the

material available on Respondents’ networks consisted of copyrighted

works that were being illegally infinged. See JA 436-439, 476-480. More

than 2.6 billion copyrighted songs are illegally downloaded from P2P

networks each month. See Lev Grossman, /t's All Free, Time, May 5,

2003.

password to log into their networks. By requiring each user

to log into the network, Respondents were able to monitor

their users and determine whether they were engaged in

prohibited conduct. However, several months after this

litigation began, Respondents disabled theirs log-in

requirement and thus ceased to use it as a device for deterring

illegal traffic. See JA 254, 271-272, 575-578, 623-625, 626-

628, 665-667, 766. Respondents have acknowledged that one

reason for this willful blindness is their desire to avoid any

iegal responsibility for the illegal traffic that they intend to

foster and from which they derive their business income. See

JA 791, 928-933 (Respondents’ employees acknowledge that

Respondents have the technical ability to see what files

Respondents’ users are copying, but noting that Respondents

wish to avoid such knowledge). In addition to the desire to

avoid liability for the conduct that they intend to foster,

Respondents must ensure that individual copyright infringers

can use their networks with relative anonymity so that they

will escape detection and prosecution.

In other words, Respondents’ business is like any business

that aids and abets illegal conduct. Respondents attract

business by informing those who are interested in

participating in illegal conduct of the opportunity

Respondents provide. At the same time, Respondents offer

their users some degree of anonymity so that those who might

use their service will not stay away out of fear of being

caught. Finally, Respondents have devised a mechanism by

which the illegal conduct they foster will redound to their

financial benefit. This is not a case about determining the

legality of file-sharing technology. This is a case about

whether a person may lawfully set up a marketplace and

means of exchange for trading stolen property, promote that

space as a haven for illegality, and then sell advertising

directed to the marketplace participants.

Ill. THIS COURT’S DECISION IN SONY HAS NO

APPLICABILITY HERE.

For all of the reasons set forth above—the need for this

Court to embrace robust protection of property, including

copyrights; the need to guarantee such protection in the online

world; and, most of all, because of the unlawful business

model that Respondents have built here—this Court should

reject Respondents’ invitation, certain to be forthcoming, to

shield their unlawful conduct on the basis of Sony Corp. of

America v. Universal City Studios, Inc., 464 U.S. 417 (1984).

Throughout this litigation Respondents have invoked Sony,

but that decision is distinguishable here for at least three

important reasons. First, the claim of secondary infringement

in Sony was premised on the defendants’ bare sale of a

potentially infringing product, whereas Petitioners here make

the far more serious claim that Respondents deliberately

encouraged copyright infringement in order to profit from it.

Second, Sony addressed whether constructive knowledge (that

defendants were contributing to infringement) could be

established by the mere sale of a potentially infringing

product; in this case, by contrast, there is plentiful evidence

that Respondents had actual knowledge that that they were

contributing to infringement. Third, this Court in Sony took

pains to note that the bulk of the allegedly infringing conduct

to which the defendants had contributed was in fact fair use;

but here, no one—not even Respondents—has attempted to

justify the rampant illegal conduct carried out by the users of

Respondents’ products on any such basis. For each of these

reasons, this Court should reject categorically efforts by

secondary infringers, such as Respondents, to wrap

themselves in the mantle of Sony. —

1. The allegations in Sony were altogether different from

the allegations that Petitioners have made in this case. In

Sony, the plaintiffs claimed that “the sale of petitioners’

copying equipment to the general public” constituted

contributory copyright infringement. 464 U.S. at 420. The

only conduct at issue was the fact that “Sony manufactures

millions of Betamax video tape recorders [“VTRs”] and

markets these devices through numerous retail establish-

ments.” /d at 422. That this was the sole basis upon which

liability would be imposed understandably gave the Court

pause. The Court properly observed that “[wJhen a charge of

contributory infringement is predicated entirely on the sale of

an article of commerce that is used by the purchaser to

infringe . . ., the publ’ interest in access to that article of

commerce is necessarily implicated.” /d. at 440. To find

infringement on the basis of those limited allegations, the

Court recognized, would be “the functional equivalent of

holding that the disputed article is within [a] monopoly

granted to [a] patentee.” /d at 441; see also id at 421

(expressing concern about “enlargling] the scope of

respondents’ statutory monopolies to encompass control over

an article of commerce that is not the subject of copyright

protection”). That is, a finding of infringement in Sony would

have undermined rather than enhanced the efficient operation

of the intellectual property system by effectively preventing

the production of useful articles in commerce. Given those

concerns, the Court declined to impose secondary liability.

But the allegations in this case are altogether different.

There has been no argument that Respondents should be

subject to secondary liability merely for selling (or, more

pertinent in this case, for distributing) a product. On the

contrary, as set forth above, see supra Section II, the claim of

secondary infringement is premised upon Respondents’

deliberate decision to set up a business model that profits

from the infringing conduct of others. Respondents

materially contributed to that infringement by others by

advertising, distributing, and modifying a network that would

most effectively enable infringers to operate without

“detection. The easier and more secret the infringement by

Respondents’ users, the more money Respondents make. For

these reasons, there is no implication in this case—as there

was in Sony—that the imposition of liability here would mean

that anyone who sells or distributes P2P software is

secondarily liable and, therefore, there is no concern that

holding Respondents liable would functionally extend

Petitioners’ copyright monopoly to cover P2P software. The

distribution of articles of commerce (ie, P2P software)

remains unhampered in this case, even with the imposition of

secondary liability. Put simply, in Sony this Court was asked

to expand copyright protections so broadly as to interfere with

the production of perfectly lawful and socially beneficial

products. Here, no such expansion is at issue.’ Thus,

whereas in Sony the public interest would have been

adversely implicated by a finding of liability, a decision here

to immunize Respondents from liability would be ruinous to

the public interest because of the resulting adverse effect on

the proper functioning of the legitimate marketplace.

2. Sony is further inapplicable here because that case

addressed a different level of scienter, and different questions

about proof of scienter, than what is alleged in this case. The

Court in Sony did not address any claim of, nor did it consider

any evidence of, actual knowledge: “If vicarious liability is

to be imposed on petitioners in this case,” the Court wrote, “it

must rest on the fact that they have sold equipment with

constructive knowledge of the fact that their customers may

use that equipment to make unauthorized copies of

copyrighted material.” 464 U.S. at 439 (emphasis added).

The absence of evidence of actual knowledge was of critical

importance in shaping the rule adopted by this Court, as it

should have been. If the simple fact of selling a potentially

infringing product could amount to constructive knowledge of

services as both a mechanism and a place for illegal exchange, these

businesses produce articles of commerce that are designed, marketed and

sed for leniel infrinei

underlying infringement, and also establish the required

material contribution, then both elements of contributory

infringement would be established by conduct that was, in

important ways, hardly, if at all, blameworthy. For this

reason, the Court was unwilling to assume that the mere seller

of a product that has “substantial noninfringing uses,” id. at

442, had the requisite knowledge.

There 13 no claim in this case that Respondents possessed

mere constructive knowledge that the users of their software

would engage in copyright infringement. Rather, the

allegation is—and the evidence put forward at summary

judgment demonstrates—that Respondents were actively

aware of and relying on such infringing conduct. They knew

from the first that their businesses would attract would-be

infringers, which is precisely what happened, and on a

breathtaking scale. And, Respondents knew of the

infringement that occurred by means of their software, not

only because they actually searched the P2P networks and

came across infringing conduct, but also because they were

informed of infringement by rights-holders and by users.

Nothing about these facts, and Respondents’ choice brazenly

to ignore the infringement that they knew of and profited

from, bears the remotest resemblance to the knotty problems

of constructive knowledge that were at issue in Sony. And for

this reason, too, the defense recognized in Sony has no

application here.

3. Finally, this case must be distinguished from Sony

because the conduct allegedly facilitated by the defendants—

that is to say, the alleged primary infringement—is so entirely

different in the two cases. Critical to this Court’s decision in

Sony was its practical recognition that the underlying conduct

was not particularly culpable, and its legal determination that

much or most of that conduct was not actionable. The Court

concluded that most VTR users were not engaged in

average member of the public uses a VTR principally to

record a program he cannot view as it is being televised and

then to watch it once at a later time,” 464 U.S. at 421; accord

id. at 423 (surveys “showed that the primary use of the

machine for most owners was ‘time-shifting’”), and it held

that time-shifting (whether authorized or not) is a

noninfringing use, id. at 442-56. The fact that such

noninfringing uses were not only potential, but were actually

common, necessitated the Court’s conclusion that secondary

liability was inappropriate. See, e.g., id. at 446 (“the business

of supplying the equipment that makes [non-infringing]

copying feasible should not be stifled simply because the

equipment is used by some individuals to make unauthorized

reproductions of respondents’ works”).

Here, the underlying conduct could not be more different.

Predominant legality has been replaced with overwhelming

illegality. The users of Respondents’ P2P networks are

engaged in untold quantities of copynght infringement—

which Respondents do not even dispute. See Pet. App. l6a

(“The element[{] of direct infringement . . . [is] undisputed in

this case.”). Respondents’ software has facilitated the illegal

copying of millions of copyrighted works, and there is no

claim here—as there was in Sony—that most (or even many)

of the uses of Respondents’ software are non-infringing.

Sony was a case about lawful product sellers and lawful

product users; this is a case about those who deliberately

encourage and then profit from rampant illegality.

CONCLUSION

For the foregoing reasons, the judgment of the Ninth

Circuit should be reversed.

Respectfully submited,