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The United States District Court for the Central District of California granted summary judgment in favor of defendants Grokster and StreamCast in MGM v. Grokster on Friday. In this case, movie studios and other copyright holders sued two peer-to-peer software companies for contributory and vicarious copyright infringement, since copies of protected works were available for download by users of their software. The court ruled that because neither defendant has any control over the infringement as it’s happening, they can’t be liable. A fuller analysis of the decision follows.

Contributory Infringement Claim. The question we need to ask, with regard to contributory copyright infringement, is “whether actual knowledge of specific infringement accrues at a time when either Defendant materially contributes to the alleged infringement, and can therefore do something about it.” This becomes important because defendants have a general baseline knowledge that the service is being used for copyright infringement. The crucial distinction is that, to be liable, they have to (1) actually know about a specific infringement (2) in time to stop it, and (3) fail to stop it. They’re not liable if they just fail to act on their generalized, nonspecific knowledge if infringement. Providing the “site and facilities” for infringement, like having the searches run through your servers, was held to be enough to meet this standard in the Napster case. Taking each defendant separately:

• Grokster. It runs on FastTrack, which is a proprietary protocol not controlled by Grokster itself, but rather controlled by Sharman Networks, the KaZaA people. It works by having each client connect to a “supernode,” through which it does its searches. These “supernodes,” in turn, connect to each other, and appear to find out about each other through “root supernodes,” most of which are operated by Sharman (but not by Grokster). Because there’s no way for Grokster to (1) know about or (2) stop any particular infringement, they can’t be liable. They never see the searches, and even if they did, they couldn’t stop them, since they’re going through either client supernodes or through Sharman’s root supernodes. Now, Sharman might be liable, but that’s not what we’re deciding here.
• StreamCast. It uses the open Gnutella protocol. The client finds some other machine running Gnutella, through a public host cache (not run by StreamCast), by word of mouth, or through some other means. Searches are passed from machine to machine in a truly peer-to-peer way; the network has no center at all. The bits from the users never touch any machine run by StreamCast at any point. Therefore, StreamCast doesn’t have actual knowledge of any particular infringements, and even if they did, they’d be powerless to stop them. Once there are Gnutella clients out there, nobody can shut down or filter the network, since there’s no central point you can shut down or filter. Everything takes place between the peers.

Vicarious Copyright Infringement Claim. To be liable, defendant must (1) have a “direct financial interest” in the infringement, (2) have a right and ability to stop the infringement, and (3) fail to stop it. Knowledge of infringement is not required. On the financial benefit side, the plaintiffs have it. Both defendants derive a bunch of ad revenue from their sites, and the availability of copyrighted content is a big draw, leading to much higher ad revenues. They have a direct interest in keeping those revenues high by maintaining the availability of infringing content. On to the second element, the right and ability to stop infringement. For the reasons given above, neither defendant has the ability to stop the infringement. Grokster doesn’t because they don’t control the servers; StreamCast doesn’t because there are no servers. So there’s no vicarious copyright infringement.