P2P FILE SHARING AND THE PHYSICAL/VIRTUAL DIVIDE

REBECCA GIBLIN1

ABSTRACT

Ten years have now passed since copyright owners first began suing developers of P2P file sharing software. In that time three major actions have been lengthily and expensively litigated in the US courts, and not a single P2P provider has ultimately emerged victorious. Yet by some estimates P2P file sharing may be grown to comprise up to 90% of all global internet usage, and today more file sharing applications are readily available than ever before. This paper argues that this phenomenon is a result of the inability of pre- and post-P2P secondary liability doctrines to fully recognize the unique characteristics that distinguish software code and software development from their physical world counterparts.

1 Dr Rebecca Giblin is a Lecturer at Monash University, Australia. This paper draws upon work done as part of her doctoral thesis, “The Code/Law Collision: Secondary liability for P2P copyright infringement in the US and Australia”. The author wishes to thank her doctoral supervisor, Professor Mark Davison, also of Monash University, as well as examiners Professor Jacqui Lipton of Case Western Reserve and Professor Sam Ricketson from the University of Melbourne for their generous and helpful evaluation of the work. Thanks also to JC Chen for providing the network diagrams that illustrate this piece. Note that some of the background material in this draft has been previously published in similar terms in “Rewinding Sony: An inducement theory of secondary liability” (2005) 27(11) European Intellectual Property Review 428, “Kazaa goes the way of Grokster? Authorisation of copyright infringement via peer-to-peer networks in Australia” (2006) 17(1) Australian Intellectual Property Journal 53-76 (with Mark Davison), “On Sony, StreamCast, and Smoking Guns” (2007) 29(6) European Intellectual Property Review 215-226, and “A Bit Liable? A Guide to Navigating the US Secondary Liability Patchwork”, forthcoming Fall 2008, Santa Clara Computer and High Technology Law Journal. These works are collected at http://ssrn.com/author=656650.

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Please note that this is a preliminary draft only. Not all arguments have yet been fully developed, and not all references have been finalized and

confirmed. The author welcomes any feedback on the work in its current form.

1: Software Worlds and Physical Worlds.............................................................................................4

Code & Law..........................................................................................................................................................5

1. “Code is law”..........................................................................................................................................5

2. Anti-regulatory code, or “when code isn’t law”.....................................................................................7

Secondary liability and the physical/virtual divide...............................................................................................9

1. The pre-P2P US secondary liability law...............................................................................................10

2. The physical/virtual divide...................................................................................................................13

2: The Napster Lesson...........................................................................................................................221. The Napster technology........................................................................................................................23

3. In the district court................................................................................................................................25

4. In the Ninth Circuit...............................................................................................................................26

5. Implications..........................................................................................................................................29

3: Exploiting the Physical/Virtual Divide............................................................................................31

Aimster................................................................................................................................................................31

1. The Aimster technology........................................................................................................................32

6. In the district court................................................................................................................................34

7. In the Seventh Circuit...........................................................................................................................34

8. Implications..........................................................................................................................................39

9. Conclusion............................................................................................................................................42

Grokster & Morpheus..........................................................................................................................................42

1. Morpheus..............................................................................................................................................45

10. Grokster (via FastTrack).......................................................................................................................49

Grokster and Morpheus in the District Court......................................................................................................53

1. Contributory liability............................................................................................................................54

2. Vicarious liability.................................................................................................................................55

Grokster and Morpheus in the Ninth Circuit.......................................................................................................58

1. Contributory liability............................................................................................................................58

2. Vicarious liability.................................................................................................................................61

3. Willful blindness...................................................................................................................................62

4. Implications..........................................................................................................................................62

Conclusion...........................................................................................................................................................63

4: Inducement: The Targeted Response..............................................................................................64

1. A new theory of liability.......................................................................................................................64

11. What constitutes inducement?..............................................................................................................67

12. The inducement doctrine’s physical world assumptions......................................................................70

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5: Conclusion..........................................................................................................................................74

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Ten years have now passed since copyright owners first began suing developers of P2P file sharing

software. In that time three major actions have been lengthily and expensively litigated in the US courts,

and not a single P2P provider has ultimately emerged victorious. Yet by some estimates P2P file sharing

may have grown to comprise up to 90% of all global internet usage,2 and today literally thousands of

different file sharing applications are readily available for users to download.3 This work argues that this

phenomenon is a result of the inability of pre- and post-P2P secondary liability doctrines to fully

recognize the unique characteristics that distinguish software code and software development from their

physical world counterparts.

The work commences by canvassing the existing treatment of code in the legal literature, particularly the

theories relating to code having regulatory and anti-regulatory effects. It then goes on to explore the

physical/virtual divide - the abstract and under-recognized ways in which physical worlds and software

worlds fundamentally differ from one another. It suggests that the failure to recognize these differences

over the last decade has left the US secondary liability law open to exploitation by those who understood

that physical world assumptions do not always hold good in the virtual context. While scholars have

recognized for some time that the US secondary liability law is peculiarly susceptible to code-based

attack, this is a heretofore little-acknowledged explanation for that vulnerability.

Part 2 makes reference to the litigation against Napster, the first mainstream P2P file sharing application,

to highlight the main ways in which the pre-P2P US secondary liability law relied on physical world

assumptions. It then argues that the failure of the Ninth Circuit in A&M Records v Napster Inc4 to

recognize the fundamental differences between the physical and the virtual provided future P2P software

developers with clear instructions about how to avoid liability, thus confirming vulnerabilities within the

law that some had already begun to suspect.

Part 3 explores the ways in which P2P developers sought to exploit this mismatch between physical world

assumptions and software world realities in an attempt to replicate the widespread copyright infringement

that made Napster a worldwide phenomenon - without also replicating its liability. It begins with

reference to the efforts of John Deep, creator of Aimster, and explains how those efforts failed when the

2 Reported at Eric Bangeman, “P2P responsible for as much as 90 percent of all ‘Net traffic” ars technica, <http://arstechnica.com/news.ars/post/20070903-p2p-responsible-for-as-much-as-90-percent-of-all-net-traffic.html>, (3 September 2007) last accessed at 6 September 2007.

3 See “Software Map: file sharing project results” Source Forge, <https://sourceforge.net/softwaremap/trove_list.php?form_cat=251 >, last accessed at 24 October 2007.

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

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Seventh Circuit refused to be seduced by the cleverness of his construction. It then goes on to consider the

more sophisticated and successful efforts of the developers behind the Grokster and Morpheus

technologies.

Part 4 examines the US Supreme Court’s response to that successful exploitation of existing law, which

came in the form of a new intent-based secondary liability doctrine expressly aimed at capturing the

behavior of the Grokster defendants. While the inducement doctrine successfully shook large profit-

making corporate offenders out of the market, this work argues that the doctrine’s lack of success in

stemming the overall tide of P2P development and infringement is attributable to its failure to recognize a

number of vital distinctions between physical and virtual product development.

Part 5 concludes by arguing that the US secondary liability law will never significantly reduce the

quantum of P2P-facilitated infringement unless it is able to recognize the fundamental inherent and

practical realities of modern day software development, and the ways in which those realities depart from

the physical world assumptions on which the law is based. It should be noted that the focus of this work is

on attempting to explain the lack of effect existing secondary liability laws have had in reducing P2P

infringement. Issues relating to the desirability or otherwise of continued P2P file sharing software

development are outside the scope of this work.

1: SOFTWARE WORLDS AND PHYSICAL WORLDS

Code’s extra-technical significance has been the subject of considerable scholarship in a number of

different contexts.5 Two are of particular significance to this work. First is the idea that code regulates, or

5 See e.g. Tom W Bell, “Escape from Copyright: Market Success vs Statutory Failure in the Protection of Expressive Works” (2001) 69 U Cin L Rev 741 and Kenneth W Dam, “Self-Help in the Digital Jungle “ (1999) 28 J Legal Stud 393, (discussing the possibility of protecting rights with code instead of copyright or contract laws); Matthew Fagin, Frank Pasquale and Kim Weatherall, “Beyond Napster: Using Antitrust Law to Advance and Enhance Online Music Distribution” (2002) 8 BU J Sci & Tech L 451, at 483-487 (discussing the ways in which code can augment legal rights such as copyright); Andrew Feenberg, Alternative modernity: the technical turn in philosophy and social theory (University of California Press, Berkeley, 1995) and Andrew Feenberg, “Subversive Rationalization: technology, power and democracy” in A Feenberg and A Hannay (eds), Technology and the politics of knowledge (Indiana University Press, Bloomington, 1995) 3-22 (introducing the “technical code perspective” which suggests that an examination of the assumptions and values that are manifested in technologies offers a useful view of technological development); Andrew J Flanagin, Wendy Jo Maynard Farinola and Miriam J Metzger, “The Technical Code of the Internet/World Wide Web” (2000) 17 Critical Studies in Media Communication 409 (discussing the significance of the “technical code” of the internet and the World Wide Web in communications theory. The authors suggest that “the technical code perspective draws attention to the typically unnoticed aspects of technologies and helps to sort out cultural and social priorities that alert us to the many choices that go into technologies” (at 413)); R Polk Wagner, “On Software Regulation” (2005) 78 S Cal L Rev 457 (developing a framework for understanding “the regulatory environment in the context of law and

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that “code is law”. Second, and of primary importance to the P2P file sharing story, is the related but

separate idea that it can also be anti-regulatory in effect. After introducing these concepts, and canvassing

existing explanations for the copyright law’s peculiar vulnerability to code-based attack, this work

discusses some of the fundamental differences between physical and virtual paradigms. It dubs these the

physical/virtual divide. It then suggests a third explanation for the copyright law’s susceptibility: the fact

that, being rooted in physical world assumptions, it enables software developers to exploit this divide in

order to avoid or at least delay liability for third party infringement.

Code & Law

1. “Code is law”

The most prominent idea to have arisen from the existing scholarship, at least in the legal context, is the

notion that such code can have regulatory effects6 – or, as Lawrence Lessig famously put it, that “code is

law”.7 Lessig argued that cyberspace, like the real world, is regulated by four distinct modalities: law,

norms, market and architecture.8 The last constraint, a technology’s architecture or “code”, is the most

significant to this discussion. Lessig explains that “[t]he software and hardware that make cyberspace

what it is constitute a set of constraints on how you can behave”.9 For example, software code may software); Graham Longford, “Pedagogies of Digital Citizenship and the Politics of Code” (2005) 9(1) Techne: Research in Philosophy and Technology <http://scholar.lib.vt.edu/ejournals/SPT/v9n1/pdf/longford.pdf> accessed at 27 September 2006 (considering “the ways in which, at the level of their technical design, the Internet, the World Wide Web and other new media structure and enable certain activities, conduct and forms of life on-line while they simultaneously constrain or neutralize others.” Longford’s argument is based on the idea that “[t]he design elements of such systems and artifacts can serve to hardwire certain forms of conduct, experience and social relations into our surroundings” (at 3)); M Ethan Katsh, “Software Worlds and the First Amendment: Virtual Doorkeepers in Cyberspace” 1996 University of Chicago Legal Forum 335 (discussing how software code challenges the “model of First Amendment regulation.”); Jay P Kesan and Rajiv C Shah, “Deconstructing Code” (2003-2004) 6 Yale J L & Tech 277 (arguing that “code is not neutral and apolitical but … embodies the values and motivations of the institutions and actors building it.”) On that same topic see also James H Moor, “What is Computer Ethics?” (1985) 16(4) Metaphilosophy 266, at 273-275.

6 Regarding the idea that code can regulate, see Lawrence Lessig, “Reading the Constitution in Cyberspace” (1996) 45 Emory LJ 869, at 896-897 (one of the earliest legal explorations of the idea that software can constrain or “regulate” behavior); M Ethan Katsh, “Software Worlds and the First Amendment: Virtual Doorkeepers in Cyberspace” (1996) University of Chicago Legal Forum 335, particularly at 335-343 (exploring “the role of software in structuring the online environment); Joel R Reidenberg, “Lex Informatica: The formulation of information policy rules through technology” (1998) 76 Tex L Rev 553, particularly at 568 (arguing that technology is a source of rule-making separate to traditional law) and at 569-574 (analogizing features of the “lex informatica” to traditional legal regulation); James Boyle, “Foucault in Cyberspace: Surveillance, Sovereignty, and Hardwired Censors” (1997) 66 U Cin L Rev 177, at 201 (predicting, two years before Napster was developed, that “there will be a continuing technological struggle between content providers, their customers, their competitors, and future creators.”); Lawrence Lessig, Code and other laws of cyberspace (Basic Books, New York, 1999) (developing on his earlier work about code’s regulatory effects); R Polk Wagner, “On Software Regulation” (2005) 78 S Cal L Rev 457 (elaborating on the code/law relationship, particularly the substitutability of code and law); Jay P Kesan and Rajiv C Shah, “Shaping Code” (2005) 18 Harv J Law & Tech 319, at 320 (canvassing a number of different ways in which code can be and is in fact used to regulate behavior).

7 Lawrence Lessig, Code and other laws of cyberspace (Basic Books, New York, 1999) 6. Those famous words were of course first enunciated by architecture and media professor William J Mitchell, who, in the context of explaining the significance of cyberspace, wrote that “[o]ut there on the electronic frontier, code is the law.” William J Mitchell, City of Bits (The MIT Press, Cambridge, 1995) 111.

8 Lawrence Lessig, Code and other laws of cyberspace (Basic Books, New York, 1999) 86-90. C.f. Lessig’s earlier work on the subject, which identified only three constraints: law, social norms and architecture or code. Lawrence Lessig, “Reading the Constitution in Cyberspace” (1996) 45 Emory LJ 869, at 896.

9 Lawrence Lessig, Code and other laws of cyberspace (Basic Books, New York, 1999) 89.

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regulate behavior by imposing a password requirement on users seeking to gain access to a particular

service.10 Tim Wu explains that, “[j]ust as a brick wall built in the middle of the road modifies behavior,

code regulates by specifying, in advance, what behavior is and is not possible.”11 While the idea that code

regulates was once revolutionary, it has now garnered virtually universal acceptance amongst legal

scholars.12

Code can clearly regulate behavior in the P2P file sharing context. For example, software developers can

prevent infringement by coding their software in such a way that “eliminat[es] the option not to

comply.”13 Content owners have used a variety of code-based measures as part of their efforts to promote

compliance amongst end-users in recent years.14 However, thus far in the history of P2P file sharing, the

idea that code regulates has been of less significance than the separate but related idea that code can be

anti-regulatory in effect.

2. Anti-regulatory code, or “when code isn’t law”

The most comprehensive exploration of the anti-regulatory effects of code was authored by Wu who, in

his groundbreaking article on the subject, argued that sometimes code isn’t law. “[T]he reason [why] code

matters for law at all is its capability to define behavior on a mass scale. This capability can mean

constraints on behavior, in which case code regulates, but it can also mean shaping behavior into legally

advantageous forms.”15 When a programmer shapes behavior in this manner, Wu explains that they are

utilizing code as “an anti-regulatory mechanism: a tool to minimize the costs of law that certain groups

will use to their advantage.”16

10 Lawrence Lessig, Code and other laws of cyberspace (Basic Books, New York, 1999) 89.11 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 707.12 See e.g. R Polk Wagner, “On Software Regulation” (2005) 78 S Cal L Rev 457, at 460; Jay P Kesan and Rajiv C

Shah, “Deconstructing Code” (2003-2004) 6 Yale J L & Tech 277, at 459; Guy Pessach, “An International-Comparative Perspective on Peer-to-Peer File-Sharing and Third Party Liability in Copyright Law: Framing the Past, Present, and Next Generations’ Questions” (2007) 40(87) Vand J Transnat’l L, at 108, n81; Stuart Biegel, Beyond our Control? Confronting the limits of our legal system in the age of cyberspace (The MIT Press, Cambridge, 2001), at 187-211; 362; Lodewijk Asscher, “‘Code’ as Law” in E Dommering and L Asscher (eds), Coding Regulation (TMC Asser Press, The Hague, 2006) at 61-88; Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, particularly at 681-682; Mark F Schultz, “Fear and Norms and Rock & Roll: What Jambands Can Teach Us About Persuading People to Obey Copyright Law” (2006) 21 Berkeley Tech LJ 651, at 685. Indeed, such is the popularity of the “code is law” meme that, as of 5 October 2007, a Google search for that phrase returned over a quarter of a million results.

13 Mark F Schultz, “Fear and Norms and Rock & Roll: What Jambands Can Teach Us About Persuading People to Obey Copyright Law” (2006) 21 Berkeley Tech LJ 651, at 685.

14 See Lior Jacob Strahilevitz, “Charismatic Code, Social Norms, and the Emergence of Cooperation on the File-Swapping Networks” (2003) 89 Virginia Law Review 505, at 583-587. Regarding the idea of content owners using code-based system as a “self-help” response to infringement see Kenneth W Dam, “Self-Help in the Digital Jungle” (1999) 28 J Legal Stud 393.

15 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 707-708.16 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 682.

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Wu describes a programmer with an anti-regulatory focus as being akin to a tax lawyer:

He looks for loopholes or ambiguities in the operation of law (or, sometimes, ethics). More precisely, he looks for places where the stated goals of the law are different than its self-defined or practical limits. The designer then redesigns behavior to exploit the legal weakness.17

That is, the anti-regulatory programmer uses software code to “redesign behavior” in order to fall outside

the strict confines of existing law. Adopting the terminology of Professor Leo Katz, Wu characterizes

such conduct as “avoision”: conduct which exploits “the differences between a law’s goals and its self

defined limits”.18 Acts of avoision can be distinguished from law evasion in that while they attempt to

“evade the law’s intent or purpose”, they are not in themselves unlawful.19 For example, “[i]f … the goal

of the drug laws is to prevent addiction and abuse, a person who opts to become an alcoholic (legal)

instead of a crack addict (illegal) is practicing avoision.”20 As Part 3 of this work will illustrate, avoision

precisely describes the conduct engaged in by post-Napster P2P developers. Wu has argued that “P2P

filesharing represents the most ambitious effort [yet] to undermine an existing legal system using

computer code.”21 However, despite the significance of the anti-regulatory code concept, aside from

Wu’s work, literature dealing with the topic is sparse.

Wu’s work demonstrates that the US copyright law is particularly vulnerable to attack by anti-regulatory

code. Why is this so? Wu attributes its susceptibility to “two powerful and often unrecognized

weaknesses of the copyright regime: the law’s dependence on a gatekeeper enforcement mechanism and

the severe lack of normative support among the regulated.”22

In his classic article on the subject, Professor Reinier Kraakman defined gatekeepers as “private parties

who are able to disrupt misconduct by withholding their cooperation from wrongdoers.”23 Copyright has

long relied on the existence of such gatekeepers – “book publishers at first; later … record manufacturers,

film studios and others who produced works on a mass scale” – to contain infringement.24 “Their role 17 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 708.18 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 692. See also Leo Katz, Ill-Gotten Gains:

Evasion, Blackmail, Fraud and Kindred Puzzles of the Law (University of Chicago Press, Chicago, 1996).19 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 692 citing Ronald Turner, “Reactions of the

Regulated: A Federal Labor Law Example” (2002) 17 Lab Law 479 (which considered the use of avoision tactics to avoid Federal labor laws.)

20 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 692.21 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 683. 22 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 683.23 Reinier H Kraakman, “Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy” (1986) 2(1) Journal of

Law, Economics & Organization 53, at 53.24 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 712. See also Sverker K Högberg, “The

Search for Intent-based Doctrines of Secondary Liability in Copyright Law” (2006) 106 Colum L Rev 909, at 910.

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resembled that of doctors with respect to prescription drugs – they prevented evasion of the law by

blocking the opportunity to buy an infringing product in the first place.”25

Gatekeeper enforcement is premised on the idea that relatively few people are capable of widespread

copying and distribution.26 And that means, as Wu points out, they “depend on a specialized good or

service remaining specialized.”27 In the early days of the internet, consumer applications continued to

adopt gatekeeper-friendly, relatively centralized, “hub-and-spoke” models.28 More recently however, P2P

file sharing technologies have taken the distribution of books, movies, music and other content out of the

hands of intermediaries and put it into the hands of individual consumers. “The most recent peer-to-peer

technologies eliminate a layer of intermediation from the networks they create; there are often no longer

central websites or services that can be blamed, and then shut down or modified, to dampen the

objectionable activities that they enable.”29 Professor Stacey Dogan explains that this development

“directly challenge[d] one of the key assumptions of pre-digital copyright: that by focusing on a narrow,

visible core of content distributors, copyright holders could keep unauthorized use of their expression to a

trickle, rather than a flood.”30 Wu argues that this elimination of intermediaries by P2P developers

deliberately exploits the gatekeeper structure of copyright law in order to avoid its traditional enforcement

measures.31

The second reason Wu attributes with the success of anti-regulatory code in the copyright context is “a

severe and unusual lack of normative support among the regulated.”32 He explains that, while many

individuals feel that copyright infringement for commercial purposes is wrong, the same people often see

nothing wrong with freely swapping content with their friends.33 Wu argues that P2P developers exploit

the fact that “ambiguous” ethics surround home copying, and that end-users have traditionally not been

sued for infringement, by “build[ing] software that shapes the mass distribution of copyrighted works into

a form resembling home copying.”34 By so doing, he argues, P2P software providers “successfully

sidestep[] social norms that might otherwise bolster compliance with the copyright regime.”35

25 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 712.26 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 683; 685. 27 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 716.28 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 265.29 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 254.30 Stacey L Dogan, “Code Versus the Common Law” (2003) 2 J Telecomm & High Tech L 73, at 90.31 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 685; 716-717. 32 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 711, 722-726.33 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 685.34 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 708.35 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 723. For additional discussion of the social

norms of P2P file sharing, see Ben Depoorter and Sven Vanneste, “Norms and Enforcement: the case against copyright

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Secondary liability and the physical/virtual divide

This work argues that there is also a third explanation for the copyright law’s susceptibility: that, because

it is rooted in physical world assumptions, software developers can exploit the differences between the

physical and virtual paradigms to code their way out of – or at least delay – liability for third party

infringement.

Existing legal scholarship has touched upon the distinctions between software worlds and physical worlds

in several different contexts, particularly in considering whether and how computer software should be

provided with patent and copyright law protection36 and in relation to the jurisdictional and choice of law

difficulties of enforcing laws in cyberspace.37 However, the implications of those differences remain

poorly understood.38 This Part begins by introducing the main principles that comprise the US secondary

liability law. It then identifies the most significant physical world assumptions on which that law relies,

and considers how they depart from software world realities. In so doing, it seeks to clarify and highlight

some of the most significant theoretical and practical differences between physical and virtual paradigms

– the physical/virtual divide.

1. The pre-P2P US secondary liability law

litigation” (2005) 84 Or L Rev 1127; Geoffery Neri, “Sticky Fingers or Sticky Norms? Unauthorized Music Downloading and Unsettled Social Norms” (2005) 93 Georgetown Law Journal 733; Mohsen Manesh, “The Immorality of Theft, the Amorality of Infringement” 2006 Stan Tech L Rev 5.

36 See e.g. William Greubel, “A Comedy of Errors: Defining ‘Component’ in a Global Information Technology Market - Accounting for Innovation by Penalizing the Innovators” (2006) 24 J Marshall J Computer & Info L 507; Robert Plotkin, “Computer Programming and the Automation of Invention: A Case for Software Patent Reform” 2003 UCLA JL & Tech 7; Pamela Samuelson, “Contu Revisited: The Case Against Copyright Protection for Computer Programs in Machine-readable Form” 1984 Duke Law Journal 663; Jane C Ginsburg, “Four Reasons and a Paradox: The Manifest Superiority of Copyright over Sui Generis Protection of Computer Software” (1994) 94 Colum L Rev 2559; John Swinson, “Copyright or Patent or Both: An Algorithmic Approach to Computer Software Protection” (1991) 5 Harv J Law & Tech 145. See also Jacqueline D Lipton, “IP’s Problem Child: Shifting the Paradigms for Software Protection” (2006) 58 Hastings Law Journal 205 (which more recently canvasses some of the practical realities of software development that make it “unsuitable” to provide copyright protection to the underlying source code).

37 See e.g. Stuart Biegel, Beyond our Control? Confronting the limits of our legal system in the age of cyberspace (The MIT Press, Cambridge, 2001) at 25-49; David R Johnson and David Post, “Law and Borders: The Rise of Law in Cyberspace” (1996) 48 Stan L Rev 1367; Lawrence Lessig, “The Zones of Cyberspace” (1996) 48 Stan L Rev 1403.

38 C.f. the work of Professor M Ethan Katsh, which demonstrates a very clear understanding of the differences between the physical and the virtual. For example, Katsh has argued that many legal doctrines “are based explicitly or implicitly on time or our conception of time”, and suggested that “the concept of ‘cybertime,’ with its accelerated pace, may … cause substantial disruption in these legal doctrines”. See M Ethan Katsh, “Cybertime, Cyberspace and Cyberlaw” (1995) Journal of Online Law art 1, at 1. Katsh has also usefully considered some first amendment implications of the physical/virtual divide. See M Ethan Katsh, “Software Worlds and the First Amendment: Virtual Doorkeepers in Cyberspace” (1996) University of Chicago Legal Forum 335.

10

Direct liability for copyright infringement under US law accrues when any of a copyright owner’s

exclusive rights are breached.39 Thus those who unlawfully copy copyrighted material (that is, without an

excuse such as fair use) may be held liable for that infringement. Many individuals who engage in P2P

file sharing commit such infringements.40 However, direct liability mechanisms are of little assistance as

against P2P software providers since P2P file sharing software is typically coded in ways that do not

require their providers to directly copy content as part of the distribution process.

P2P software providers may nonetheless be held liable for their users’ infringements via mechanisms of

secondary liability. Before the advent of P2P file sharing, the US federal copyright law provided for

defendants to be held liable for the infringements of third parties in accordance with two distinct

doctrines: contributory liability and vicarious liability.

Vicarious liability originated in the doctrine of respondeat superior, which holds employers responsible

for employees’ tortious actions within the course of their employment.41 Respondeat superior itself stems

from the tort theory of enterprise liability,42 which holds that enterprises should internalize losses that are

caused by their existence as a cost of doing business. The rationale is that businesses that cause losses

ought to be responsible for their rectification.43 Such internalization encourages risk creators to guard

against losses, and, if they occur anyway, to provide compensation to victims and spread the cost of so-

doing among those who have benefited from the risk-creating activity.44 In accordance with these

objectives, the doctrine of vicarious liability is concerned with the relationship between the direct and

indirect infringers, and not with the defendant’s knowledge or intention.45

The modern formulation of vicarious liability for copyright infringement emerged from the 1963 decision

of Shapiro, Bernstein and Co v HL Green Co,46 and was affirmed in 1971 in Gershwin Publishing Corp v

39 See 17 USC § 106. 40 See e.g. A&M Records Inc v Napster Inc, 114 F Supp 2d 896, at 911 (ND Cal 2000); In Re: Aimster Copyright

Litigation, 252 F Supp 2d 634, at 648 (ND Ill 2002); MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1034 (CD Cal 2003).

41 In most US states the doctrine of respondeat superior is based upon the Restatement (Second) of Agency § 219 (1958).

42 Alfred C Yen, “Internet Service Provider Liability for Subscriber Copyright Infringement, Enterprise Liability, and the First Amendment” (2000) 88 Geo LJ 1833, at 1843.

43 Gregory C Keating, “The Theory of Enterprise Liability and Common Law Strict Liability” (2001) 54 Vanderbilt Law Review 1285, at 1286.

44 Alfred C Yen, “Internet Service Provider Liability for Subscriber Copyright Infringement, Enterprise Liability, and the First Amendment” (2000) 88 Geo LJ 1833, at 1843 and 1856.

45 Mark Bartholomew and John Tehranian, “The Secret Life of Legal Doctrine: The Divergent Evolution of Secondary Liability in Trademark and Copyright Law” (2006) 21 Berkeley Tech LJ 1363, at 1366.

46 Shapiro, Bernstein and Co v HL Green Co, 316 F 2d 304 (2d Cir 1963).

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Columbia Artists Management Inc.47 Since the latter decision it has been settled law that vicarious

liability for copyright infringement extends beyond the employer/employee relationship, and will be

imposed in circumstances where a defendant “has the right and ability to supervise the infringing activity

and … a direct financial interest in such activities.”48

In contrast, contributory liability stems from the tort doctrine of joint tortfeasorship. Direct or indirect

intellectual property infringement constitutes a tort,49 and the doctrine of joint tortfeasor liability has long

provided that one who knowingly participates in or furthers a tort is jointly and severally liable with the

prime tortfeasor.50 Its basis is the idea “that one who directly contributes to another’s infringement should

be held accountable”.51

Contributory liability was formally recognized as a copyright doctrine in its own right in the 1971

decision of Gershwin Publishing Corp v Columbia Artists Management Inc.52 In that case the Second

Circuit held that contributory liability exists where “one who, with knowledge of the infringing activity,

induces, causes, or materially contributes to the infringing conduct of another”.53 In contrast to vicarious

liability, which is concerned with relationships, the emphasis of contributory liability is fault.54 It is

intended to capture those who are significantly involved in copyright infringement – who have “acted in

concert” with the primary infringer55 – in situations where that conduct technically falls outside the

definition of direct infringement.56

Contributory liability’s knowledge element may be satisfied either actually or by imputation. However,

under the staple article of commerce exception created by the US Supreme Court in Sony Corporation v

Universal City Studios,57 constructive knowledge may not be imputed solely on the basis of the design or

47 Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159 (2nd Cir 1971). See also Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review 815, at 820.

48 Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159, at 1162 (2nd Cir 1971).49 Jane C Ginsburg and Sam Ricketson, “Inducers and Authorisers: A Comparison of the US Supreme Court’s Grokster

Decision and the Australian Federal Court’s KaZaa Ruling” (2006) 11(1) Media and Arts Law Review 1, at 2; Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review 815, at 826.

50 See e.g. Screen Gems-Columbia Music Inc v Mark-Fi Records Inc, 256 F Supp 399, at 403 (DCNY 1966).51 Fonovisa Inc v Cherry Auction Inc, 76 F 3d 259, at 264 (9th Cir 1996).52 Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159 (2nd Cir 1971).53 Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159, at 1162 (2nd Cir 1971) (footnote

omitted).54 Alfred C Yen, “Third-Party Copyright Liability after Grokster” (2005) 91 Minnesota Law Review 184, at 195.55 Little, Brown & Co, Paul Goldstein, Copyright at § 6.1.56 Jeffrey Lewis, “The Yellow Submarine Steers Clear of US Copyright Law: The Ninth Circuit Re-examines the

Doctrine of Contributory Infringement” (1996) 18 Loyola LA International & Comparative Law Journal 371, at 378.57 Sony Corporation of America v Universal City Studios, 464 US 417 (Supreme Court 1984).

12

distribution of a product where that product is capable of substantial non-infringing uses.58 That doctrine

resulted in Sony being cleared of liability for the infringements of the users of its Betamax video tape

recorder, and has long been recognized as having been vital to continued technology innovation in the US

by protecting providers of distribution technologies that were capable of both infringing and non-infringing

uses.

The contribution element of the contributory liability doctrine is satisfied where a defendant has induced,

caused, or materially contributed to that infringement.59 As will be seen in Part 4, the concept of

“inducing” infringement would eventually assume tremendous significance in the P2P context. However,

pre-P2P contributory liability authorities paid scant attention to what it meant to “induce”.60 Instead, they

focused primarily on the concept of “material contribution”,61 and in so doing divided relevant acts of

assistance into two broad categories.62 The first covered situations where a company or individual had

directly participated in the third party’s infringement, for example by providing labor. The second

encompassed situations where the defendant’s contribution to the infringement was to supply the site,

facilities or materials used by the third party to facilitate the infringement. Since providers of file sharing

don’t directly participate in their users’ infringements, but merely provide the tools that enable them to be

committed, this second category is by far the most relevant in the P2P context.

2. The physical/virtual divide

This work argues that these formulations of secondary liability are implicitly based on a number of key,

inter-related, physical world assumptions. The main ones are as follows:

1. Everybody is bound by physical world rules.2. It’s expensive to develop and distribute distribution technologies, and requires large investments

in plant and R&D.3. Technology providers are motivated by the desire to make a profit on those technologies.4. Rational technology providers will not freely share their technologies with their consumers or

competitors.

This section explains these assumptions further, and then compares those physical world assumptions to

software world realities.

58 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2778 (2005).59 Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159, at 1162 (2nd Cir 1971).60 Alfred C Yen, “Third-Party Copyright Liability after Grokster” (2005) 91 Minnesota Law Review 184, at 195.61 Alfred C Yen, “Third-Party Copyright Liability after Grokster” (2005) 91 Minnesota Law Review 184, at 195.62 See Little, Brown & Co, Paul Goldstein, Copyright at § 6.1, 6:6-6:7. See also Craig Grossman, “The Evolutionary

Drift of Vicarious Liability and Contributory Infringement: From Interstitial Gap Filler to Arbiter of the Content Wars” (2005) 58 SMU L Rev 357, at 386.

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Understanding the differences between those different realities requires delving into the very meaning of

software itself. Most existing legal literature, including the “code is law” scholarship canvassed above,

defines code as the “information technology architecture,” or “the hardware and software,” that a

particular technology comprises.63 Software refers to the “programs and procedures required to enable a

computer to perform a specific task”, while hardware is the physical equipment that makes up the

computer that runs that software.64

The underlying hardware undoubtedly makes an important contribution to the operation of a technology.

Indeed all software is incorporated into hardware at some level, whether it be in a server, a personal

computer, a TiVo or an ipod. But any equation of hardware and software introduces a physical world

element to the definition of code, and masks the unique characteristics enjoyed by software on its own

account. This section decouples the two in order to better emphasize the differences between them.

Physical world assumption #1: Everybody is bound by physical world rules

This first assumption is the most abstract and poorly understood of the four.

Consider what we know about the physical world. We have an immediate and “intuitive” understanding

about how it works.65 “Apples, when released fall down, not up. Actions are causally related to

consequences. We expect things to behave sensibly. Our intuitive notion of what is ‘sensible’ is based on

common-sense experiences, learned from earliest childhood, and rooted in the physical world.”66

As Katsh explains, “[i]n the ‘real world,’ time and space are ever-present constraints, with the laws of

physics frequently limiting many of our desires to do something or be somewhere. The list of constraints

to which we accommodate ourselves is significant. We respect the laws of gravity. We understand that no

more than one object can occupy the same place. We recognize that we can only be in one place at one

63 See e.g. Lawrence Lessig, Code and other laws of cyberspace (Basic Books, New York, 1999) 6; Egbert Dommering and Lodewijk Asscher, Coding Regulation (TMC Asser Press, The Hague, 2006) 2; Jay P Kesan and Rajiv C Shah, “Shaping Code” (2005) 18 Harv J Law & Tech 319, at 320. However c.f. Lawrence Lessig, “Reading the Constitution in Cyberspace” (1996) 45 Emory LJ 869, at 896 in which Lessig seemed to define “code” as software alone.

64 “Software” Oxford English Dictionary, <http://dictionary.oed.com>, last accessed at 10 September 2007. It should be noted however that such software is incorporated in a vast number of otherwise physical technologies.

65 Boris Beizer, “Software is Different” (2000) 10 Annals of Software Engineering 293, at 295.66 Boris Beizer, “Software is Different” (2000) 10 Annals of Software Engineering 293, at 295.

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time and that there are some places we cannot go to because there is not enough time or because they are

too far away.”67

The US secondary liability law evolved in response to decades of litigation involving physical world

technologies. The intuitive and unacknowledged understanding that we all have of the physical world’s

constraints has undoubtedly played a large role in informing the response to those technologies. That is,

they were influenced by an unspoken assumption that if certain things were infeasible, impossible or

impractical in the physical world, they would be infeasible, impossible or impractical full stop. Thus, for

example, decades of physical world fact scenarios resulted in courts determining that knowledge was an

essential corollary to contributory liability. After all, whether or not the provider of a physical world

product or service had knowledge of third-party infringement was something that tended to flow naturally

from the activities in which they are involved, and could not be easily manipulated without considerable

loss of efficiency or profit. For example, a concert organizer whose role includes compiling, drafting and

printing programs would find its job much harder if it must avoid knowing the content of those

programs.68

Software world reality: software code is not bound by physical world rules

In contrast, none of our physical world rules apply to software. Neither the laws of physics nor any other

“law [or] principle known in the physical world” has any application in the virtual context.69

67 M Ethan Katsh, “Software Worlds and the First Amendment: Virtual Doorkeepers in Cyberspace” (1996) University of Chicago Legal Forum 335, at 341-342.

68 See Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159 (2nd Cir 1971).69 Joseph Weizenbaum, Computer Power and Human Reason (WH Freeman and Company, San Francisco, 1976) 111.

Regarding the idea of software not being bound by physical laws see also Yingxu Wang, “Keynote Lecture: On the Informatics Laws of Software” (Paper presented at the Proceedings of the First IEEE International Conference on Cognitive Informatics, at 1; Boris Beizer, “Software is Different” (2000) 10 Annals of Software Engineering 293, at 296; M Ethan Katsh, “Software Worlds and the First Amendment: Virtual Doorkeepers in Cyberspace” (1996) University of Chicago Legal Forum 335, at 341-342; Juris Hartmanis, “Turing Award Lecture: On Computational Complexity and the Nature of Computer Science” (1994) 37(10) Communications of the ACM 37, at 39; Alan M Davis, “Fifteen Principles of Software Engineering” (1994) 111(6) IEEE Software 94, at 94; M Ethan Katsh, “Software Worlds and the First Amendment: Virtual Doorkeepers in Cyberspace” (1996) University of Chicago Legal Forum 335, at 341-342; Pontus Johnson and Mathias Ekstedt, “The Grand Unified Theory of Software Engineering” Google Books, <http://books.google.com/books?id=TLcceL3NEiMC&printsec=frontcover&dq=%22nature+of+software%22+%22physical+world%22>, (2005) last accessed at 17 September 2007 at 13; William Greubel, “A Comedy of Errors: Defining ‘Component’ in a Global Information Technology Market - Accounting for Innovation by Penalizing the Innovators” (2006) 24 J Marshall J Computer & Info L 507 (stating that there “are no inherent limits on the functionality of software, as there are on hardware due to physical constraints.”)

15

The most significant consequence of this is that entities in a software world “can be made … to overlap,

interconnect, and interact in ways that are not possible or feasible in the physical world.”70 That is,

programmers can write software that will do things that were previously simply not envisaged as options.

As a result, laws that were created on the implicit assumption that certain kinds of activity are not feasible

are susceptible to being caught out by code-based technologies to whom that assumption does not apply.

It was suggested above that contributory liability’s knowledge element evolved after years of physical

world precedent in which knowledge proved to be an essential corollary to liability. As will be

demonstrated in the coming parts however, software code proved easily able to eliminate such knowledge

– through encryption, which was attempted in the case of the Aimster technology, and through partly or

fully decentralized network topologies, as in the case of StreamCast and Grokster.

Physical world assumption #2: Developing and distributing distribution products is expensive

The creation of physical world distribution technologies, such as printing presses, photocopiers, and

VCRs, has traditionally required large investments in research, development and infrastructure.71

Distribution and marketing of such devices has also tended to require considerable amounts of cash.

As Paul Ganley explains, this need for massive investment has significant implications. “The normal

phases of R&D, product design, manufacture, unit testing and distribution all help to constrain the wilder

excesses of copyright infringing potential. The inherent checks and balances in the structure of legitimate

businesses help to ensure that companies will shy away from such costly and time consuming exercises if

they believe there is no legitimate avenue for them to recoup their substantial investment.”72

The significant investment necessary to develop, manufacture and distribute a physical distribution

technology also creates high barriers to market entry that limit the number of manufacturers to relatively

few. By being premised on this physical world assumption that it is expensive to manufacture and

distribute new distribution technologies and thus that few people will do so, doctrines of secondary

70 M Ethan Katsh, “Software Worlds and the First Amendment: Virtual Doorkeepers in Cyberspace” (1996) University of Chicago Legal Forum 335, at 339. See also James Moor, who in his distinguished 1985 article on computers and ethics explained, “[c]omputers are logically malleable in that they can be shaped and molded to do any activity that can be characterized in terms of inputs, outputs, and connecting logical operations.” James H Moor, “What is Computer Ethics?” (1985) 16(4) Metaphilosophy 266, at 269.

71 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 255.72 Paul Ganley, “Surviving Grokster: Innovation and the Future of Peer-to-peer” (2006) 28(1) EIPR 2006 15, at 22.

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liability were long able to limit secondary copyright infringement, for the most part, to “crude, marginal

transactions, the subjects of swap meets and unlicensed kiosks.”73

Software world reality: a working P2P file sharing application can be created for virtually nothing in just

six lines of code

Modern software development practices depart radically from the physical world assumption that

distribution technologies are expensive to distribute and develop.74 The brief history of P2P has proven

time after time that code-based distribution technologies capable of facilitating a vast amount of

infringement can be unleashed from the minutest financial investments. Napster was created by a teenager

in response to an idle comment from his roommate, Gnutella was “developed in just fourteen days by two

guys without college degrees”,75 and current favorite BitTorrent was invented by an unemployed

programmer working from his dining room table.76 Some universities even require students to create P2P

file sharing programs as a component of their computer science studies.77

This ease and inexpensiveness of P2P software development can be further illustrated by a sequence of

events that began with Professor Edward Felten uploading what he claimed to the world’s smallest P2P

file sharing application to his website in 2004. Utilizing just fifteen lines of software code, the purpose of

the exercise was to illustrate the ease of creation and thus “the difficulty of regulating peer-to-peer

applications.”78 But as news of Felten’s feat spread, so too did an implied challenge to create one even

smaller. Within just 24 hours the source code for a number of even tinier alternatives began to mushroom

online.79 The effort eventually culminated in at least one challenger writing a P2P file sharing application

using just six lines of code.80

73 Thomas Hays, “The Evolution and Decentralisation of Secondary Liability for Infringements of Copyright-Protected Works: Part 1” (2006) 28(12) European Intellectual Property Review 617, at 617.

74 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 255.75 Gene Kan, “Gnutella” in A Oram (ed) Peer-to-Peer: Harnessing the Power of Disruptive Technologies (O’Reilly,

Sebastopol, 2001) 95.76 Daniel Roth, “Torrential Reign” (2005) Fortune <www.fortune.com (subscription only)> accessed at 30 June 2006.77 See e.g. “Programming Assignment 4” University of Notre Dame - Computer Science and Engineering,

<http://www.cse.nd.edu/~cpoellab/teaching/cse354/project4.html>, last accessed at 25 February 2007; “Programming Assignment 5” University of Notre Dame - Computer Science and Engineering, <http://www.cse.nd.edu/~cpoellab/teaching/cse354/project5.html>, last accessed at 25 February 2007.

78 See Edward Felten, “P2P in 15 lines of code” Freedom to Tinker, <http://www.freedom-to-tinker.com/?p=738>, (15 December 2004) last accessed at 7 September 2007; Edward Felten, “TinyP2P” Freedom to Tinker, <http://www.freedom-to-tinker.com/tinyp2p.html>, last accessed at 9 October 2007.

79 See the comments attached to Felten’s blog entry at Edward Felten, “P2P in 15 lines of code” Freedom to Tinker, <http://www.freedom-to-tinker.com/?p=738>, (15 December 2004) last accessed at 7 September 2007.

80 See the comments attached to Felten’s blog entry at Edward Felten, “P2P in 15 lines of code” Freedom to Tinker, <http://www.freedom-to-tinker.com/?p=738>, (15 December 2004) last accessed at 7 September 2007.

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These vignettes show that the physical world assumption that the development of distribution

technologies requires a large financial investment is far less applicable in the software world context.

Indeed, they suggest that those “checks and balances” referred to by Ganley as being inherent to physical

world development can sometimes even be entirely absent.

Physical world assumption #3: Developers of distribution technologies do so to make a profit

US theories of secondary liability are premised on the idea that those that are culpable for third-party

infringement are those that financially benefited from that infringement. This assumption is most explicit

in the vicarious liability doctrine, of which one element is a “direct financial interest” in the

infringement.81 However, the imposition of contributory liability has also often appeared to have been

inspired largely by the profit motives of the defendants.82

Again, this makes sense when you remember the large investments that were considered to be an integral

part of developing and distributing a distribution technology: obviously developers were motivated to

recoup at least their initial outlay, together with some return on that investment. Once again, this worked

to keep the total number of providers relatively small. It also kept them in line. Few providers wanted to

skirt the edges of the law too closely, since litigation by content owners would cut dramatically into their

anticipated profits.

Software world reality: reputation and the satisfaction of creating something really cool

However, software development (and particularly its open source flavor) operates very differently. As

discussed above, little in the way of cash or infrastructure is needed to develop a new file sharing protocol

or application from inception to distribution. This gives software developers the option of creating

innovative and sophisticated distribution technologies purely for the challenge, satisfaction and reputation

that comes from creating something really cool. The applications that are freely created and distributed by

this kind of developer showcase their talents, and might be of use to impress potential employers down

the track. But even such an indirect financial motivation as that is not necessarily going to be a motivating

81 Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159, at 1162 (2nd Cir 1971).82 For example, in Gershwin Publishing Corp v Columbia Artists Management Inc, the case in which the modern

contributory infringement framework was developed, the Court’s finding of liability seemed influenced by the fact that the defendant had significantly profited from the infringing concerts, although profit was not, strictly speaking, an element of the tort. See Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159 (2nd Cir 1971). Similarly, in Fonovisa Inc v Cherry Auction Inc, it seems that the Court was influenced by the fact that Cherry Auction was profiting from the increased revenue that resulted from the infringement. See Fonovisa Inc v Cherry Auction Inc, 76 F 3d 259 (9th Cir 1996).

18

factor: when Felten’s followers spent a week frenziedly working to better his 15 lines, it was unlikely that

they had any thought or expectation that any financial reward would flow from that work.

Physical world assumption #4: Rational developers of distribution technologies won’t share their secrets

with their consumers or their competitors

This assumption is closely related to the assumption that distribution technologies are expensive to

develop. Having spent that money to research, develop, manufacture and distribute a technology, the

provider has no incentive to share that technology with its competitors. Again, this is one of the reasons

why the gatekeeper enforcement regime worked so well in the physical technology context. The

disinclination to allow technologies to be copied kept the number of technology providers relatively

limited, and gatekeeper-based laws were able to effectively keep them under control.

Software world reality: Let’s tell everyone how it works. Maybe they can improve it.

By contrast, some software creators have a willingness to freely share the secrets underlying their

inventions in a manner unheard of in the physical distribution technology context. Software’s secrets are

contained in something known as source code. Source code is “the set of instructions written by a

programmer in a specific computer language.”83 It must then be compiled into machine-readable object

code in order for the desired program to operate on a computer. Once it has been so-converted, it is no

longer comprehensible to humans. Unless a separate copy of the original source code is provided with the

software, it is possible to ascertain what a software program does (by, for example, observing network

outputs and outcomes), but not precisely how it does it. Where the source code is provided, the program is

referred to as being “open source”, otherwise it is known as “closed source” or “proprietary” code. 84

However, being “open source” means more than just making the source code available. The most widely

accepted definition of the concept, coined by the Open Source Initiative organization, also requires,

among other things, that the terms of the software’s license allow for that software to be freely

redistributed, for “modifications and derived works” to be developed, and for those modified versions to

be able to be distributed under the same terms as the original.85 Open source development aims to achieve 83 Jacqueline D Lipton, “IP’s Problem Child: Shifting the Paradigms for Software Protection” (2006) 58 Hastings Law

Journal 205, at 219.84 This is a considerably simplified explanation of source code. For a more technical approach to the topic see James

Gibson, “Once and Future Copyright” (2005) 81 Notre Dame L Rev 167, at 173-175; Josh Lerner and Jean Tirole, “Some Simple Economics of Open Source” (2002) 50(2) The Journal of Industrial Economics 197, at 200, particularly n5. See also Jacqueline D Lipton, “IP’s Problem Child: Shifting the Paradigms for Software Protection” (2006) 58 Hastings Law Journal 205.

85 Ken Coar, “The Open Source Definition” Open Source Initiative, <http://opensource.org/docs/osd>, (7 July 2006) last accessed at 31 October 2007. Where a program’s source code is made available for viewing but cannot freely be further developed, this more limited concept is generally referred to as “shared source”. See e.g. “Shared Source” Information Technology @ Johns Hopkins, <http://it.jhu.edu/glossary/pqrs.html>, last accessed at 31 October 2007. This work uses

19

better quality and more efficient outcomes by sharing the costs associated with software development and

maintenance amongst a large number of collaborators.86 This involves a free flow of information and

cooperation, as people work individually or collaboratively to develop new ideas and build upon those of

others.

The above paragraphs have already explored a number of reasons why gatekeeper enforcement regimes

work less well in the era of code-based distribution technologies, where tens of millions of individuals

have the ability to quickly and cheaply make perfect copies.87 However, there is an additional nuance that

ought to be recognized: the difference in the efficacy of gatekeeper enforcement regimes when applied to

open source versus closed source technologies. Gatekeeper enforcement regimes undeniably work less

well in circumstances where the ability to make perfect copies is in the hands of many. But they work less

well still when the ability to create the tools necessary to make those copies becomes widely dispersed.

The early days of P2P file sharing were dominated by companies that distributed closed source software.

Early technologies Napster, Aimster, and Grokster were all closed source. However, a remarkable variety

of open source P2P file sharing software is now freely available. Hundreds or even thousands of

independent compatible implementations of the open source Bittorrent file sharing protocol already exist,

and there is potential for an unlimited amount more to be created in the future.88 Open source software

repository SourceForge alone lists thousands of independent open source file sharing projects for a wide

variety of operating systems and purposes.89

the term “open source” consistently with the Open Source Initiative definition.86 Bruce Perens, “Free Software Leaders Stand Together” <http://perens.com/Articles/StandTogether.html>, last

accessed at 19 February 2007. For an analysis of the nature and economics of open source and free software, see e.g. Yochai Benkler, “Coase’s Penguin, or, Linux and The Nature of the Firm” (2002) 112 Yale LJ 369.

87 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 683-685.88 For a list of currently available BitTorrent clients see “BitTorrent client” Wikipedia,

<http://en.wikipedia.org/wiki/BitTorrent_client>, (21 October 2007) last accessed at 24 October 2007; “Software Map: BitTorrent project results” Source Forge, <http://sourceforge.net/softwaremap/trove_list.php?form_cat=622>, last accessed at 24 October 2007. Note that, while all clients owned by BitTorrent Inc released until July 2007 were open source, its clients released from August 2007 have been closed source. See Thomas Mennecke, “BitTorrent Addresses Closed Source Issues” Slyck, <http://www.slyck.com/story1566.html>, (8 August 2007) last accessed at 31 October 2007. Note however that the source code of all previous iterations and the protocol itself remain fully documented and “publicly accessible without the need for a license.” See See Ryan Paul, “BitTorrent’s closed protocol: fact or fiction? (updated)” Ars Technica, <http://arstechnica.com/news.ars/post/20070810-will-bittorrent-protocol-documentation-be-publicly-available-bittorrent-inc-president-says-no-company-web-site-says-yes.html>, (10 August 2007) last accessed at 23 October 2007. See also Thomas Mennecke, “BitTorrent Addresses Closed Source Issues” Slyck, <http://www.slyck.com/story1566.html>, (8 August 2007) last accessed at 31 October 2007.

89 “Software Map: file sharing project results” Source Forge, <https://sourceforge.net/softwaremap/trove_list.php?form_cat=251 >, last accessed at 24 October 2007.

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In Parts 2 and 3, this work will argue that exploitation of the physical/virtual divide by post-Napster P2P

developers triggered the creation of decentralized technologies that cannot be forced out of circulation.

Most of the open source technologies described above follow that model. Despite this technical inability

to shut such technologies down, it’s important to recognize that a finding of liability has far more chance

of eventually reducing the infringement they facilitate if they are closed source rather than open.

Consider what would happen if, after finding its owner secondarily liable for copyright infringement, a

Court granted an injunction prohibiting the continued development and support of a particular

application. If applied to a closed source technology, such an order would soon result in its becoming

outdated and eventually incompatible with the latest hardware and software, resulting in its inevitable

abandonment by some and then most of its users. Since the value of a P2P network is tied to the number

of users and thus range of content it offers, this would inevitably reduce the amount of infringement

facilitated by that software.

Contrast this scenario with one involving an identical technology, but this time open source. In the new

scenario the technology is in the hands of not one but a potentially unlimited pool of independent

developers. Holding one of those developers liable for the infringements of its users would do nothing to

prevent the others from continuing development and support of their own virtually identical

implementations of the same technology, or to prevent new iterations from continually appearing. This

may have been what Lessig was hinting at, albeit in a slightly different context, when he argued that open

code is harder to regulate than closed.90 After all, gatekeepers aren’t much help to content owners when

they’re punching holes in the wall they’re meant to be guarding.

Despite the much greater difficulty in reducing infringement facilitated by open source technologies, Part

4 will demonstrate that the Supreme Court’s response to P2P file sharing has actually had the result of

forcing proprietary commercial providers out of the market and ensuring their replacement with non-

commercial open source options.

This above analysis highlighted the physical/virtual divide by shining a spotlight on the mismatches

between physical world assumptions and software world realities. The following Part now explains how 90 Lawrence Lessig, “The Limits in Open Code: Regulatory Standards and the Future of the Net” (1999) 14 Berkeley

Tech LJ 759, at 764-767 (arguing that “[w]hether government can regulate code depends in part upon who controls that code. If the code is closed - controlled by private for-profit organizations - then government’s power is assured. But if the code is open - outside of the control of any particular private for-profit organization - then the government’s power is threatened. The more application space code is open code, the less government can regulate that code.”)

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reliance on these physical world assumptions resulted in unexpected outcomes when applied to

technologies to which they do not apply.

2: THE NAPSTER LESSON

Napster was the vanguard of the P2P revolution. The first P2P file sharing application to reach the

mainstream consciousness, it was directly responsible for literally billions of infringements over its two

year lifespan and the inspiration for countless more. This Part uses the secondary liability litigation

conducted against Napster as a case study to further highlight the ways in which the pre-P2P US

secondary liability law relied on physical world assumptions. It then argues that the failure of the Ninth

Circuit in Napster to recognize the fundamental differences between the physical and the virtual resulted

in its providing future P2P software developers with clear instructions about how to avoid liability. While

Napster itself was developed without any reference to the existing copyright law, the work argues that the

Ninth Circuit’s reasoning confirmed vulnerabilities within the law that some developers had already

begun to suspect, and encouraged them to continue their efforts to exploit the physical/virtual divide.91

1. The Napster technology

Unauthorized MP3s first began appearing on websites in the late 1990s. The Recording Industry

Association of America responded by issuing their hosts with ultimatums to remove the infringing

content or defend legal action for infringement.92 Although new MP3s were being constantly uploaded,

the RIAA’s strategy had a significant amount of success. Because the sites hosting the infringing MP3

files tended to be removed more quickly than links to them were updated, attempts to download files by

clicking on links were often met with “file not found” error messages instead of the desired content. This

made the process of downloading music via the web a time-consuming and frustrating experience.

“[T]here were no easy, continuous, reliable sources for pirated music on the Net at large.” 93 At this point,

91 Note that the three main post-Napster file sharing protocols discussed in this work, Aimster, Gnutella and FastTrack, were released before the Ninth Circuit and indeed the district court handed down their decisions against Napster. However, the massive publicity surrounding the Napster litigation had made it clear that its centralized network topology and control over its users were its Achilles heels from early on in the piece, and the developers behind those technologies had acted accordingly.

92 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 272. 93 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 272.

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“many commentators predicted that the controversy was ending and that the RIAA had won.”94 Zittrain

suggests that it looked like the music industry had “battled at least to a stalemate, if not better”.95

However, that situation was to change dramatically. While the RIAA’s enforcement tactics may have

frustrated some users into returning to traditional record stores, others persevered, following link after

link in search of one that had not yet been disabled. One user happened to complain to his college

roommate about this frustrating glut of dead links.96 That roommate, undergraduate Shawn Fanning,

reasoned that the shortcomings of existing online music distribution could be bypassed by developing a

fluid index that told users what music was available.97 It would work in much the same way as a web

search engine, but operate in real time. It would be far less vulnerable to the notice-and-takedown regime

because the content would be hosted by individuals and go on-and-offline as they did, and that real time

structure would make it impervious to the scourge of dead links.

Thus Napster was born. A beta version of the application was released on 1 June 1999.98 Upon

downloading the software and creating a free account, users were connected to Napster’s servers. Their

nominated sharing folder would then be scanned for MP3 files. Information about those files would be

added to a central index maintained on Napster’s servers, though the files themselves would at no stage

be copied over.99 Users could then search that index for content by artist name, song title, file size, desired

bit rate and other characteristics. A higher bit rate usually meant a better fidelity sound, and a

correspondingly larger-sized file. Once a search term was entered into any of these fields, the search

could be performed simply by pressing the enter key or clicking the button labeled “Find It!”100 When a

user entered a search, the desired parameters would be transmitted to the Napster indexing servers, which

would compare them to the information contained in the index, and return a list of results.101 Once a

desired file had been located through the search or hot list function, a user could request a copy by

double-clicking its file-name or selecting its name and clicking the “Get Selected Song(s)” button at the

bottom of the screen. Upon receipt of that request the Napster servers would query the host user to

ascertain whether or not they were able to send that file. If they were, Napster would communicate the IP

94 Stuart Biegel, Beyond our Control? Confronting the limits of our legal system in the age of cyberspace (The MIT Press, Cambridge, 2001) xii.

95 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 275.96 A&M Records Inc v Napster Inc, 114 F Supp 2d 896, at 902 (ND Cal 2000).97 Joseph Menn, All the rave: the rise and fall of Shawn Fanning’s Napster (Crown Business, New York, 2003) 27.98 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 728.99 Lee B Burgunder, “Reflections on Napster: The Ninth Circuit Takes a Walk on the Wild Side” (2002) 39 AMBLJ 683,

at 697.100 A&M Records Inc v Napster Inc, 114 F Supp 2d 896, at 906 (ND Cal 2000).101 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1012 (9th Cir 2001).

23

address and other relevant details of the host user to the requesting user.102 At that point, Napster’s role in

the transaction would be complete, and the actual transfer would take place directly over the internet

between the hosting and requesting users in the manner graphically depicted below.103

As each user disconnected from the Napster service, the central index was immediately updated to reflect

the change to the available content. This system of dynamic updating meant that Napster users, unlike

those downloading music from the web, had no problems with broken or outdated links.

As word of this new Mecca for infringement spread, its popularity snowballed. The more people

connected, the more music became available, and the more attractive and popular the service grew.

Indeed, its popularity and illicit use were such that Zittrain described it as “the open air drug market of

copyright infringement”.104

3. In the district court

Aghast at this sudden torrent of infringement, eighteen members of the RIAA sued Napster Inc for

copyright infringement in December 1999.105 Since the Napster technology did not itself “copy, distribute,

or transmit copyrighted materials”, and thus Napster Inc was not responsible for any direct infringement,

the essence of the lawsuits was that it was contributorily and vicariously liable for its users’

infringements.106

102 A&M Records Inc v Napster Inc, 2000 US Dist LEXIS 6243, at 5 (ND Cal 2000).103 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1012 (9th Cir 2001).104 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 281.105 A&M Records Inc v Napster Inc, 114 F Supp 2d 896, at 900 (ND Cal 2000).106 Lee B Burgunder, “Reflections on Napster: The Ninth Circuit Takes a Walk on the Wild Side” (2002) 39 AMBLJ 683,

at 697.

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Napster Inc responded by seeking summary judgment on the basis that it was protected from liability by

virtue of the DMCA’s safe harbor provisions.107 This was denied on the basis that that Napster Inc did not

qualify for the safe harbor because it did not transmit, route or provide connections through its systems,

but via the internet more broadly.108

Buoyed by the result of the opening salvo, the plaintiffs sought a preliminary injunction to enjoin Napster

Inc from engaging in, or facilitating others from engaging in, distribution of their copyrighted works.109

To determine whether the injunction should be granted, the Court considered the likelihood of the

plaintiffs succeeding against Napster Inc for contributory and vicarious infringement.110 Satisfied that

Napster Inc was likely to be held liable for its users’ infringements under both existing secondary liability

doctrines, the trial judge granted a broad preliminary injunction ordering that the service be shut down.111

4. In the Ninth Circuit

On appeal, the Ninth Circuit largely upheld the district court’s ruling. However, it also added a few

glosses, which this work argues did much to encourage future developers to exploit the physical/virtual

divide.

Contributory liability

The Ninth Circuit held that Napster Inc had knowledge of, and materially contributed to the infringements

of Napster’s users, and thus appeared likely to be contributorily liable for those infringements.112

Napster Inc’s knowledge was both actual and constructive. Actual knowledge was proven by a document,

authored by co-founder Sean Parker, which alluded to “the need to remain ignorant of users’ real names

and IP addresses ‘since they are exchanging pirated music’”, and by the fact that the RIAA “informed

Napster of more than 12,000 infringing files, some of which [were] still available [on the Napster

network]”.113

107 See 17 USC § 512.108 A&M Records Inc v Napster Inc, 2000 US Dist LEXIS 6243, at 19-25 (ND Cal 2000). Note that even if it had met this

threshold eligibility requirement, the Court considered there to be a material issue of fact regarding whether it had a satisfactory policy in place for dealing with repeat copyright infringers as required by s512(i) of the DMCA. See A&M Records Inc v Napster Inc, 2000 US Dist LEXIS 6243, at 6, 28-29 (ND Cal 2000).

109 See generally A&M Records Inc v Napster Inc, 114 F Supp 2d 896 (ND Cal 2000).110 A&M Records Inc v Napster Inc, 114 F Supp 2d 896, at 911 (ND Cal 2000). 111 A&M Records Inc v Napster Inc, 114 F Supp 2d 896, at 927 (ND Cal 2000).112 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1020-1022 (9th Cir 2001).113 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1020, n5 (9th Cir 2001).

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The Court’s finding that Napster Inc had actual knowledge of the third party infringements meant that it

was not strictly necessary for it to consider whether Sony would have allowed knowledge to be

imputed.114 Nonetheless, it chose to do so, and its analysis gave Napster’s successors considerable food

for thought. The Court held that, while Sony bars the imputation of knowledge simply because a

technology may be used to infringe copyrights, it does no such thing where a defendant provides a

service, and therefore has “a measure of control over [the] infringing activity”.115 Thus in determining

whether Sony applies, products (such as the Napster application that was used to download infringing

music) must be distinguished from ongoing services (such as Napster Inc’s provision of the servers and

the search engine that enabled that infringement to take place).116 This distinction gives considerably more

protection to product providers. As Zittrain explains, it “implies that had Napster merely built the Napster

server and client software and then conveyed the server operation to someone else, it likely would have

escaped liability under Sony.”117

In making this distinction the Ninth Circuit appears to have relied on an assumption that some ongoing

service was a necessary aspect of facilitating large scale infringement via P2P file sharing software. From

its viewpoint that must have made perfect sense. Napster Inc was essentially acting as a facilitator or

matchmaker between those that held infringing content and those that wanted to obtain it, and in the

physical world it is difficult to see how such “matchmaking” could occur in the absence of any ongoing

service. Accordingly, it must have seemed to the Court that this was a good basis for distinguishing it

from technologies like Sony’s Betamax. However, as Part 3 will demonstrate, that physical world

assumption would quickly prove incorrect. All the distinction did was encourage Napster’s successors to

exploit the physical/virtual divide to code their way out of control over the process whilst facilitating

precisely the same end result.

The Ninth Circuit held that the contribution element was also satisfied, on the basis that Napster Inc had

materially contributed to its users’ infringements by providing “the site and facilities” necessary to the

direct infringement.118

114 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1020-1022 (9th Cir 2001).115 Andrew J Lee, “MGM Studios Inc v Grokster Ltd & In re Aimster Litigation: A Study of Secondary Copyright

Liability in the Peer-to-Peer Context” (2005) 20 Berkeley Tech LJ 485, at 494. See also A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1020-1021 (9th Cir 2001).

116 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1020 (9th Cir 2001). 117 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 278. 118 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1022 (9th Cir 2001).

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Vicarious liability

The Court also indicated a likelihood that vicarious liability would be made out.119 It upheld in full the

district court’s finding that Napster Inc had a direct financial interest in its users’ infringements on the

basis that ”the availability of infringing material ‘act[ed] as a draw’ for customers”, and because its

“future revenue [wa]s directly dependent upon ‘increases in user-base.’”120 However, it diverted from the

lower court’s reasoning when addressing the second element of the tort, and once again it did so in a way

that left the doctrine wide open to exploitation of the physical/virtual divide.

At first instance, the district court had held that Napster Inc could “police” the Napster system, and that it

therefore had the right and ability to supervise its users’ infringements.121 The Ninth Circuit agreed, but

introduced a vital caveat: that Napster Inc could avoid vicarious liability if it exercised that right to police

“to its fullest extent.”122 It noted that the defendant’s ability to police was limited by the fact that the

software was not coded to “‘read’ the content of indexed files, other than to check that they [we]re in the

proper MP3 format.”123 In these circumstances, it held, Napster Inc’s right to police was limited to finding

infringing content via its indexes, and terminating the access of infringing users in accordance with its

contractual ability to do so.124

Since Napster Inc had not actually exercised this power to its fullest extent, the caveat did not protect it

from liability. However, the fact it was introduced at all is surprising. As discussed above, vicarious

liability is intended to encourage the party best able to minimize the risk to do so. However, rationalizing

that businesses which cause losses ought to be responsible for their rectification, it has traditionally

imposed strict liability on the supervising party where a wrong nonetheless occurs, This principles is

intended to maximize the ability of the person who has suffered from the wrong to obtain a remedy.125

The idea that a defendant can escape liability by exercising its right to police to the fullest extent seems

contrary to that objective. Yen suggests that the Court may have provided this “out” because, despite

feeling obliged to impose both contributory and vicarious liability as a result of Fonovisa, it was not

comfortable with that breadth of liability. “[T]he court might … have thought that vicarious liability 119 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1023 (9th Cir 2001).120 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1023 (9th Cir 2001). See also Michael W Carroll,

“Disruptive Technology and Common Law Lawmaking: A Brief Analysis of A&M Records Inc v Napster Inc” (2002) 9 Vill Sports & Ent LJ 5, at 25; Lee B Burgunder, “Reflections on Napster: The Ninth Circuit Takes a Walk on the Wild Side” (2002) 39 AMBLJ 683, at 699.

121 A&M Records Inc v Napster Inc, 114 F Supp 2d 896, at 920-921 (ND Cal 2000).122 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1023 (9th Cir 2001).123 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1024 (9th Cir 2001).124 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1024 (9th Cir 2001).125 See Michael W Carroll, “Disruptive Technology and Common Law Lawmaking: A Brief Analysis of A&M Records

Inc v Napster Inc” (2002) 9 Vill Sports & Ent LJ 5, at 25-27.

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would be too harsh because it would expose too many technology providers to liability. After all, many

computer and internet technologies facilitate copyright infringement. If, as the Napster Court believed,

the ability to deny a service and the draw of infringing material establish liability, then Internet service

providers, software companies, network operators, and many others would be vicariously liable, and they

could do nothing about their liability.”126

The decision was remanded to the district court to issue a revised injunction in accordance with the Ninth

Circuit’s ruling.127 The district court handed down a modified injunction in March 2001, with immediate

effect.128 Unable to ever fully comply with its terms, Napster finally switched off its servers on 1 July

2001. It eventually filed for Chapter 11 bankruptcy protection, and its liability was never finally

determined.129

5. Implications

Although the Napster software was short lived, its legacy continues today.

Unlike his successors, Fanning made no attempt to code the software to fall outside the existing copyright

law. Instead, he simply designed it in the way he thought most efficient, apparently sparing no thought for

the legal implications. As it happened, Fanning’s centralized architecture resulted in Napster Inc falling

squarely within the existing law. Of course, it did not occur to the Ninth Circuit to consider the possibility

that it could have been coded completely differently while nonetheless achieving the same end result.

However, those in the programming fraternity were well and truly aware that such possibilities existed.

For them, the Ninth Circuit’s decision represented a helpful “roadmap” to avoiding liability, confirming

that they already suspected about the existing law’s vulnerabilities.130

126 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review 815, at 839 (internal note omitted).

127 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1027 (9th Cir 2001).128 A&M Records Inc v Napster Inc, 2001 US Dist LEXIS 2186 (ND Cal 2001).129 See John Borland, “Database “upgrades” keep Napster down” CNET news.com, <http://www.news.com/Database-

upgrades-keep-Napster-down/2100-1023_3-269367.html?tag=item>, last accessed at 15 October 2007; Eclipse, “A&M Records Inc v Napster Inc - Transcript of Proceedings in United States District Court for the Northern District of California, 11 July 2001.” FindLaw, <http://news.findlaw.com/cnn/docs/napster/transcript071101.pdf>, last accessed at 30 March 2005 at 8.

130 The use of the term “roadmap” to describe the impact of the Court’s decision was adopted from Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 760.

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The roadmap’s message was clear: create a product that achieves the same end as Napster, but eliminate

any control over the resulting infringement, and you won’t be liable for your users’ infringements. This

message was reiterated by the Ninth Circuit in both the vicarious and contributory liability contexts. Take

its “fullest extent” caveat for example. By telling technology providers that they will not be vicariously

liable if they eliminate their ability to control or police their systems, the Court incentivized them to try

and do just that. In the contributory liability context, by suggesting that constructive knowledge can only

be imputed where a defendant has some ongoing control over the infringing activity, it told developers

they could avoid liability by eliminating such control, as long as they also ensured that they had no actual

knowledge of end-user infringement.131

The Ninth Circuit, relying on physical world assumptions, clearly believed that such control could not be

feasibly eliminated. Years of precedent reinforced its idea that it would be very difficult for facilitators of

large scale third party infringement, acting as a “matchmaker” between source and demand of infringing

content, to eliminate control and knowledge of that infringement. If they could practicably do so, the

doctrines of contributory and vicarious liability would undoubtedly have evolved very differently.

By failing to recognize that different rules apply in the virtual context, the Ninth Circuit unwittingly

provided tremendous incentives for P2P providers to begin exploiting the physical/virtual divide. As Part

3 will demonstrate, it proved remarkably simple for future P2P developers to manipulate their software

code to eliminate any control or knowledge of their users’ infringements, thus falling within the strict

letter of the existing law whilst facilitating the same end result as Napster.

3: EXPLOITING THE PHYSICAL/VIRTUAL DIVIDE

Fanning’s successors were highly conscious of the intricacies of the US secondary liability law and how it

was likely to be applied to their software. Having identified the legal vulnerabilities in Napster’s design,

this group of programmers thought of “ever more anarchic methods of exchanging MP3 files”,132 and

coded their software to eliminate Napster’s liability-attracting elements.133 This section tells the story of

how three post-Napster software developers sought to exploit the physical/virtual divide. The first and 131 Note that, despite this implication, the Ninth Circuit never actually addressed Napster Inc’s contributory liability for

providing its software. Thus it remained uncertain what the precise consequences of such relinquishment would be. See Andrew J Lee, “MGM Studios Inc v Grokster Ltd & In re Aimster Litigation: A Study of Secondary Copyright Liability in the Peer-to-Peer Context” (2005) 20 Berkeley Tech LJ 485, at 495.

132 Stuart Biegel, Beyond our Control? Confronting the limits of our legal system in the age of cyberspace (The MIT Press, Cambridge, 2001) xiii.

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perhaps the most brazen attempt, involving the Aimster technology, was rejected out of hand by the

Seventh Circuit. The second, involving the Grokster and Morpheus technologies, successfully exploited

the physical-virtual divide all the way to the US Supreme Court, where it was defeated only by the

creation of a new theory of secondary liability.

Aimster

Aimster was a file sharing application created by programmer and entrepreneur John Deep. Launched the

month after the District Court had ordered Napster to be shut down, Aimster’s user base reportedly

snowballed from zero to twenty thousand users in a single day.134

Deep did not play coy about his intentions. Aimster’s website featured a tutorial that demonstrated how to

download music in which every single example was clearly infringing.135 And, although Aimster was

initially provided for free, Deep soon took advantage of its popularity by creating a paid service called

“Club Aimster”, which gave users even easier access to the most popular (and inevitably copyrighted)

music through its “Top 40” feature.136 This conduct attracted the attention of a recording industry buoyed

by the District Court’s summary judgment against Napster, and litigation inevitably followed.

1. The Aimster technology

Unlike Napster, Aimster was not a stand-alone application. Instead, it was designed to be used in

conjunction with the AOL-owned “AIM” instant messenger software to expand that software’s inbuilt file

sharing functionality. Its name was evocative of Napster’s file sharing capability and free music, and of

the software on which it piggybacked.137

133 See Jane C Ginsburg and Sam Ricketson, “Inducers and Authorisers: A Comparison of the US Supreme Court’s Grokster Decision and the Australian Federal Court’s KaZaa Ruling” (2006) 11(1) Media and Arts Law Review 1, at 4; Diane Leenheer Zimmerman, “Daddy, are we there yet? Lost in Grokster-land” (2005-2006) 9 NYU Journal of Legislation and Public Policy 75, at 82; Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 734.

134 Alec Klein, “Going Napster One Better; Aimster Says Its File-Sharing Software Skirts Legal Quagmire”, Washington Post 25 February 2001 <http://www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentId=A49314-2001Feb24> accessed at 29 September 2006.

135 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 651 (7th Cir 2003).136 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 646 (7th Cir 2003). 137 AOL Time Warner, unhappy with this riff on its product’s name, eventually sued for trademark infringement. Deep

argued that he named the software for his daughter Madeline who was allegedly nicknamed “Aimee”. This argument was unconvincing however, in light of evidence that he registered the domain name icqster.com at the same time - ICQ was another AOL-owned instant messenger, and there was no suggestion he had a daughter nicknamed “ICQee”. After arbitration conducted under ICANN’s Uniform Dispute Resolution Policy, Aimster lost the rights to aimster.com. See Matthew Fagin, Frank Pasquale and Kim Weatherall, “Beyond Napster: Using Antitrust Law to Advance and Enhance Online Music Distribution” (2002) 8 BU J Sci & Tech L 451, at 462. As part of the settlement of the trademark lawsuit, Aimster changed its name to Madster. Throughout this work however it is referred to with its original name.

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AIM enabled users to connect to AOL’s instant messaging network via the internet.138 Users could then

nominate individuals to be added to their “buddy lists”. When two “buddies” were connected to the

network simultaneously they could send messages to each other in real time for as long as they both

remained online. The service also enabled files to be transferred directly between users. If one user

wished to send a file to a “buddy”, he or she could do so either by specifying the file and clicking “send”,

or simply by making particular files on his or her hard disk generally available to buddies to transfer at

their convenience.139 Overall however, the file sharing capabilities of the AIM software were fairly basic.

However, those capabilities were considerably enhanced when AIM was used in conjunction with

independent application Aimster.140 To do so, users downloaded Aimster and AIM and installed both

applications on their computers. They would then register for both services by supplying details including

a username and password.141 This process allowed users to connect to both the AIM and Aimster

networks via the internet. Users could then designate other individuals as “buddies”. Alternatively, the

user could choose to make every other Aimster user a buddy.142 As with Napster, Aimster users were

required to designate a folder on their computer to be shared with other users.143 Whenever a user was

connected to the Aimster and AIM systems the files in their designated shared folder were automatically

made available for search and download by others.144 Unlike Napster, which was limited to the sharing of

MP3 music files only, Aimster was not limited by file type. Thus it could be used for the distribution of

other content, including video, books, and software.

Aimster’s interface contained a search field that gave users the ability to search the hard drives of other

users for specific content. The shared folders of all online users would be scoured for matches and, if the

requested file was found, instruct the host computer to send it to the requesting user via the internet. 145

Although the record is “sketchy” about exactly how this was achieved, it has generally been accepted that

Aimster, like Napster, used a central server to process search requests.146

138 This discussion refers to the versions of AOL Instant Messenger that were current as of August 2000.139 In Re: Aimster Copyright Litigation, 252 F Supp 2d 634, at 640 (ND Ill 2002).140 In Re: Aimster Copyright Litigation, 252 F Supp 2d 634, at 642 (ND Ill 2002). 141 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 646 (7th Cir 2003).142 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 646 (7th Cir 2003).143 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 646 (7th Cir 2003).144 In Re: Aimster Copyright Litigation, 252 F Supp 2d 634, at 643 (ND Ill 2002).145 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 646 (7th Cir 2003).146 See e.g. Jesse Feder, “Is Betamax Obsolete? Sony Corp of America v Universal City Studios Inc in the Age of

Napster” (2004) 37 Creighton L Rev 859, at 884; Cynthia Miller, “Do you Grok? Substantial Certainty In Contributory Copyright Infringement” (2006) 2 Seton Hall Circuit Rev 591, at n95.

31

Although they achieved the same end, there was one significant technological difference between the

Aimster and Napster technologies: Aimster was coded to encrypt all network communications between

users. This meant that all messages were scrambled before being sent over the internet and then decrypted

at their destination.147 The reason for this is inextricably linked to the knowledge element of the

contributory liability tort. As was explained above, that element will be made out where a defendant had

actual or constructive knowledge that its technology was being used for infringement. However, the Ninth

Circuit in Napster had made it clear that, in circumstances where a technology is capable of substantial

non-infringing uses, only actual knowledge is sufficient.148 It is far easier to eliminate knowledge in the

virtual context than the physical, and Deep set out to do just that. By adding encryption to the software,

nobody except the originating and receiving users could have actual knowledge of infringement, thus

making it “impossible [for Deep] to know exactly what files were being shared”.149 Trusting that he had

successfully coded Aimster to fall outside the strict confines of the contributory liability law, Deep

brazenly bragged that Aimster more closely resembled the Betamax than Napster. “Napster used central

computer servers, which could or did know what music files were being swapped. Aimster is more like a

VCR; users might pirate movies, but the VCR manufacturer has no knowledge of it.”150

6. In the district court

Confident that this technical architecture would shield them from liability, Deep and the companies he

had set up to develop and manage the Aimster service (“the Aimster defendants”) sought declarations that

they were not engaging in secondary copyright infringement. The recording industry responded by

bringing its own lawsuits alleging secondary copyright infringement.151 In December 2001 the plaintiffs

sought a preliminary injunction enjoining the Aimster defendants from secondarily infringing their

copyrights.

Despite the Aimster defendants’ carefully coded avoidance of control and knowledge of third party

infringements, the District Court held that the plaintiffs had demonstrated a likelihood that they would

147 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 646 (7th Cir 2003).148 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1020-1021 (9th Cir 2001).149 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 840 citing In Re: Aimster Copyright Litigation, 334 F 3d 643, at 646 (7th Cir 2003).150 Alec Klein, “Going Napster One Better; Aimster Says Its File-Sharing Software Skirts Legal Quagmire”, Washington

Post 25 February 2001 <http://www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentId=A49314-2001Feb24> accessed at 29 September 2006.

151 A total of eleven different actions were initiated and then consolidated for the purposes of pre-trial proceedings. Those proceedings were then transferred to the Northern District of Illinois. See In Re: Aimster Copyright Litigation, 177 F Supp 2d 1380 (Judicial Panel on Multidistrict Litigation 2001).

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succeed on their claims in contributory and vicarious liability. Accordingly, it granted a preliminary

injunction against the Aimster service.152 John Deep appealed to the Seventh Circuit.

7. In the Seventh Circuit

The Seventh Circuit affirmed Deep’s contributory liability, though it disagreed with the District Court’s

reasons for distinguishing Sony. The decision heralded a split with the Ninth Circuit as to the correct

application of Sony to P2P software providers. Disagreeing that knowledge of specific infringing uses

was the correct basis for apportioning contributory liability, the Seventh Circuit adopted a cost-benefit

approach to determining whether a defendant whose service is capable of both infringing and non-

infringing uses is liable for its users’ infringement.

Both sides adopted extreme positions regarding the scope of the existing contributory liability law. The

plaintiffs argued that a defendant technology provider should be “liable if the provider knew that its

service was being used to infringe copyrights”,153 a position that would result in an extraordinary

extension of liability. Deep claimed that he should escape liability as long as there was a chance, however

slim, that his product would be put to non-infringing use, and because Aimster’s software code prevented

him from having actual knowledge of infringement.154 The Seventh Circuit decision steered a course

between these two extremes. The result is an interpretation of contributory liability that Zittrain argues is

“simultaneously narrower and broader than the Ninth Circuit’s, averaging out to roughly the same result,

but with worrisome implications for IT generativity.”155

The Seventh Circuit’s narrowing of the doctrine relates to its interpretation of the significance of actual

knowledge, and can be illustrated by contrasting it with the Ninth Circuit’s position. In Napster, the Ninth

Circuit had held the Sony doctrine to be concerned only with the knowledge element of contributory

liability, and applicable to products (but not services). If a defendant’s product was capable of substantial

non-infringing uses, Sony would prevent constructive knowledge of infringement from being imputed.

But if the defendant had actual knowledge of infringement it could be contributorily liable regardless of

the nature of its product.

152 In Re: Aimster Copyright Litigation, 252 F Supp 2d 634, at 665 (ND Ill 2002). 153 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 841.154 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 841, citing In Re: Aimster Copyright Litigation, 334 F 3d 643, at 649 (7th Cir 2003). 155 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 282.

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The Seventh Circuit disagreed with the Napster Court’s analysis on two counts. Firstly, it chose not to

distinguish between products and services, finding that Sony applied equally to both. The effect of this

was to give “service providers more extensive protection under Sony’s rule than the Ninth Circuit’s

reading would”.156 Secondly, it disagreed that defendants with actual knowledge should automatically

lose Sony’s protection, holding that this would sometimes be “contrary to the clear import of the Sony

decision”.157 The basis of this finding seemed to be that Sony itself had avoided liability even though it

must have known that a significant proportion of its users were in fact putting the Betamax to infringing

uses.158 Accordingly, the Court argued that if the provider of a service that facilitated infringing as well as

non-infringing uses had actual knowledge of the infringement but would have found it “highly

burdensome” to prevent the infringement, it may be inappropriate to hold it liable.159 That is, a service

provider’s knowledge and ability to prevent its users from infringing would certainly be a relevant

consideration in determining its liability, but liability should not be automatically imposed on that basis

alone.

But as well as broadening the scope of the Sony protection, the Seventh Circuit simultaneously narrowed

it, “by eliminating ‘capability of substantial noninfringing uses’ as the trigger for Sony protection.”160

Under the Seventh Circuit’s analysis a product’s current or future capability for substantial non-infringing

uses is only the first step towards being protected under Sony. Once it has been established that a product

has both infringing and non-infringing uses, it is then necessary to make “some estimate of the respective

magnitudes of these uses”.161 As Zittrain puts it, the Seventh Circuit treats the product’s capability of

substantial non-infringing uses as “a necessary, rather than a sufficient, condition” to the avoidance of

liability.162 Under this test an internet file sharing service like Aimster cannot prevent knowledge from

being imputed simply because it is capable of substantial non-infringing uses. Instead, it must show “that

it would have been disproportionately costly for him to eliminate or at least reduce substantially the

infringing uses.”163

156 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 283.157 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 648-649 (7th Cir 2003).158 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 649 (7th Cir 2003). See also Jonathan Zittrain, “A History of

Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 282-283.159 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 648-649 (7th Cir 2003).160 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 283. Internal note omitted. 161 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 649 (7th Cir 2003).162 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 283.163 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 653 (7th Cir 2003).

34

This is highly reminiscent of Sony’s minority opinion, in which Blackmun J suggested that courts should

consider the proportions of infringing and non-infringing uses in determining liability.164 But it seems

inconsistent with the majority holding in Sony that the protection shall operate where a product is merely

capable of substantial non-infringing uses. This is particularly so when it is recollected that there was, at

the time of the Sony litigation, evidence suggesting that a jamming device was available that would block

infringing uses while enabling those that did not – all for “less than fifteen dollars a machine.”165 In these

circumstances it is at least arguable that the Seventh Circuit’s test departs from Sony’s reasoning.

Nonetheless, the Seventh Circuit justified its decision by suggesting that the Sony Court itself implicitly

balanced the Betamax VTR’s infringing uses against non-infringing ones in determining that liability

ought not to apply.

Thus the Seventh Circuit gave additional protection to service providers by holding that Sony would

apply to them as well as providers of products, and that the protection offered to both would not

necessarily be voided by evidence of actual knowledge of specific infringing uses. However, it then

significantly watered down the scope of that protection. The overall result is that while service providers

may be better off in the Seventh Circuit, product providers receive “less of a shield” there than in the

Ninth.166

How then did the Seventh Circuit’s narrowing and broadening of the Sony doctrine apply to Aimster? As

previously explained, Deep sought to exploit the physical/virtual divide by coding his technology in a

way that eliminated the possibility of actual knowledge, and then by relying on the Sony doctrine to

prevent knowledge from being imputed. However, the Seventh Circuit refused to be seduced by the

undeniable logic of this argument. Instead of allowing Aimster’s code to buy blanket immunity for the

defendants, the Court deemed the utilization of encryption to be a form of willful blindness. “[A] service

provider that would otherwise be a contributory infringer does not obtain immunity by using encryption

to shield itself from actual knowledge of the unlawful purposes for which the service is being used.” 167

164 See Sony Corporation of America v Universal City Studios, 464 US 417, at 491 (Supreme Court 1984), in which Blackmun J held that “if a significant portion of the product’s use is noninfringing, the manufacturers and sellers cannot be held contributorily liable for the product’s infringing uses. … If virtually all of the product’s use, however, is to infringe, contributory liability may be imposed; if no one would buy the product for non-infringing purposes alone, it is clear that the manufacturer is purposely profiting from the infringement, and that liability is appropriately imposed.” The apparent similarity between this dissent and Posner J’s findings in Aimster has led to suggestions that he actually applied the minority while purporting to apply the majority. See e.g. “21st Century Copyright Law in the Digital Domain Symposium Transcript” (2006) 13 Mich Telecomm Tech L Rev 247, at 250 <http:// www.mttlr.org/volthirteen/transcript.pdf> accessed at 30 January 2007.

165 James Lardner, Fast forward: Hollywood, the Japanese, and the onslaught of the VCR (Norton, New York, 1987) 119.

166 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 284.167 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 650-651 (7th Cir 2003).

35

Accordingly, Deep could not use it “to prevent himself from learning what surely he strongly suspects to

be the case: that the users of his service – maybe all the users of his service – are copyright infringers.” 168

This finding was made because the encryption technology was incorporated only to avoid a finding of

knowledge. However, the Court did not go so far as to say that this willful blindness was itself sufficient

evidence of actual knowledge.169

The Court then went on to consider whether Aimster ought to nonetheless be protected under Sony. It

noted that the Aimster tutorial featuring infringing examples was an “invitation to infringement” that

went beyond anything Sony had done, and that Club Aimster was intended solely to facilitate access to

the most popular – and “invariably” copyrighted – music downloads.170 The Court held that while this

evidence “d[id] not exclude the possibility of substantial noninfringing uses of the Aimster system, [it

was] sufficient … to shift the burden of production to Aimster to demonstrate that its service has

substantial noninfringing uses.”171 Under the Court’s analysis it was insufficient for Aimster to show that

its file sharing system was physically capable of being used in non-infringing ways if in fact it was only

used to infringe.172 As noted above, this apparently conflicts with the standard propounded by the majority

in Sony, which required only that a technology be capable of substantial non-infringing uses.173

As it turned out, even if Deep had managed to prove that the Aimster service had substantial non-

infringing uses, this would not have been sufficient to avoid liability. Instead, had there been non-

infringing as well as significant infringing uses, Aimster would have been obliged to demonstrate that it

would have been “disproportionately costly” to eliminate or substantially reduce the infringement.174 This

Deep would have failed to do since he did not “present evidence that the provision of an encryption

capability effective against the service provider itself added important value to the service or saved

significant cost.”175 Accordingly, Deep was held liable for contributory infringement.

The Ninth Circuit was undecided about whether Deep was also vicariously liable for Aimster’s users’

infringements, and did not decide the matter. However, noting that the Supreme Court did not hold Sony

168 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 650 (7th Cir 2003).169 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 650-651 (7th Cir 2003).170 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 651-652 (7th Cir 2003).171 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 652 (7th Cir 2003).172 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 651 (7th Cir 2003).173 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 842-843.174 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 653 (7th Cir 2003).175 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 653 (7th Cir 2003) (emphasis in original).

36

vicariously liable even though by eliminating the record function it could have dramatically reduced the

level of infringement, it considered that Deep’s failure to remove Aimster’s encryption feature and

monitor its network may not be enough to render him vicariously liable for the resulting infringement.176

8. Implications

The facts of Aimster put the Seventh Circuit in a very difficult position.

Deep had clearly set out to exploit the physical/virtual divide. He had neatly side-stepped those decades

of authority that dictated knowledge was an essential corollary to contributory liability by simply

inserting a few lines of code into a basic piece of software. A strict application of the physical world

principles reiterated by the Ninth Circuit in Napster would likely have resulted in his escaping liability

simply because of the way his software was coded, despite the fact that Deep had clearly intended his

technology be used for infringement and indeed set out to profit from that infringement.

Instead of engaging in an inflexible application of existing doctrine, the Seventh Circuit chose to depart

from it in a way that at least implicitly recognized the differences between earlier physical technologies

and their new code-based counterparts. Since that approach departed from “the traditional, limited

gatekeeping obligations that centered on business practices”, and focused more on the way the software

was coded, Zittrain dubbed it “code-based gatekeeping.”177 This approach diverts from a strict application

of pre-existing precedent by suggesting that the relative amounts of infringing and non-infringing uses, as

well as how easily infringement could have been avoided, should be taken into account in determining

secondary liability. It requires the “relative costs and benefits” of defendant technologies to be taken into

account in determining liability, and acknowledges that code-based technologies can be much easier to

modify, including post-distribution, than their physical counterparts.178 In so doing, it forces software

providers to take more accountability for their design decisions.179 But as Yen points out, this is

problematic because existing theories of secondary liability are not formulated to take such aspects into

account. “[T]he doctrinal elements that govern third party copyright liability do not direct judicial

attention to these considerations. Vicarious liability depends on a defendant’s control over and financial

176 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 654-655 (7th Cir 2003).177 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 285-286.178 Similarly, see Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing

Design” (2005) 55 Case W Res L Rev 749.179 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 286.

37

interest in another’s infringement, while contributory liability depends on a defendant’s knowledge of and

contribution to another’s infringement.”180

While the actual outcome reached by the Seventh Circuit is fairly uncontroversial, the way it was reached

has troublesome implications for technology providers. There are three main reasons why this is so.

The first criticism has been triggered by the fact that the Seventh Circuit’s approach “contemplates a

broad range of sweeping preemptive design changes – analogous to requiring a VCR maker to remove the

fast forward or record buttons – if a cost-benefit analysis, including evidence of current uses of the

technology in question” suggests that it is appropriate to do so.181 It is possible or even likely that future

distributive technologies will have substantial actual or potential non-infringing uses as well as substantial

infringing ones, at least during the early part of their lifespan.182 In many cases however, it is only time

that distinguishes a new product that is dominantly used for infringement from an identical one that is

not.183 In these circumstances, allowing liability against providers of such technologies, either because

they cannot show proof of actual non-infringing uses or because the infringing uses are not sufficiently

outweighed by the innocent, has been criticized as “miss[ing] the point” of Sony.184 “Just as prior

restraints on speech are disfavored, so too should we view skeptically prior restraints on technology that

are intended to preempt infringements that have yet to occur”. 185

Secondly, it has been argued that the imposition of “a second cost-benefit analysis in cases involving

substantial infringing use [is] … contrary to Sony’s logic about noninfringing uses.”186 Indeed, it is

difficult to find support in the Sony majority opinion for the Seventh Circuit’s requirement that the

defendant “show that it would have been disproportionately costly for him to eliminate or at least reduce

180 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review 815, at 818-819. Yen’s article provides useful analysis as to how courts have struggled to apply the existing law to P2P technologies given the lack of reference to such considerations.

181 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 285-286 (internal notes omitted).

182 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review 815, at 843-844.

183 See e.g. Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 285.184 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 843.185 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 285-286 (internal notes

omitted).186 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 843.

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substantially the infringing uses”,187 although it is easy to do so when delving in that of the minority.188

Zittrain argues that the Seventh Circuit’s approach “put[s] all authors of generative technologies at risk of

finding themselves on the wrong side of a court’s cost/benefit balancing. Indeed, they [a]re asked to

actively anticipate misuses of their products and to code to avoid them. Such gate-keeping is nice when it

works, but it imposes extraordinary costs not readily captured by a single cost/benefit test in a given

instance.”189 Zittrain further argues that it is “those who code more generative technologies – either by

designing, say, operating systems, or by building applications that are themselves recursively generative –

[that] are the most at sea as to their potential liability. The more adaptable a technology, the more

unpredictable its uses, and therefore the more uncertain the creator is as to her liabilities under the

Seventh Circuit test.”190 Thus a major criticism of the Seventh Circuit decision is that it lacks the bright-

line certainty of the Ninth Circuit’s interpretation of Sony, and is apparently far more chilling of

technological innovation.

Thirdly, although the Seventh Circuit recognizes inherent differences between Aimster and its physical

counterparts, it does so only implicitly. Since the decision does not explicitly distinguish between the two

kinds of technology, the principles enunciated therein apply to both. Thus it does little to address the

problems that we have already seen can arise from the conjunction of code based and physical

technologies.

Additionally, it should be noted that the Seventh Circuit’s technique for thwarting Aimster’s anti-

regulatory code goes so far as to cover situations where the defendant is “willfully blind” to the

infringement. It does not change the fact that, where there is no evidence of willful blindness, the

knowledge element must still be satisfied in order for contributory liability to be made out.191 This

suggests that if a P2P provider eliminates the requisite degree of knowledge without falling within the

category of willful blindness, it may potentially still code its way out of liability.

9. Conclusion

187 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 653 (7th Cir 2003).188 See n Error: Reference source not found above.189 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 285 (internal notes

omitted).190 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 285 (internal note

omitted).191 See e.g. Monotype Imaging Inc v Bitstream Inc, 376 F Supp 2d 877, at 883 (ND Ill 2005); Bosch v Ball-Kell, Not

Reported in F Supp 2d, 2006 WL 2548053, at 12 (CD Ill 2006).

39

Shortly thereafter the US Supreme Court denied Deep certiorari.192 Thus Deep’s attempt to code a P2P

file sharing application to fall outside the secondary liability law failed. However, this failure was

arguably less because Deep’s attempt to exploit the physical/virtual divide was itself flawed, and more

because of Posner J’s willingness to stretch the existing law to cover the Aimster shaped hole.

Grokster & Morpheus

Deep’s efforts to exploit the physical/virtual divide were blatant and transparent. Rather more

sophisticated attempts came from those behind two other of Napster’s successors, Grokster and

Morpheus.

Their story begins with a protocol called Gnutella, brainchild of Justin Frankel, the wunderkind creator of

the Winamp MP3 playing software. Winamp’s tremendous success had led to Frankel’s fledgling

software company Nullsoft being purchased for a rumored $US100 million by internet behemoth America

Online in 1999, and Frankel moved from Arizona to San Francisco to continue its development.193

Unfazed by the fact that his employer was then in negotiations to buy Time Warner, one of the world’s

largest media companies, Frankel focused his attention on P2P development. By this time it was clear to

Frankel that Napster’s vulnerable central servers were going to be its downfall. Noting that the number

one liability attracting element seemed to be control over third party infringement, he simply decided to

write a new file sharing protocol that eliminated it entirely. Aware that AOL would pull the plug if it

found out about the project, Frankel worked secretly with colleague Tom Pepper to create such a

system.194 This example starkly highlights the differences between physical world and code based

paradigms. If it was such a simple matter to eliminate control over third party infringement in the physical

world, few third parties would ever have been held liable for the infringements of others and the

secondary liability law would undoubtedly have evolved very differently.

192 Deep v Recording Industry Association of America Inc, 124 S Ct 1069 (Supreme Court 2004).193 Reported at: David Kushner, “The World’s Most Dangerous Geek” Rolling Stone,

<http://www.rollingstone.com/news/story/_/id/5938320?rnd=1098404116735&has-player=true>, (13 January 2004) last accessed at 22 March 2005; Jim Hu, “Controversial Winamp creator resigns from AOL” CNet News.com, <http://news.com.com/2100-1032_3-5147599.html?part=rss&tag=feed&subj=news>, (26 January 2004) last accessed at 31 March 2005; Paul Boutin, “Nullsoft, 1997-2004: AOL kills off the last maverick tech company.” (2004) (31/3/05) Slate <http://slate.msn.com/id/2109615/> accessed at 31 March 2005.

194 David Kushner, “The World’s Most Dangerous Geek” Rolling Stone, <http://www.rollingstone.com/news/story/_/id/5938320?rnd=1098404116735&has-player=true>, (13 January 2004) last accessed at 22 March 2005.

40

Gnutella was born on 14 March 2000, when Pepper and Frankel uploaded a beta release of their Gnutella

client to the Nullsoft website.195 In keeping with this low-key approach Pepper later claimed they devised

it as a means to “share recipes”.196 Apparently not amenable to “recipe sharing”, AOL quickly ordered the

program offline. By then however it had already been downloaded by thousands of individuals from all

over the globe.197 Almost immediately other programmers began attempts to reverse-engineer the

Gnutella client, and within days source code replicating the protocol had been released into the public

domain198 – although whether obtained solely as the result of the reverse-engineering efforts or

surreptitiously assisted by Frankel and Pepper has never been entirely clear.199 Since then work on the

Gnutella protocol has proceeded as a collaborative effort between a number of developers, with Frankel

and Pepper having no further active involvement.200

Although revolutionary, in its original iteration Gnutella suffered from some serious shortcomings. These

caused the Gnutella network to crash under the weight of its own traffic just months after the initial

release.201 Inspired by a combination of Gnutella’s “stability and social problems” and “[t]he legal

vulnerabilities of Napster”,202 European entrepreneurs Niklas Zennström and Janus Friis took their idea

for a new kind of P2P distribution system to a team of Estonians to implement into code.203 The result was

a file sharing protocol dubbed FastTrack. As is explained in more detail below, FastTrack is the name

given to both the file sharing protocol and the protocol stack software that implemented that protocol.

Kazaa, or Kazaa Media Desktop, is the name given to the original end-user client software containing that

protocol stack.204 Combined, the software was carefully coded to have sufficient centralization to result in

an acceptable degree of efficiency, and to have little enough to avoid liability on behalf of its providers.

195 David Kushner, “The World’s Most Dangerous Geek” Rolling Stone, <http://www.rollingstone.com/news/story/_/id/5938320?rnd=1098404116735&has-player=true>, (13 January 2004) last accessed at 22 March 2005.

196 Andy Oram, Peer-to-Peer: Harnessing the Power of Disruptive Technologies (O’Reilly, Sebastopol, 2001) 95.197 Christopher Jones, “Open-source “Napster” Shut Down” Wired News,

<http://www.wired.com/news/print/0,1294,34978,00.html>, (15 March 2000) last accessed at 24 March 2005. AOL went on to wash its hands of Gnutella, describing it as “an unauthorized freelance project”. Christopher Jones, “Open-source “Napster” Shut Down” Wired News, <http://www.wired.com/news/print/0,1294,34978,00.html>, (15 March 2000) last accessed at 24 March 2005.

198 Andy Oram, Peer-to-Peer: Harnessing the Power of Disruptive Technologies (O’Reilly, Sebastopol, 2001) 96.199 Wallace Wang, Steal This File Sharing Book - What They Won’t Tell You About File Sharing (No Starch Press, San

Francisco, 2004) 24.200 AOL was apparently quick to “encourage” the two to focus on their Winamp application. See David Kushner, “The

World’s Most Dangerous Geek” Rolling Stone, <http://www.rollingstone.com/news/story/_/id/5938320?rnd=1098404116735&has-player=true>, (13 January 2004) last accessed at 22 March 2005.

201 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 732.202 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 734.203 Daniel Roth, “Catch Us If You Can” (9 February 2004) Fortune <www.fortune.com (subscription only)> accessed at

8 June 2005.204 Note that Kazaa was once commonly capitalized as “KaZaA”, but today it is commonly referred to without use of that

original unusual capitalization. See eg www.kazaa.com where all references to Kazaa (except in the logo) use traditional capitalization.

41

FastTrack and Kazaa were initially controlled by Zennström and Friis through their Dutch incorporated

company Kazaa BV.205 After releasing the Kazaa software in July 2000,206 Kazaa BV also licensed it to

two other companies; Grokster Ltd which distributed it as Grokster, and StreamCast Networks Inc 207

which dubbed its version Morpheus. In essential respects the Kazaa, Grokster and Morpheus applications

were identical. Users of all three connected to the FastTrack network, causing it to become an even more

popular destination for infringing content than Napster.208

In October 2001 a number of movie and music companies filed suit against Grokster, StreamCast and

Kazaa BV.209 Alleging that they “created a 21st century piratical bazaar”210 the plaintiffs sought to hold

the defendants liable for the copyright infringements of their users.211 The plaintiffs and Grokster and

StreamCast cross-filed for summary judgment on the issues of contributory and vicarious infringement.212

Kazaa BV chose to take a different path, and the story of it and its corporate successors is told

elsewhere.213 At the time the litigation began, StreamCast’s Morpheus utilised the Kazaa/FastTrack

technology. Soon afterwards however a licensing dispute caused Morpheus users to be locked out of the

FastTrack network, and StreamCast quickly created a new application based on the open source Gnutella

protocol.214 In this way, the Gnutella technology also became caught up in the litigation.

205 Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 65 IPR 289. Kazaa BV was formerly known as Consumer Empowerment BV. See MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1031 (CD Cal 2003).

206 John Borland and Gwendolyn Mariano, “Looking for the next Napster” CNet News.com, <http://news.com.com/Looking+for+the+next+Napster/2009-1023_3-269454.html>, (5 July 2001) last accessed at 18 May 2005.

207 Formerly known as MusicCity Networks Inc. See MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029 (CD Cal 2003).

208 Jian Liang, Rakesh Kumar and Keith W Ross, “Understanding KaZaA” <http://cis.poly.edu/~ross/papers/UnderstandingKaZaA.pdf>, last accessed at 25 January 2007; John Borland, “Free vs. fee: Underground still thrives” CNet News.com, <http://news.com.com/Free+vs.+fee+Underground+still+thrives/2009-1027_3-1009541.html>, (30 May 2003) last accessed at 25 January 2006.

209 Motion Picture Association of America, “Press Release: Motion Picture and Recording Industries File Suit Against MusicCity and Others” <http://www.mpaa.org/Press/KaZaA_Press_Release.htm>, (3 October 2001) last accessed at 16 May 2005.

210 “Complaint for Damages and Injunctive Relief for Copyright Infringement” Electronic Frontier Foundation, <http://www.eff.org/IP/P2P/MGM_v_Grokster/20011002_mgm_v_grokster_complaint.pdf>, last accessed at 26 October 2006.

211 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1031 (CD Cal 2003).212 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1031 (CD Cal 2003).213 See Rebecca Giblin and Mark Davison, “Kazaa goes the way of Grokster? Authorisation of copyright infringement

via peer-to-peer networks in Australia” (2006) 17(1) Australian Intellectual Property Journal 53-76.214 John Borland, “Morpheus looks to Gnutella for help” CNet News.com, <http://news.com.com/2100-1023-

846944.html>, (27 February 2002) last accessed at 26 October 2006.

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As described above, both Gnutella and FastTrack were deliberately coded to exploit the physical/virtual

divide by eliminating the control that was essential to liability under the post-Napster law. Understanding

their technical architecture is vital to understanding precisely why this exploitation was accepted by the

district and circuit courts. The parties specifically limited the litigation to liability arising from “current

versions of Grokster’s and StreamCast’s products and services”.215 Accordingly, this analysis focuses on

how those particular versions of the technologies operated.216

1. Morpheus

By the time the litigation reached the district court, Morpheus was one of a number of independent

implementations of the open source Gnutella file sharing protocol. Gnutella facilitated the creation of a

network “that was unowned and uncontrolled”,217 leading to its being described as “Napster shorn of the

Napster service.”218 Putting claims of recipe sharing aside, this was undoubtedly precisely what its

creators intended.

Before describing the technology further, it is necessary to distinguish the Gnutella protocol, used by

Morpheus after its lock-out from the FastTrack network, from Gnutella clients more generally. A protocol

is a set of rules which govern how a technology will operate, while client software is an implementation

of those rules. Thus Oram explains that the “Gnutella [protocol] is a language of communication”, while a

Gnutella client is software that speaks that language.219 Technical writer Wallace Wang suggests that a

simple way to distinguish between the protocol and the clients is to think of the protocol being a

television network, and the client programs as different means of tuning into that network.220 Since the

Gnutella protocol is open source, any person with the requisite programming skills may freely write their

own client implementation. Frankel and Pepper wrote the first, and StreamCast’s implementation of the

protocol in Morpheus was another.221

215 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1033 (CD Cal 2003). Note that the Gnutella protocol eventually abandoned its distinctive fully distributed architecture in favor of some FastTrack style centralization.

216 Note however that the Gnutella protocol eventually abandoned its distinctive fully distributed architecture in favor of some FastTrack style centralization.

217 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 732.218 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 286.219 Andy Oram, Peer-to-Peer: Harnessing the Power of Disruptive Technologies (O’Reilly, Sebastopol, 2001) 95.220 Wallace Wang, Steal This File Sharing Book - What They Won’t Tell You About File Sharing (No Starch Press, San

Francisco, 2004) 22.221 In addition to StreamCast’s Morpheus, popular Gnutella clients at one time included BearShare, Gnucleus, Limewire,

Xolox, Phex, Swapper, Gtk-Gnutella, AquaLime, Gluz, NeoNapster, FreeWire, Gnoozle, P2PStorm, Shareaza, Qtella, Gnut, Mutella, Kiwi Alpha, Gnutizen and GPU. See “Gnutella Clients” infoAnarchy, <http://www.infoanarchy.org/wiki/index.php/Gnutella_Clients>, (24 January 2005) last accessed at 17 May 2005.

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Inside the Gnutella technology 222

To eliminate Napster’s liability-attracting control, Pepper and Frankel ingeniously coded Gnutella to

create a fully distributed network with no centralized features. This meant that the tasks that would

usually be performed by central servers were instead shared equally amongst every individual on the

network. This absence of centralized points has caused the original Gnutella to be described as a “pure”

P2P architecture.223 It also meant that if any part of the Gnutella network were to be shut down the rest

would be largely unaffected. This can be contrasted with Napster, where the flick of a power switch

proved capable of bringing the entire network to a halt. It also meant that it was difficult to identify any

single point for copyright owners to attack.

Once connected to the network,224 Gnutella clients communicated with others by sending and receiving

messages.225 This process is the essence of the system’s fully decentralized architecture. When a client

received a message, it would both respond to it for its own part and forward it to all the other peers for

which it had the internet locations. Each of those peers would in turn do the same, so a widening circle of

users would end up responding to the original single message.226 The Gnutella protocol prevented these

messages from circulating infinitely by utilizing “time to live” values (“TTL”). The TTL effectively 222 For other explanations of the Gnutella technology, see Lior Jacob Strahilevitz, “Charismatic Code, Social Norms, and

the Emergence of Cooperation on the File-Swapping Networks” (2003) 89 Virginia Law Review 505, at 516-519; Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 731-733; Clay Shirky, “Listening to Napster” in A Oram (ed) Peer-to-Peer: Harnessing the Power of Disruptive Technologies (O’Reilly, 2001); Matei Ripeanu, “Peer-to-Peer Architecture Case Study: Gnutella Network” University of Chicago Technical Report TR-2001-26 <http://www.cs.uchicago.edu/files/tr_authentic/TR-2001-26.pdf> accessed at 25 January 2007.

223 Ramesh Subramanian and Brian D Goodman, Peer-to-peer Computing: The Evolution of a Disruptive Technology (Idea Group Publishing, Hershey, 2005) 32.

224 Connecting to the Gnutella network was rather more complex than was the case with Napster. This is because, in the absence of any central server, users had no central location from which they could “bootstrap” onto the network. Frankel and Pepper solved the problem by reasoning that as long as each individual computer could discover the location of at least one other computer on the network, they could use that one machine to find the others. Thus, when the protocol was first released, users who wished to connect did so by first searching for the internet location of an existing Gnutella client by searching “across Web sites, message boards and chat rooms for active host addresses”. Kelly Truelove, “Gnutella: Alive, Well, and Changing Fast” O’Reilly Networks, <http://www.openp2p.com/lpt/a/573>, (25 January 2001) last accessed at 4 May 2005. This discouraged uptake, since “trying to get onto the network involve[d] knowing more about computers and the Internet in particular than most in the mainstream c[ould] bear”. Ben Charny, “Gnutella puts up fight for Web elite” CNet News.com, <http://news.com.com/2009-1023-251659.html?legacy=cnet>, (29 January 2001) last accessed at 4 May 2005. Later versions continued to permit locations of currently-connected clients to be discovered through word of mouth or lists published on online chat rooms, but it became more usual for the initial connection to occur automatically by “contact[ing] one of many publicly available directories of those currently connected to the Gnutella network.”

225 Eytan Adar and Bernardo A Huberman, “Free Riding on Gnutella” (2000) 5(10) First Monday <http://www.firstmonday.dk/issues/issue5_10/adar/> accessed at 4 May 2005; “Standard Message Architecture” Gnutella Developer Forum, <http://www.the-gdf.org/wiki/index.php?title=Standard_Message_Architecture>, (14 April 2005) last accessed at 4 May 2005. There were five different types of message – “ping”, “pong”, “query”, “queryhit” and “push”, with each having a different function. Ping messages announced the joining client’s arrival to the network and sought information about currently connected clients. Pong messages responded to Pings with the locations of currently connected clients. Queries requested clients to search their available data for matching files. QueryHits notified clients of matching files; and Push messages facilitated transfers where one party was behind a firewall.

226 Jerome Kuptz, “Independence Array: Gnutella, Unstoppable by Design” Wired Magazine, <http://www.wired.com/wired/archive/8.10/architecture.html>, (October 2000) last accessed at 15 April 2005.

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limited the number of times any one message could be propagated through the network. Typically starting

with a value of 7, one digit would be deducted each time a message was routed until the value reached

0.227 Messages with a TTL of 0 would then no longer be forwarded. Assuming that a peer sent a message

to four others, who each sent it to four more and so on until the TTL reached 0, the theoretical maximum

number of unique users that could be reached was 16,384.228

Like Napster and other Gnutella clients, Morpheus contained an integrated search form. Once a search

term was entered, the Morpheus client would send a query message to all the peers to which it was

connected, enquiring as to whether they had any matches. The clients of receiving peers would respond

by automatically checking the search request against the files they were sharing. If a match were found,

they would respond by sending a “queryhit” message to the requesting user, detailing the name and size

of matching file(s) and the host user’s internet location and connection speed.229 Each client would then

further propagate the search request through the network, each time deducting a digit from the TTL value

in the manner described above. The requesting peer could request the transfer of any file from the list of

matches by simply double-clicking on a particular entry. The role of the Gnutella network in the

transaction would at that point be concluded: as with Napster, the transfer itself occurred directly between

the requesting and sending peers. This communications and transfer architecture is represented

graphically below.

227 Jerome Kuptz, “Independence Array: Gnutella, Unstoppable by Design” Wired Magazine, <http://www.wired.com/wired/archive/8.10/architecture.html>, (October 2000) last accessed at 15 April 2005.

228 In practice however, the real number would be considerably less, since the same few users could receive the same ping request perhaps hundreds of times. A typical peer radius was between 2,000 and 10,000 users, who would be sharing perhaps 500,000 to 1,000,000 files. See Jerome Kuptz, “Independence Array: Gnutella, Unstoppable by Design” Wired Magazine, <http://www.wired.com/wired/archive/8.10/architecture.html>, (October 2000) last accessed at 15 April 2005. Thus, even if a particular file was available somewhere on the network there was no guarantee of it being within the reach of a particular user. This contrasted unfavorably with Napster, which did eventually manage to cluster together its servers so that one peer connected to any server could access files from users connected to any other.

229 Jerome Kuptz, “Independence Array: Gnutella, Unstoppable by Design” Wired Magazine, <http://www.wired.com/wired/archive/8.10/architecture.html>, (October 2000) last accessed at 15 April 2005.

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While Gnutella’s design eliminated the centralized elements that had led to Napster’s downfall, the trade

off was that it also lost much of the efficiency that had contributed to Napster’s success.230 Gnutella’s

biggest problem was a lack of scalability, or capability to be “easily expanded or upgraded on demand”.231

Napster had scaled easily: as more users joined its network, Napster Inc kept up with the increased

demand by simply adding more servers. However, with no central servers whatsoever, Gnutella could not

respond to growth in the same way. Instead, since its decentralized design forced all network traffic to go

through all users, and each message transmitted on the network took up a certain amount of bandwidth,

the network became more heavily burdened as the number of users and messages grew until inevitably, as

outlined above, the network crashed under the weight of its traffic, “leaving [it] unusable for more than a

month.”232 Despite its problems however, Gnutella steadily gained in popularity. The day after Napster

was shut down for good its usage surged by seventeen percent.233

10. Grokster (via FastTrack)

As explained above, the FastTrack protocol was created to achieve the same elimination of control as

Gnutella, while minimizing the corresponding inefficiencies. The term “FastTrack” refers to several

different things. Firstly, it is the name of the network to which FastTrack-compatible clients connect.

Secondly, it is the name of the protocol or set of rules which govern how the FastTrack network operates.

Thirdly, it is the name of the protocol stack software that implements that protocol in compatible clients.

The protocol stack dictates how the FastTrack network operates, how searches are performed, how users

connect to each other and so on. When incorporated in end-user client software, it enables individuals to

interface with the network. The original client to incorporate the FastTrack protocol stack was Kazaa,

which was quickly followed by Grokster, which was essentially an independently “branded, marketed and

distributed” version of the same software.234 This meant that all FastTrack users could seamlessly share

files with each other regardless of the client they used.

In contrast to Gnutella, the FastTrack technologies were all closed source applications. As explained

above, source code is the language in which a programmer initially writes their software, and the question

of whether or not to make that “source” available to users of the corresponding application is a matter of

230 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 731.231 “Definition of scalable” Merriam-Webster’s online dictionary, <http://www.m-w.com/cgi-bin/dictionary?

sourceid=Mozilla-search&va=scalable>, last accessed at 22 April 2007.232 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 732. Internal note omitted. 233 See Lior Jacob Strahilevitz, “Charismatic Code, Social Norms, and the Emergence of Cooperation on the File-

Swapping Networks” (2003) 89 Virginia Law Review 505 citing “Victory or defeat?” Salon.com, <http://archive.salon.com/tech/feature/2001/02/12/napster_reactions/print.html>, (12 February 2001) last accessed at 24 August 2006 (quoting Kelly Truelove, CEO of Clip2).

234 MGM Studios Inc v Grokster Ltd, 243 F Supp 2d 1073, at 1080 (CD Cal 2003).

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choice. “Closed source” refers to that class of programs where the source code has not been made

available. The source code underlying the FastTrack technologies is a closely guarded secret.235 Thus, at

the time the litigation was instituted, little was known about how they operated.236

It was clear however that FastTrack created a hybrid network architecture that fell somewhere between

the centralized Napster and the decentralized Gnutella. It utilized a “two-tiered organizational

structure”237 that automatically assigned additional responsibilities to the best-resourced users available.

These users, dubbed “supernodes”, carried out duties similar to those allocated to Napster’s central

servers, collecting information from the ordinary nodes connected to them and using that information to

respond to search requests from those nodes and other supernodes. FastTrack’s owners counted on the

fact that those supernodes had no connection to the software providers to prevent their progression

towards Napster-like efficiency from being offset by Napster-like liability. The resulting hybrid structure

scaled much better than the pure version of Gnutella.238 This is evidenced by its tremendous popularity:

the Kazaa FastTrack client alone was downloaded an estimated 317 million times in less than four

years.239

Without access to an application’s source code, it is sometimes nonetheless possible to learn about a

software program by, for example, observing network outputs and outcomes. Observation of the network

suggested that FastTrack operated via the following process. Once an individual loaded the client

software, that software contacted one of a “preset” list of “root” supernodes for the location of an active

supernode.240 The client then used that supernode to bootstrap or “latch on” to the network. Once

connected, it would automatically be designated either a node or supernode, depending on the current

needs of the network.241 Since the designation process apparently occurred dynamically, a peer’s status as

235 MGM Studios Inc v Grokster Ltd, 243 F Supp 2d 1073, at 1032 (CD Cal 2003).236 As a result of a subsequent full bench trial against the owners of the FastTrack technology in Australia, more

information is now known. However, for the purposes of understanding the Grokster litigation it is appropriate to limit consideration to the information that was available to the US courts. For a comprehensive explanation of that additional detail see Rebecca Giblin and Mark Davison, “Kazaa goes the way of Grokster? Authorisation of copyright infringement via peer-to-peer networks in Australia” (2006) 17(1) AIPJ 53-76.

237 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1040 (CD Cal 2003).238 Lior Jacob Strahilevitz, “Charismatic Code, Social Norms, and the Emergence of Cooperation on the File-Swapping

Networks” (2003) 89 Virginia Law Review 505, at 520.239 Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 65 IPR 289, at 182.240 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1040 (CD Cal 2003).241 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1040 (CD Cal 2003).

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node or supernode may have fluctuated even within a single session.242 The available evidence suggested

that by the time this litigation arose, none of those root supernodes were operated by Grokster Inc.243

Communications between users occurred rather differently via FastTrack than Gnutella. Perhaps the

biggest difference was that FastTrack nodes, rather than communicating directly with each other,

communicated only with their nearest supernode. Each node would send that supernode details of their

available files in much the same way that individual peers previously provided such information to

Napster’s central servers. To search the network an ordinary node sent a search request to its supernode,

which then searched its own list of available files and forwarded the request to any other supernodes to

which it was connected. This meant that instead of searches and responses being relayed through the

network one peer at a time, they were relayed between the fastest and most efficient machines on the

network. As each supernode effectively “spoke for” a number of nodes, a request with a TTL of 7 could

effectively search an exponentially larger number of users without suffocating the network.244 No part of

the FastTrack process required the software provider to contribute any support or hardware.245 All

messages sent over the network were encrypted.246

FastTrack searches were less efficient than Napster searches for two main reasons. Firstly, while

FastTrack searches could reach a wider number of users than on fully distributed systems like Gnutella,

they still lacked the network-wide link eventually achieved by Napster. This means that even if the

242 See Nathaniel Leibowitz, Matei Ripeanu and Adam Wierzbicki, “Deconstructing the Kazaa Network” (Paper presented at the Third IEEE Workshop on Internet Applications, 23-24 June 2003) at 1.

243 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1040 and at n6 (CD Cal 2003).244 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1040 (CD Cal 2003).245 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1040 (CD Cal 2003).246 Nathaniel Leibowitz, Matei Ripeanu and Adam Wierzbicki, “Deconstructing the Kazaa Network” (Paper presented at

the Third IEEE Workshop on Internet Applications, 23-24 June 2003) at 1.

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FastTrack had more active users than Napster did, the actual number of users that could be searched by

any one of them was likely to be far fewer. Secondly, the index information was not compiled in real

time, which meant that the information in the index was less up to date than that once available via

Napster.

The FastTrack network began to achieve its enormous success just as the Napster service was faltering.

The month after Napster went offline, more than half of the 6,906,000 users that had adopted Napster

alternatives were using a FastTrack client.247 Copyright agencies as well as movie and music interests

responded quickly, initiating litigation against it in the Netherlands, the United States and Australia. And,

since Morpheus switched from FastTrack to Gnutella soon after that litigation was instituted, that

technology was also brought along for the ride.

Grokster and Morpheus in the District Court

As the above technical discussion makes clear, neither Morpheus nor Grokster utilized the kind of central

server that was the basis of liability in Napster.248 And they carefully followed the “instruction manual”

supplied by the Napster Court by providing only products that facilitated distribution, rather than any

ongoing service. Combined with the fact that their products were capable of substantial non-infringing

uses, they considered that this effectively gave them a kind of “get out of jail free card”.249

Since clarification of the Sony rule was so vital to both sides, the parties took the unusual step of dividing

the issues into two discrete parts.250 The Court was asked “to first decide whether, going forward, if [the

defendants] did nothing other than distribute peer-to-peer software in return for advertising revenues, they

would be free from liability for any form of indirect infringement.”251 With the intention of clarifying

where each party stood under the Sony rule, both parties sought summary judgment on this issue. Other

questions, such as whether the defendants’ “initial business practices could be seen as actively

247 comScore Networks, “Users of File-Swapping Alternatives Increase Nearly 500 Percent in the US, Surpassing Napster, Reports Jupiter Media Metrix” <http://www.comscore.com/press/pr.asp?year=2001>, (10 October 2001) last accessed at 16 May 2005.

248 Jesse Feder, “Is Betamax Obsolete? Sony Corp of America v Universal City Studios Inc in the Age of Napster” (2004) 37 Creighton L Rev 859, at 881-882.

249 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 287-288.250 See Jay Dratler Jr, “Common-sense (Federal) common law adrift in a statutory sea, or why Grokster was a unanimous

decision” 22 Santa Clara Computer & High Tech LJ 413 (arguing that it was a mistake to frame the action in this way).251 Diane Leenheer Zimmerman, “Daddy, are we there yet? Lost in Grokster-land” (2005-2006) 9 NYU Journal of

Legislation and Public Policy 75, at 83 citing MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1033 (CD Cal 2003).

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encouraging infringement by their customers”, were left for future consideration.252 Accordingly, the

District Court’s consideration was limited to the defendants’ liability “for distributing the current versions

of their software, leaving aside whether either was liable ‘for damages arising from past versions of their

software, or from other past activities.’”253

The Court held that the facts were not at issue.254 The defendants had “distributed software that enabled

users to exchange digital media via a peer-to-peer transfer network”.255 And its users had gleefully done

so, swapping billions of files and engaging in a staggering amount of copyright infringement along the

way.256 With the necessary direct infringement made out,257 the real question was whether or not the

defendants were secondarily liable for that infringement.258

1. Contributory liability

As explained in Parts 2 and 3, contributory liability requires knowledge of third party infringement. In the

Ninth Circuit post-Napster, the type of knowledge necessary to satisfy this element depends on whether

or not the product at issue is capable of substantial non-infringing uses. The District Court held that the

252 Diane Leenheer Zimmerman, “Daddy, are we there yet? Lost in Grokster-land” (2005-2006) 9 NYU Journal of Legislation and Public Policy 75, at 83 (internal note omitted).

253 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2774 (2005) citing MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1033 (CD Cal 2003).

254 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1031 (CD Cal 2003).255 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1031 (CD Cal 2003).256 Though finding that third parties committed copyright infringement via the defendant technologies, the District Court

did not quantify the level of infringement. See MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1034-1035 (CD Cal 2003). However, clues to its extent can be gleaned from subsequent litigation against the owner of the FastTrack technology. As mentioned in n 236 above, an Australian court handed down a decision against it on similar issues and having had the benefit of a fully argued bench trial. This decision made several observations that hint at the vast degree of infringement that occurs via Kazaa. “Tens of millions of search requests each day are being made on the FastTrack Network via the KaZaA Graphical User Interface (GUI).” Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 65 IPR 289, at [133]; “Kazaa was being predominantly used for music file-sharing. A reader who had even a general understanding of copyright law would also have realized this necessarily involved copyright infringement on a massive scale.” Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 65 IPR 289, at [186]. Additionally, Altnet, one of the respondents held liable for authorization of copyright infringement, claimed that Kazaa’s 60 million users downloaded over three billion files each month. Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 65 IPR 289, at 147. Wilcox J noted that while it was theoretically possible for the system to be used to transfer non-infringing files, “in May 2003, Kazaa was being predominantly used for music file-sharing. A reader who had even a general understanding of copyright law would also have realized this necessarily involved copyright infringement on a massive scale.” Universal Music Australia Pty Ltd v Sharman License Holdings Ltd (2005) 65 IPR 289, at 186. In these circumstances it is appropriate to estimate that the number of unauthorized transfers of copyrighted material facilitated by software provided by the Grokster defendants also amounted to billions.

257 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1034 (CD Cal 2003).258 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1031 (CD Cal 2003).

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defendants’ software was indeed so capable.259 In these circumstances, constructive knowledge of

infringement could not be imputed, and the stricter standard of actual knowledge had to be met.

As it turned out, there was ample evidence of actual knowledge.260 The real crux of the matter turned out

to be in the timing of when that knowledge was held. The only knowledge that is relevant, the Court held,

is that of the defendant at the time it “materially contribut[d] to the alleged infringement, and c[ould]

therefore do something about it”.261 This is traceable to a historical distinction between landlords who

know about their tenants infringing activities prior to entering into a lease and those who find out later.

“[A]ny knowledge of the infringement that the landlord acquires after the tenant is in control is

insufficient to establish contributory infringement liability, because there is nothing the landlord does to

facilitate the infringement, or could do to stop it.”262

Did Morpheus and Grokster have actual knowledge of specific third party infringement at a time they

materially contributed to it, and therefore could do something to prevent it? The software code underlying

both applications ensured that the answer to this question was no. Users could “connect to the respective

networks, select which files to share, send and receive searches, and download files, all with no material

involvement of Defendants.”263 Even if Grokster and StreamCast were to be shut down, “users of their

products could continue sharing files with little or no interruption.”264 This meant that there was nothing

that the providers of the defendant technology could do, once they had distributed their software, to

prevent the third party infringement.

The Court further held that the defendants had not materially contributed to the third party infringement.

The basis of this finding was the fact that neither provider had supplied the “site and facilities” necessary

to direct infringement, which constituted a “seminal difference” distinguishing them from Napster.265

With neither of the two elements made out, the defendants were acquitted of contributory infringement.

259 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1035 (CD Cal 2003). But see Jesse Feder, “Is Betamax Obsolete? Sony Corp of America v Universal City Studios Inc in the Age of Napster” (2004) 37 Creighton L Rev 859, at 882 (arguing that there was no analysis explaining how the conclusion as to substantial non-infringing uses was reached).

260 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1036-1037 (CD Cal 2003).261 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1036-1037 (CD Cal 2003).262 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1037 (CD Cal 2003) citing Religious Technology Center v

Netcom On-Line Communication Services Inc, 907 F Supp 1361, at 1373-1374 (ND Cal 1995).263 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1041 (CD Cal 2003).264 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1041 (CD Cal 2003).265 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1041 (CD Cal 2003).

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2. Vicarious liability

The defendants managed to avoid vicarious liability for similar reasons. As explained above, vicarious

liability will be made out where the defendant “has the right and ability to supervise the infringing

activity and also has a direct financial interest in such activities.”266

In this case both defendants clearly had a direct financial interest in the infringement of their users.267 But

when it came to the second element, the plaintiffs were once again stymied by the code underlying the

defendants’ software. The way it was coded meant that the defendants were unable to “supervise or

control the file-sharing networks, or to restrict access to them”. Accordingly, they argued that they lacked

the necessary “right and ability to supervise the infringing activity”.268

The plaintiffs argued that even if the defendants could not police their users given the current form of

their software, they did have the power to change the underlying code of their software to prevent

copyright infringement.269 However, regardless of whether such changes were feasible, the Court held that

the defendants had no obligation to make them. “[T]he obligation to ‘police’ arises only where a

defendant has the ‘right and ability’ to supervise the infringing conduct.”270 Napster Inc had been held to

have such an obligation because its central indexing system, compulsory registration and right to block

access to specific users for any reason clearly gave it the “right and ability to supervise its users’

conduct”.271 However, neither Grokster nor StreamCast had such a right and ability in this case.

“Defendants provide software that communicates across networks that are entirely outside Defendants

control. In the case of Grokster, the network is the propriety [sic] FastTrack network, which is clearly not

controlled by Defendant Grokster. In the case of StreamCast, the network is Gnutella, the open source

nature of which apparently places it outside the control of any single entity.”272 Accordingly, the Court

concluded that neither defendant had the requisite right and ability to supervise the infringing activity and

was therefore not obliged to police their networks or otherwise implement measures to reduce

infringement.273

266 Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159, at 1162 (2nd Cir 1971).267 MGM Studios Inc v Grokster Ltd, 243 F Supp 2d 1073, at 1043-1044 (CD Cal 2003).268 MGM Studios Inc v Grokster Ltd, 243 F Supp 2d 1073, at 1045 (CD Cal 2003).269 MGM Studios Inc v Grokster Ltd, 243 F Supp 2d 1073, at 1045 (CD Cal 2003).270 MGM Studios Inc v Grokster Ltd, 243 F Supp 2d 1073, at 1045 (CD Cal 2003). Internal notes omitted.271 A&M Records Inc v Napster Inc, 239 F Supp 3d 1004, at 1023 (9th Cir 2001) citing A&M Records Inc v Napster Inc,

114 F Supp 2d 896, at 920-921 (ND Cal 2000).272 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1045 (CD Cal 2003).273 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1044-1045 (CD Cal 2003).

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The inevitable result of this analysis was that, despite the “possibility that Defendants may have

intentionally structured their businesses to avoid secondary liability for copyright infringement, while

benefitting [sic] financially from the illicit draw of their wares,”274 the Court granted the P2P providers

summary judgment.275 The defendants’ aim of aligning themselves more closely with the VCR than with

Napster had clearly succeeded: the District Court expressly stated that “Grokster and StreamCast [were]

not significantly different from companies that sell home video recorders or copy machines, both of

which can be and are used to infringe copyrights … Absent evidence of active and substantial

contribution to the infringement itself, Defendants cannot be liable.”276 The combination of the

defendants’ coding their technologies to mimic the behavior of physical world hardware, and the Court’s

decision not to distinguish code-based from physical technologies, meant that the defendants successfully

escaped liability under the existing law.277

The plaintiffs and other members of the content industry responded to this setback on three fronts. Firstly,

they lobbied Congress for legislative change.278 Secondly, they began filing copyright infringement

lawsuits against hundreds and then thousands of individuals that they believed had committed P2P

copyright infringements, particularly via the FastTrack network to which Grokster users connected.279

Finally, they appealed the decision to the Ninth Circuit. With the first two prongs of its approach

apparently having minimal or no effect on the amount of unauthorized file sharing, the outcome of that

appeal assumed tremendous significance.274 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1046 (CD Cal 2003).275 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1031 (CD Cal 2003).276 MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1043 (CD Cal 2003).277 Tim Wu, “When Code Isn’t Law” (2003) 89 Virginia Law Review 679, at 738 (arguing that the decision “suggest[ed]

that the changes in design ‘worked,’ at least with respect to negating the element of control that sealed Napster’s fate.”)278 The most significant outcome of these lobbying efforts was the INDUCE Act, later known as the Inducing

Infringement of Copyrights Act, which was introduced to Congress in June 2004 and then referred to the US Senate Committee on the Judiciary. If passed, it would have amended 17 USC § 501 to add a cause of action for “intentionally inducing” copyright infringement. The proposed legislation proved tremendously controversial, with suggestions that it would give rise to liability for such diverse products as the ipod, TiVo, the email “forward” function, and even the New York Times. For a comprehensive summary of the products suggested to be under threat, see James Grimmelmann, “The LawMeme Reader’s Guide to Ernie Miller’s Guide to the INDUCE Act” Law Meme, <http://research.yale.edu/lawmeme/modules.php?name=News&file=article&sid=1549>, (15 July 2004) last accessed at 23 January 2007. After noisy grassroots and technology industry lobbying, the Bill never made it back out of committee. See Bill Rosenblatt, “Induce Act Dead for This Year” DRM Watch, <http://www.drmwatch.com/legal/article.php/11578_3421731_2>, (14 October 2004) last accessed at 23 January 2007.

279 See e.g. David W Opderbeck, “Peer-to-Peer Networks, Technological Evolution, and Intellectual Property Reverse Private Attorney General Litigation” (2005) 20 Berkeley Tech LJ 1685; Matthew Sag, “Piracy: Twelve year-olds, Grandmothers, and other good targets for the recording industry” (2006) 4 Nw J Tech & Intell Prop 133; Justin Hughes, “On the logic of suing one’s customers and the dilemma of infringement-based business models” (2005) 22 Cardozo Arts & Ent LJ 725; Kristina Groennings, “Costs and Benefits of the Recording Industry’s Litigation against Individuals “ (2005) 20 Berkeley Tech LJ 571. For a more international perspective, see Robert C Piasentin, “Unlawful? Innovative? Unstoppable? A Comparative Analysis of the Potential Legal Liability Facing P2P End-Users in the United States, United Kingdom and Canada” (2006) 14 International Journal of Law & Information Technology 195. On the impact of the lawsuits, see Sudip Bhattacharjee, et al, “Impact of legal threats on online music sharing activity: an analysis of music industry legal actions” (2006) 49 JL & Econ 91; Ben Depoorter and Sven Vanneste, “Norms and Enforcement: the case against copyright litigation” (2005) 84 Or L Rev 1127.

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Grokster and Morpheus in the Ninth Circuit

However, to the well-publicized dismay of the plaintiffs, the Ninth Circuit agreed with the District Court

that the defendants could not be liable under current theories of secondary liability.280 As at first instance,

the way the defendant software applications were coded was of “great import” to the Ninth Circuit’s

analysis.281

1. Contributory liability

Knowledge

The plaintiffs had argued that Sony did not protect the defendants in this case because “the vast majority

of the software use is for copyright infringement”,282 an argument consonant with the Seventh Circuit

holding in Aimster. However the Ninth Circuit rejected this argument, declaring that such an

interpretation “misapprehen[ded] the Sony standard”.283 Sony, the Court explained, is relevant to the

degree of knowledge necessary to make out contributory liability.284 “If the product at issue is not capable

of substantial or commercially significant noninfringing uses, then the copyright owner need only show

that the defendant had constructive knowledge of the infringement.”285 If however the product is capable

of such non-infringing uses, as those in this case were,286 the Sony protection means that “the copyright

owner must demonstrate that the defendant had reasonable knowledge of specific infringing files and

failed to act on that knowledge to prevent infringement.”287 The Court then held that the products at issue

were capable of substantial non-infringing uses. In a footnote it observed that although the non-infringing

uses may only constitute 10% of the total, “the volume of use would indicate a minimum of hundreds of

thousands of legitimate file exchanges.”288 Ginsburg and Ricketson have subsequently criticized this

reasoning, pointing out that, when it comes down to it, the 90% proportion of infringing use is even

“more extensive”.289

280 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1160 (9th Cir 2004).281 See e.g. Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law

Review 815, at 846.282 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1162 (9th Cir 2004).283 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1162 (9th Cir 2004).284 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1160 (9th Cir 2004).285 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1161 (9th Cir 2004).286 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1161-1162 (9th Cir 2004).287 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1161 (9th Cir 2004).288 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1162 (9th Cir 2004).289 Jane C Ginsburg and Sam Ricketson, “Inducers and Authorisers: A Comparison of the US Supreme Court’s Grokster

Decision and the Australian Federal Court’s KaZaa Ruling” (2006) 11(1) Media and Arts Law Review 1, at 4.

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Under this interpretation, a finding that a product is capable of substantial non-infringing uses means that

actual knowledge is necessary in order to satisfy the tort’s knowledge element. The Ninth Circuit upheld

the District Court finding that actual knowledge must be held at a time the defendant was contributing to

the third party infringement or could do something to stop it.290 This is something the defendants could

technically never be capable of, since the way their software was coded meant that third-party

infringement fell outside their control. This was because the defendant technologies had been coded to

eliminate the liability-attracting Napster-style central index, and as a result, facilitated the creation of

networks that were sufficiently decentralized to allow them to continue operating even if the defendants

themselves “closed their doors and deactivated all computers within their control”.291 Accordingly, the

knowledge element was not satisfied.292

Material contribution

But even if it had been, the defendants would still have avoided liability under the tort’s second element.

Just as the code underlying the defendant software applications prevented the knowledge element from

being made out, it also ensured that the defendants had not committed the requisite “material”

contribution.

The Court held that one way in which material contribution can be made out is where a defendant

provides the “site and facilities” for infringement and “fail[s] to stop specific instances of infringement”

once it has knowledge of them.293 It then upheld the District Court’s decision that the defendants could

not be said to have supplied such “site and facilities”294 since, as a consequence of the way the software

was coded, “[i]nfringing messages or file indices d[id] not reside on defendants’ computers, nor d[id]

defendants have the ability to suspend user accounts.”295 The defendants were “not access providers, and

they [did] not provide file storage and index maintenance.”296 Instead, “it [wa]s the users of the software

who, by connecting to each other over the internet, create[d] the network and provide[d] the access.”297

Grokster’s users connected or “bootstrapped” to the network via the preset list of root supernodes that

were analogous to Napster’s central servers, but since those nodes were not controlled by Grokster Inc

290 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1162-1163 (9th Cir 2004).291 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163 (9th Cir 2004).292 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163 (9th Cir 2004).293 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163 (9th Cir 2004).294 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163 (9th Cir 2004).295 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163 (9th Cir 2004).296 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163-1164 (9th Cir 2004).297 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163 (9th Cir 2004).

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their existence made no difference to its liability.298 Creating software that facilitated connection to

independent networks without any need for assistance or intervention from the defendants was not

sufficiently material, in the Court’s view, to satisfy the element.

Since the defendants had no power to unilaterally stop the infringement, the plaintiffs argued that they

should prevent it by changing the design of their software. This argument failed, with the Court holding

that “alter[ing] software located on another’s computer”299 goes further than what the defendants are

required to do to prevent infringement.300 The Court’s analysis clearly fails to recognize that the main

reason why the defendants did not provide the “site and facilities” necessary to infringement was because

they had recognized that so-structuring their software was a direct route to liability, and engineered their

products to fall outside the strict letter of the law. To then hold that they were not obliged to exercise the

rights that they did have over the resulting software, again because to do so would not gel with existing

physical world precedent, seems to implicitly bless the continued exploitation of the differences between

the physical and the virtual, and give technology providers a powerful advantage over content owners.

Each of the defendants’ other contributions were also held “too incidental” to satisfy the material

contribution element.301 Since they had not provided the “site and facilities” for infringement, and in the

absence of sufficient evidence that the defendants had “materially contribute[d] in any other manner”, the

contribution element was not made out.302 Accordingly, the Ninth Circuit unanimously affirmed the

District Court’s decision.303 In essence, as Yen says, “the technical design of the defendants’ system [had]

made it impossible for the defendants to stop infringement from occurring, so contributory liability was

impossible.”304

It should be noted that on these facts, the application of Sony actually had no real impact. Even if it had

not applied, making it possible to impute knowledge, the design of the software would still have made it

impossible for the material contribution element to be made out.

298 On this point see MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1040 (CD Cal 2003).299 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163-1164 (9th Cir 2004).300 The situation may have been different had the software’s Terms of Service reserved to the defendant the right to alter

the installed software for legal reasons.301 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1163 (9th Cir 2004).302 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1164 (9th Cir 2004).303 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1167 (9th Cir 2004).304 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 847.

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2. Vicarious liability

For similar reasons, the Ninth Circuit held that the defendants also fell outside the existing formulation of

vicarious liability. The sticking point, once again, was the defendants’ carefully coded inability to

supervise the infringement.305

The plaintiffs had argued that such right and ability existed by virtue of the defendants’ ability to alter

their software “to prevent users from sharing copyrighted files.”306 The Court emphatically rejected this

argument. “In arguing that this ability constitutes evidence of the right and ability to supervise, the

Copyright Owners confuse the right and ability to supervise with the strong duty imposed on entities that

have already been determined to be liable for vicarious copyright infringement; such entities have an

obligation to exercise their policing powers to the fullest extent”.307 The Court further held that “the

potential duty a district court may place on a vicariously liable defendant is not the same as the ‘ability’

contemplated by the ‘right and ability to supervise’ test.”308 Thus, the Court held, “possibilities for

upgrading software located on another person’s computer are irrelevant to determining whether vicarious

liability exists.”309 It explained that the requisite “‘right and ability to supervise’ describes a relationship

between the defendant and the direct infringer”.310 Citing Fonovisa and Napster “for the proposition that

some degree of control over user behavior and the ability to terminate access were strong evidence of the

control necessary to establish vicarious liability”,311 the Court held that in this case there was no evidence

of such a relationship.312 “The sort of monitoring and supervisory relationship that has supported vicarious

liability in the past is completely absent in this case.”313 The Court’s analysis, and this conclusion in

particular, is remarkable for its lack of enquiry into precisely why the relationship is different, and

whether those differences ought to give rise to a different sort of treatment than those previous

relationships. Instead of doing so however, it simply chose to accept that the architecture created by the

underlying software code was sufficient to prevent liability from attaching.

3. Willful blindness

305 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1164 (9th Cir 2004).306 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1165-1166 (9th Cir 2004).307 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1166 (9th Cir 2004).308 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1166 (9th Cir 2004).309 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1166 (9th Cir 2004).310 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1164 (9th Cir 2004).311 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 847.312 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1165 (9th Cir 2004).313 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1165 (9th Cir 2004).

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The Ninth Circuit rejected the plaintiffs’ argument that “[t]urning a blind eye to detectable acts of

infringement for the sake of profit gives rise to liability”, holding that “there is no separate ‘blind eye’

theory or element of vicarious liability that exists independently of the traditional elements of liability.”314

This contrasts with the approach taken by the Seventh Circuit, which held the incorporation of encryption

into Aimster’s design to constitute a form of willful blindness.315

4. Implications

Unlike the Seventh Circuit, which had at least implicitly recognized the difference between Aimster and

the technologies that had come before it, the Ninth Circuit insisted on treating Grokster and Morpheus the

same as the physical world technologies that came before them. Ironically, though this approach

“maintained Sony’s implicit distinctions between products and services, between distributor and publisher

liability, and between traditional and code-based gatekeeping”,316 the outcome was antithetical to what

those principles were formulated to achieve. One of the primary purposes of secondary liability law is to

provide a remedy to wide scale infringement where it would be inefficient to target direct infringers. 317

Intuitively, this suggests “that creators of peer-to-peer networks are more likely to be held liable when

their networks lead to the unchecked infringement of copyrighted works, and less likely to be held liable

when their networks retain some ability to prevent infringement.”318 But the Ninth Circuit’s analysis

resulted in the opposite conclusion, actually encouraging software providers to design and unleash

uncontrollable tools of infringement, even where infringement could be significantly reduced at minimal

cost.319 By continuing to apply principles that evolved with reference to physical technologies to virtual,

314 MGM Studios Inc v Grokster Ltd, 380 F 3d 1154, at 1166 (9th Cir 2004).315 In Re: Aimster Copyright Litigation, 334 F 3d 643, at 650-651 (7th Cir 2003); Andrew J Lee, “MGM Studios Inc v

Grokster Ltd & In re Aimster Litigation: A Study of Secondary Copyright Liability in the Peer-to-Peer Context” (2005) 20 Berkeley Tech LJ 485, at 503-504.

316 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 281.317 Mark A Lemley, “Inducing Patent Infringement” (2005) 39 UC Davis L Rev 225, at 228; Alfred C Yen, “Sony, Tort

Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review 815, at 848.318 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 848.319 Alfred C Yen, “Sony, Tort Doctrines, and the Puzzle of Peer-To-Peer” (2005) 55 Case Western Reserve Law Review

815, at 848. See also Craig Steckley, “MGM v Grokster: A Disincentive for Technological Responsibility” (2005) 7 Tul J Tech & Intell Prop 299, at 310-311 (where Steckley makes a similar point. “The problem with the rule created by the Ninth Circuit in the noted case is that it creates a disincentive to monitor for infringing uses in peer-to-peer technology. The same criticism is applicable to the vicarious copyright infringement analysis.”) Similar claims have also been made with regard to the Sony standard. See e.g. Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 753-754 citing Randal C Picker, “Copyright as Entry Policy: The Case of Digital Distribution” (2002) 47 Antitrust Bulletin 423, at 444-445 (arguing that “the Sony test failed to create any design incentives, even in circumstances where a redesign would be incredibly cost-efficient.) On this point see also Douglas Lichtman and William Landes, “Indirect Liability for Copyright Infringement: An Economic Perspective” (2003) 16 Harv J Law & Tech 395, at 400-401.

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Picker argues that the Ninth Circuit “ignores the new realities of networked products and what those

should mean for ongoing design obligations.”320

Conclusion

The approaches taken by the circuit courts in Aimster and Grokster provided grist for an interesting

comparison. In both cases, courts were faced with defendants who had deliberately coded their

technologies to fall outside the boundary of existing law. But each court responded very differently. The

Ninth Circuit’s strict application of principles developed with reference to physical world technologies

resulted in loopholes programmers could exploit with almost contemptuous ease. The Seventh Circuit’s

more flexible approach appeared to implicitly recognize that some characteristic distinguished Aimster

from its physical world predecessors, but in failing to expressly identify that characteristic its response

resulted in the creation of a doctrine of uncertain breadth and probable prejudice to generative

technologies. Neither approach expressly recognized any of the fundamental differences between physical

and virtual technologies that comprise the physical/virtual divide, and both continued their problematic

equation of physical and virtual distribution technologies.

After six years of litigation between content owners and P2P software providers, the law was hopelessly

tangled. Yen argues that the “two distinct approaches” taken by the Seventh and Ninth Circuits had

“rendered the law incoherent, and … polarized debate about third-party copyright liability because both

sides could credibly claim that existing precedent supported their positions.”321 Despite years of litigation,

“[t]he only issue on which the lower courts had ruled was whether Grokster qualified for the Sony safe

harbor defense to MGM’s contributory infringement claim as to current versions of its software.”322

Against this backdrop the plaintiffs sought and were granted certiorari from the US Supreme Court.323

4: INDUCEMENT: THE TARGETED RESPONSE

320 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 757.

321 Alfred C Yen, “Third-Party Copyright Liability after Grokster” (2005) 91 Minnesota Law Review 184, at 187 citing Craig Grossman, “The Evolutionary Drift of Vicarious Liability and Contributory Infringement: From Interstitial Gap Filler to Arbiter of the Content Wars” (2005) 58 SMU L Rev 357, at 378-395 and Part I.

322 Pamela Samuelson, “Three Reactions to MGM v Grokster” (2006) 13 Mich Telecomm Tech L Rev 177, at 179 <http:// www.mttlr.org/volthirteen/samuelson.pdf> accessed at 1 February 2006 citing MGM Studios Inc v Grokster Ltd, 259 F Supp 2d 1029, at 1033 (CD Cal 2003).

323 MGM Studios Inc v Grokster Ltd, 125 S Ct 686 (Supreme Court 2004). To ensure uniformity and avoid confusion, this section continues to refer to the parties as the plaintiffs and defendants, rather than as the Petitioners and Respondents as would strictly speaking be correct in the Supreme Court jurisdiction.

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So far, this work has highlighted the physical world assumptions on which the US secondary liability law

is based, and demonstrated the ways in which P2P programmers have exploited those assumptions to

delay or avoid liability for their users’ infringements. This Part now focuses on the US Supreme Court’s

response to the exploitation of the existing law, which was to create a new intent-based secondary liability

doctrine expressly aimed at capturing the behavior of the Grokster defendants. It argues that in

developing this response the Supreme Court, like the courts below it, relied heavily on physical world

assumptions, and that reliance explains why the doctrine has failed to bring about any overall reduction in

the number of P2P file sharing applications.

1. A new theory of liability

As the highest court in the US geared up to consider secondary liability issues for the first time in two

decades, and code-based generative technologies for the first time ever, the matter assumed tremendous

significance. Close to 100 amicus briefs were filed, among them arguments advanced by technology

companies, content providers, and legal and economics experts.324 Everyone was determined to have a say

in the future interpretation of Sony. Everyone, it turned out, except the Supreme Court itself, which,

unable to determine exactly what the doctrine meant, passed up the opportunity to resolve the circuit split

and decided the matter on a completely different theory of liability.325 Unanimously believing that the

defendants should not escape liability for their behaviour, but irrevocably split as to whether they should

be liable under Sony, inducement liability was the “compromise” solution.326 The decision did not render

P2P technologies themselves illegal. Instead, it held that the companies that provide such technologies

may be liable for third-party infringement if they “induce” those infringements.

324 These briefs can be accessed online through Westlaw (subscription only).325 See e.g. Jacqueline D Lipton, “Solving the Digital Piracy Puzzle: Disaggregating Fair Use from the DMCA’s Anti-

Device Provisions” (2005) 19 Harv J Law & Tech 111, at 123. Samuelson points out that “the Court’s statement of the question presented by the case: ‘under what circumstances [is] the distributor of a product capable of both lawful and unlawful use liable for acts of copyright infringement by third parties using the product’” contrasts with “the question that MGM had asked the Court to address: ‘Whether the Ninth Circuit erred in concluding … 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.’” Pamela Samuelson, “Three Reactions to MGM v Grokster” (2006) 13 Mich Telecomm Tech L Rev 177, at 180 <http:// www.mttlr.org/volthirteen/samuelson.pdf> accessed at 1 February 2006 (internal notes omitted).

326 See Tim Wu, “The Copyright Paradox” 2005 Supreme Court Review 229, at 249. Interestingly, the Court made clear its attraction to an inducement theory of liability at several points during oral argument in the matter. See Alderson Reporting Company, “Transcript of Oral Argument in the Supreme Court of the United States of America in the matter of Metro-Goldwyn-Mayer Studios Inc v Grokster, 29 March 2005” <http://www.supremecourtus.gov/oral_arguments/argument_transcripts/04-480.pdf>, last accessed at 11 April 2005, particularly pages 6-9, 16-18, 21-22, but cf 29-32. On this point see also Jay Dratler, “Common-sense (Federal) common law adrift in a statutory sea, or why Grokster was a unanimous decision” (2006) 22 Santa Clara Computer & High Tech LJ 413, at 414-416.

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Before Grokster, the US copyright law had no history of a standalone inducement theory. But that is not

to say that inducement was an irrelevant consideration. Indeed, in the leading definition of contributory

infringement formulated in Gershwin Publishing Corp v Columbia Artists Management Inc over thirty

years ago, contributory liability was defined as inducing, causing or materially contributing to the

infringing conduct of another.327 But while the Supreme Court liked the idea of tying the defendants’

liability to its “inducement” of third party infringement, simply slotting it into the existing contributory

infringement framework would have raised the same problems regarding knowledge and timing that the

lower courts had already come up against in their application of that doctrine to code-based technologies.

Accordingly, the Supreme Court again looked to copyright’s patent-law cousin for inspiration. Section

271(b) of Chapter 35 of the United States Code had long provided that “whoever actively induces

infringement of a patent shall be liable as an infringer.”328 The Supreme Court imported it wholesale,

holding that inducement liability accrues where a defendant “distributes a device with the object of

promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to

foster infringement”.329

327 Gershwin Publishing Corp v Columbia Artists Management Inc, 443 F 2d 1159, at 1162 (2nd Cir 1971).328 For useful historical perspectives on inducement liability in the patent context, see Mark A Lemley, “Inducing Patent

Infringement” (2005) 39 UC Davis L Rev 225; Charles W Adams, “A Brief History of Indirect Liability for Patent Infringement” (2006) 22 Santa Clara Computer & High Tech LJ 369.

329 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2770 (2005).

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Inducement liability is apparently completely separate from existing theories of secondary liability.330

This means that the post-Grokster secondary liability arsenal contains three weapons. Where a defendant

has the right and ability to supervise an infringement and a direct financial interest in that infringement,

they will be vicariously liable. Where they have knowledge of a third party infringement and nonetheless

induce, cause or materially contribute to it, they are contributorily liable – unless of course they are

protected under Sony. And where they distribute a device with the object of promoting its use to infringe

copyright, they will be liable for inducement. Since inducement is separate from the two other theories of

secondary liability, it is not subject to potential limitation by the Sony doctrine.331

11. What constitutes inducement?

The Supreme Court remanded the matter to the District Court for formal adjudication as to whether

inducement was made out. However, it went so far as to strongly suggest that the defendants would be

liable in accordance with that theory. Pointing to three “particularly notable” indicia of intent, the Court

unanimously declared the defendants’ “unlawful objective … unmistakable”.332 While these indicia were

fact-specific and may not be dispositive in later cases, they are indicative of a minimum threshold level

that the Supreme Court considered sufficient to satisfy the inducement test.

330 After the decision was handed down there was much debate regarding whether this was the case, or whether the doctrine “simply an extension of its existing contributory infringement jurisprudence.” See William Sloan Coats, Mark R Weinstein and Erik R Zimmerman, “Pre- and Post-Grokster Copyright Infringement Liability For Secondary and Tertiary Parties” (2005) 842 PLI/Pat 221, at 242-243; Jill David, “Does Grokster Create a New Cause of Action that Could Implicate the Apple TV?” (2007) 17 Fordham Intell Prop Media & Ent LJ 1197480. On balance however, it now seems to be accepted that the decision did indeed create a new theory of liability. See William Patry, “Grokster Remand Opinion” The Patry Copyright Blog, <http://williampatry.blogspot.com/>, (28 September 2006) last accessed at 13 October 2006 (discussing the decision reached by the Grokster District Court on remand from the Supreme Court Patry observed that, “[t]he most important thing to note is that the only basis for liability discussed is inducement: no contributory infringement, no staple article of commerce. I have had many discussions with friends about whether Grokster did create a new third theory of liability, separate from the inducement prong of classic copyright contributory infringement. I have taken the position it did and further that it did so deliberately to kill off Sony. Content owners have, I believe, seen it this way, and Wednesday’s opinion shows I was right.”); Fred von Lohmann, “What Peer-to-Peer Developers Need to Know about Copyright Law” Electronic Frontier Foundation, <http://www.eff.org/IP/P2P/p2p_copyright_wp_v5.pdf>, (January 2006) last accessed at 27 September 2006 (“the Supreme Court announced a new theory of copyright inducement liability”); Tim Wu, “The Copyright Paradox” 2005 Supreme Court Review 229, at 248 (describing inducement as “a new theory of liability”); R Anthony Reese, “The Temporal Dynamics of ‘Capable of Substantial Non-infringing Uses’” (2006) 13 Mich Telecomm Tech L Rev 197, at 198 (“the Court’s view [is] that inducement is a basis for a secondary liability claim against a supplier of a dual-use device separate from a secondary liability claim against such suppliers based merely on ‘distribution [of the device] with knowledge that unlawful use will occur.’”); Pamela Samuelson, “Three Reactions to MGM v Grokster” (2006) 13 Mich Telecomm Tech L Rev 177 <http:// www.mttlr.org/volthirteen/samuelson.pdf> accessed at 1 February 2006; William Sloan Coats, Mark R Weinstein and Erik R Zimmerman, “Pre- and Post-Grokster Copyright Infringement Liability For Secondary and Tertiary Parties” (2005) 842 PLI/Pat 221, at 243. (“On balance … it appears that the Court created a new theory of liability for inducement, that is, in addition to and separate from the existing doctrines of contributory and vicarious infringement.”) However, cf Perfect 10 v Amazon.com, 487 F 3d 701, at 726-727 (9th Cir 2007) in which the Ninth Circuit seemed to suggest that inducement was merely a sub-species of contributory liability.

331 See eg Jane C Ginsburg and Sam Ricketson, “Inducers and Authorisers: A Comparison of the US Supreme Court’s Grokster Decision and the Australian Federal Court’s KaZaa Ruling” (2006) 11(1) Media and Arts Law Review 1, at 4 (noting that “the Sony standard does not even come into play when the defendant is ‘actively inducing’ copyright infringement”).

332 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781-2782 (2005).

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The first factor was that “each [defendant] company showed itself to be aiming to satisfy a known source

of demand for copyright infringement, the market comprising former Napster users.”333 As well as

advertising to Napster users, internal company documents made reference to Napster, Grokster appeared

to have derived its name from Napster, and the defendants’ software functioned similarly to Napster.334

The Court concluded that the defendants’ “efforts to supply services to former Napster users, deprived of

a mechanism to copy and distribute what were overwhelmingly infringing files, indicate a principal, if not

exclusive, intent on the part of each to bring about infringement.”335

This evidence was “given added significance” by second factor: the defendants’ failure to develop

filtering tools or other mechanisms that would reduce the amount of infringement that occurred through

the use of their software.336 “[W]e think this evidence underscores Grokster’s and StreamCast’s

intentional facilitation of their users’ infringement.”337 In a footnote, the Court went on to say that “in the

absence of other evidence of intent, a court would be unable to find contributory infringement liability

merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was

capable of substantial noninfringing uses. Such a holding would tread too close to the Sony safe

harbor.”338

Thirdly, the Court found it significant that the defendants obtained a financial benefit from the use of the

software that increased with their software’s usage. “[The defendants] make money by selling advertising

space, by directing ads to the screens of computers employing their software. As the record shows, the

more the software is used, the more ads are sent out and the greater the advertising revenue becomes.”339

Once again the Court qualified this factor - “[t]his evidence alone would not justify an inference of

unlawful intent, but viewed in the context of the entire record its import is clear.”340 Thus it appears that

the amount of revenue linked to infringement becomes a relevant factor once there is some other evidence

of intention. That is, if the business has encouraged that infringement in some way and the business

model is reliant on infringement, that reliance can be taken into account in determining whether or not

333 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781 (2005). 334 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2780-2781 (2005).335 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781 (2005).336 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781 (2005).337 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781 (2005).338 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781, n12 (2005).339 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2782 (2005).340 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2782 (2005).

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there was inducement. In this case there was evidence that the Respondents’ revenue was heavily reliant

on infringement, with approximately 90% of all use infringing.

Post-Grokster, two main theories have been advanced as to what is necessary for inducement to be made

out.341 The first and broadest posits that simply providing a product that facilitates infringement can

constitute inducement, “so long as it was done with bad intent”.342 Proponents of this test include

Ginsburg and Ricketson, who argue “that where a device facilitates infringement on a massive scale, its

distributor will likely be found to have intended that result. Where the infringement is relatively modest in

scale, inducement will not be found, but neither will the Sony threshold for liability be crossed.”343 Whilst

inducement case law remains sparse, no court has held a defendant liable for simply releasing a product

with the intent that it be used for infringement in the more than three years since the decision was handed

down. Even content owners seem to think that this theory would not hold up in the courts: there are a

number of P2P providers whose products currently facilitate a vast amount of infringement but that have

not so much as been sued for inducement.344

In these circumstances the second theory appears to be in the ascendant. This theory posits that all the

intent in the world cannot make inducement liability attach in the absence of some “active step” taken to

facilitate the infringement.345 It gets its authority from the passage in Grokster in which the Supreme

Court explained,

… mere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as offering customers technical support or product updates, support liability in themselves. The inducement rule, instead, premises liability on purposeful, culpable expression and conduct, and thus does nothing to compromise legitimate commerce or discourage innovation having a lawful promise.346

341 See Rebecca Giblin, “A Bit Liable? A Guide to Navigating the US Secondary Liability Patchwork” (forthcoming Fall 2008) Santa Clara Computer and High Technology Law Journal.

342 Mark A Lemley, “Inducing Patent Infringement” (2005) 39 UC Davis L Rev 225, at 234.343 Jane C Ginsburg and Sam Ricketson, “Inducers and Authorisers: A Comparison of the US Supreme Court’s Grokster

Decision and the Australian Federal Court’s KaZaa Ruling” (2006) 11(1) Media and Arts Law Review 1, at 7.344 Pamela Samuelson, “Three Reactions to MGM v Grokster” (2006) 13 Mich Telecomm Tech L Rev 177, at 195 <http://

www.mttlr.org/volthirteen/samuelson.pdf> accessed at 1 February 2006 (internal notes omitted). See also Rebecca Giblin, “A Bit Liable? A Guide to Navigating the US Secondary Liability Patchwork” (forthcoming Fall 2008) Santa Clara Computer and High Technology Law Journal.

345 See e.g. Tim Wu, “The Copyright Paradox” 2005 Supreme Court Review 229, at 246; Mark A Lemley, “Inducing Patent Infringement” (2005) 39 UC Davis L Rev 225.

346 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2780 (2005); see also Tim Wu, “The Copyright Paradox” 2005 Supreme Court Review 229, at 246 (citing the same passage).

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This active step requirement is directly traceable to the patent law, which prohibits defendants from

“actively” inducing infringement. Case law arising in that context interprets the adverb “actively” as

meaning that “some affirmative act is necessary for a violation of § 271(b) to occur”.347

The Supreme Court made it clear that the active step or steps need to be more than incidental to product

distribution. And it explained that it must have been “taken with the purpose of bringing about infringing

acts”.348 The “preeminent but not exclusive way”349 of satisfying that requirement is by demonstrating that

the defendants “broadcast[] a message designed to stimulate others to commit violations.”350 There was

ample evidence that the Grokster defendants had broadcast such a message. “StreamCast’s internal

documents made constant reference to Napster, it initially distributed its Morpheus software through an

OpenNap program compatible with Napster, it advertised its OpenNap program to Napster users, and its

Morpheus software functions as Napster did except that it could be used to distribute more kinds of files,

including copyrighted movies and software programs. Grokster’s name is apparently derived from

Napster, it too initially offered an OpenNap program, its software’s function is likewise comparable to

Napster’s, and it attempted to divert queries for Napster onto its own Web site.”351

12. The inducement doctrine’s physical world assumptions

By creating a new and independent intent-based standard, the Court was seeking to provide a means of

redress for content owners that could not be undermined by code-based attack. On one view, it succeeded

in doing so: software developers cannot code their way out of inducement liability using the tactics that

were so successful in avoiding liability for contributory and vicarious infringement. However, just like

those standards, the inducement standard relies on physical world assumptions that fail to recognize a

number of vital differences between physical and virtual product development. This work argues that this

reliance is the reason why the inducement standard has failed to bring about any overall reduction in the

number of P2P applications in the marketplace.

The Supreme Court relied heavily upon two physical world assumptions in particular in developing its

inducement standard. The first is the idea that facilitators of large scale infringement will have

commercial motivations – that is, that they will seek to obtain the maximum possible financial benefit

347 Goodwall Construction Co Inc v Beers Construction Co, 216 USPQ (BNA) 1006, at 1008 (ND Ga 1981).348 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781 (2005).349 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781 (2005).350 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2768 (2005).351 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781 (2005).

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from that third party infringement. The second is the idea that rational developers of distribution

technologies won’t share their secrets with their competitors. As explained in Part 1 of this article, both of

these assumptions are rooted in the physical world paradigm, where the amount of research and

investment needed to design, manufacture and distribute a new distribution technology makes it

impracticable to give it away with no thought to recouping their investment, or to donate the benefit of all

that research and investment to competitors keen to make something similar.

The first of these physical world assumptions, the idea that facilitators of large scale infringement will be

commercially motivated, underpins the Court’s application of the inducement doctrine to the Grokster

defendants. For example, the active steps it attributed to the defendants, outlined above, largely arose

from the commercial nature of those organizations, particularly their market research, advertising, and

business strategies. The reliance on this assumption is still more explicit in the Court’s third indicia of

infringement, the fact that the defendants obtained a financial benefit from the use of their software that

increased in line with its usage.352 While the Court stated that this alone would not be enough to make out

infringement, it was clearly very strongly influenced by the fact that the defendants’ business models

were reliant on infringement.

Since the Grokster defendants and many of their counterparts were in fact commercially oriented, this

focus on their business models and commercial motivations made a lot of sense. And indeed the Supreme

Court’s inducement formulation quickly and effectively shook most commercial P2P software providers

out of the industry.353 However, the emphasis the Court placed on these factors failed to recognize that in

the world of P2P software development, such elements as advertising, business plans and market research

are optional rather than necessary. And it failed to recognize the existence of a virtual army of talented

programmers “willing to code and release file-sharing software without any business model at all”.354 As

a result, whilst many commercial P2P providers were shaken out of the market as a result of the new

theory of liability, they were quickly replaced by a number of non profit-driven alternatives facilitating

precisely the same end result: large scale infringement by third parties. 352 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2782 (2005).353 Regarding the shakeout of commercial players see e.g. ‘Press Release: Music Industry Announces Grokster

Settlement’ Recording Industry Association of America, <http://www.riaa.com/news/newsletter/110705_2.asp>, (7 November 2005) last accessed at 3 October 2006 (announcing the eventual settlement reached against Grokster Ltd); Rebecca Giblin-Chen, “Australia to become “nerve centre” for P2P litigation?” (2006) 7(5) Computer Review International 156 (regarding the settlement reached against those behind the Kazaa/FastTrack technologies); Jim Welte, ‘Bearshare, RIAA settle for $30M’ MP3.com, <http://www.mp3.com/news/stories/4399.html>, (4 May 2006) last accessed at 17 October 2006 (announcing the settlement agreement reached between the RIAA and Gnutella-client Bearshare); Nancy Gohring, ‘eDonkey, Record Industry Reach a Deal’ PC World, <http://www.pcworld.com/article/id,127126-page,1-c,peertopeer/article.html>, (13 September 2006) last accessed at 3 October 2006 (regarding the settlement with the provider of the eDonkey P2P file sharing software).

354 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 292.

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The informal way in which many such developers create and distribute their applications makes it

impossible to come up with any accurate estimation of how many have been released since the US

Supreme Court created the inducement theory of liability. However, a search of file sharing sites

Slyck.com and Zeropaid.com, and of the software repository SourceForge, results in listings for literally

thousands of independent P2P file sharing applications.355 Many of these appear to rely on word of mouth

rather than advertising, have no marketing department – indeed no paid staff at all – no formal

organizational structure and no business plan. Such providers are highly unlikely to be developing

marketing strategies to woo users away from competing users, or have infringement-reliant business

models, or in any other way “broadcast[] a message designed to stimulate others to commit violations.” 356

Many of them simply provide their software and explain how it improves on previous models, and they

tend to be careful to describe it generically, as a tool for transferring files, rather than specifically as a

way of transferring copyrighted material.357

The differences between the physical and the virtual canvassed at the beginning of this work explain why

it is possible for code-based technology providers to supply sophisticated distribution products without

necessarily having any financial interest in them, and why so many choose to do so despite this lack of

financial reward. While such developers provide software, and perhaps also provide support services for

that software, the Supreme Court made it clear that in isolation such steps will not be enough to make out

inducement liability. Unless they do something more, they cannot be taken to have engaged in any active

step “with the purpose of bringing about infringing acts”.358 Thus the Supreme Court’s focus on the

physical world assumption that facilitators of large scale infringement will be commercially motivated

has seemingly resulted in a situation where individuals can create and distribute technologies that are

capable of wide scale infringement, as long as they are careful to say and do nothing that crosses the line

into inducement. Thus the creator of BitTorrent, who has always been careful to say all the right things

against its use for infringement, has never yet been sued for copyright infringement despite unleashing a

355 See e.g. “Software Map: file sharing project results” Source Forge, <https://sourceforge.net/softwaremap/trove_list.php?form_cat=251 >, last accessed at 10 September 2008; “File Sharing” Zeropaid, http://www.zeropaid.com/software/file-sharing/, last accessed at 10 September 2008, “Program Database” Slyck, <http://www.slyck.com/programs.php>, last accessed at 10 September 2008.

356 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2768 (2005).357 Examples of such programs can be readily found by browsing through the file sharing category on SourceForge. One

example is Gtk-Gnutella, a Gnutella client created to run on Unix based operating systems. It has been in a constant state of development since its creation in 2000, with the most recent update dated late August 2008. The authors have no apparent commercial interest in the software, and maintain it as a hobby. See https://sourceforge.net/projects/gtk-gnutella/.

358 MGM Studios Inc v Grokster Ltd, 125 S Ct 2764, at 2781 (2005).

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technology estimated to be responsible for up to 67.5% of global internet traffic, much of which is

infringing.359

The above paragraphs highlighted the difficulties in making out inducement against P2P software

providers that, despite providing products that facilitate a great deal of infringement, neither actively

encourage nor indeed have any financial interest in that infringement. While there are many P2P

providers that fall into that category, not all current P2P providers are sufficiently innocent – or able to

maintain a sufficiently innocent façade – to avoid inducement liability. One of the reasons why there are

so many P2P applications today is because unscrupulous individuals regularly take someone else’s open

source development, tweak it slightly, bundle in some spyware from a third party who pays them each

time it is installed, and exhort unsuspecting users to use it download infringing content.360 In such a

scenario the developer’s bad intent may well render it liable under the inducement standard. However, the

nature of software code makes the practical application of this doctrine problematic even as against such

clearly culpable individuals. The most significant reason why this is so is the fact that so many of the

current crop of P2P applications are either open source themselves, or based on the open source

technologies of others. This is where the Supreme Court’s second main physical world assumption – the

idea that rational developers of distribution technologies won’t share their secrets with their competitors –

becomes particularly relevant.

This work previously described the way in which a finding of liability may result in a reduction of

infringement facilitated by a closed source technology, even one that is decentralized and therefore cannot

be withdrawn by its owners. It noted that a finding of liability against a single implementation of an open

source technology is likely to be far less effective than one against a closed source equivalent, since there

is nothing preventing countless more developers from promptly creating their own virtually identical

implementations of the technology. Indeed, if a technology is sufficiently well patronized to justify the

bringing of litigation against the developer, it’s practically inevitable that there will already be plenty of

virtually identical clients circulating at the time the litigation commences.

359 “In Praise of P2P”, The Economist (Dec. 2, 2004), available at http://www.economist.com/displayStory.cfm?Story_id=3422905 (subscription required); Bram Cohen, “Mark Cuban says BitTorrent is doomed, DOOMED!”, Livejournal, Jan. 31, 2007, http://bramcohen.livejournal.com/35949.html; Eric Bangeman, “P2P responsible for as much as 90 percent of all ‘Net traffic”, ars technica, Sep. 3, 2007, http://arstechnica.com/news.ars/post/20070903-p2p-responsible-for-as-much-as-90-percent-of-all-net-traffic.html.

360 See e.g. “A List of P2P File Sharing Programs”, FileShareFreak, <http://filesharefreak.com/2008/01/02/a-list-of-p2p-file-sharing-programs/>, last accessed at 10 September 2008 (stating that “Open source software often gets a minuscule makeover, bundled with third party adware, toolbar addons etc. and viola! a new product is born!”)

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Usually, independent implementations of the same file sharing technology will be compatible with one

another. That is, users of Client A can seamlessly share files with users of Client B, and each can in turn

share files with users of Clients C, D, and E. In those circumstances, shutting down the provider of Client

A because they stepped over the line into inducement is going to do little or nothing to reduce the overall

amount of infringement facilitated by that technology. Most of Client A’s users would probably make the

five minute investment necessary to switch over to Client B or C. Some of Client A’s users would

probably stop using the technology to share files, but the litigation would have publicized the technology

to a great many new users who had not previously encountered it, and could potentially result in a net

increase of infringement facilitated by that technology. Another risk is that the litigation would spur even

more programmers to create their own iterations.

Taking all of these factors into account, it is difficult to imagine a scenario where it would be worthwhile

for a content owner to shut down one provider of an open source file sharing technology for inducement.

Content owners apparently agree. Despite the fact that literally thousands of file sharing applications are

listed in the open source software repository SourceForge, little or no noise is being made about suing any

of their providers. Although the Morpheus technology was itself based on the open source Gnutella

technology, it appears that the Supreme Court may not have fully appreciated the unique anti-regulatory

possibilities of open source development when it formulated the inducement doctrine.

5: CONCLUSION

This work has demonstrated that one of the reasons why US secondary liability doctrines struggle to

respond to P2P file sharing technologies is because they are based on physical world assumptions that do

not always hold good in the software world context.

In the contributory and vicarious liability context, these assumptions boil down to a core idea that an

otherwise culpable distribution technology provider cannot easily eliminate control over third party

infringement. When control proved to be far easier to eliminate in the software world context than its

physical world counterpart, this left the law vulnerable to exploitation of the physical/virtual divide.

Inducement liability, created to target the technologies that had exploited the loopholes in that existing

law, has also proved to rely on physical world assumptions: the assumption that a distribution technology

provider will be commercially motivated, and the assumption that they would not freely give away the

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fruits of their labor. While the inducement regime has been successful in shaking commercial P2P

providers out of the market, the fact that these assumptions don’t always hold true in the P2P

development context means that it has overseen a massive leap in the number of available file sharing

applications – and no reduction in the overall amount of infringement that they facilitate.

Although the differences between the physical and the virtual are fundamental, the law has been slow to

acknowledge code’s revolutionary properties. When considered against the historical context, this should

not come as a surprise. Katsh explains that new technologies are frequently “perceived not as something

with unique characteristics that will create new institutions and change old ones, but rather as something

that simply extends the capabilities of … existing technolog[ies].”361 Thus, “early films were labeled

‘moving pictures’ and were not immediately understood to be a new art form”; “the first cars were called

‘horseless carriages’ and looked as though they were designed to be pulled by a horse”; and early

personal computers “were called ‘typewriters with memory.’”362 Similarly, the secondary liability law

continues to treat code-based P2P file sharing technologies in the same way as 1980s-era videotape

recorders. The danger of such an equation is that it may “mask the revolutionary character of the new

technology”,363 making it even more difficult to determine what it is about code-based technologies that

makes them unique.

Some scholars have already begun identifying ways in which it may be desirable to treat code-based

technologies differently from their physical world counterparts. The most significant idea is that software

developers may increasingly be asked to regulate through code. As Zittrain explains, and this work has

also made clear, software, unlike physical products, “need not follow “a factory-produces, consumer-

inherits sequence.”364 Instead, “[s]oftware can become service, tuned and re-tuned near-instantly by its

author, like a child who leaves home but finds the parents not only constantly in touch, but able to set and

adjust curfews from afar.”365 This has significant practical uses – “[s]oftware can now be routinely written

to maintain contact with its source: first, to receive updates to functionality, but second, to implement new

regulatory mandates. Security software vendors, and operating system makers now undertaking proactive

security functions, are not only able to update their own software, but also to affect how other software on

the same PC runs – in particular, to disable it should it be deemed a threat. This functionality would

361 M Ethan Katsh, Law in a Digital World (Oxford University Press, New York, 1995) 135. In the same paragraph, Katsh also notes that it can be “a considerable challenge to identify the qualitative differences among media.”

362 M Ethan Katsh, Law in a Digital World (Oxford University Press, New York, 1995) 135.363 M Ethan Katsh, Law in a Digital World (Oxford University Press, New York, 1995) 136.364 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 296.365 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 296 (internal note

omitted).

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enable regulators to insist to a software maker, or alternatively to an operating system vendor, that a given

piece of software be disabled or modified to meet regulatory requirements. These are Lessig’s

gatekeepers … and a landmark regulatory move will be one that decides under what circumstances they

should be enlisted.”366

Randal Picker similarly argues that the ability of code-based technologies “to create networked products

that can be updated post-distribution” is what distinguishes them from their “conventional”

counterparts.367 Though Picker uses the terms “networked product” and “conventional product”, the

concepts he describes could equally be dubbed “code based product” and “physical world product”.

Picker notes that legal principles created with reference to pre-P2P distribution technologies like the VCR

were “framed in the context of episodic design with an installed-base constraint and no real possibility of

feedback between actual use of the product and design.”368 Today however the combination of software

(for which “[t]he zero marginal cost … means that there are no natural boundaries to define the features

of the product”369) and the ubiquity of network communications, mean that “we have products that can

evolve in real-time (and do). Design ceases to be a one-time event and instead becomes a continuous

process. And that is true not only for the next product sold, but also for the entire installed base. The dead

hand of the past and the constraints of backwards compatibility are lifted.”370 The key distinction between

a VCR and a P2P file sharing application, Picker argues, is “[t]he ability to exercise control after the

fact”.371 “[T]o take one prominent point of comparison, gun manufacturers exercise little control over

their products once sold. When I point a gun at someone, Smith & Wesson can’t tell whether I am doing

so illegally or legally in self-defense. In contrast, for the networked product, the producer may be able to

separate out - to filter out - legitimate and illegitimate uses.”372 At the crux of his argument is the idea that

the very different characteristics of networked or code-based products have very different characteristics

to their physical world or conventional counterparts, and that these should be taken into account in

determining liability. In light of these differences, Picker argues that “the choice about how and whether a

366 Jonathan Zittrain, “A History of Online Gatekeeping” (2006) 19 Harv J Law & Tec 253, at 296 (internal notes omitted).

367 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, particularly at 749-751.

368 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 751.

369 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 750.

370 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 751. Internal note omitted.

371 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 769.

372 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 769.

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[code-based] product evolves [i]s … one of the central decisions that arises in product design.”373 He

analogizes it to “viruses and antidotes: you shouldn’t build a virus if you can’t build and distribute the

antidote.”374

It is not yet clear whether these possibilities hold the solution for the problems faced by the current

secondary liability law in dealing with code-based technologies. It may be that imposing such burdens on

software developers will be impracticable in the P2P file sharing context, particularly in light of the

number of P2P providers that have proliferated post-Grokster. But one thing is clear. Unless the law is

able to effectively recognize the fundamental inherent and practical realities of modern day software

development that justify treating code-based technologies differently to their physical counterparts, the

US secondary liability law will never significantly reduce P2P file sharing.

373 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 769.

374 Randal C Picker, “Rewinding Sony: The Evolving Product, Phoning Home and the Duty of Ongoing Design” (2005) 55 Case W Res L Rev 749, at 769.

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