The US Supreme Court has handed down a slashing verdict for the makers of peer to peer software. In the case of MGM versus Grokster and StreamCast the judges find the software producers liable for copyright infringements committed by users of the software. The court uses three arguments for this theory of extended liability.

First of all, the CEOs clearly "marketed themselves as Napster alternatives" and "took active steps to encourage infringement". Secondly, they didn't make any effort to prevent the sharing of copyrighted files. And thirdly, they gain a profit from selling advertising space. "Since the extent of the software's use determines the gain to the distributors, the commercial sense of their enterprise turn on high-volume use, which the record shows is infringing."

The Supreme Court has ordered the lower court to reconsider its decision from 2001 with the new doctrine. In the 2001 case, and in the appeal in 2004, the software producers successfully claimed protection from liability, based on the 1984 landmark decision in the Sony (Betamax) v. Universal City Studios case. Since the VCRs were mainly used for timeshifting (substantial noninfringing use), the producer could not be held liable for possible infringing use.

In the earlier cases against the P2P software makers, the courts also took into account the software providers had no actual knowledge of infringement, did not monitor the behaviour of users and had no involvement in any infringement other then providing the software.

The US Electronic Frontier Foundation provided legal council to the case from the beginning. Fred van Lohmann, the EFF senior intellectual property attorney commented: "Today the Supreme Court has unleashed a new era of legal uncertainty on America's innovators. The newly announced inducement theory of copyright liability will fuel a new generation of entertainment industry lawsuits against technology companies. Perhaps more important, the threat of legal costs may lead technology companies to modify their products to please Hollywood instead of consumers."

Supreme Court case 545 MGM v. Grokster et al (27.06.2005)
http://www.eff.org/IP/P2P/MGM_v_Grokster/04-480.pdf

Press release EFF (27.06.2005)
http://www.eff.org/news/archives/2005_06.php#003748