## Facts

- Copyright holders sued Grokster, Ltd. and StreamCast Networks, Inc. (Morpheus) for users’ unauthorized sharing of copyrighted works through defendants’ peer-to-peer (P2P) software.
- The software enabled users to connect directly and share digital files on decentralized networks without a central server indexing files or controlling access.
- Evidence showed extensive direct infringement by users and that defendants were aware their software was heavily used to download copyrighted music and video without authorization.
- After Napster’s shutdown, defendants marketed their products as alternatives, attracting former Napster users.
- Defendants provided the software for free and generated revenue from advertising delivered to users; increased user traffic increased advertising value.
- Defendants did not implement filtering or other technical measures to block copyrighted content.
- The district court granted summary judgment to defendants on contributory and vicarious infringement; plaintiffs appealed.

## Issues

1. Whether distributors of P2P file-sharing software are contributorily liable for users’ infringement when the software is capable of substantial noninfringing uses but is widely used to infringe.
2. Whether distributors of decentralized P2P software are vicariously liable when they benefit financially from increased use but lack the right and ability to supervise users’ infringing acts.

## Decision

- The Ninth Circuit affirmed summary judgment for Grokster and StreamCast.
- Contributory infringement: applying Sony, the court held that distributing a product capable of substantial noninfringing uses does not create liability based on widespread infringement alone; MGM failed to show defendants had actual knowledge of specific infringements coupled with feasible ability to act on that knowledge.
- Vicarious infringement: although defendants’ advertising model could reflect a financial benefit tied to increased infringing use, MGM did not show defendants had the right and ability to supervise or control users’ infringement on decentralized networks lacking a central index or access controls.
- The court distinguished Napster because Napster’s centralized servers provided file-specific knowledge and practical ability to block access, unlike defendants’ decentralized architecture.

## Legal Principles

- A distributor of a technology capable of substantial noninfringing uses is not contributorily liable merely because many users employ it to infringe; contributory liability requires actual knowledge of specific infringement and failure to take feasible remedial steps.
- General awareness that infringement occurs on a platform is insufficient, standing alone, to establish contributory infringement where the defendant lacks practical means to identify and stop particular infringements.
- Vicarious infringement requires both a direct financial benefit from infringement and a right and ability to supervise the infringing activity.
- Where a service’s architecture lacks centralized control mechanisms, the absence of a practical ability to police users’ infringing acts defeats the supervision/control element for vicarious liability, even if revenues increase with user traffic.

## Conclusion

The Ninth Circuit held that distributing decentralized P2P software with substantial noninfringing uses did not support contributory liability without specific knowledge and feasible control measures, and did not support vicarious liability because defendants lacked the practical ability to supervise users’ infringement despite potential advertising-based financial benefit.


Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 380 F.3d 1154 (9th Cir. 2004)