The difference a Supreme Court opinion can make, even on how one views the facts, is seen in Judge Wilson's Wednesday opinion ( link here) in the Grokster case (now the StreamCast case given the settlement with Grokster). The facts sure felt a lot different in his 2003 opinion (259 F. Supp.2d 1029), not that they changed of course in the intervening three years. And it is the facts that are the driver in the new opinion. Of the opinion's 60 pages, 25 are devoted to evidentiary issues. Emails supplied the majority of the documents offered into evidence. The discovery process that leads to such evidence is very expensive, and while one may focus in the future on the court's legal analysis, overlooking the factual component would be a mistake: it was the email trail on which Judge Wilson hung liability under the new inducement theory. This is not to say the legal analysis is unimportant; it is, and it confirms my fear about Grokster's killing off of Sony, footnote 12 notwithstanding. There is also 10 pages of discussion on a misuse defense. In my opinion, the misuse defense in Grokster was frivolous, as sympathetic as I am to the double-dipping streaming argument.
On to the legal analysis. The 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. Who would have thought even at the oral argument before the Supreme Court in Grokster that on remand (if there was one) that the staple article of commerce doctrine would have no role to play? Wasn't the whole point of the appeal to the Supreme Court to get the Court to set out rules for applying the doctrine for the Internet? Instead, the Court provided content owners with a way to avoid the staple article of commerce defense entirely. Here's why I say this.
The classic formulation of contributory liability in copyright cases, pre-dating Sony is: "[O]ne who with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a ‘contributory’ infringer," Gershwin Publishing Corp. v. Columbia Artists Mgt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971). By contrast, the new inducement theory, derived from Section 271(b) of the Patent Act focuses on defendant’s intent, and not on its knowledge of others’ direct infringement:
"Sony’s rule limits imputing culpable intent as a matter of law from the characteristic or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law.FN10 …Thus, where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony's staple-article rule will not preclude liability.
FN10. Nor does the Patent Act's exemption from liability for those who distribute a staple article of commerce, 35 U.S.C.A. § 271(c), extend to those who induce patent infringement, §271(b)."
Justice Ginsburg’s concurring opinion in Grokster discretely points what the majority did not state directly (although footnote 10 states the conclusion), namely that the purpose of the new inducement theory was to jettison Sony’s staple article of commerce doctrine:
"At bottom, however labeled, the question in this case is whether Grokster and StreamCast are liable for the direct infringing acts of others. Liability under our jurisprudence may be predicated on actively encouraging (or inducing) infringement through specific acts (as the Court's opinion develops) or on distributing a product distributees use to infringe copyrights, if the product is not capable of 'substantial' or 'commercially significant' noninfringing uses. Sony, 464 U.S., at 442 … While the two categories overlap, they capture different culpable behavior. Long coexisting, both are now codified in patent law. Compare 35 U.S.C.A. § 271(b) (active inducement liability), with § 271(c) (contributory liability for distribution of a product not "suitable for substantial noninfringing use").
What Justice Ginsburg is pointing out in her usual, quiet manner, is that Sony does not apply to the new inducement theory, footnote 12 notwithstanding. Inducement is based on 35 US.C. Section 271(b); the staple article of commerce defense only applies to contributory infringement claims under Section 271(c). Content owners are free to rely solely on inducement, in which case staple article of commerce is irrelevant, and that is exactly what happened in the remand opinion.
Inducement, though, is as it turns out a fairly watered down threshold. It is more like intent. This is seen in footnote 13 of the Supreme Court's opinion (notice how all the juicy parts of the opinion are the footnotes: 10, 12, 13):
"It is not only that encouraging a particular consumer to infringe a copyright can give rise to secondary liability for the infringement that results. Inducement liability goes beyond that, and the distribution of a product can itself give rise to liability where evidence shows that the distributor intended and encouraged the product to be used to infringe. In such a case, the culpable act is not merely the encouragement of infringement but also the distribution of the tool intended for infringing use."
And this is where the facts killed StreamCast, with Judge Wilson holding that "Plaintiffs need not prove that StreamCast undertook specific actions, beyond product distribution, that caused specific axcts of infringement. Instead, Plaintiffs need prove only that StreamCast distributed the product with the intent to encourage infringement."
The new theory of liability might, therefore, more properly be called intent to encourage infringement, and not inducement to infringe. I don't shed crocodile tears over StreamCast itself, and maybe all cases are nothing more than a decision on the facts, but there is, I believe, cause to worry about the killing off of Sony and its replacement with such a loose standard.