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P2P File-Sharing: What the Supreme Court didn’t Understand about Music Piracy

A music-crazed audiophile has a library of over 10,000 songs, which equates to about a month’s worth of listening time of music. The average price of a legally obtained song is about $0.99. But most music enthusiasts would not pay ten thousand dollars for such a library. Instead, many turn to alternative methods of obtaining music via the World Wide Web: P2P file-sharing, torrenting, blogging, etc.

[1] In 1999, Shaun Fanning invented Napster, the Internet’s first major peer-to-peer (P2P) file-sharing program, allowing its users to connect with a virtually limitless number of other computers and their compiled music libraries. Through Napster, its users can download copies of their favorite songs taken from their massive network of computers and stored on a centralized dataserver. Napster’s launch was one of the most significant internet-based inventions, and as a technological innovation it stands as one of the largest catalysts to media consumption.

After being sued by major recording artists such as Dr. Dre, Madonna, and Metallica, in July 2001, Napster was at its peak with 26.4 million users when it was forced to shut down its servers by the Ninth Circuit Court affirming the ruling of the United States District court for the Northern District of California; for, as a device with the object of promoting its use to infringe copyright, it was liable for the resulting acts of infringement by third parties.

Much to the court’s, Recording Industry Association of America’s, and Motion Picture Association of America’s dismay, Napster’s trial only further popularized this new sort of online black-market for free media during a period when online technologies, services, and innovations began to boom, giving birth to later file-sharing clients, such as Aimster, KaZaa, and Limewire, and many more music-related copyright infringement cases.’

[2] Grokster Ltd. was a West Indies based Software Company that, in 2001, created the Grokster peer-to-peer file-sharing client. Grokster’s numbers (4.4 million in 2003) were much smaller than Napster’s or any of the other current P2P file-sharing clients, such as [3] Limewire (Limewire: peak~50 million users 2007; [1] Napster: peak~70 million users 2001). It faced and dodged a series of trials that followed Napster’s demise. [2] In April of 2003, the Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) brought both Grokster Ltd. and Streamcast (creators of Morpheus, another P2P client) to Los Angeles Federal Court. However, Judge Stephen Wilson held that their file-sharing software was not illegal. This was appealed later that year on August 17th, 2004, when the United States Court of Appeals for the Ninth Circuit affirmed a partial grant of summary judgment and an order of certiorari.

The US Supreme Court agreed to hear the case to decide whether Grokster and Streamcast could indeed be sued for copyright infringement and to determine if, according to copyright laws, Grokster and Streamcast were liable for the copyright infringements committed by their users. The first oral arguments of MGM v. Grokster were held on March 29, 2005.

[4] Grokster Ltd. and Streamcast are two peer-to-peer file-sharing software distributors. Like all P2P programs, their open-source software connects its large user base together to create a network of music libraries via the World Wide Web, instead of gathering and storing all files on a massive centralized database server (as Napster did). The digital files are then compiled, catalogued, and organized into a user-friendly interface, so its users can search through the indexed files to download them directly from any other users’ hard drives. Ideally, users would share and download files only with the approval of the copyright owners. However, without close regulation of software’s content, it was flooded with illegal downloads.

In 2003, Metro-Goldwyn-Meyer Studios and a consortium of 28 of the world’s largest entertainment companies (the plaintiffs) sued Grokster and Streamcast (the defendants) for their infringement on the Copyright Act, claiming that they intentionally distributed software that allowed and promoted its users to download (“share”) copyrighted files (music and video recordings) illegally. The case went to the U.S. Court of the Appeals for the Ninth Circuit.

The case eventually reached the U.S. Supreme Court in 2005 where it was ruled in favor of MGM. The court unanimously held that both Grokster and Streamcast could be sued because by marketing their peer-to-peer file-sharing software, they induced acts of copyright infringement (even though these acts were committed by their users).

[4] The prosecutors needed to prove that both Grokster and Streamcast’s infringements on Copyright Act of 1976 were both contributory and vicarious.

There are three elements to a contributory copyright infringement:

1) The primary infringer must have committed (a) direct infringement(s).

2) The defendant knew about the infringement(s).

3) The defendant materially contributed to the infringement(s).


There are three elements of a vicarious copyright infringement:

1) The primary infringer must have committed (a) direct infringement(s).

2) Through the infringement(s) the defendant must have received a direct financial benefit.

3) The defendant has the right and ability to supervise the infringer(s).


In order to prevail on a case of contributory and vicarious infringement all of these elements must be proven.

Initially, the Court of Appeals for the Ninth Circuit deliberated whether Grokster and Streamcast could be held liable for contributory and vicarious copyright infringement and held in favor of the defendants, but MGM appealed this ruling, bringing the trial to the U.S. Supreme Court where they were both found guilty and could be sued for distributing P2P file-sharing software, whose use promoted copyright infringements committed by third parties. This meant that all producers of any technologies that promoted feasible copyright infringement could be prosecuted.

[5] In 2001, A&M Records amongst 17 other record companies, which were all subsidiaries of the “big four” companies of the music industry that collectively make up the RIAA, brought Napster Inc. in front of the United States Court of Appeals for the Ninth Circuit. Although Napster was not the first P2P file-sharing software, this was the first major case to attempt to apply intellectual property copyright laws to such a company.

A&M Records, Inc. v. Napster, Inc.’s decision by the Ninth Circuit held strictly the defendant liable for contributory and vicarious infringement of the RIAA’s copyrights, forcing its founder, Shawn Fanning, to shutdown his premature, online innovation.

However, the case caught the attention of software engineers around the world, opening the Internet up to a countless number of different P2P file-sharing clients. But these clients would soon be shutdown in hopes to save plummeting album sales by the RIAA. Amongst these cases was MGM v. Grokster.

In 2004, the Court of Appeals for the Ninth Circuit applied and considered the three elements of contributory copyright infringement, and decided that Grokster was only proven to have committed a direct infringement by permitting its users access to protected files. But it was unclear as to whether they knew about the said infringements or if they had materially contributed the said infringements.

Grokster was able to prove that it had no specific knowledge of the infringements by relying heavily on the ruling of [6] Sony Corp. of America v. Universal City Studios, Inc, which ruled too by the Ninth Circuit, decided that Sony, which had just invented of the Betamax VCR, could not be held liable for contributory copyright infringement because a VCR had the potential of non-infringing uses, meaning the users were responsible for the Betamax’s use and Sony had no way of supervising its misuse.

Grokster and Morpheus, too, had potential non-infringing uses. Their P2P clients could host video game tests for its users. Beta versions of unreleased video games could pass through a P2P community to find bugs, get reviews, generate hype, receive suggestions, etc. Also, the same could be done with literature, which is a difficult market to gain recognition. Furthermore, while the “big four” might be against having their property float around on the internet, many struggling artists will fight for each handful of fans they can pick up. If smaller labels hosted small bands on an “Upcoming Artist” section on the client, independent music enthusiasts could browse through them and support young musicians and bands.

However, what separated Grokster and Streamcast from Napster was their software’s use of a decentralized server. All of Napster’s content was stored on a network of massive servers, but Grokster and Morpheus relied on the power of their users to act as their network database. By storing the content on their own servers, it transitively becomes Napster’s, making them responsible for each files use.

The Ninth Circuit was also only able to prove Grokster and Streamcast’s responsibility for two of the three elements of vicarious copyright infringement (direct infringement and the companies’ financial benefit). By hosting advertisement space, they were able to gain direct financial benefit from their transfers. Yet, the court failed to prove Grokster and Streamcast’s ability and right to supervise the infringers. Neither of the companies received any contact information from their users. The client was free and required no registration, making it impossible to reprimand those specific users who misuse the software.

So, based on the lack of evidence to prove the three elements of both contributory and vicarious copyright infringement, Grokster and Streamcast were able to escape from the trial. As part of the closing of the trial, the court explained, [7] “We live in a quicksilver technological environment with courts ill-suited to fix the flow of Internet innovation.” But a mere four months later, the Ninth Circuit’s decision was appealed, and in December of 2004, the United States Supreme Court agreed to hear the case.

While the Supreme Court could not prove that the two companies had materially contributed to the infringements, they were able prove that both Grokster and Streamcast had knowledge of the infringements committed by third parties and had the ability to supervise the infringers. Considering they were aware that most of their downloads were illegal, the two companies were distributing their software with the object of promoting its use to infringe. They were proven to be aiming to satisfy their users’ demand for protected files. Furthermore, the copyright owners were able to prove that neither of the distributors had ever attempted to develop a filtering tool or other mechanisms to staunch the growing number of infringements. This newly added evidence allowed the Supreme Court to revoke the previous verdict and convict Grokster. As a result, Grokster was forced to pay $50 million dollars to the music and recording industries, and later in 2009, it shutdown its website, leaving behind a warning message to those looking to download its software. As for Streamcast, they continued to fight the suit on remand, but a year after the Supreme Court’s ruling, the U.S. District Court for the Central District of California granted summary judgment in favor of the plaintiffs, and, like Grokster, Morpheus was shutdown, as well.

The Supreme Court’s final ruling on MGM Studios, Inc. v. Grokster Ltd. contradicts the ruling of [8] Court of Appeals for the Seventh Circuit Court’s decision made on John Deep v. RIAA, which held that John Deep’s P2P client, Aimster, was not liable for copyright infringement. Citing the decision of Sony Corp. of America v. Universal City Studios, Inc. as defense, the distribution of their software, which was capable of substantial non-infringing uses (such as the examples described for Grokster and Morpheus), could not be held liable, for it could not be determined as to what the ratio of legal vs. illegal downloads was. The court optimistically brought into question the probability of misuse and assumed that non-infringing activity was more probable and that the future market value gained from John Deep’s P2P client outweighed the costs to the RIAA and the music industry. Initially the VCR seemed to be a massive threat to movie sales, but instead, as the motion picture industry adapted to VHS, they were able to turn profits off the sales.

The decisions of MGM Studios, Inc. v. Grokster Ltd., and John Deep v. RIAA depended purely on the ruling judges’ arbitrary interpretations of the Sony Corp. of America v. Universal City Studios, Inc. The judicial system should have ruled in favor of both Napster and Grokster. The court should have stayed faithful to its decision on the Betamax case in 1984, and recognized P2P file-sharing clients as a legitimate and legal technologies. 10 years after Napster’s debut, despite the wasted money and years of time put into controlling the media industries and the flow of respective innovations, it is estimated that illegal music downloads outnumber legal ones by a factor of [9] 10:1.

[10] The Open Music Model, a business model developed by the Sloan School of Management at MIT, emphasizes 5 key characteristics the music vendors must adopt in order to adapt to and survive in the new and changing music industry: free/open file sharing, open file formats (i.e. no DRM or .wma’s), open membership, open payment, and open competition. One such company/online music community trying to achieve this is called “Playment”. By paying a 5-dollar monthly subscription fee, users would get access to a highly developed and comprehensive music search engine and online store. It also plans to host sub-communities (such as on a blog) to accommodate a vast variety of music tastes.

Since the debut of P2P file-sharing in 1999, the RIAA has collected between 100-400 million dollars in settlements. That number is high and poorly estimated because of the number of lawsuits the RIAA has brought to court. Wired Magazine commented, [11] “the RIAA is clogging the court system… Copyright lawsuits numbered 2,192 in 2009, down almost a third from the previous year, and represented more than a 50 percent drop from 2005.” Perhaps when music sales fell so dramatically, the RIAA decided to turn its business model away from music sales and focus primarily on becoming one of the most lucratively successful copyright infringement firms in history. Just to give an idea of how greedy the RIAA is, made the following infogram [12] after the Pirate Bay Trials in 2008:

The Supreme Court is not entirely to blame. While they perpetuate the issue, it is time for a much needed change in the industry. The fact is that it has taken this long for music distribution channels to respond to this adjustment in consumption. The fact is people want more, and they are not willing to pay for the physical distribution model of music. Even iTunes’ pricing model is absurd because most songs are not worth a dollar. Vendors, labels, and royalty owners have become too comfortable raking in clams from their overvalued music.

I love music; I understand that artists aren’t making enough money today to support themselves; but in reality, the extravagance created by the 20th century music industry is a change from the norm. The oldest instruments ever discovered were dated back to approximately 43,000 years ago, and music has existed since long before then, presumably in the form of harmonious caveman grunting (*kidding). Music for the most part has almost always been consumed live and in person mostly during religious ceremonies instead of being consumed a physical form. We are amidst a regression back to that time, where artists are constantly performing in whatever venues they can to make the bulk of their income.

But to widen exposure and build a larger audience the best means for artists are streaming services like Spotify, MOG, and Pandora. While these do very little to provide artists with sustainable profits, usually about a half of a cent per stream, they give artists the potential to reach tens of millions of fans. The streaming freemium model as it is called is still very young and in desperate need of development. There are rumors that Beats by Dre is developing a new streaming service since their purchase of MOG. Hopefully, they will improve upon this model and offer musicians a new way of turning their art into a living.


[1] “Facts About Napster | History of Napster.” Home Tech Solutions. Home Tech Answers. Web. 15 Nov. 2010. <>.


[3] Yowskowitz, Andre. “R.I.P Limewire? – AfterDawn.” 12 May 2010. Web. 15 Nov. 2010. <>.

[4] MGM, Inc. v. Grokster Ltd. 545 U.S. 913 (9th Cir. 2005)

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

[6] Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (U.S. Supreme Court 1984)

[7] Vance, Ashley. “Court Tells RIAA and Congress to Let P2P Software Thrive • The Register.” The Register: Sci/Tech News for the World. The Register, 19 Aug. 2004. Web. 15 Nov. 2010. <>. [8] In re Aimster 334 F .3d 643 (7th Cir. 2003)

[9] Adams, Sean. “95% of Music Downloads in 2008 Were Illegal – DiS Reacts and Suggests Two Solutions / Music News // Drowned In Sound.” Music News, Listings, Reviews, Reaction, Interviews and Community // Drowned In Sound. Drowned in Sound, 16 Jan. 2009. Web. 15 Nov. 2010. <>.

[10] “Open Music Model.” P2P Foundation. Wikipedia, 24 July 2008. Web. 15 Nov. 2010. <>.

[11] Kravets, David. “Universal Music | Threat Level |” Wired News. Wired Magazine, 18 May 2010. Web. 15 Nov. 2010. <>.

[12] “The Pirate Bay.” Cracked. 24 Jan. 2010. Web. 15 Nov. 2010. <>.

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