A recent decision in the Ninth Circuit upheld a lower court decision that Grokster and Streamcast are legitimate services with “significant noninfringing uses,” a key benchmark set in the Sony v. Universal Supreme Court decision. The Sony decision is itself based on precedents from patent law in the early 1900s that deal with tying arrangements that have no relation to copyright.

The Circuit Court upheld the District Court, which found that the distributed software programs had significant noninfringing uses similar enough to home video recorders of Sony. Contributory liability did not result because Grokster and Streamcast had no actual knowledge of infringement at the time of occurrence. Moreover, although they were financial beneficiaries of file-sharing, the two providers lacked the requisite monitoring ability needed to prove vicarious liability.

From a legal perspective, the outcome raises some eyebrows. The Court’s decision apparently differs from the previous Napster decision, where the same courts ruled that contributory infringers knew, or HAD REASON TO KNOW, of direct infringement. The second point (i.e., HAD REASON TO KNOW) was made in an amicus brief filed by nine treatise distinguished writers on copyright law. The Ninth Circuit’s decision may then provide an incentive for software developers to figure out ways in which they can look blind, innocent, or simply incapable of taking deterrent action, whatever the apparent harms of doing so.

Indeed, the Seventh Circuit reached a different outcome regarding willful blindness exercised by the Aimster file-sharing system; “willful blindness is knowledge, in copyright law, where is indeed may be enough that the defendant should have known of the direct infringement.” We now may have the pleasure of a Circuit split -- always a problem -- which is now exacerbated by the importance of digital technology.

From an economic cost-benefit perspective, the technological outcome of the conflicting decisions in the Ninth Circuit is clearly inefficient. From an economic perspective, Napster, Grokster, and Morpheus lead to the same basic result; i.e., 90 percent of their takings infringe on copyrighted works. If only one technology is to be allowed, Napster would be the
apparent choice; it is more efficient than the remaining two, which take considerably longer to operate due to lack of a central directory. Moreover, if there is an economic reason to restrict Napster (due to offsetting costs), there is even more economic reason to restrict the less efficient services.

For all the legal explanations largely built on precedent (all dating eventually back to patent law in the early 1900s), one then wonders why a legal process should be heralded that leads to the clear economic inefficiencies that have been so established.