The Supreme Court's Decision

The Supreme Court, in a unanimous decision, held that "one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties." In a several page opinion, the Court set forth its reasoning, some of the specific facts that led to its conclusion in this case, and discussed why Sony Betamax does not require a different result.

The Court framed the issue as one of finding the "balance between the values of supporting creative pursuits through copyright protection and promoting innovation in new communications technology by limiting the incidence of liability for copyright infringement. The more artistic protection is favored, the more technological innovation may be discouraged; the administration of copyright law is an exercise in managing the trade-off."

The Court reviewed several facts in the record of the case, many of them not disputed by either side of the litigation. Although the precise numbers were disputed, the parties agreed that P2P programs accounted for billions of files being shared on P2P networks each month. Over 100 million copies of the defendants' programs have been downloaded to engage in such sharing. While the programs are used for sharing of material not copyrighted, the parties agreed that the illegal sharing of copyrighted material constitutes the overwhelming majority of P2P usage.

Dealing with the problem of a widely shared product being used to commit infringement, the Court concluded that it would be impossible to enforce the rights of a copyright holder effectively against those directly infringing, so the only practical alternative is to permit secondary liability with respect to distributors.

In Sony Betamax the Court had relied on well established copyright and patent principles to conclude that distribution of a product for legal purposes precluded secondary liability even if the distributor knew the product could and would be used for illegal purposes. The Court here concluded, however, that nothing in Sony Betamax requires courts to ignore evidence of the intent to promote infringement if such evidence exists. When evidence goes beyond the mere characteristics of a product and the fact that it may be used for infringing purposes and shows statements or actions aimed at promoting infringement, Sony Betamax will not preclude liability. The key distinction is the intent of the provider. In Sony Betamax, there were no allegations or facts to show an intent to market the product with the intent to encourage or facilitate infringement.

Thus, providers of P2P programs may be held liable if it can be shown that the objective is to promote illegal infringement. Liability on any theory would, of course, require actual infringement, but the evidence in the record indicates such infringement on a "gigantic" scale. The Court concluded there was evidence in the record to support liability on an inducement theory and that this evidence precluded summary judgment as ordered by the District Court and affirmed by the Court of Appeals. The Court considered primarily three categories of evidence that demonstrated the object of promoting illegal infringement in the "classic" form of inducement by advertising or solicitation designed to stimulate others to commit violations.

First, the defendants and other P2P providers actively sought and targeted Napster users after the demise of Napster as a file-sharing program dealing in copyright material. This attempt to respond to a known source of demand for copyright material is documented by the defendants' website advertising as well as internal documents showing the goal of attracting former Napster users. These far reaching efforts to supply services to former Napster users indicate a principal, perhaps an exclusive, intent to bring about infringement. Additionally, the Court considered support to users who e-mailed questions concerning the use of the P2P programs provided by the defendants.

Second, neither of the defendants attempted to develop or employ filtering tools or other means to diminish the use of their software to illegally download copyrighted material. The Court found that the Ninth Circuit's conclusion that this was irrelevant because the defendants did not have a duty to monitor users' activity was in error because this evidence underscores the intentional facilitation of infringement activity by the users.

Finally, the Court found that the advertisements that were directed to the users of the software were the source of income for the providers. The amount of the income from such advertising was dependent on the number of ads sent out and viewed by the users. This number would naturally increase as the usage of the software increases. Thus the extent of the use determines the gain to P2P distributors and their commercial success depends on high-volume use. The evidence demonstrates this use is infringing. The Court held that liability could not be based on this factor alone, but its importance with respect to intent is clear when considered with the rest of the evidence on the entire record.

Because substantial evidence in the record supported the plaintiffs' claims, the District Court erroneously granted the summary judgment motion. The summary judgment was vacated and the case was sent back to the District Court for further proceedings.