Lawsuits Against Device Manufacturers

Universal City Studios v. Sony Corp.

The first lawsuit against a new technology under a theory of secondary liability came in 1976, in Universal City Studios v. Sony Corp. of America, a lawsuit filed by a group of movie studios against Sony. The studios claimed that Sony’s Betamax home video recorder would allow consumers to copy films as they were broadcast over the air. The studios argued that this violated their copyrights and that Sony, as the manufacturer of the device, was responsible for its customers’ infringement. By 1984, this case had made its way to the Supreme Court, which decided that Sony wasn’t liable. Even though some uses of the Betamax were infringing, and some users probably were infringing copyrights with the Betamax, the Supreme Court ruled that copying television programming for later viewing, or “time shifting,” was a fair use and therefore not infringing. Because the device was capable of “substantial non-infringing uses,” Sony was not liable for any users’ infringements just for making the device.

The significance of the Sony decision was that it created a safe harbor that technology providers could rely on. Without this safe harbor, it’s unlikely that devices such as tape recorders, photocopiers, CD burners, iPods and other digital media players would have come to market.

The P2P Cases

The emergence of P2P technologies in the early 2000s led to courts revisiting the rule that technology providers are not liable for their customers’ infringements. As the technology wasn’t mainstream, the RIAA and major labels responded by suing those who supplied P2P services to users. Those sued included Napster, Scour, Aimster, Audiogalaxy, and Grokster.

Most of the early P2P services maintained an index of files available for sharing on their own central servers. In the lawsuits against Napster and Aimster, courts reasoned that these servers allowed the services to have actual knowledge of their customers’ infringement. Because the services also provided the software necessary for file sharing they were found to be contributory infringers. The Napster court also held that Napster was a vicarious infringer because of Napster’s ability to police the central servers and cut off access to infringing files.

Unlike these services, Grokster did not have any central servers. Rather, the service operated on an ad-hoc basis, connecting machines directly without the use of a central server or database. Yet the Supreme Court found that Grokster was responsible for its customers’ infringement under a new theory: inducement.

The lawsuit against Grokster and Streamcast was filed in 2005 by MGM studios, along with 28 of the largest entertainment companies. When the case reached the Supreme Court, the court reasoned that Grokster and Streamcast were liable because they had distributed software with the intent that it be used for infringement. The court based this inference on internal communications of the companies and the fact that they did not work to develop software that would filter for infringing uses. By focusing on the intent of the technology provider rather than the designed use of the device, the Grokster court side-stepped the Sony doctrine of substantial non-infringing use. After the Grokster decision was handed down, many commentators warned that this inducement theory could be used not only against “bad actors” but also against legitimate service providers like TiVo and Slingbox. Such companies might now face greater pressures to design their products a certain way even when the product’s use is not predominantly infringing—just to avoid being seen as a potential “bad actor”.

The Music Industry vs. XM

A group of record labels including the four majors and a group of music publishers recently filed lawsuits against XM Satellite Radio. Both lawsuits allege that XM violated copyrights by marketing the Inno--a portable satellite radio with a built-in digital recorder. The Inno allows users to record upto 50 hours of music from satellite radio broadcasts, disaggregate the recordings, and listen to them in whatever order they like.

The labels and publishers claim, among other things, that XM is liable as a secondary infringer under all three theories of secondary liability: contributory infringement, vicarious infringement and inducement. They claim that XM is liable as a contributory infringer because it markets the Inno with knowledge that its customers would use it to record songs and create “libraries”. It is liable as a vicarious infringer because it fails to prevent infringement despite having the means to do so. And by marketing the Inno, advertising its librarying function, and failing to design it so as to avoid infringement, they claim that XM is inducing its customers to infringe their copyrights.

In its defense, XM has stated that, its device does not infringe copyright because it qualifies for the exemption from liability under the AHRA. That is to say that the Innoa does not allow digital recordings to be transferred from the it to another device. What’s more, the company stated that it was already paying millions of dollars per year in royalties under the AHRA, in addition to performance royalties mandated by section 114 of copyright law. Some have suggested that both lawsuits might have been filed to gain an advantage in ongoing performance royalty negotiations.

In the lawsuit filed by the recording industry, XM has reached a settlement with the major labels on undisclosed terms. However, some independent labels are still pursuing this lawsuit. In the lawsuit filed by the publishers, XM has reached a settlement with EMI Music Publishing Group. Again terms of the settlement have not been disclosed.