Grokster: The Transcript

The transcript of the MGM v. Grokster Supreme Court oral arguments are available.  Dowload the pdf here...Download MGMvGrokster.pdf

Or puruse some highlights below.  It's very interesting stuff -- even if you aren't a policy wonk....

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JUSTICE KENNEDY (speaking to the RIAA’s lawyer): It's not clear -- it's not clear to me from your brief, focusing on the contributory aspect of it, not -- and not the inducement part of it it's not clear to me from your brief what your test is. What do we tell the trier of fact, that if there is a substantial part of the use which is noninfringement, any part?
MR. VERRILLI: Here's what I -- here's where I think the test
JUSTICE KENNEDY: Leaving aside the inducement.
MR. VERRILLI: Right. Here's what I -- here's what we think the test is on the -- what we'll call the  Sony aspect of the case, that it's -- the question here is  -- Sony poses to us -- is really a touchstone kind of  question, not a numerical kind of question. The question under Sony is whether this is a business that is substantially unrelated to infringement. In other words,  are they building their business on supporting legitimate  activity, or, instead, are they building their business  supporting infringing activity?...

JUSTICE KENNEDY: Well, then we just throw this to the birds on the trier of fact in every case –
MR. VERRILLI: No, I think
JUSTICE KENNEDY: Well, how do we know -
MR. VERRILLI: And that's where you start.  That's the touchstone. Now, the numbers, the relative proportions of use, are relevant. In a case like Sony itself, certainly, where the majority use was noninfringing, that's a legitimate business; you don't  need to go further. In a case like this one, where, taking the record at summary judgment in our favor, as it  must be, and the Ninth Circuit's assumption that you've got 90 percent infringing use, billions and billions of  acts of infringing use, and minuscule actual noninfringing use, it seems to us it's just
JUSTICE BREYER: You're not saying -- now you're using different tests. Your test is "substantial." All right, on your test, are we sure, if you were the counsel to Mr. Carlson, that you recommend going ahead with the Xerox machine? Are you sure, if you were the counsel to the creator of the VCR, that you could recommend, given  the use, copying movies, that we should ever have a VCR?  Are you sure that you could recommend to the iPod inventor that he could go ahead and have an iPod, or, for that matter, Gutenberg, the press? I mean, you see the problem. 
MR. VERRILLI: Yeah, I think my answer to
JUSTICE BREYER: What's the answer?
MR. VERRILLI: -- those questions are: yes, yes, yes, and yes. 
[Laughter.] 
JUSTICE BREYER: Because in each case -- for all I know, the monks had a fit when Gutenberg made his press
JUSTICE BREYER: -- but the problem, of course, is that it could well be, in each of those instances, that there will be vast numbers of infringing uses that are foreseeable.  MR. VERRILLI: I disagree with that, Your Honor.  Certainly not -- I don't think there's any empirical evidence to suggest, with respect to any of the things that Your Honor just identified -- and let me pick out the iPod as one, because it's the most current example, I  guess. From the moment that device was introduced, it was obvious that there were very significant lawful commercial uses for it. And let me clarify something I think is unclear from the amicus briefs. The record companies, my clients, have said, for some time now, and it's been on their Website for some time now, that it's perfectly lawful to take a CD that you've purchased, upload it onto  your computer, put it onto your iPod. There is a very, very significant lawful commercial use for that device, going forward.  And, remember, I -- what our test -- our test is not "substantial." Our test is that it's a -- it's a when it's a vast-majority use, like here, it's a clear case of -

JUSTICE SCALIA: How do you -- how do you know, going in, Mr. Verrilli? I mean, I'm about to start the business. How much time do you give me to bring up the lawful use to the level where it will outweigh the unlawful use? I have to know, going in. 
MR. VERRILLI: Well, I
JUSTICE SCALIA: And it's one thing to sit back and, you know, calculate with this ongoing business, it's  90 percent/10 percent. But I'm a new inventor, and I'm you know -MR. VERRILLI: I think the weight
JUSTICE SCALIA: -- I'm going to get sued right away. I know I'm going to get sued right away, before I have a chance to build up a business.

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JUSTICE SOUTER: -- let's go from Xerox back to your iPod. How is that clear in the iPod case? I may not understand what people are doing out there, but it's certainly not clear to me. I know perfectly well I could go out and buy a CD and put it on my iPod, but I also know perfectly well that if I can get the music on the iPod without buying the CD, that's what I'm going to do. And I think it's reasonable to suppose that everybody else would 0 guess that. So why, in the iPod, do you not have this  Damoclean sword? 
MR. VERRILLI: Well, because I don't actually think that there is evidence that you've got overwhelming infringing use. I just think that's -- it's not a -- it's not a -
JUSTICE SOUTER: Well, there's never evidence at the time the guy is sitting in the garage figuring out whether to invent the iPod or not. I mean, that's –
MR. VERRILLI: I think when you get to the –
JUSTICE SOUTER: -- the concern. 
MR. VERRILLI: -- I think when you have vast majority infringing use, they should be on the hook. Now, I don't think –
JUSTICE SOUTER: Okay, but you're -
MR. VERRILLI: -- you have that problem –
JUSTICE SOUTER: No, but you're –
MR. VERRILLI: -- with the iPod, and –
JUSTICE SOUTER: -- you're not answering, you're not answering the question. The question is, how do we know in advance, on your test, anything that would give the inventor, or, more exactly, the developer, the confidence to go ahead? As was said a minute ago, he knows he's going to be sued immediately. There isn't a product performance out there, as there is in this case. So, on your substantiality theory, why isn't it a foregone conclusion in the iPod that the iPod loser -- or developer is going to lose his shirt? 
MR. VERRILLI: Well, first of all, I don't -- I think it's just counterfactual to think that there is going to be overwhelming infringing use of the iPod in the way that there indisputably is here. Second, to the extent you get the closer cases, it is our position, as I  gather it is the position of the United States, that you  look at -- to see what kind of business model the  Defendant is operating under. Is it a -- is it -- are they marketing it for legitimate purposes? Are they taking reasonable steps to prevent infringement? If they are, then they -- then they're not liable. Third –
JUSTICE SCALIA: That's your second argument, I think. I thought you were going to just stick with the - with the first one. I mean, that's an inducement argument. 
JUSTICE SOUTER: Yeah, that's inducement. 
MR. VERRILLI: No, I don't think it is an inducement argument, because it doesn't go all the way to requiring us to show, as we can show here, that they've  got intent. But I do think that the issue is, you know, really -- in the real world, you know, it isn't the case that these guys have gotten immediately sued. That's just not right. And the -- and the reality is that what happens is what happens here. There's perfectly valid uses –
JUSTICE KENNEDY: But it is the case under the test you're submitting to us….

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JUSTICE O'CONNOR (to the U.S. Solicitor General): …. Tell us, in the simplest way you can, what test you think Sony stands for and how the Ninth got it wrong, if you believe it. 
MR. CLEMENT: Justice O'Connor, it stands for the test is whether or not there are commercially significant noninfringing uses. The Ninth Circuit got it wrong because it thought that test was satisfied by a combination of two things: being able to point out that there were such things as public-domain works or authorized sharing of the Wilco album, for example, and anecdotal evidence that you could actually do that.  Now, if that were the right reading of Sony, with respect, I would suggest that footnote of this Court's Sony decision would have been the sum total of the Court's analysis, because in that footnote the Court observed that there were broadcasts of public-domain works. 
JUSTICE KENNEDY: Suppose the owner of the instrumentality, the program, thinks that there's going to be a vast area of lawful use, and he knows that there's going to be some abuse at the -- in the short term, but he does everything he can to discourage that. He says, "This is a two – P2P is going to revolutionize the way we talk to each other, there's things in the public domain.  Please don't use this for copyright." But he knows that there's going to be some infringement, let's say, but it'll be 50 percent of the use, in the short term. Can he use the program? 
MR. CLEMENT: If it's 50 percent infringement in the short run? We think, absolutely, yes.

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JUSTICE SCALIA: The inducement -- the inducement point doesn't get you very far. Presumably a successor to Grokster, or whatever this outfit is called,  could simply come in and not induce anybody but say, you  know, "We're setting up the same system," know very well  what people are going to use it for, but not induce them.  And that would presumably be okay.
MR. CLEMENT: I think that's potentially right  -
JUSTICE SCALIA: Which is why you need –
MR. CLEMENT: -- Justice Scalia –
JUSTICE SCALIA: -- the Sony –
MR. CLEMENT: -- and that's why I think it's important to preserve a role for the Sony test. And, again, this Court, in Sony, could have adopted a simple  theoretical-capability test, but this Court, instead,  adopted a test that required there to be shown some commercially significant use for the -- noninfringing use.
JUSTICE SCALIA: I mean, what I worry about is the suit that just comes right out of the box, as soon as  the company starts up. Will you give the company a couple of years to show that it's developing a commercial use? 
MR. CLEMENT: Well, Justice Scalia, we have concerns about that, as well. I don't know that we would give them ten years of, sort of, free space to do as facilitate as much copyright infringement as possible. I think what we would say is that when you're -- when a suit  targets a nascent technology at the very beginning, there  ought to be a lot of leeway, not just for observed  noninfringing uses, but for the capacity of noninfringing  uses.  I don't think, in fairness, that's what you have before you in this case, because this is a case where the peer-to-peer technology was out there, it was employed in a particular way, with a centralized server, in a way that  was actually -- had a lot of users involved in it, and  they were users of the old Napster system, that had a  distinct character. They were using that system for infringing copyrighted musical works.

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JUSTICE BREYER (to Grokster’s, et al lawyer): … I took it, whether -- for the last years, industry throughout America has taken  the standard as being approximately whether it is capable  of substantial -- commercially significant substantial noninfringing uses. 
MR. TARANTO: Yes. 
JUSTICE BREYER: I -- and the country seems to have survived that standard. There is innovation. There are problems in the music industry, but it thrives, and so forth. So there is an argument for just following it, because it's what it is. But suppose it's totally open.  Why should that be the right test, instead of some other test, like substantial use, et cetera? 
MR. TARANTO: I -- because I –
JUSTICE BREYER: That, I think, was the question, and I'm very interested in your answer. 
MR. TARANTO: Right. Because I think any alternative is worse. A focus on intent to profit means that virtually every business which requires money and has the least bit of sensible forward-looking thinking about what the usage is going to be will be subject to litigation, arguing about their knowing that a substantial amount of the value of the product was going to be based on infringement. 
JUSTICE KENNEDY: But –
MR. TARANTO: Every –
JUSTICE KENNEDY: -- but what you have -- what you want to do is to say that unlawfully expropriated property can be used by the owner of the instrumentality as part of the startup capital for his product.
MR. TARANTO: I -- well –
JUSTICE KENNEDY: And I -- just from an economic standpoint and a legal standpoint that sounds wrong to me. 
MR. TARANTO: Well, I'm not entirely sure about that formulation. Sony clearly sold many more tapes because of the illicit activity of Library. Sony presumably sold more machines, maybe even priced them higher, because there was a group of people who wanted the machine for the illicit activity. The Apple iPod, in the 60 gigabit version,
holds 15,000 songs. That's –
JUSTICE KENNEDY: So you think that –
MR. TARANTO: -- a thousand CDs. 
JUSTICE KENNEDY: -- unlawfully expropriated property can be a legitimate part of the startup capital.
MR. TARANTO: No, I -- what I think is that, as a matter of general judicially formulated secondary copyright liability law, there is no better policy balance  that the Court can strike, and that only Congress can make  the judgments about what the industry-wide facts are.  And I -- let me pause there a minute -- there are no industry-wide facts in this record. Every citation in the Petitioner's brief about the magnitude of harm to the industry is extra-record citation. There are billion
JUSTICE GINSBURG: Then perhaps there should be a trial so it would all come out.

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JUSTICE GINSBURG: Well, you said -- I think you were saying -- this is something for Congress to solve; it's not for the Court. But the Court is now faced with two apparently conflicting decisions: Aimster, in the Seventh Circuit, the Ninth Circuit decision. And if  you're just looking at this in the abstract, you might  say, "Well, it's -- isn't it odd that Napster goes one way  in the Ninth Circuit, and this case goes another way?"  MR. TARANTO: Let me suggest why that's not odd and why the cases are not just different, but critically different. Napster rests -- never mind the exact words of the opinion -- Napster involves something more than distribution of a product. Napster, the company, was sending out, in response to requests, "Where is this filed," an answer, the information, "The file is here."  Every time it sent out that information, if it had been told by Mr. Verrilli's client, "That file may not be shared," it was, with specific knowledge to that file,
MR. TARANTO: … The great virtue of peer-to-peer decentralized software is that it doesn't require anybody to put stuff onto a server and then bear the cost of bandwidth, of being charged by the Internet service provider when a million people suddenly want it. It automatically scales.  It -- the more people who want it, the more people will have it, because it will be out there on a million computers. That is an inherent distributional economy, together with the autonomy of the user, rather than having a kind of Mother-may-I system, with having to check every  communication through some third party to say, "Am I 0 authorized to make this communication," that are the  virtues of this system and that make it clearly capable of  growing the already large hundreds of thousands, even  millions, of uses that this -- that these pieces of  software already enable people to do.  One final -- final word. We're not disputing that there are, in an industry-wide way, a set of important policy issues here, though there's nothing in the record about what self-help measures -- digital-rights management, encryption, other things -- there's nothing in  the record what -- about that. There's nothing in the record about what kinds of real industry harm is being done by this. Right? This is all citations to Websites in their brief. These are classic questions of predictive judgment, industry-wide judgments that Congress should make to decide whether there is a problem in need of solution, and what solutions ought to be considered, whether changing the rule would have a overriding bad  effect on other industries.

And you certainly can't affirm the Ninth Circuit and allow us to go forward with anything like that here,  because the Ninth Circuit said the only thing we can sue for -- the only thing we can sue for -- is a situation in  which we can show that we had knowledge of specific acts  of infringement at a time when we could stop those  specific acts of infringement. So there's just no way to affirm and let that go forward.  Now, why is infringement -- why is inducement not enough? It's not enough because, as Justice Scalia suggested, these companies already operate in the shadows,  and a ruling here, which would be, I submit, a significant  cutback of the Sony rule, that inducement is the only  available ground of liability, would just need them to  paper over -- you know, we do have some paper evidence  here, a paper trail here, but that'll just -- they just  won't exist next time. And it's just -- it's just not enough.  And I submit that Sony was quite clear on this.  Sony said that the staple article-of-commerce doctrine, not copyright law, generally, and not secondary liability, generally, but the staple article-of-commerce doctrine,  the noninducement part of the analysis, has got to strike  an effective balance -- a real balance that provides  effective protection of copyright, as well as protecting  unrelated lines of commerce.  Now, their rule is a rule of immunity. It's a free pass. It says, all you've got to do is speculate about noninfringing use, and you can continue with infringement, ad infinitum. And that's not a rule that protects innovation; that's a rule that destroys innovation. It certainly destroys the innovation that the creators of the copyright law is supposed to protect, protect, and that's supposed to be the effective protection part of the balance that Sony said this law is supposed to strike.  It also -- it also deters legitimate technological innovation moving towards legitimate means of distributing this -- of distributing, in a digital format, music and movies through the kinds of companies  that filed amicus briefs and that are trying to do this  legitimately. They are inevitably and invariably undercut by the kinds of businesses that Respondents and the others  run, so it deters innovation; it doesn't move it forward. ….

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MR. VERRILLI: --  Now, and with respect to the reality of this situation, let me just say -- and I must beg to differ,  Justice Breyer, with the suggestion that this industry is  thriving. What the -- the facts are that we have lost - the recording industry has lost 25 percent of its revenue since the onslaught of these services. And that's particularly critical, because, remember, this is really  -- the recording business, in particular, is really a venture-capital business. Most of the records we put out don't make money. A few make a lot of money. Well, what do you think's getting traded on Grokster and StreamCast and the rest of them? It's the few that make all the money. So they're draining all of the money out of the system that we use to find new artists and –
CHIEF JUSTICE REHNQUIST: Thank you -
MR. VERRILLI: -- foster development.

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