Arista Records LLC et al v. Lime Wire LLC et al

Filing 378

DECLARATION of Melinda E. LeMoine in Support re: 234 MOTION for Permanent Injunction.. Document filed by Arista Records LLC, Atlantic Recording Corporation, BMG Music, Capitol Records, Inc., Elektra Entertainment Group, Inc., Interscope Records, Laface Records LLC, Motown Record Company, L.P., Priority Records LLC, Sony BMG Music Entertainment, UMG Recordings, Inc., Virgin Records America, Inc., Warner Bros. Records Inc.. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4 (Under Seal), # 5 Exhibit 5 (Under Seal), # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8)(Lemoine, Melinda)

Arista Records LLC et al v. Lime Wire LLC et al

Doc. 378 Att. 3

EXHIBIT 3

Dockets.Justia.com

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IN THE SUPREME COURT OF THE UNITED STATES --------------------x METRO-GOLDWYN-MAYER STUDIOS, INC., ET AL., Petitioners, : : : : : No. 04-480

GROKSTER, LTD, ET AL.

--------------------x Washington, D.C. Tuesday, March 29, 2005 The above-entitled matter came on for oral argument before the Supreme Court of the United States at 10:13 a.m. APPEARANCES:
DONALD B. VERRILLI, JR., ESQ., Washington, D.C.; on behalf
of the Petitioners. PAUL D. CLEMENT, ESQ., Acting Solicitor General, Department of Justice, Washington, D.C.; for United States, as amicus curiae, supporting the Petitioners. RICHARD G. TARANTO, ESQ., Washington, D.C.; on behalf of the Respondents.

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ORAL ARGUMENT OF

C O N T E N T S
PAGE

DONALD B. VERRILLI, JR., ESQ.
On behalf of the Petitioners ORAL ARGUMENT OF
PAUL D. CLEMENT, ESQ.
On behalf of United States,
as amicus curiae, supporting Petitioners ORAL ARGUMENT OF
RICHARD G. TARANTO, ESQ.
On behalf of the Respondents. REBUTTAL ARGUMENT OF
DONALD B. VERRILLI, JR., ESQ.
On behalf of the Petitioners 50
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PROCEEDINGS [10:13 a.m.] CHIEF JUSTICE REHNQUIST: We'll hear argument

now in number 04-480, MGM Studios versus Grokster, Limited. Mr. Verrilli. ORAL ARGUMENT OF DONALD B. VERRILLI, JR., ON BEHALF OF PETITIONERS MR. VERRILLI: please the Court: Copyright infringement is the only commercially significant use of the Grokster and StreamCast services, and that is no accident. Respondents deliberately set out Mr. Chief Justice, and may it

to capture a clientele of known infringers to stock their services with infringing content, they intentionally and directly promote the infringing use of the service, they support infringing use of the service, and they directly -JUSTICE STEVENS: May I just interrupt for the There's a

one -- you said "the only significant use."

footnote in the red brief that says the figure is some 2.6 billion legitimate uses. MR. VERRILLI: JUSTICE STEVENS: MR. VERRILLI: Yeah. Yes, Your Honor. I --

Is that correct, or incorrect?

Well, I think it's an absolutely

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incorrect assertion of reality, and perhaps I could delve into it and explain why. The evidence in this case, which was presented at summary judgement, showed that 90 percent of the material on the services was either definitely or very likely to be infringing. JUSTICE STEVENS: percent? MR. VERRILLI: Well, this was submitted on Now, was there a finding of 90

summary judgement, Your Honor, and we lost summary judgement, so the evidence has got to be construed in the light most favorable to us. And the Ninth Circuit decided

the case on the assumption, we'd submit, of 90 percent. But with respect to that 10 percent, what happened, and we submit is completely wrong, is that the Ninth Circuit drew the inference, because it wasn't shown by our expert study, which, by the way, is the only empirical analysis in the case, to be infringing, that the Court could assume that it was noninfringing and then extrapolate from that to a number along the lines of the number that Your Honor suggested. And I think that that's

completely illegitimate analysis, factually, and, besides, that number is big only because the overall activity is so big. The scale of the whole thing is mind-boggling. If

there are that many noninfringing uses --

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JUSTICE STEVENS: MR. VERRILLI:

It goes to the --

-- imagine how many infringing --- accuracy of your statement

JUSTICE STEVENS:

that there is no other significant legitimate use. MR. VERRILLI: I don't think there -- I think

it's quite accurate on the summary-judgement record, and certainly drawing the inferences in our favor, as we must here on summary -- on this summary-judgement record, that there is commercially significant noninfringing use. JUSTICE GINSBURG: But there could be. There

could be, both with respect to material in the public domain and with respect to people who authorize the transmission. MR. VERRILLI: I don't think, in the context of

this record in this case and the business model of these Defendants, Grokster and StreamCast, that that is true, Justice Ginsburg. I don't think that's right. I think

what Grokster and StreamCast are arguing is that this Court's decision in Sony stands for the proposition that their massive actual infringement is -- gets a free pass, a perpetual free pass, so long as they can speculate that there are noninfringing uses out there, such as publicdomain uses and authorized uses. We don't think that that

-- that Sony stands for any such proposition. We also want to point out that that doesn't help

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them -- that proposition doesn't help them with respect to one very significant part of this case, and that's the fact that they intentionally built a network of infringing users, and they actively encouraged and assisted infringement. Now, even if there are commercially significant noninfringing uses, and we submit there most definitely aren't under Sony, but even if there are, that's no defense to a contributory infringement claim based on intentional building up of an infringing business and active encouragement and assistance of infringement, and it can't be; because, otherwise, then the fact that they had commercially significant noninfringing uses, again, would be just a free pass to actively promote infringing uses; not merely to support them, but to promote them. And so -JUSTICE SOUTER: Your argument, I take it, would Your

be the same if the proportions were reversed.

argument with respect to -- your current argument with respect to infringing use would be the same if only 10 percent -- if it were assumed that only 10 percent of the use were illegitimate and infringing. MR. VERRILLI: Is that correct?

The active-encouragement aspect

of our argument would be the same, certainly. JUSTICE SOUTER: That's right.

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MR. VERRILLI:

They don't get a -- they don't

get a free pass to encourage any infringement. JUSTICE O'CONNOR: inducement -MR. VERRILLI: Yes. I think there's --- as that term -Is that the same as active

JUSTICE O'CONNOR: MR. VERRILLI:

-- there's a lot of --- is used?

JUSTICE O'CONNOR: MR. VERRILLI:

Yes, Justice O'Connor, there's a

lot of lingo floating around in this case -- inducement, active encouragement and assistance. JUSTICE O'CONNOR: If we should think that the

Respondents are not liable for the type of contributory infringement dealt with in Sony, could this Court reach the question of active inducement on this record? MR. VERRILLI: Yes, very definitely. I think --

I think the Court, of course, should find that there's contributory liability under the Sony theory -JUSTICE O'CONNOR: MR. VERRILLI: I know you do, but --

-- but with respect to --- I just said --

JUSTICE O'CONNOR: MR. VERRILLI:

-- that theory --- could you --

JUSTICE O'CONNOR: MR. VERRILLI: Yes.

JUSTICE O'CONNOR:

-- assume, for a moment, that

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we didn't; could we, nonetheless, address the active inducement -MR. VERRILLI: Yes --- question?

JUSTICE O'CONNOR: MR. VERRILLI: explain why.

-- Justice O'Connor, and let me

The District Court in this case issued a

partial final judgement, under Rule 54(b), granting the Respondent's summary-judgement motions. Now, we argued

for contributory liability on two theories in the District Court and in the Ninth Circuit. We argued that there was

a lack of commercially significant noninfringing use under Sony, and we've argued the inducement or activeencouragement theory. We argued that both theories

entitle us to relief against the current operations of the service, entitled us to damages, and entitled us to injunctive relief to eliminate the harmful ongoing infringing consequences of this intentionally built-up infringement machine. The District Court granted summary judgement against us and gave a clean bill of health, gave absolution, essentially, to the current versions of the services. The only thing that was left to us, as the

Ninth Circuit and the District Court -- and the District Court, both, understood the law, is that we can go back and try to show that, with respect to specific past acts

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of infringement, if we can show that they occurred at a time when we had given them notice that they were about to occur, and that we had the power to -- and they had the power to stop them at the moment we gave them the notice, that we can get damages for those specific things, and those specific things only. this case. That's all that's left in

And I think it's quite clear, from the Rule

54(b) certification order of the District Court that it was only damages with the past services and the past acts -JUSTICE KENNEDY: 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: think the test -JUSTICE KENNEDY: MR. VERRILLI: Leaving aside the inducement. Here's what I -- here's Here's what I -- here's where I

Right.

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

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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 -Well, how do we know --

JUSTICE KENNEDY: MR. VERRILLI: That's the touchstone.

And that's where you start. Now, the numbers, the relative In a case like Sony

proportions of use, are relevant.

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 judgement 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: using different tests. You're not saying -- now you're All

Your test is "substantial."

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

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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? problem. MR. VERRILLI: JUSTICE BREYER: MR. VERRILLI: yes, and yes. [Laughter.] JUSTICE BREYER: Because in each case -- for all Yeah, I think my answer to -What's the answer? -- those questions are: yes, yes, I mean, you see the

I know, the monks had a fit when Gutenberg made his press -[Laughter.] 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

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obvious that there were very significant lawful commercial uses for it. And let me clarify something I think is The record companies, my

unclear from the amicus briefs.

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: going in, Mr. Verrilli? business. How do you -- how do you know, I mean, I'm about to start the

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. Well, I -And it's one thing to sit back

MR. VERRILLI: JUSTICE SCALIA:

and, you know, calculate with this ongoing business, it's 90 percent/10 percent. you know -MR. VERRILLI: JUSTICE SCALIA: I think the weight --- I'm going to get sued right But I'm a new inventor, and I'm --

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away.

I know I'm going to get sued right away, before I

have a chance to build up a business. MR. VERRILLI: Honor, and here's why. I don't think that's right, Your To -- it's not just the absence of

commercially significant noninfringing uses that demonstrates contributory infringement. I mean, you have

to demonstrate that you're making a material contribution, with knowledge that you're doing so. outset, is not in that position. The inventor, at the

They're not making a Do

contribution with knowledge that they're doing so. they have absolute certainty? absolute certainty. JUSTICE KENNEDY: No, they don't have

Well, I don't quite understand

the -- I take it, inventors are profit-motive-driven, and if they know that something they're working on is going to have copyright experience, you -- copyright problems, you can't just say, "Oh, well, the inventor's going to invent anyway." MR. VERRILLI: Well, I -- but the problem -Or did I misunderstand your --

JUSTICE KENNEDY: MR. VERRILLI:

No, I -- I think that you have --

to show contribution, you should have -- you have to be making a material contribution, with knowledge that you're doing so. And so -JUSTICE SCALIA: But the inventor of Xerox does

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that.

I mean, he puts out the machine.

He knows some --

he knows a lot of people are going to use it to Xerox books. MR. VERRILLI: Justice Scalia. I don't think that's right,

I don't think there's anywhere close to a

showing -- I don't think there could be anywhere close to a showing that you've got the vast majority of use from -for infringement from the time that the device comes out. I just don't think that's -JUSTICE SOUTER: MR. VERRILLI: JUSTICE SOUTER: your iPod. Well, let's go --- realistic. -- let's go from Xerox back to I may not

How is that clear in the iPod case?

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 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. not a -I just think that's -- it's not a -- it's

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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. MR. VERRILLI: JUSTICE SOUTER: MR. VERRILLI: I mean, that's --

I think when you get to the --- the concern. -- I think when you have vastNow,

majority infringing use, they should be on the hook. I don't think -JUSTICE SOUTER: MR. VERRILLI: JUSTICE SOUTER: MR. VERRILLI: JUSTICE SOUTER: Okay, but you're --- you have that problem -No, but you're --- with the iPod, and --- 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 There isn't a

knows he's going to be sued immediately.

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

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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 Are they If they

they marketing it for legitimate purposes?

taking reasonable steps to prevent infringement? are, then they -- then they're not liable. JUSTICE SCALIA: think.

Third --

That's your second argument, I

I thought you were going to just stick with the -I mean, that's an inducement

with the first one. argument.

JUSTICE SOUTER: MR. VERRILLI:

Yeah, that's inducement. 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. not right. That's just

And the -- and the reality is that what There's perfectly valid

happens is what happens here. uses -JUSTICE KENNEDY:

But it is the case under the

test you're submitting to us. MR. VERRILLI: No, I don't think that's right,

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Justice Kennedy.

If there's vast-majority infringing use,

and you continue to operate your business with the knowledge that there's vast-majority infringing use, then you've got liability. Now, of course, we do have all the

additional inducement facts here, but we've also got those facts. And in the real world -JUSTICE O'CONNOR: Well, are you dealing with

active inducement as just a theoretical add-on, or is that a satisfactory way to resolve this case? MR. VERRILLI: -JUSTICE O'CONNOR: MR. VERRILLI: I don't understand -I think that it is a -- I think

Neither, is the answer. -- your pitch. It is a

JUSTICE O'CONNOR: MR. VERRILLI:

Neither, is the answer.

basis for resolving this case, but not to the exclusion of getting the law right on Sony. JUSTICE GINSBURG: judgement. But you couldn't get summary

Your reply brief said, "This case is so clear If inducement is

that we should get summary judgement."

the theory -- you have just said, you have to show intent -MR. VERRILLI: Yes. -- so you could not --

JUSTICE GINSBURG: MR. VERRILLI: We --

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JUSTICE GINSBURG: MR. VERRILLI:

-- you'd have to go to trial. We think, in

We agree with that.

a situation where the vast majority of the use is infringing and there isn't any evidence of a legitimate business plan, on the Sony part of the case we would be entitled to summary judgement. Honor, that with respect to -JUSTICE GINSBURG: MR. VERRILLI: Sony itself had a trial -We agree with you, Your

That's right. -- a full trial.

JUSTICE GINSBURG: MR. VERRILLI:

It came after the trial, that's

But the -- a key point I think I want to make here What happens

is that this is not about this technology.

in the real world is that inventors come up with technology. Some people use it for lawful purposes and

valid purposes, as some people use this technology for; some people abuse the technology to run business that -businesses that are devoted to expropriating the value of copyrights. That's exactly what's going on in this case.

If I could reserve the balance of my time, Mr. Chief Justice. CHIEF JUSTICE REHNQUIST: Very well, Mr.

Mr. Clement, we'll hear from you. ORAL ARGUMENT OF PAUL D. CLEMENT

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FOR UNITED STATES, AS AMICUS CURIAE, SUPPORTING PETITIONERS MR. CLEMENT: please the Court: The decision below allows companies, like Respondents, to build a business model out of copyright infringement without fear of secondary liability. As long Mr. Chief Justice, and may it

as they avoid obtaining actual knowledge that a particular customer is about to infringe a particular copyright, they are free to operate a system that involves massive copyright infringement with full knowledge that the draw of the entire system for customers and advertisers alike is the unlawful copying. system -JUSTICE O'CONNOR: Well, what do you think Sony No matter much how much of that

It talked about -- if it's, what, capable of

substantial noninfringing use, it's okay? MR. CLEMENT: That's right, Justice O'Connor.

And then I think the Court explained and elaborated that the test is whether or not there are commercially significant noninfringing uses. And I would say what the

Ninth Circuit did in this case is basically adopt the test of mere theoretical capability for noninfringing use, plus maybe some anecdotal evidence. JUSTICE KENNEDY: And what -- and your test is

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whether there's a substantial use that's lawful? MR. CLEMENT: Well, I think the way we would try

to articulate it is that if the way that the business model of the particular Defendant is set up is that they are not involved in a business substantially unrelated from copyright infringement, that there should be liability in that situation. And I think in an extreme

case like this, where over 90 percent of the business -and I think Mr. Verrilli correctly describes that it's not a minimum of 90 percent; it's over 90 percent -- because the only evidence on the other side is anecdotal evidence that there are such things as public-domain works. CHIEF JUSTICE REHNQUIST: percent figure come from? Where did the 90

I know we have to accept it

because it's summary judgement, but where did it come from? MR. CLEMENT: It came from a study by

Petitioners' experts of the actual operation of the system. And what they did is, they identified about 75

percent of the works as clearly infringing works, another 15 percent of the works were identified as very likely infringing works, then there were 10 percent they just couldn't tell anything about. JUSTICE BREYER: to music. I thought it was just limited

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MR. CLEMENT:

Well, I think the -- it's not --

the system is not limited to music. JUSTICE BREYER: was about music. MR. CLEMENT: I'm not sure about that, but -Well, I thought -- I mean, you I know, but I thought the study

JUSTICE BREYER:

know, we've had 90 briefs in this, and some briefs tear it apart, and others support it, but we also have briefs from the ACLU saying you could put whole libraries within this system. MR. CLEMENT: Well -The question I wanted to ask

JUSTICE BREYER:

you is, given that concern, that there are, conceptually anyway, really excellent uses of this thing, does deliberate -- what is the word? MR. CLEMENT: Actual inducement? Yes. Because what you are

JUSTICE BREYER:

worried about, it seemed to me that the actual inducement would take care of. And if you sent it back and said, If this really

"Let's have a trial on actual inducement."

is the extreme case you're talking about, why wouldn't the Petitioners here be bound to win that trial? MR. CLEMENT: Well, based on our review of the

record -- and we haven't been able to see the entire record -- I agree with you, the Petitioners ought to be

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able to win this case on an active-inducement ground, and that's a narrow way to decide the case. I do think,

though, this Court might have to say something about the Sony issue before it reached that issue. And if it did

feel compelled to do that, I think it would be a mistake to sanction the Ninth Circuit's reading of Sony, because, you're right, there's a theoretical possibility that public-domain works can be exchanged on this system, but it's also true that this system doesn't have much of a comparative advantage for trading in public-domain works. JUSTICE O'CONNOR: bit. Well, you got interrupted a

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 23 of this Court's Sony decision would have been the sum total of the

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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. use the program? MR. CLEMENT: the short run? If it's 50 percent infringement in Can he

We think, absolutely, yes. Yes, that he can --

JUSTICE KENNEDY: MR. CLEMENT:

He can --- use the program. I mean, as we

JUSTICE KENNEDY: MR. CLEMENT:

-- use the program.

suggest, if you're at a 50-50 -- I mean, if you're anywhere below 50 percent, we think that there should be no liability under the Sony standard. If you're above

that level and there's sufficient evidence that you're really targeting infringing uses, then I think maybe there

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would be liability.

But in the hypothetical you suggest,

there would clearly not be liability in that situation. What we would like to suggest, though, is there ought to be enough room for -- under the Sony test, before you reach actual inducement, to capture somebody where they've clearly set out, as a business model, to deal with the infringing uses. And the only thing they point to are

the theoretical possibility, anecdotal evidence, that it could be used for public-domain works. JUSTICE GINSBURG: If there's more, they could The difference

bring it out at trial, could they not?

between your position and Mr. Verrilli, I take it, is that you think there should be not summary judgement for the Petitioners, but a trial. MR. CLEMENT: Justice Ginsburg. I think that's a fair point,

We're operating in something of a

disadvantage, because we haven't seen the entirety of the record. Based on the record that I've seen, I think

there's a close case, unless perhaps once this Court clarifies the legal standard, Respondents put on additional evidence. I think this is a close case, where

you actually could grant summary judgement in favor of the Petitioners. But certainly we have no objection to having What we object to

a trial on the Sony issue in this case.

is the Ninth Circuit rule, which, in every case, is going

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to obviate the need for a trial, based on a showing that there are such things as public-domain works. JUSTICE SCALIA: The inducement -- the Presumably a

inducement point doesn't get you very far.

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: -JUSTICE SCALIA: MR. CLEMENT: Which is why you need -I think that's potentially right

-- Justice Scalia --- the Sony --

JUSTICE SCALIA: MR. CLEMENT:

-- and that's why I think it's And,

important to preserve a role for the Sony test.

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. And even in the patent context, where I think the test is, and should be, more demanding, even in that context, cases like Fromberg, which we cite at page 19 of our brief, show that there is an analysis to make sure that the suggested theoretical noninfringing use is, in fact, a practical use

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of the item. JUSTICE SCALIA: years to establish that? MR. CLEMENT: Well, I don't think -I mean, what I worry about is Will you give a company ten

JUSTICE SCALIA:

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 I don't know that we would

concerns about that, as well.

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 And then these

infringing copyrighted musical works.

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individuals come along and seek to capitalize on that market. That is their business plan from day one. And

it's not some newfangled idea.

The only newfangled idea

here is that if you give something of value away for free by ignoring the copyright laws, you're likely to draw consumers to your site, and you're likely to attract advertisers. But that cannot be the kind of innovation

that we want to further through development of secondary liability into the copyright laws. JUSTICE SOUTER: Mr. Clement, in one way this

presents an easy case for answering Justice Scalia's question, but what about a case in which there isn't the Napster example to start with? Should there be some kind

of flexible rightness doctrine in response to suits, as Justice Scalia put it, against the inventor or developer right out of the box? MR. CLEMENT: Well, whether you call it a

flexible rightness doctrine or you develop the doctrine in a way that is very forgiving -JUSTICE SOUTER: MR. CLEMENT: Congress of laches.

-- a brand-new technology. Congress of laches. I mean, I think -- the way

JUSTICE SOUTER: MR. CLEMENT:

Right.

I would style it is to develop a substantive standard that's very forgiving of brand-new technologies and allows

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people to point to, in those situations, capabilities for future uses. I do think that -How would you express the --

JUSTICE SOUTER:

how would you express that, that substantive standard that anticipates, just as you suggested we do? MR. CLEMENT: Well, I was just trying to

articulate it, which is to say that this Court has talked about the capacity for noninfringing uses. I think, with

a mature product like this, it's fair to point to how it's actually used in the marketplace. CHIEF JUSTICE REHNQUIST: Clement. MR. CLEMENT: Thank you. Mr. Taranto, we'll Thank you, Mr.

CHIEF JUSTICE REHNQUIST: hear from you.

ORAL ARGUMENT OF RICHARD G. TARANTO ON BEHALF OF RESPONDENTS MR. TARANTO: Thank you, Mr. Chief Justice, and

may it please the Court: Because Respondent's software products are tools of autonomous communications that have large and growing legitimate uses, their distribution is protected under the clear Sony rule. That rule should be adhered to by this

Court, because copyright does not generally step into the role of product control, because doing so would cause

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overkill.

The Sony rule safeguards legitimate uses by

protecting the product and -JUSTICE O'CONNOR: Yeah, but active inducement

is a doctrine that's been employed to curb the intentional encouragement of noninfringing uses, isn't it? MR. TARANTO: Not in copyright law, it hasn't, My primary point is that

but that's not my primary point.

it is critical, it is jurisdictionally critical, to separate two separate acts, distributing the product and any of the past acts that the Petitioners allege constituted encouragement, their synonym for "inducement," which were explicitly outside the District Court ruling that was certified for interlocutory appeal. Questions about past acts not inherent in the distribution of our product -JUSTICE SCALIA: are inherent. But they are inherent. They

I mean, the point is that those ASDACS are

what have developed your client's current clientele. MR. TARANTO: Scalia. No, I don't think so, Justice

The Petitioners -- this is what I think is key or They claim that there is an

usable about the past acts.

intent, as part of the current distribution of the product, to profit from increased use, including generically known infringing use, a point on which the District Court and the Court of Appeals assumed to be the

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case.

Beyond that, the question whether there were

encouraging acts, any kind of promotional activity that says, "We ask you to, and urge you to, use this product for infringement," that is not here, because that was explicitly part of the past activities, removed from the District Court decision. And when the Petitioners sought

interlocutory appeal, they said, expressly, these were "distinct and severable," in their terms -- that's a quote -JUSTICE SOUTER: MR. TARANTO: But I don't --

-- from the past. -- understand how you can One,

JUSTICE SOUTER:

separate the past from the present in that fashion.

I suppose, could say, "Well, I'm going to make inducing remarks Monday through Thursday, and I'm going to stop, Thursday night." The sales of the product on Friday are

still going to be sales which are the result of the inducing remarks Monday through Wednesday. And you're

asking, in effect -- you're asking us -- to ignore Monday through Thursday. MR. TARANTO: clear. No, I'm not. Let me try to be

There is a theory, not present here, along exactly

those lines, which Petitioners are entitled to argue, back in the District Court, without a remand, because that issue remains in the District Court. It is a theory that

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says, "You started your business with illegitimate acts, your current business is a causal consequence of that." will say, there is not one bit of evidence that the Petitioners introduced, in resisting summary judgement, in support of that theory. It is, in fact, a highly I

implausible theory, for reasons that the District Court can explain, because users of software like this switch readily. software. There is no plausible lock-in effect to this People go from Kazaa to Grokster to eDonkey to That was -- that is an available

BitTorrent week by week. theory. You would -JUSTICE SOUTER:

Then why was current -- why was

inducement, as a current theory of recovery, even the subject of summary judgement? It seems to me that to make

it a summary judgement is implausible to a non worldly degree. MR. TARANTO: I'm not entirely -I mean, I thought you were

JUSTICE SOUTER:

saying that, so far as the inducement theory of recovery is concerned -MR. TARANTO: Yes. -- the only summary judgement

JUSTICE SOUTER:

that was granted was with respect to current acts of inducement, the way the company is acting now, not the way the company was acting last year. And my question is --

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if that is correct, then I don't see how summary judgement could even intelligibly have been considered. MR. TARANTO: I think -- because as the

Petitioners insisted when they pressed for interlocutory appeal, they said these were distinct and severable, because, as Justice Scalia referred to before, the important question, on a going-forward basis, is whether the current set of activities -- this software, given how it operates, being generally distributed -- is a vendor's -- the distributor of that software -- secondarily liable because somebody else, tomorrow, can do exactly the same thing, without the baggage of any -JUSTICE KENNEDY: Well, I don't want to get us

too far off the track on this question, but it just seems to me that what you've done before bears on what you know, or have reason to know, on an ongoing basis. MR. TARANTO: I agree with that, Justice This case was

Kennedy, but there's no dispute about that.

decided on the assumption, which we are not contesting here, that the Respondents here knew that there would be widespread infringing use of a product that they were putting out, and, what's more, that they intended to profit from maximum use of the product, which necessarily would include infringing use, which they had no ability to separate from noninfringing use.

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JUSTICE KENNEDY:

Well, then why don't you tell

us what's wrong with the Government's test and with the Petitioner's test, the substantial-use part of it? MR. TARANTO: Well, I'm not entirely -- I think

there are several tests, and I'm not sure I followed them all here. We think it is critical that the Court adhere,

for innovation protection, to the very clear Sony rule. JUSTICE GINSBURG: That, Mr. Taranto, is There is a statement --

something I find very puzzling.

one could take it as clear -- "capable of substantial noninfringing use." That would be very clear, I agree. If the standard were And usually

But Sony goes on for 13 more pages.

all that clear, it would have stopped there.

when you're interpreting a document, one rule is, you read on, and if you read on, you find we need not give precise content to the question of how much use is commercially significant. That doesn't sound very clear to me. Or if

you then read back, as a careful reader would, then you find the statement that the primary use of the Sony machine for most owners was time-shifting, a use that the Court found either authorized or fair, and, hence, noninfringing. So I don't think you can take from what is a rather long opinion, and isolate one sentence, and say, "Aha, we have a clear rule."

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MR. TARANTO:

Well, that sentence, Justice

Ginsburg, is expressly stated to be the rule of law that is being applied. And then the Court went on to apply it The

to say, there are two things that satisfy the test.

primary thing, of course, is what takes up most of those 13 pages, the question whether in-home time-shifting is fair use, a question that was of considerable interest to tens of millions of individuals throughout the United States. But the Court, in fact, didn't rely only on that;

it said, "In addition, there was this roughly 7 to 9 percent use of authorized time-shifting." It wouldn't

have had to even talk about that if the primary use, you know, was the entirety of -JUSTICE SCALIA: Mr. Verrilli, I hope you won't This Court is

waste a lot of your time on this point.

certainly not going to decide this case on the basis of stare decisis, you know, whatever else is true. MR. TARANTO: Well, I will -- let me urge that

there is, in fact, considerable weight to stare decisis, because there are major technological industries that have relied on the rule that derives from patent law that there is no, kind of, predominant-use kind of meaning to Sony rule. In the patent context from which this came, all

there has to be, in Professor Chisum's words, is, uses that are not farfetched, illusory, uneconomical for the

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user.

And the inquiry there is, Is this a product whose

-- where the same features that are alleged to cause the infringement are also, in some nontrivial way, used for noninfringement? JUSTICE BREYER: What is -- what is the answer I took it, whether -- for

to Justice Kennedy's question?

the last 21 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. I -- and the country seems to There is innovation. There

JUSTICE BREYER:

have survived that standard.

are problems in the music industry, but it thrives, and so forth. So there is an argument for just following it, But suppose it's totally open.

because it's what it is.

Why should that be the right test, instead of some other test, like substantial use, et cetera? MR. TARANTO: I -- because I -That, I think, was the

JUSTICE BREYER:

question, and I'm very interested in your answer. MR. TARANTO: alternative is worse. Right. Because I think any

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

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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: MR. TARANTO: But --

Every --- but what you have -- what

JUSTICE KENNEDY:

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 -And I -- just from an economic

JUSTICE KENNEDY:

standpoint and a legal standpoint, that sounds wrong to me. MR. TARANTO: that formulation. Well, I'm not entirely sure about

Sony clearly sold many more tapes Sony

because of the illicit activity of Library.

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 That's --

60 gigabit version, holds 15,000 songs. JUSTICE KENNEDY: MR. TARANTO:

So you think that --

-- a thousand CDs. -- unlawfully expropriated

JUSTICE KENNEDY:

property can be a legitimate part of the startup capital.

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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 judgements 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. -JUSTICE GINSBURG: Then perhaps there should be There are 26 billion

a trial so it would all come out. MR. TARANTO: Petitioners -- it's not just that

they didn't have it in their brief, they did not submit any evidence in response to the summary-judgement motion that said the rule of Sony should be applied here because the magnitude of the injury to the recording industry or in -- someday in the future, to the movie industry, is at zero -JUSTICE GINSBURG: Well, they weren't

concentrating on the damage to them, they were concentrating on the facilitation of copying that was provided. And you don't question that this service does

facilitate copying. MR. TARANTO: As does the personal computer and

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the modem and the Internet service provider and the Microsoft operating system. There's -- everything in the

chain that makes this work is absolutely essential to facilitating the copying. The question is which pieces,

if any, and under what standard, get singled out for a judicially fashioned secondary copyright liability doctrine. 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,

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giving assistance.

That is a classic contributory

infringement case based on specific knowledge of infringement. And the reason -Why isn't this a classic

JUSTICE SOUTER: willful-ignorance case? MR. TARANTO:

Because willful ignorance is about

having possession of information and refusing to look at it. This -- that does not occur here. This tool of

autonomous communication is one in which there is no Mother-may-I system, no chaperone, no information provided to us at the time that there is any regress. When I ask

for a file from you, there is no information that goes back to StreamCast or to Grokster -JUSTICE SOUTER: Sure, but I thought willful

ignorance was basically a certainty of what was going on without empirically verifying it, so as to, sort of, maintain the guise of one's hands over one's eyes. And it

seems to me, if that's what it is, that's what we've got. MR. TARANTO: either account. No, I don't think so, I think, on

My understanding of where in the law

willful ignorance has bite is when you do have the information right in front of you, and you refuse to look at it. And, what's more, the change of system to an

autonomous communication tool, where there is no intermediary, which is what all of their filtering systems

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would require, getting permission in advance, the change of tool is not just some way of blinding oneself to the information. JUSTICE SCALIA: Yeah, I think it would also And so, I

include disabling yourself from looking at it.

think it's an important part of your case, that you didn't adopt this new system of decentralizing the file so that it's in the computers, out there, solely in order to get around Napster. MR. TARANTO: Right. And I think that the

summary-judgement record on this is -- it, I mean, doesn't leave any real room for dispute. JUSTICE BREYER: -- I mean, is it open? Seeking -In respect to that

Well, wait.

If you win on the question of the

standard, is it open, or would we have to remand it for them to argue, in light of the history, in light of what they do now, they, your client, with knowledge of infringement, actively encouraged users to infringe copyright using their -- using the Grokster technology, and, indeed, knowingly would include willful blindness? MR. TARANTO: I think -Because -- as I had gotten that

JUSTICE BREYER:

from one of these amicus briefs, you know, that's their standard -- they say a willful -- of willful, deliberate inducement. And that, it seems to me, important that they

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be able to argue that.

Now, can they argue it, in your

opinion, if we do nothing but affirm the Ninth Circuit? MR. TARANTO: I think that they can certainly

argue, with an affirmance by this Court, that all of the past acts, to use the District Court's term, constitute a basis for a -- inducement liability. There would be some

legal questions about whether there is such a thing as inducement liability, but they get to argue that. remand is required for that. The record in this case establishes that one reason for going to the decentralized system, without a central index and a third-party intermediary, was to -was a reaction to the Ninth Circuit's Napster decision that said, "That's a legal problem." But it is also, I No

think, beyond genuine dispute, for summary-judgement proposes, that there were other reasons. to have the servers to maintain. You don't have

When StreamCast, in

particular, was running a Napster-like system, the socalled openNap system, it had ten servers, and quickly maxed out and started crashing, and immediately concluded -- I think this is at page 789 or -- and 798 of the joint appendix -- we would have had to start doubling, tripling, quadrupling the number of services, and we didn't have -JUSTICE STEVENS: MR. TARANTO: Mr. Taranto --

-- the money to do it.

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JUSTICE STEVENS:

-- can I ask -- I'm still a

little puzzled about the posture of the case. MR. TARANTO: Yes. Because I read the District

JUSTICE STEVENS: Court opinion.

I think he said -- the judge said that

both parties agreed that there were no disputed issues of fact that would preclude the entry of summary judgement in either way, no disputed issues relative to whether to grant relief. petition. And I -- it's on page 24a of the cert

And I understand you to be saying that leaving

everything alone, affirming would allow the case to go forward with your adversaries seeking damages on an active-inducement theory. MR. TARANTO: Am I correct? I think -- all I read this,

Yes.

page 24a, to say is that both sides filed for summary judgement, so each one, of course, thought that there was -- that it was entitled to summary judgement. JUSTICE STEVENS: Each --

But it says, "Both parties

believe there are no disputed issues of fact material to Defendant's liability." MR. TARANTO: I think that's just because each Each side filed extensive

side filed summary judgement. -JUSTICE STEVENS:

So then your answer to my

question is that, yes, if we affirm, as a possibility,

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they could continue to seek damages on an activeinducement theory. MR. TARANTO: Yes, absolutely. And there are --

there are affirmative defenses that are not even part of this motion that, of course, would, by themselves, preclude summary judgement in their favor. JUSTICE STEVENS: JUSTICE GINSBURG: JUSTICE STEVENS: And then one other -I thought --- question I had. Does the

record contain their proposed form of injunction that they requested? MR. TARANTO: I don't think it does, beyond the

statement at the end of their summary-judgement pleading that asked for a very general injunction, "Stop the Defendants from infringing." more specific. Let me comment a bit on what the record says about the substantial legitimate uses. question of -JUSTICE GINSBURG: Mr. Taranto, before you go This is not a I'm not aware of anything

back to that, I wanted to be clear on what you were saying would be left over for trial. MR. TARANTO: Yes. Because, as I read your

JUSTICE GINSBURG:

briefing, it was, "Well, they can argue about some bad

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things that Grokster was doing in the past, but this decision says: henceforth, what we're doing is okay. The

case zeroed in on now and the future, and the only thing that was left open was something that was over and gone could get damages for it." But I thought that this

judgement gave you an okay, a green light, from now on. MR. TARANTO: I -- my view that -- I mean, this I believe it ought

was not talked about in these terms.

to be open to the Petitioners, not only to prove that past acts were, themselves, illegal, but that the causal consequence of those past acts should somehow reach forward into the current acts. JUSTICE SOUTER: current summary judgement? MR. TARANTO: The point of the current summary Then what is the point of the

judgement is that there is -- the forward-looking character of the activities taking place, starting in September 2002 on forward, has been held, by itself, not to be a basis for -JUSTICE SOUTER: So you're saying the summary

judgement simply, in effect, says, "They're not doing anything wrong now, but we have left open the question, not merely of what they have done wrong in the past, but whether what they did wrong in the past can carry forward into the future"?

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MR. TARANTO:

As I say, it wasn't stated in

those terms, but, yes, I think that -JUSTICE SOUTER: MR. TARANTO: [Laughter.] MR. TARANTO: -- because the important question That's bizarre.

Well, I don't think so, because --

is, to the Petitioners, the entire recording and movie industry, Is this set of activities, which you and I, tomorrow, can start engaging in, one that they can stop? There are literally a handful -- on page 7 and 8 of their brief -JUSTICE SOUTER: So you're saying -- what it

really says is, "There's nothing to enjoin, but there may very well be something to recover for," -MR. TARANTO: Yes. -- "even as to future

JUSTICE SOUTER: activity." MR. TARANTO:

Yes, exactly right.

And they

would, of course, have had to make the very implausible assertion, in a business in which there is no plausible lock-in, that somehow a set of isolated events -- e-mails -- a handful of e-mails out of literally, between the two companies, 1700 a day, that might have said, "Why don't you load some music out"? -- are somehow the causal -- the cause of what is going on today.

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Let me say a few words about what the record says about legitimate activities. Altnet is a company --

this is at 1169 and -70 of the joint appendix -- they say that they have distributed, on peer-to-peer systems, hundreds of thousands of authorized songs, and, they say, millions of pieces of -- of video games, leading to sales. This is not a trivial number. JIVE, at page 67 to 68,

speaks about 250,000 peer-to-peer downloads of a music video. The Internet archive, which is talked about in the

record, and as you now look at what they are on their Website, now lists some several hundred musical artists with 20,000 recordings which are being put out there for peer-to-peer distribution. The Creative Commons is

licensing all kinds of things for authorized public distribution. There are musical bands -Because, I gather, that some

JUSTICE SCALIA:

artists don't make money from the records, but make money from the popularity that draws fans to their concerts. MR. TARANTO: My understanding -So they're willing to give away

JUSTICE SCALIA: the records for free. MR. TARANTO:

-- my understanding is "some" is a

great understatement, yes. The bands talked about at 159 and 160 to '70 of the joint appendix, which have authorized their live

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concert recordings to be traded among -- on -- to be traded. The GigAmerica business is in the business of

compiling -- this is at 323 of the joint appendix -- of compiling musical recordings and other things for authorized distribution. The world of music distribution

and video distribution and movie-trailer distribution and, in small instances now, text distribution, but growing, is changing and making use of this extremely innovative, lowcost tool. The great innovation of this tool of

communication -CHIEF JUSTICE REHNQUIST: MR. TARANTO: Yes. In your motion for Mr. Taranto?

CHIEF JUSTICE REHNQUIST:

summary judgement, did you ask that the Plaintiff's claim be dismissed? MR. TARANTO: Well, we asked for judgement, in

our favor on their claim, that our current activities constituted a basis for secondary liability. if word "dismiss" was -CHIEF JUSTICE REHNQUIST: claims? You said "on their claim." Were there other Were -- did they make I'm not sure

other claims? MR. TARANTO: They had a generic claim about We made the motion -- or,

secondary copyright liability.

actually, StreamCast made a motion that said, "Let's carve

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this piece out and talk just about whether the set of current activities supports secondary liability." The

other side eventually agreed that that was distinct and severable from their claim of secondary liability as to past acts and as to past versions of the software, which has -- which has changed. JUSTICE GINSBURG: Where does one find that?

CHIEF JUSTICE REHNQUIST: (Inaudible) MR. TARANTO: Yes, the motion -- well, it -- the

simplest place, I guess, is in the June 2003 District Court ruling, which is in the Joint Appendix and attached to the brief in opposition, ruled on the Petitioner's motion for an interlocutory appeal under 1292. JUSTICE GINSBURG: But the motion itself is not

there to take it through the opinion of the Court? MR. TARANTO: the joint appendix. No, the motion is not -- is not in

The -- most of the motions -- in

fact, both of our summary-judgement motions and their summary-judgement motion, are in the joint excerpts of record in the Ninth Circuit, can be found in -CHIEF JUSTICE REHNQUIST: MR. TARANTO: The text on --

-- 30 volumes. -- the text, on pages

CHIEF JUSTICE REHNQUIST:

23a and 24a, gives the impression that the District Court is disposing of the entire case.

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MR. TARANTO:

That -- it may give that Later, the Court explains that

impression on those pages.

it's ruling only on the current versions of the software. And then in the June 2003 order, the Court was explicit in saying, "If I haven't been clear enough, let me amend my June -- my April order," which is what you were just reading from, "to make explicit the limitation." quote that in our brief. 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. And we

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