MGM Studios, Inc. v. Grokster, Ltd., 545 U.S.

913 (2005)

Facts of the Case
Grokster and other companies distributed free software that allowed computer users to share electronic
files through peer-to-peer networks. In such networks, users can share digital files directly between their
computers, without the use of a central server. Users employed the software primarily to download
copyrighted files, file-sharing which the software companies knew about and encouraged. The companies
profited from advertising revenue, since they streamed ads to the software users. A group of movie
studios and other copyright holders sued and alleged that Grokster and the other companies violated the
Copyright Act by intentionally distributing software to enable users to infringe copyrighted works. The
district court ruled for Grokster, reasoning that the software distribution companies were not liable for
copyright violations stemming from their software, which could have been used lawfully. The Ninth Circuit
affirmed.
Question
Were companies that distributed file-sharing software, and encouraged and profited from direct copyright
infringement using such software, liable for the infringement?
Conclusion: yes!

Legal provision: 17 U.S.C. 101

Yes. In a unanimous opinion delivered by Justice David Souter, the Court held that companies that
distributed software, and promoted that software to infringe copyrights, were liable for the resulting acts of
infringement. The Court argued that although the Copyright Act did not expressly make anyone liable for
another's infringement, secondary liability doctrines applied here. The software in this case was used so
widely to infringe copyrights that it would have been immensely difficult to deal with each individual
infringer. The "only practical alternative" was to go against the software distributor for secondary liability.
Here the software companies were liable for encouraging and profiting from direct infringement.

Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146 (9th Cir. 2007)

Facts
Google searches facilitated access to images that infringed on Perfect 10 copyrights.
Google stores thumbnails of images, then links to the webpage.
Google also stores webpage content in its cache, so an infringing image could be viewed this way
even if the webpage owner removed HTML instructions, a user could still get there. The owner would
have to change the web address of the image or render it unavailable in order for it to be inaccessible
through the cache.
Perfect 10 users have to pay a fee to view the images in the "members' area' of the site. Google does
not have these images in its index or database.
However, some website publishers republish the images w/o authorization. When this happens,
Google may index the webpages containing the images and provide thumbnail versions of images in
response to searches.
o When a user clicks on the image, Google links to the website containing the image, but also
frames the image with its own website.
Procedural History
District court preliminarily enjoined Google from creating and publicly displaying thumbnail versions
of the pictures, but not from linking to third party websites that displayed the images.
COA affirms in part, reverses injunction, and remands.
Issues
Does the use of thumbnail images to facilitate internet browsing constitute fair use of copyrighted
material?
Holding/Rule
The use of thumbnail images to facilitate internet browsing and searching constitutes fair use of
copyrighted material.
Reasoning
Direct infringement:
o There is no dispute that Google's computers store thumbnail versions of Perfect 10's
copyrighted images and communicate copies of these thumbnails to users. This fulfills P's
prima facie case for direct infringement.
o Google does not have a copy of the images for purposes of the Copyright Act, however, when
it frames in-line linked full-size images.
Providing HTML instructions is not the same as showing a copy, because HTML
instructions do not themselves cause infringing images to appear on the screen and
Google does not store the image.
Facilitating access may raise contributory liability issues, but it does not constitute
direct infringement.
o This analysis is equally applicable to Google's cache, because Google does not store the
image.
Fair Use Defense:
o Google contends use of thumbnails is a fair use of the images.
o In Kelly v. Arriba Soft Corp., the Court considered a similar claim and held that the search
engine's use of thumbnails was fair use based on the transformative nature of a search engine
and its benefit to the public. District Ct distinguished this case.
o Factor Test:
1. Purpose and character of use (transformative?)
D's use of thumbnails is highly transformative, because it transforms the
image into a pointer directing the user to a source of information.
Completely changes the purpose of the original work, and in this way is
more transformative than a parody.
Even making an exact copy can be transformative so long as the copy serves
a different function.
D. Ct. said that D's use of thumbnails superseded P's right to sell reduced-
size images for cell phone use and because D profited (through AdSense)
from the links.
D. Ct. did not consider, however, that perhaps the value of the search engine
to the public outweighed the commercial nature of Google.
Superseding use (cell phone pics) doesn't seem to actually be occurring.
Also, transformative nature of Google's search engine and benefit to the
public outweighs commercial gain from AdSense.
2. Nature of the copyrighted work
This factor weighs only slightly in favor of Perfect 10.
The images are "creative in nature" and therefore closer to the core of
intended copyright protection. However, P's images were previously
published, and thus is no longer entitled to the enhanced protection available
for unpublished work.
3. Amount and substantiality of the portion used
This factor favors neither party, because in Kelly, the Court held that the use
of entire photographic images was reasonable in light of the purpose of a
search engine.
4. Effect of use on the market
Because the thumbnails were not a substitute for the full-sized images, they
do not harm the ability to license or sell the full-sized images.
P argued that when the intended use is for commercial gain, market harm
can be presumed. However, D's use of thumbnails is highly transformative,
so it is not the case that market harm can be presumed.
Argument that it harms P's cell phone download market is hypothetical.
This factor also favors neither party.
o In light of this, Google is likely to succeed in proving its fair use defense.
Therefore, the preliminary injunction order is vacated.