Sony Corp v. Universal City Studios 2

Picker, Antitrust and IP Policy Seminar Spring, 2005 Page 1
Sony Corp. of America v. Universal City Studios, Inc.

464 U.S. 417 (1984)
Justice STEVENS delivered the opinion of the Court: Petitioners manufacture and sell
home video tape recorders. Respondents own the copyrights on some of the television
programs that are broadcast on the public airwaves. Some members of the general public
use video tape recorders sold by petitioners to record some of these broadcasts, as well as
a large number of other broadcasts. The question presented is whether the sale of peti-
tioners’ copying equipment to the general public violates any of the rights conferred upon
respondents by the Copyright Act.
Respondents commenced this copyright infringement action against petitioners in the
United States District Court for the Central District of California in 1976. Respondents
alleged that some individuals had used Betamax video tape recorders (VTR’s) to record
some of respondents’ copyrighted works which had been exhibited on commercially
sponsored television and contended that these individuals had thereby infringed respon-
dents’ copyrights. Respondents further maintained that petitioners were liable for the
copyright infringement allegedly committed by Betamax consumers because of petition-
ers’ marketing of the Betamax VTR’s. Respondents sought no relief against any Betamax
consumer. Instead, they sought money damages and an equitable accounting of profits
from petitioners, as well as an injunction against the manufacture and marketing of Be-
tamax VTR’s.
After a lengthy trial, the District Court denied respondents all the relief they sought
and entered judgment for petitioners. 480 F.Supp. 429 (1979). The United States Court
of Appeals for the Ninth Circuit reversed the District Court’s judgment on respondent’s
copyright claim, holding petitioners liable for contributory infringement and ordering the
District Court to fashion appropriate relief. 659 F.2d 963 (1981). *** We now reverse.
An explanation of our rejection of respondents’ unprecedented attempt to impose copy-
right liability upon the distributors of copying equipment requires a quite detailed recita-
tion of the findings of the District Court. In summary, those findings reveal that the av-
erage member of the public uses a VTR principally to record a program he cannot view as
it is being televised and then to watch it once at a later time. This practice, known as
“time-shifting,” enlarges the television viewing audience. For that reason, a significant
amount of television programming may be used in this manner without objection from
the owners of the copyrights on the programs. For the same reason, even the two respon-
dents in this case, who do assert objections to time-shifting in this litigation, were unable
to prove that the practice has impaired the commercial value of their copyrights or has
created any likelihood of future harm. Given these findings, there is no basis in the
Copyright Act upon which respondents can hold petitioners liable for distributing VTR’s
to the general public. The Court of Appeals’ holding that respondents are entitled to en-
join the distribution of VTR’s, to collect royalties on the sale of such equipment, or to
obtain other relief, if affirmed, would enlarge the scope of respondents’ statutory mo-
nopolies to encompass control over an article of commerce that is not the subject of copy-
right protection. Such an expansion of the copyright privilege is beyond the limits of the
grants authorized by Congress.
I
*** Petitioner Sony manufactures millions of Betamax video tape recorders and markets
these devices through numerous retail establishments, some of which are also petitioners
in this action. Sony’s Betamax VTR is a mechanism consisting of three basic compo-
nents: (1) a tuner, which receives electromagnetic signals transmitted over the television
band of the public airwaves and separates them into audio and visual signals; (2) a re-
corder, which records such signals on a magnetic tape; and (3) an adapter, which converts
the audio and visual signals on the tape into a composite signal that can be received by a
television set.
Several capabilities of the machine are noteworthy. The separate tuner in the Betamax
enables it to record a broadcast off one station while the television set is tuned to another
channel, permitting the viewer, for example, to watch two simultaneous news broadcasts
by watching one “live” and recording the other for later viewing. Tapes may be reused,
and programs that have been recorded may be erased either before or after viewing. A
timer in the Betamax can be used to activate and deactivate the equipment at predeter-
mined times, enabling an intended viewer to record programs that are transmitted when
he or she is not at home. Thus a person may watch a program at home in the evening
even though it was broadcast while the viewer was at work during the afternoon. The Be-
tamax is also equipped with a pause button and a fast-forward control. The pause button,
when depressed, deactivates the recorder until it is released, thus enabling a viewer to
omit a commercial advertisement from the recording, provided, of course, that the viewer
is present when the program is recorded. The fast forward control enables the viewer of a
previously recorded program to run the tape rapidly when a segment he or she does not
desire to see is being played back on the television screen.
The respondents and Sony both conducted surveys of the way the Betamax machine
was used by several hundred owners during a sample period in 1978. Although there were
some differences in the surveys, they both showed that the primary use of the machine for
most owners was “time-shifting,”—the practice of recording a program to view it once at
a later time, and thereafter erasing it. Time-shifting enables viewers to see programs they
otherwise would miss because they are not at home, are occupied with other tasks, or are
viewing a program on another station at the time of a broadcast that they desire to watch.
Both surveys also showed, however, that a substantial number of interviewees had accu-
mulated libraries of tapes. Sony’s survey indicated that over 80% of the interviewees
watched at least as much regular television as they had before owning a Betamax. Re-
spondents offered no evidence of decreased television viewing by Betamax owners.
Sony introduced considerable evidence describing television programs that could be
copied without objection from any copyright holder, with special emphasis on sports, re-
ligious, and educational programming. For example, their survey indicated that 7.3% of
all Betamax use is to record sports events, and representatives of professional baseball,
football, basketball, and hockey testified that they had no objection to the recording of
their televised events for home use.
Respondents offered opinion evidence concerning the future impact of the unrestricted
sale of VTR’s on the commercial value of their copyrights. The District Court found,
however, that they had failed to prove any likelihood of future harm from the use of
VTR’s for time-shifting. ***
II
*** The judiciary’s reluctance to expand the protections afforded by the copyright without
explicit legislative guidance is a recurring theme. Sound policy, as well as history, supports
our consistent deference to Congress when major technological innovations alter the
market for copyrighted materials. Congress has the constitutional authority and the insti-
tutional ability to accommodate fully the varied permutations of competing interests that
are inevitably implicated by such new technology. In a case like this, in which Congress
has not plainly marked our course, we must be circumspect in construing the scope of
rights created by a legislative enactment which never contemplated such a calculus of in-
terests. ***
The Copyright Act provides the owner of a copyright with a potent arsenal of remedies
against an infringer of his work, including an injunction to restrain the infringer from
violating his rights, the impoundment and destruction of all reproductions of his work
made in violation of his rights, a recovery of his actual damages and any additional profits
realized by the infringer or a recovery of statutory damages, and attorneys fees. Id.,
§ § 502-505.
The two respondents in this case do not seek relief against the Betamax users who have
allegedly infringed their copyrights. Moreover, this is not a class action on behalf of all
copyright owners who license their works for television broadcast, and respondents have
no right to invoke whatever rights other copyright holders may have to bring infringe-
ment actions based on Betamax copying of their works. As was made clear by their own
evidence, the copying of the respondents’ programs represents a small portion of the total
use of VTR’s. It is, however, the taping of respondents own copyrighted programs that
provides them with standing to charge Sony with contributory infringement. To prevail,
they have the burden of proving that users of the Betamax have infringed their copyrights
and that Sony should be held responsible for that infringement.
III
The Copyright Act does not expressly render anyone liable for infringement committed
by another. In contrast, the Patent Act expressly brands anyone who “actively induces in-
fringement of a patent” as an infringer, 35 U.S.C. § 271(b), and further imposes liability
on certain individuals labeled “contributory” infringers, id., § 271(c). The absence of such
express language in the copyright statute does not preclude the imposition of liability for
copyright infringements on certain parties who have not themselves engaged in the in-
fringing activity. For vicarious liability is imposed in virtually all areas of the law, and the
concept of contributory infringement is merely a species of the broader problem of identi-
fying the circumstances in which it is just to hold one individual accountable for the ac-
tions of another. ***
If vicarious liability is to be imposed on petitioners in this case, it must rest on the fact
that they have sold equipment with constructive knowledge of the fact that their custom-
ers may use that equipment to make unauthorized copies of copyrighted material. There
is no precedent in the law of copyright for the imposition of vicarious liability on such a
theory. The closest analogy is provided by the patent law cases to which it is appropriate
to refer because of the historic kinship between patent law and copyright law. ***
In the Patent Code both the concept of infringement and the concept of contributory
infringement are expressly defined by statute.20 The prohibition against contributory in-
fringement is confined to the knowing sale of a component especially made for use in
connection with a particular patent. There is no suggestion in the statute that one pat-
entee may object to the sale of a product that might be used in connection with other
patents. Moreover, the Act expressly provides that the sale of a “staple article or com-
modity of commerce suitable for substantial noninfringing use” is not contributory in-
fringement.
When a charge of contributory infringement is predicated entirely on the sale of an ar-
ticle of commerce that is used by the purchaser to infringe a patent, the public interest in
access to that article of commerce is necessarily implicated. A finding of contributory in-
fringement does not, of course, remove the article from the market altogether; it does,
however, give the patentee effective control over the sale of that item. Indeed, a finding
of contributory infringement is normally the functional equivalent of holding that the
disputed article is within the monopoly granted to the patentee.21
For that reason, in contributory infringement cases arising under the patent laws the
Court has always recognized the critical importance of not allowing the patentee to ex-
tend his monopoly beyond the limits of his specific grant. These cases deny the patentee
any right to control the distribution of unpatented articles unless they are “unsuited for
20 35 U.S.C. § 271 provides:

(a) Except as otherwise provided in this title, whoever without authority makes, uses or sells any
patented invention, within the United States during the term of the patent therefor, infringes the
patent.
(b) Whoever actively induces infringement of a patent shall be liable as an infringer.
(c) Whoever sells a component of a patented machine, manufacture, combination or composi-
tion, or a material or apparatus for use in practicing a patented process, constituting a material part
of the invention, knowing the same to be especially made or especially adapted for use in an in-
fringement of such patent, and not a staple article or commodity of commerce suitable for substan-
tial noninfringing use, shall be liable as a contributory infringer.
(d) No patent owner otherwise entitled to relief for infringement or contributory infringement
of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right
by reason of his having done one or more of the following: (1) derived revenue from acts which if
performed by another without his consent would constitute contributory infringement of the pat-
ent; (2) licensed or authorized another to perform acts which if performed without his consent
would constitute contributory infringement of the patent; (3) sought to enforce his patent rights
against infringement or contributory infringement.”
21 It seems extraordinary to suggest that the Copyright Act confers upon all copyright owners collec-
tively, much less the two respondents in this case, the exclusive right to distribute VTR’s simply because
they may be used to infringe copyrights. That, however, is the logical implication of their claim. The re-
quest for an injunction below indicates that respondents seek, in effect, to declare VTR’s contraband. Their
suggestion in this Court that a continuing royalty pursuant to a judicially created compulsory license would
be an acceptable remedy merely indicates that respondents, for their part, would be willing to license their
claimed monopoly interest in VTR’s to petitioners in return for a royalty.
any commercial noninfringing use.” Dawson Chemical Co. v. Rohm & Hass Co., 448 U.S.
176, 198 (1980). Unless a commodity “has no use except through practice of the patented
method,” ibid, the patentee has no right to claim that its distribution constitutes con-
tributory infringement. “To form the basis for contributory infringement the item must
almost be uniquely suited as a component of the patented invention.” P. Rosenberg, Pat-
ent Law Fundamentals § 17.02[2] (1982). “[A] sale of an article which though adapted
to an infringing use is also adapted to other and lawful uses, is not enough to make the
seller a contributory infringer. Such a rule would block the wheels of commerce.” Henry
v. A.B. Dick Co., 224 U.S. 1, 48 (1912), overruled on other grounds, Motion Picture Pat-
ents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 517 (1917).
We recognize there are substantial differences between the patent and copyright laws.
But in both areas the contributory infringement doctrine is grounded on the recognition
that adequate protection of a monopoly may require the courts to look beyond actual du-
plication of a device or publication to the products or activities that make such duplica-
tion possible. The staple article of commerce doctrine must strike a balance between a
copyright holder’s legitimate demand for effective—not merely symbolic—protection of
the statutory monopoly, and the rights of others freely to engage in substantially unre-
lated areas of commerce. Accordingly, the sale of copying equipment, like the sale of
other articles of commerce, does not constitute contributory infringement if the product
is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable
of substantial noninfringing uses.
IV
The question is thus whether the Betamax is capable of commercially significant nonin-
fringing uses. In order to resolve that question, we need not explore all the different po-
tential uses of the machine and determine whether or not they would constitute in-
fringement. Rather, we need only consider whether on the basis of the facts as found by
the district court a significant number of them would be non-infringing. Moreover, in
order to resolve this case we need not give precise content to the question of how much
use is commercially significant. For one potential use of the Betamax plainly satisfies this
standard, however it is understood: private, noncommercial time-shifting in the home. It
does so both (A) because respondents have no right to prevent other copyright holders
from authorizing it for their programs, and (B) because the District Court’s factual find-
ings reveal that even the unauthorized home time-shifting of respondents’ programs is
legitimate fair use.
A. Authorized Time Shifting

Each of the respondents owns a large inventory of valuable copyrights, but in the total
spectrum of television programming their combined market share is small. The exact per-
centage is not specified, but it is well below 10%. If they were to prevail, the outcome of
this litigation would have a significant impact on both the producers and the viewers of
the remaining 90% of the programming in the Nation. No doubt, many other producers
share respondents’ concern about the possible consequences of unrestricted copying. Nev-
ertheless the findings of the District Court make it clear that time-shifting may enlarge
the total viewing audience and that many producers are willing to allow private time-
shifting to continue, at least for an experimental time period.
The District Court found:
“Even if it were deemed that home-use recording of copyrighted material consti-
tuted infringement, the Betamax could still legally be used to record noncopy-
righted material or material whose owners consented to the copying. An injunc-
tion would deprive the public of the ability to use the Betamax for this nonin-
fringing off-the-air recording.
“Defendants introduced considerable testimony at trial about the potential for
such copying of sports, religious, educational and other programming. This in-
cluded testimony from representatives of the Offices of the Commissioners of the
National Football, Basketball, Baseball and Hockey Leagues and Associations,
the Executive Director of National Religious Broadcasters and various educational
communications agencies. Plaintiffs attack the weight of the testimony offered
and also contend that an injunction is warranted because infringing uses outweigh
noninfringing uses.”
“Whatever the future percentage of legal versus illegal home-use recording might
be, an injunction which seeks to deprive the public of the very tool or article of
commerce capable of some noninfringing use would be an extremely harsh rem-
edy, as well as one unprecedented in copyright law.” 480 F.Supp., at 468.
Although the District Court made these statements in the context of considering the
propriety of injunctive relief, the statements constitute a finding that the evidence con-
cerning “sports, religious, educational, and other programming” was sufficient to establish
a significant quantity of broadcasting whose copying is now authorized, and a significant
potential for future authorized copying. That finding is amply supported by the record. In
addition to the religious and sports officials identified explicitly by the District Court, ***
[consider] the testimony of Fred Rogers, president of the corporation that produces and
owns the copyright on Mr. Rogers’ Neighborhood. The program is carried by more public
television stations than any other program. Its audience numbers over 3,000,000 families
a day. He testified that he had absolutely no objection to home taping for noncommercial
use and expressed the opinion that it is a real service to families to be able to record chil-
dren’s programs and to show them at appropriate times.27
If there are millions of owners of VTR’s who make copies of televised sports events, re-
ligious broadcasts, and educational programs such as Mister Rogers’ Neighborhood, and if
the proprietors of those programs welcome the practice, the business of supplying the
27 “Some public stations, as well as commercial stations, program the ‘Neighborhood’ at hours when
some children cannot use it. I think that it’s a real service to families to be able to record such programs and
show them at appropriate times. I have always felt that with the advent of all of this new technology that
allows people to tape the ‘Neighborhood’ off-the-air, and I’m speaking for the ‘Neighborhood’ because
that’s what I produce, that they then become much more active in the programming of their family’s televi-
sion life. Very frankly, I am opposed to people being programmed by others. My whole approach in broad-
casting has always been ‘You are an important person just the way you are. You can make healthy deci-
sions.’ Maybe I’m going on too long, but I just feel that anything that allows a person to be more active in
the control of his or her life, in a healthy way, is important.” T.R. 2920-2921.
equipment that makes such copying feasible should not be stifled simply because the
equipment is used by some individuals to make unauthorized reproductions of respon-
dents’ works. The respondents do not represent a class composed of all copyright holders.
Yet a finding of contributory infringement would inevitably frustrate the interests of
broadcasters in reaching the portion of their audience that is available only through time-
shifting.
Of course, the fact that other copyright holders may welcome the practice of time-
shifting does not mean that respondents should be deemed to have granted a license to
copy their programs. Third party conduct would be wholly irrelevant in an action for di-
rect infringement of respondents’ copyrights. But in an action for contributory infringe-
ment against the seller of copying equipment, the copyright holder may not prevail unless
the relief that he seeks affects only his programs, or unless he speaks for virtually all copy-
right holders with an interest in the outcome. In this case, the record makes it perfectly
clear that there are many important producers of national and local television programs
who find nothing objectionable about the enlargement in the size of the television audi-
ence that results from the practice of time-shifting for private home use. The seller of the
equipment that expands those producers’ audiences cannot be a contributory infringer if,
as is true in this case, it has had no direct involvement with any infringing activity.
In the context of television programming, some producers evidently believe that per-
mitting home viewers to make copies of their works off the air actually enhances the value
of their copyrights. Irrespective of their reasons for authorizing the practice, they do so,
and in significant enough numbers to create a substantial market for a non-infringing use
of the Sony VTR’s. ***
B. Unauthorized Time-Shifting
Even unauthorized uses of a copyrighted work are not necessarily infringing. An unli-
censed use of the copyright is not an infringement unless it conflicts with one of the spe-
cific exclusive rights conferred by the copyright statute. Moreover, the definition of exclu-
sive rights in § 106 of the present Act is prefaced by the words “subject to sections 107
through 118.” Those sections describe a variety of uses of copyrighted material that “are
not infringements of copyright notwithstanding the provisions of § 106.” The most per-
tinent in this case is § 107, the legislative endorsement of the doctrine of “fair use.”
*** If the Betamax were used to make copies for a commercial or profit-making pur-
pose, such use would presumptively be unfair. The contrary presumption is appropriate
here, however, because the District Court’s findings plainly establish that time-shifting
for private home use must be characterized as a noncommercial, nonprofit activity.
Moreover, when one considers the nature of a televised copyrighted audiovisual work, see
17 U.S.C. § 107(2), and that timeshifting merely enables a viewer to see such a work
which he had been invited to witness in its entirety free of charge, the fact that the entire
work is reproduced, see id., at § 107(3), does not have its ordinary effect of militating
against a finding of fair use.33
33 It has been suggested that “consumptive uses of copyrights by home VTR users are commercial even if
the consumer does not sell the homemade tape because the consumer will not buy tapes separately sold by
This is not, however, the end of the inquiry because Congress has also directed us to
consider “the effect of the use upon the potential market for or value of the copyrighted
work.” Id., at § 107(4). The purpose of copyright is to create incentives for creative effort.
Even copying for noncommercial purposes may impair the copyright holder’s ability to
obtain the rewards that Congress intended him to have. But a use that has no demon-
strable effect upon the potential market for, or the value of, the copyrighted work need
not be prohibited in order to protect the author’s incentive to create. The prohibition of
such noncommercial uses would merely inhibit access to ideas without any countervailing
benefit.
Thus, although every commercial use of copyrighted material is presumptively an unfair
exploitation of the monopoly privilege that belongs to the owner of the copyright, non-
commercial uses are a different matter. A challenge to a noncommercial use of a copy-
righted work requires proof either that the particular use is harmful, or that if it should
become widespread, it would adversely affect the potential market for the copyrighted
work. Actual present harm need not be shown; such a requirement would leave the copy-
right holder with no defense against predictable damage. Nor is it necessary to show with
certainty that future harm will result. What is necessary is a showing by a preponderance
of the evidence that some meaningful likelihood of future harm exists. If the intended use
is for commercial gain, that likelihood may be presumed. But if it is for a noncommercial
purpose, the likelihood must be demonstrated.
In this case, respondents failed to carry their burden with regard to home time-shifting.
*** There was no need for the District Court to say much about past harm. “Plaintiffs
have admitted that no actual harm to their copyrights has occurred to date.” Id., at 451.
On the question of potential future harm from time-shifting, the District Court offered
a more detailed analysis of the evidence. It rejected respondents’ “fear that persons
‘watching’ the original telecast of a program will not be measured in the live audience and
the ratings and revenues will decrease,” by observing that current measurement technol-
ogy allows the Betamax audience to be reflected. Id., at 466. It rejected respondents’ pre-
diction “that live television or movie audiences will decrease as more people watch Be-
tamax tapes as an alternative,” with the observation that “[t]here is no factual basis for
[the underlying] assumption.” Ibid. It rejected respondents’ “fear that time-shifting will
reduce audiences for telecast reruns,” and concluded instead that “given current market
practices, this should aid plaintiffs rather than harm them.” Ibid. And it declared that re-
spondents’ suggestion “that theater or film rental exhibition of a program will suffer be-
cause of time-shift recording of that program” “lacks merit.” 480 F.Supp., at 467.
the copyrightholder.” Home Recording of Copyrighted Works: Hearing before Subcommittee on Courts,
Civil Liberties and the Administration of Justice of the House Committee on the Judiciary, 97th Congress,
2d Session, pt. 2, p. 1250 (1982) (memorandum of Prof. Laurence H. Tribe). *** Theft of a particular item
of personal property of course may have commercial significance, for the thief deprives the owner of his
right to sell that particular item to any individual. Timeshifting does not even remotely entail comparable
consequences to the copyright owner. Moreover, the timeshifter no more steals the program by watching it
once than does the live viewer, and the live viewer is no more likely to buy pre-recorded videotapes than is
the timeshifter. Indeed, no live viewer would buy a pre-recorded videotape if he did not have access to a
VTR.
In a separate section, the District Court rejected plaintiffs’ suggestion that the commer-
cial attractiveness of television broadcasts would be diminished because Betamax owners
would use the pause button or fast-forward control to avoid viewing advertisements:
“It must be remembered, however, that to omit commercials, Betamax owners
must view the program, including the commercials, while recording. To avoid
commercials during playback, the viewer must fast-forward and, for the most part,
guess as to when the commercial has passed. For most recordings, either practice
may be too tedious. As defendants’ survey showed, 92% of the programs were re-
corded with commercials and only 25% of the owners fast-forward through them.
Advertisers will have to make the same kinds of judgments they do now about
whether persons viewing televised programs actually watch the advertisements
which interrupt them.” Id., at 468.
After completing that review, the District Court restated its overall conclusion several
times, in several different ways. “Harm from time-shifting is speculative and, at best,
minimal.” Ibid. “The audience benefits from the time-shifting capability have already
been discussed. It is not implausible that benefits could also accrue to plaintiffs, broad-
casters, and advertisers, as the Betamax makes it possible for more persons to view their
broadcasts.” Ibid. “No likelihood of harm was shown at trial, and plaintiffs admitted that
there had been no actual harm to date.” Id., at 468-469. “Testimony at trial suggested
that Betamax may require adjustments in marketing strategy, but it did not establish even
a likelihood of harm.” Id., at 469. “Television production by plaintiffs today is more prof-
itable than it has ever been, and, in five weeks of trial, there was no concrete evidence to
suggest that the Betamax will change the studios’ financial picture.” Ibid.
The District Court’s conclusions are buttressed by the fact that to the extent time-
shifting expands public access to freely broadcast television programs, it yields societal
benefits. *** Concededly, that interest is not unlimited. But it supports an interpretation
of the concept of “fair use” that requires the copyright holder to demonstrate some likeli-
hood of harm before he may condemn a private act of time-shifting as a violation of fed-
eral law.
When these factors are all weighed in the “equitable rule of reason” balance, we must
conclude that this record amply supports the District Court’s conclusion that home time-
shifting is fair use. In light of the findings of the District Court regarding the state of the
empirical data, it is clear that the Court of Appeals erred in holding that the statute as
presently written bars such conduct. ***
In summary, the record and findings of the District Court lead us to two conclusions.
First, Sony demonstrated a significant likelihood that substantial numbers of copyright
holders who license their works for broadcast on free television would not object to hav-
ing their broadcasts time-shifted by private viewers. And second, respondents failed to
demonstrate that time-shifting would cause any likelihood of nonminimal harm to the
potential market for, or the value of, their copyrighted works. The Betamax is, therefore,
capable of substantial noninfringing uses. Sony’s sale of such equipment to the general
public does not constitute contributory infringement of respondent’s copyrights.
V
*** It may well be that Congress will take a fresh look at this new technology, just as it so
often has examined other innovations in the past. But it is not our job to apply laws that
have not yet been written. Applying the copyright statute, as it now reads, to the facts as
they have been developed in this case, the judgment of the Court of Appeals must be re-
versed.
It is so ordered.
Justice BLACKMUN, with whom Justice MARSHALL, Justice POWELL, and Justice
REHNQUIST join, dissenting: *** The Betamax, like other VTRs, presently is capable
of recording television broadcasts off the air on videotape cassettes, and playing them
back at a later time. Two kinds of Betamax usage are at issue here.2 The first is “time-
shifting,” whereby the user records a program in order to watch it at a later time, and
then records over it, and thereby erases the program, after a single viewing. The second is
“library-building,” in which the user records a program in order to keep it for repeated
viewing over a longer term. ***
Although the word “copies” is in the plural in § 106(1), there can be no question that
under the Act the making of even a single unauthorized copy is prohibited. *** The mak-
ing of even a single videotape recording at home falls within this definition; the VTR
user produces a material object from which the copyrighted work later can be perceived.
Unless Congress intended a special exemption for the making of a single copy for per-
sonal use, I must conclude that VTR recording is contrary to the exclusive rights granted
by § 106(1).
The 1976 Act and its accompanying reports specify in some detail the situations in
which a single copy of a copyrighted work may be made without infringement concerns.
Section 108(a), for example, permits a library or archives “to reproduce no more than one
copy or phonorecord of a work” for a patron, but only under very limited conditions; an
entire work, moreover, can be copied only if it cannot be obtained elsewhere at a fair
price. § 108(e). *** Other situations in which the making of a single copy would be fair
use are described in the House and Senate reports. But neither the statute nor its legisla-
tive history suggests any intent to create a general exemption for a single copy made for
personal or private use.
Indeed, it appears that Congress considered and rejected the very possibility of a special
private use exemption. *** [T]he Register of Copyrights recommended that the revised
copyright statute simply mention the doctrine of fair use and indicate its general scope.
The Register opposed the adoption of rules and exemptions to cover specific situations,
preferring, instead, to rely on the judge-made fair use doctrine to resolve new problems as
they arose. *** I can conclude only that Congress, like the Register, intended to rely on
the fair use doctrine, and not on a per se exemption for private use, to separate permissible
copying from the impermissible. *** I therefore find in the 1976 Act no implied exemp-
tion to cover the home taping of television programs, whether it be for a single copy, for
private use, or for home use. Taping a copyrighted television program is infringement
2 This case involves only the home recording for home use of television programs broadcast free over the
airwaves. No issue is raised concerning cable or pay television, or the sharing or trading of tapes.
unless it is permitted by the fair use exemption contained in § 107 of the 1976 Act. I now
turn to that issue.
*** Despite this absence of clear standards, the fair use doctrine plays a crucial role in
the law of copyright. *** The fair use doctrine must strike a balance between the dual risks
created by the copyright system: on the one hand, that depriving authors of their monop-
oly will reduce their incentive to create, and, on the other, that granting authors a com-
plete monopoly will reduce the creative ability of others. The inquiry is necessarily a flexi-
ble one, and the endless variety of situations that may arise precludes the formulation of
exact rules. But when a user reproduces an entire work and uses it for its original purpose,
with no added benefit to the public, the doctrine of fair use usually does not apply. There
is then no need whatsoever to provide the ordinary user with a fair use subsidy at the au-
thor’s expense.
The making of a videotape recording for home viewing is an ordinary rather than a
productive use of the Studios’ copyrighted works. *** A VTR recording creates no public
benefit sufficient to justify limiting this right. Nor is this right extinguished by the copy-
right owner’s choice to make the work available over the airwaves. Section 106 of the
1976 Act grants the copyright owner the exclusive right to control the performance and
the reproduction of his work, and the fact that he has licensed a single television perform-
ance is really irrelevant to the existence of his right to control its reproduction. Although
a television broadcast may be free to the viewer, this fact is equally irrelevant; a book bor-
rowed from the public library may not be copied any more freely than a book that is pur-
chased. ***
I recognize, nevertheless, that there are situations where permitting even an unproduc-
tive use would have no effect on the author’s incentive to create, that is, where the use
would not affect the value of, or the market for, the author’s work. Photocopying an old
newspaper clipping to send to a friend may be an example; pinning a quotation on one’s
bulletin board may be another. In each of these cases, the effect on the author is truly de
minimis. Thus, even though these uses provide no benefit to the public at large, no pur-
pose is served by preserving the author’s monopoly, and the use may be regarded as fair.
I therefore conclude that, at least when the proposed use is an unproductive one, a
copyright owner need prove only a potential for harm to the market for or the value of the
copyrighted work. *** The Studios have identified a number of ways in which VTR re-
cording could damage their copyrights. VTR recording could reduce their ability to mar-
ket their works in movie theaters and through the rental or sale of pre-recorded video-
tapes or videodiscs; it also could reduce their rerun audience, and consequently the license
fees available to them for repeated showings. Moreover, advertisers may be willing to pay
for only “live” viewing audiences, if they believe VTR viewers will delete commercials or
if rating services are unable to measure VTR use; if this is the case, VTR recording could
reduce the license fees the Studios are able to charge even for first-run showings. Library-
building may raise the potential for each of the types of harm identified by the Studios,
and time-shifting may raise the potential for substantial harm as well.
*** The District Court’s analysis of harm, moreover, failed to consider the effect of
VTR recording on “the potential market for or the value of the copyrighted work,” as re-
quired by § 107(4). The requirement that a putatively infringing use of a copyrighted
work, to be “fair,” must not impair a “potential” market for the work has two implica-
tions. First, an infringer cannot prevail merely by demonstrating that the copyright holder
suffered no net harm from the infringer’s action. Indeed, even a showing that the in-
fringement has resulted in a net benefit to the copyright holder will not suffice. Rather,
the infringer must demonstrate that he had not impaired the copyright holder’s ability to
demand compensation from (or to deny access to) any group who would otherwise be
willing to pay to see or hear the copyrighted work. Second, the fact that a given market
for a copyrighted work would not be available to the copyright holder were it not for the
infringer’s activities does not permit the infringer to exploit that market without compen-
sating the copyright holder.
In this case, the Studios and their amici demonstrate that the advent of the VTR tech-
nology created a potential market for their copyrighted programs. That market consists of
those persons who find it impossible or inconvenient to watch the programs at the time
they are broadcast, and who wish to watch them at other times. These persons are willing
to pay for the privilege of watching copyrighted work at their convenience, as is evidenced
by the fact that they are willing to pay for VTRs and tapes; undoubtedly, most also would
be willing to pay some kind of royalty to copyright holders. The Studios correctly argue
that they have been deprived of the ability to exploit this sizable market.
It is thus apparent from the record and from the findings of the District Court that
time-shifting does have a substantial adverse effect upon the “potential market for” the
Studios’ copyrighted works. Accordingly, even under the formulation of the fair use doc-
trine advanced by Sony, time-shifting cannot be deemed a fair use.
V
*** From the Studios’ perspective, the consequences of home VTR recording are the same
as if a business had taped the Studios’ works off the air, duplicated the tapes, and sold or
rented them to members of the public for home viewing. The distinction is that home
VTR users do not record for commercial advantage; the commercial benefit accrues to
the manufacturer and distributors of the Betamax. I thus must proceed to discuss whether
the manufacturer and distributors can be held contributorily liable if the product they sell
is used to infringe. ***
In absolving Sony from liability, the District Court reasoned that Sony had no direct
involvement with individual Betamax users, did not participate in any off-the-air copying,
and did not know that such copying was an infringement of the Studios’ copyright. ***
Courts have premised liability in these cases on the notion that the defendant had the
ability to supervise or control the infringing activities. *** It is only with the aid of the Be-
tamax or some other VTR, that it is possible today for home television viewers to infringe
copyright by recording off-the-air. Off-the-air recording is not only a foreseeable use for
the Betamax, but indeed is its intended use. Under the circumstances, I agree with the
Court of Appeals that if off-the-air recording is an infringement of copyright, Sony has
induced and materially contributed to the infringing conduct of Betamax owners.
Sony argues that the manufacturer or seller of a product used to infringe is absolved
from liability whenever the product can be put to any substantial noninfringing use. ***
The doctrine of contributory patent infringement has been the subject of attention by the
courts and by Congress and has been codified since 1952, but was never mentioned dur-
ing the copyright law revision process as having any relevance to contributory copyright
infringement. I recognize, however, that many of the concerns underlying the “staple arti-
cle of commerce” doctrine are present in copyright law as well. ***
I therefore conclude that if a significant portion of the product’s use is noninfringing, the
manufacturers and sellers cannot be held contributorily liable for the product’s infringing
uses. If virtually all of the product’s use, however, is to infringe, contributory liability may
be imposed; if no one would buy the product for noninfringing purposes alone, it is clear
that the manufacturer is purposely profiting from the infringement, and that liability is
appropriately imposed. In such a case, the copyright owner’s monopoly would not be ex-
tended beyond its proper bounds; the manufacturer of such a product contributes to the
infringing activities of others and profits directly thereby, while providing no benefit to
the public sufficient to justify the infringement.
The Court of Appeals concluded that Sony should be held liable for contributory in-
fringement, reasoning that “[v]ideotape recorders are manufactured, advertised, and sold
for the primary purpose of reproducing television programming,” and “[v]irtually all tele-
vision programming is copyrighted material.” 659 F.2d, at 975. While I agree with the
first of these propositions,42 the second, for me, is problematic. The key question is not
the amount of television programming that is copyrighted, but rather the amount of VTR
usage that is infringing. Moreover, the parties and their amici have argued vigorously
about both the amount of television programming that is covered by copyright and the
amount for which permission to copy has been given. The proportion of VTR recording
that is infringing is ultimately a question of fact and the District Court specifically de-
clined to make findings on the “percentage of legal versus illegal home-use recording.”
480 F.Supp., at 468. In light of my view of the law, resolution of this factual question is
essential. I therefore would remand the case for further consideration of this by the Dis-
trict Court.
VI
The Court has adopted an approach very different from the one I have outlined. It is my
view that the Court’s approach alters dramatically the doctrines of fair use and contribu-
tory infringement as they have been developed by Congress and the courts. Should Con-
gress choose to respond to the Court’s decision, the old doctrines can be resurrected. As it
stands, however, the decision today erodes much of the coherence that these doctrines
have struggled to achieve.
The Court’s disposition of the case turns on its conclusion that time-shifting is a fair
use. Because both parties agree that time-shifting is the primary use of VTRs, that con-
clusion, if correct, would settle the issue of Sony’s liability under almost any definition of
42 Although VTRs also may be used to watch prerecorded video cassettes and to make home motion pic-
tures, these uses do not require a tuner such as the Betamax contains. The Studios do not object to Sony’s
sale of VTRs without tuners. In considering the noninfringing uses of the Betamax, therefore, those uses
that would remain possible without the Betamax’s built-in tuner should not be taken into account.
contributory infringement. The Court concludes that time-shifting is fair use for two rea-
sons. Each is seriously flawed.
The Court’s first reason for concluding that time-shifting is fair use is its claim that
many copyright holders have no objection to time-shifting, and that “respondents have
no right to prevent other copyright holders from authorizing it for their programs.” Ante.
The Court explains that a finding of contributory infringement would “inevitably frus-
trate the interests of broadcasters in reaching the portion of their audience that is avail-
able only through time-shifting.” Ante. Such reasoning, however, simply confuses the
question of liability with the difficulty of fashioning an appropriate remedy. It may be
that an injunction prohibiting the sale of VTRs would harm the interests of copyright
holders who have no objection to others making copies of their programs. But such con-
cerns should and would be taken into account in fashioning an appropriate remedy once
liability has been found. Remedies may well be available that would not interfere with
authorized time-shifting at all. The Court of Appeals mentioned the possibility of a roy-
alty payment that would allow VTR sales and time-shifting to continue unabated, and
the parties may be able to devise other narrowly tailored remedies. Sony may be able, for
example, to build a VTR that enables broadcasters to scramble the signal of individual
programs and “jam” the unauthorized recording of them. Even were an appropriate rem-
edy not available at this time, the Court should not misconstrue copyright holders’ rights
in a manner that prevents enforcement of them when, through development of better
techniques, an appropriate remedy becomes available.
The Court’s second stated reason for finding that Sony is not liable for contributory in-
fringement is its conclusion that even unauthorized time-shifting is fair use. Ante. This
conclusion is even more troubling. The Court begins by suggesting that the fair use doc-
trine operates as a general “equitable rule of reason.” That interpretation mischaracterizes
the doctrine, and simply ignores the language of the statute. Section 107 establishes the
fair use doctrine “for purposes such as criticism, comment, news reporting, teaching, ...
scholarship, or research.” These are all productive uses. It is true that the legislative his-
tory states repeatedly that the doctrine must be applied flexibly on a case-by-case basis,
but those references were only in the context of productive uses. Such a limitation on fair
use comports with its purpose, which is to facilitate the creation of new works. There is
no indication that the fair use doctrine has any application for purely personal consump-
tion on the scale involved in this case, and the Court’s application of it here deprives fair
use of the major cohesive force that has guided evolution of the doctrine in the past.
Having bypassed the initial hurdle for establishing that a use is fair, the Court then
purports to apply to time-shifting the four factors explicitly stated in the statute. The first
is “the purpose and character of the use, including whether such use is of a commercial
nature or is for nonprofit educational purposes.” § 107(1). The Court confidently de-
scribes time-shifting as a noncommercial, nonprofit activity. It is clear, however, that per-
sonal use of programs that have been copied without permission is not what § 107(1)
protects. The intent of the section is to encourage users to engage in activities the primary
benefit of which accrues to others. Time-shifting involves no such humanitarian impulse.
It is likewise something of a mischaracterization of time-shifting to describe it as non-
commercial in the sense that that term is used in the statute. *** Purely consumptive uses
are certainly not what the fair use doctrine was designed to protect, and the awkwardness
of applying the statutory language to time-shifting only makes clearer that fair use was
designed to protect only uses that are productive.
The next two statutory factors are all but ignored by the Court—though certainly not
because they have no applicability. The second factor—”the nature of the copyrighted
work”—strongly supports the view that time-shifting is an infringing use. The rationale
guiding application of this factor is that certain types of works, typically those involving
“more of diligence than of originality or inventiveness,” New York Times Co. v. Roxbury
Data Interface, Inc., 434 F.Supp. 217, 221 (NJ 1977), require less copyright protection
than other original works. Thus, for example, informational works, such as news reports,
that readily lend themselves to productive use by others, are less protected than creative
works of entertainment. Sony’s own surveys indicate that entertainment shows account
for more than 80 percent of the programs recorded by Betamax owners.
The third statutory factor—“the amount and substantiality of the portion used”—is
even more devastating to the Court’s interpretation. It is undisputed that virtually all
VTR owners record entire works, see 480 F.Supp., at 454, thereby creating an exact sub-
stitute for the copyrighted original. Fair use is intended to allow individuals engaged in
productive uses to copy small portions of original works that will facilitate their own pro-
ductive endeavors. Time-shifting bears no resemblance to such activity, and the complete
duplication that it involves might alone be sufficient to preclude a finding of fair use. It is
little wonder that the Court has chosen to ignore this statutory factor.
The fourth factor requires an evaluation of “the effect of the use upon the potential
market for or value of the copyrighted work.” This is the factor upon which the Court
focuses, but once again, the Court has misread the statute. As mentioned above, the stat-
ute requires a court to consider the effect of the use on the potential market for the copy-
righted work. The Court has struggled mightily to show that VTR use has not reduced
the value of the Studios’ copyrighted works in their present markets. Even if true, that
showing only begins the proper inquiry. The development of the VTR has created a new
market for the works produced by the Studios. That market consists of those persons who
desire to view television programs at times other than when they are broadcast, and who
therefore purchase VTR recorders to enable them to time-shift. Because time-shifting of
the Studios’ copyrighted works involves the copying of them, however, the Studios are
entitled to share in the benefits of that new market. Those benefits currently go to Sony
through Betamax sales. Respondents therefore can show harm from VTR use simply by
showing that the value of their copyrights would increase if they were compensated for the
copies that are used in the new market. The existence of this effect is self-evident.
Because of the Court’s conclusion concerning the legality of time-shifting, it never ad-
dresses the amount of noninfringing use that a manufacturer must show to absolve itself
from liability as a contributory infringer. Thus, it is difficult to discuss how the Court’s
test for contributory infringement would operate in practice under a proper analysis of
time-shifting. One aspect of the test as it is formulated by the Court, however, particu-
larly deserves comment. The Court explains that a manufacturer of a product is not liable
for contributory infringement as long as the product is “capable of substantial noninfring-
ing uses.” Ante (emphasis supplied). Such a definition essentially eviscerates the concept
of contributory infringement. Only the most unimaginative manufacturer would be un-

able to demonstrate that a image-duplicating product is “capable” of substantial nonin-
fringing uses. Surely Congress desired to prevent the sale of products that are used almost
exclusively to infringe copyrights; the fact that noninfringing uses exist presumably would
have little bearing on that desire. ***
VII
The Court of Appeals, having found Sony liable, remanded for the District Court to con-
sider the propriety of injunctive or other relief. Because of my conclusion as to the issue
of liability, I, too, would not decide here what remedy would be appropriate if liability
were found. I concur, however, in the Court of Appeals’ suggestion that an award of
damages, or continuing royalties, or even some form of limited injunction, may well be an
appropriate means of balancing the equities in this case. Although I express no view on
the merits of any particular proposal, I am certain that, if Sony were found liable in this
case, the District Court would be able to fashion appropriate relief. The District Court
might conclude, of course, that a continuing royalty or other equitable relief is not feasi-
ble. The Studios then would be relegated to statutory damages for proved instances of
infringement. But the difficulty of fashioning relief, and the possibility that complete re-
lief may be unavailable, should not affect our interpretation of the statute.
Like so many other problems created by the interaction of copyright law with a new
technology, “[t]here can be no really satisfactory solution to the problem presented here,
until Congress acts.” Twentieth Century Music Corp. v. Aiken, 422 U.S., at 167 (dissenting
opinion). But in the absence of a congressional solution, courts cannot avoid difficult
problems by refusing to apply the law. We must “take the Copyright Act ... as we find it,”
Fortnightly Corp. v. United Artists, 392 U.S. 390, 401-402 (1968), and “do as little dam-
age as possible to traditional copyright principles ... until the Congress legislates.” Id., at
404 (dissenting opinion).
A&M Records, Inc. v. Napster

239 F.3d 1004 (9th Cir. 2001)
BEEZER, Circuit Judge:
*** I
We have examined the papers submitted in support of and in response to the injunction
application and it appears that Napster has designed and operates a system which permits
the transmission and retention of sound recordings employing digital technology.
In 1987, the Moving Picture Experts Group set a standard file format for the storage of
audio recordings in a digital format called MPEG-3, abbreviated as “MP3.” Digital MP3
files are created through a process colloquially called “ripping.” Ripping software allows a
computer owner to copy an audio compact disk (“audio CD”) directly onto a computer’s
hard drive by compressing the audio information on the CD into the MP3 format. The
MP3’s compressed format allows for rapid transmission of digital audio files from one
computer to another by electronic mail or any other file transfer protocol.
Napster facilitates the transmission of MP3 files between and among its users. Through
a process commonly called “peer-to-peer” file sharing, Napster allows its users to: (1)
make MP3 music files stored on individual computer hard drives available for copying by
other Napster users; (2) search for MP3 music files stored on other users’ computers; and
(3) transfer exact copies of the contents of other users’ MP3 files from one computer to
another via the Internet. These functions are made possible by Napster’s MusicShare
software, available free of charge from Napster’s Internet site, and Napster’s network
servers and server-side software. Napster provides technical support for the indexing and
searching of MP3 files, as well as for its other functions, including a “chat room,” where
users can meet to discuss music, and a directory where participating artists can provide
information about their music.
A. Accessing the System

In order to copy MP3 files through the Napster system, a user must first access Napster’s
Internet site and download the MusicShare software to his individual computer. Once
the software is installed, the user can access the Napster system. A first-time user is re-
quired to register with the Napster system by creating a “user name” and password.
B. Listing Available Files

If a registered user wants to list available files stored in his computer’s hard drive on Nap-
ster for others to access, he must first create a “user library” directory on his computer’s
hard drive. The user then saves his MP3 files in the library directory, using self-
designated file names. He next must log into the Napster system using his user name and
password. His MusicShare software then searches his user library and verifies that the
available files are properly formatted. If in the correct MP3 format, the names of the
MP3 files will be uploaded from the user’s computer to the Napster servers. The content
of the MP3 files remains stored in the user’s computer.
Once uploaded to the Napster servers, the user’s MP3 file names are stored in a server-
side “library” under the user’s name and become part of a “collective directory” of files
available for transfer during the time the user is logged onto the Napster system. The col-
lective directory is fluid; it tracks users who are connected in real time, displaying only file
names that are immediately accessible.
C. Searching For Available Files

Napster allows a user to locate other users’ MP3 files in two ways: through Napster’s
search function and through its “hotlist” function.
Software located on the Napster servers maintains a “search index” of Napster’s collec-
tive directory. To search the files available from Napster users currently connected to the
network servers, the individual user accesses a form in the MusicShare software stored in
his computer and enters either the name of a song or an artist as the object of the search.
The form is then transmitted to a Napster server and automatically compared to the MP3
file names listed in the server’s search index. Napster’s server compiles a list of all MP3
file names pulled from the search index which include the same search terms entered on
the search form and transmits the list to the searching user. The Napster server does not
search the contents of any MP3 file; rather, the search is limited to “a text search of the
file names indexed in a particular cluster. Those file names may contain typographical
errors or otherwise inaccurate descriptions of the content of the files since they are desig-
nated by other users.” Napster, 114 F.Supp.2d at 906.
To use the “hotlist” function, the Napster user creates a list of other users’ names from
whom he has obtained MP3 files in the past. When logged onto Napster’s servers, the
system alerts the user if any user on his list (a “hotlisted user”) is also logged onto the sys-
tem. If so, the user can access an index of all MP3 file names in a particular hotlisted
user’s library and request a file in the library by selecting the file name. The contents of
the hotlisted user’s MP3 file are not stored on the Napster system.
D. Transferring Copies of an MP3 file

To transfer a copy of the contents of a requested MP3 file, the Napster server software
obtains the Internet address of the requesting user and the Internet address of the “host
user” (the user with the available files). The Napster servers then communicate the host
user’s Internet address to the requesting user. The requesting user’s computer uses this
information to establish a connection with the host user and downloads a copy of the
contents of the MP3 file from one computer to the other over the Internet, “peer-to-
peer.” A downloaded MP3 file can be played directly from the user’s hard drive using
Napster’s MusicShare program or other software. The file may also be transferred back
onto an audio CD if the user has access to equipment designed for that purpose. In both
cases, the quality of the original sound recording is slightly diminished by transfer to the
MP3 format.
This architecture is described in some detail to promote an understanding of transmis-
sion mechanics as opposed to the content of the transmissions. The content is the subject
of our copyright infringement analysis. ***
III
Plaintiffs claim Napster users are engaged in the wholesale reproduction and distribution
of copyrighted works, all constituting direct infringement.2 The district court agreed. We
note that the district court’s conclusion that plaintiffs have presented a prima facie case of
direct infringement by Napster users is not presently appealed by Napster. We only need
briefly address the threshold requirements.
A. Infringement
Plaintiffs must satisfy two requirements to present a prima facie case of direct infringe-
ment: (1) they must show ownership of the allegedly infringed material and (2) they must
demonstrate that the alleged infringers violate at least one exclusive right granted to
copyright holders under 17 U.S.C. § 106. See 17 U.S.C. § 501(a) (infringement occurs
when alleged infringer engages in activity listed in § 106). Plaintiffs have sufficiently
2 Secondary liability for copyright infringement does not exist in the absence of direct infringement by a
third party. It follows that Napster does not facilitate infringement of the copyright laws in the absence of
direct infringement by its users.
demonstrated ownership. The record supports the district court’s determination that “as
much as eighty-seven percent of the files available on Napster may be copyrighted and
more than seventy percent may be owned or administered by plaintiffs.” Napster, 114
F.Supp.2d at 911.
The district court further determined that plaintiffs’ exclusive rights under § 106 were
violated: “here the evidence establishes that a majority of Napster users use the service to
download and upload copyrighted music.... And by doing that, it constitutes-the uses
constitute direct infringement of plaintiffs’ musical compositions, recordings.” A & M
Records, Inc. v. Napster, Inc., Nos. 99-5183, 00-0074, 2000 WL 1009483, at *1 (N.D.
Cal. July 26, 2000) (transcript of proceedings). The district court also noted that “it is
pretty much acknowledged ... by Napster that this is infringement.” Id. We agree that
plaintiffs have shown that Napster users infringe at least two of the copyright holders’
exclusive rights: the rights of reproduction, § 106(1); and distribution, § 106(3). Napster
users who upload file names to the search index for others to copy violate plaintiffs’ dis-
tribution rights. Napster users who download files containing copyrighted music violate
plaintiffs’ reproduction rights.
Napster asserts an affirmative defense to the charge that its users directly infringe plain-
tiffs’ copyrighted musical compositions and sound recordings.
B. Fair Use
Napster contends that its users do not directly infringe plaintiffs’ copyrights because the
users are engaged in fair use of the material. See 17 U.S.C. § 107 (“[T]he fair use of a
copyrighted work ... is not an infringement of copyright.”). Napster identifies three spe-
cific alleged fair uses: sampling, where users make temporary copies of a work before pur-
chasing; space-shifting, where users access a sound recording through the Napster system
that they already own in audio CD format; and permissive distribution of recordings by
both new and established artists.
The district court considered factors listed in 17 U.S.C. § 107, which guide a court’s
fair use determination. These factors are: (1) the purpose and character of the use; (2) the
nature of the copyrighted work; (3) the “amount and substantiality of the portion used” in
relation to the work as a whole; and (4) the effect of the use upon the potential market for
the work or the value of the work. See 17 U.S.C. § 107. The district court first conducted
a general analysis of Napster system uses under § 107, and then applied its reasoning to
the alleged fair uses identified by Napster. The district court concluded that Napster users
are not fair users. We agree. We first address the court’s overall fair use analysis.
1. Purpose and Character of the Use

This factor focuses on whether the new work merely replaces the object of the original
creation or instead adds a further purpose or different character. In other words, this fac-
tor asks “whether and to what extent the new work is ‘transformative.’” See Campbell v.
Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994).
The district court first concluded that downloading MP3 files does not transform the
copyrighted work. This conclusion is supportable. Courts have been reluctant to find fair
use when an original work is merely retransmitted in a different medium.
This “purpose and character” element also requires the district court to determine
whether the allegedly infringing use is commercial or noncommercial. See Campbell, 510
U.S. at 584-85. A commercial use weighs against a finding of fair use but is not conclu-
sive on the issue. Id. The district court determined that Napster users engage in commer-
cial use of thecopyrighted materials largely because (1) “a host user sending a file cannot
be said to engage in a personal use when distributing that file to an anonymous requester”
and (2) “Napster users get for free something they would ordinarily have to buy.” Nap-
ster, 114 F.Supp.2d at 912. The district court’s findings are not clearly erroneous.
Direct economic benefit is not required to demonstrate a commercial use. Rather, re-
peated and exploitative copying of copyrighted works, even if the copies are not offered
for sale, may constitute a commercial use. In the record before us, commercial use is
demonstrated by a showing that repeated and exploitative unauthorized copies of copy-
righted works were made to save the expense of purchasing authorized copies. Plaintiffs
made such a showing before the district court. ***
2. The Nature of the Use

Works that are creative in nature are “closer to the core of intended copyright protection”
than are more fact-based works. See Campbell, 510 U.S. at 586. The district court deter-
mined that plaintiffs’ “copyrighted musical compositions and sound recordings are crea-
tive in nature ... which cuts against a finding of fair use under the second factor.” Napster,
114 F.Supp.2d at 913. We find no error in the district court’s conclusion.
3. The Portion Used

“While ‘wholesale copying does not preclude fair use per se,’ copying an entire work ‘mili-
tates against a finding of fair use.’” Worldwide Church, 227 F.3d at 1118 (quoting Hustler
Magazine, Inc. v. Moral Majority, Inc., 796 F.2d 1148, 1155 (9th Cir. 1986)). The district
court determined that Napster users engage in “wholesale copying” of copyrighted work
because file transfer necessarily “involves copying the entirety of the copyrighted work.”
Napster, 114 F.Supp.2d at 913. We agree. ***
4. Effect of Use on Market

“Fair use, when properly applied, is limited to copying by others which does not materi-
ally impair the marketability of the work which is copied.” Harper & Row Publishers, Inc.
v. Nation Enters., 471 U.S. 539, 566-67 (1985). “[T]he importance of this [fourth] factor
will vary, not only with the amount of harm, but also with the relative strength of the
showing on the other factors.” Campbell, 510 U.S. at 591 n. 21. The proof required to
demonstrate present or future market harm varies with the purpose and character of the
use:
A challenge to a noncommercial use of a copyrighted work requires proof either
that the particular use is harmful, or that if it should become widespread, it would
adversely affect the potential market for the copyrighted work.... If the intended use
is for commercial gain, that likelihood [of market harm] may be presumed. But if it is for
a noncommercial purpose, the likelihood must be demonstrated.
Sony, 464 U.S. at 451 (emphases added).
Addressing this factor, the district court concluded that Napster harms the market in
“at least” two ways: it reduces audio CD sales among college students and it “raises barri-
ers to plaintiffs’ entry into the market for the digital downloading of music.” Napster, 114
F.Supp.2d at 913. The district court relied on evidence plaintiffs submitted to show that
Napster use harms the market for their copyrighted musical compositions and sound re-
cordings. *** The district court’s careful consideration of defendant’s objections to these
reports and decision to rely on the reports for specific issues demonstrates a proper exer-
cise of discretion in addition to a correct application of the fair use doctrine. Defendant
has failed to show any basis for disturbing the district court’s findings.
We, therefore, conclude that the district court made sound findings related to Napster’s
deleterious effect on the present and future digital download market. Moreover, lack of
harm to an established market cannot deprive the copyright holder of the right to develop
alternative markets for the works. *** Having digital downloads available for free on the
Napster system necessarily harms the copyright holders’ attempts to charge for the same
downloads.
Judge Patel did not abuse her discretion in reaching the above fair use conclusions, nor
were the findings of fact with respect to fair use considerations clearly erroneous. We next
address Napster’s identified uses of sampling and space-shifting.
5. Identified Uses
Napster maintains that its identified uses of sampling and space-shifting were wrongly
excluded as fair uses by the district court.
a. Sampling
Napster contends that its users download MP3 files to “sample” the music in order to de-
cide whether to purchase the recording. Napster argues that the district court: (1) erred in
concluding that sampling is a commercial use because it conflated a noncommercial use
with a personal use; (2) erred in determining that sampling adversely affects the market
for plaintiffs’ copyrighted music, a requirement if the use is noncommercial; and (3) erro-
neously concluded that sampling is not a fair use because it determined that samplers may
also engage in other infringing activity.
*** The record supports a finding that free promotional downloads are highly regulated
by the record company plaintiffs and that the companies collect royalties for song samples
available on retail Internet sites. Evidence relied on by the district court demonstrates
that the free downloads provided by the record companies consist of thirty-to-sixty sec-
ond samples or are full songs programmed to “time out,” that is, exist only for a short
time on the downloader’s computer. In comparison, Napster users download a full, free
and permanent copy of the recording. The determination by the district court as to the
commercial purpose and character of sampling is not clearly erroneous. ***
Napster further argues that the district court erred in rejecting its evidence that the us-
ers’ downloading of “samples” increases or tends to increase audio CD sales. The district
court, however, correctly noted that “any potential enhancement of plaintiffs’ sales ...
would not tip the fair use analysis conclusively in favor of defendant.” Id. at 914. We
agree that increased sales of copyrighted material attributable to unauthorized use should
not deprive the copyright holder of the right to license the material. ***
We find no error in the district court’s factual findings or abuse of discretion in the
court’s conclusion that plaintiffs will likely prevail in establishing that sampling does not
constitute a fair use.
b. Space-Shifting
Napster also maintains that space-shifting is a fair use. Space-shifting occurs when a
Napster user downloads MP3 music files in order to listen to music he already owns on
audio CD. Napster asserts that we have already held that space-shifting of musical com-
positions and sound recordings is a fair use. See Recording Indus. Ass’n of Am. v. Diamond
Multimedia Sys., Inc., 180 F.3d 1072, 1079 (9th Cir. 1999) (“Rio [a portable MP3 player]
merely makes copies in order to render portable, or ‘space-shift,’ those files that already
reside on a user’s hard drive.... Such copying is a paradigmatic noncommercial personal
use.”). See also generally Sony, 464 U.S. at 423 (holding that “time-shifting,” where a video
tape recorder owner records a television show for later viewing, is a fair use).
We conclude that the district court did not err when it refused to apply the “shifting”
analyses of Sony and Diamond. Both Diamond and Sony are inapposite because the meth-
ods of shifting in these cases did not also simultaneously involve distribution of the copy-
righted material to the general public; the time or space-shifting of copyrighted material
exposed the material only to the original user. In Diamond, for example, the copyrighted
music was transferred from the user’s computer hard drive to the user’s portable MP3
player. So too Sony, where “the majority of VCR purchasers ... did not distribute taped
television broadcasts, but merely enjoyed them at home.” Napster, 114 F.Supp.2d at 913.
Conversely, it is obvious that once a user lists a copy of music he already owns on the
Napster system in order to access the music from another location, the song becomes
“available to millions of other individuals,” not just the original CD owner.
c. Other Uses
Permissive reproduction by either independent or established artists is the final fair use
claim made by Napster. The district court noted that plaintiffs did not seek to enjoin this
and any other noninfringing use of the Napster system, including: chat rooms, message
boards and Napster’s New Artist Program. Plaintiffs do not challenge these uses on ap-
peal.
We find no error in the district court’s determination that plaintiffs will likely succeed
in establishing that Napster users do not have a fair use defense. Accordingly, we next
address whether Napster is secondarily liable for the direct infringement under two doc-
trines of copyright law: contributory copyright infringement and vicarious copyright in-
fringement.
IV
We first address plaintiffs’ claim that Napster is liable for contributory copyright in-
fringement. Traditionally, “one who, with knowledge of the infringing activity, induces,
causes or materially contributes to the infringing conduct of another, may be held liable
as a ‘contributory’ infringer.” Gershwin Publ’g Corp. v. Columbia Artists Mgmt., Inc., 443
F.2d 1159, 1162 (2d Cir. 1971); see also Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d
259, 264 (9th Cir. 1996). Put differently, liability exists if the defendant engages in “per-
sonal conduct that encourages or assists the infringement.” Matthew Bender & Co. v. West
Publ’g Co., 158 F.3d 693, 706 (2d Cir. 1998).
The district court determined that plaintiffs in all likelihood would establish Napster’s
liability as a contributory infringer. The district court did not err; Napster, by its conduct,
knowingly encourages and assists the infringement of plaintiffs’ copyrights.
A. Knowledge
Contributory liability requires that the secondary infringer “know or have reason to
know” of direct infringement. Cable/Home Communication Corp. Network Prods., Inc., 902
F.2d 829, 845 & 846 n. 29 (11th Cir. 1990). The district court found that Napster had
both actual and constructive knowledge that its users exchanged copyrighted music. The
district court also concluded that the law does not require knowledge of “specific acts of
infringement” and rejected Napster’s contention that because the company cannot distin-
guish infringing from noninfringing files, it does not “know” of the direct infringement.
114 F.Supp.2d at 917.
It is apparent from the record that Napster has knowledge, both actual and construc-
tive,5 of direct infringement. Napster claims that it is nevertheless protected from con-
tributory liability by the teaching of Sony Corp. v. Universal City Studios, Inc., 464 U.S.
417 (1984). We disagree. We observe that Napster’s actual, specific knowledge of direct
infringement renders Sony’s holding of limited assistance to Napster. We are compelled to
make a clear distinction between the architecture of the Napster system and Napster’s
conduct in relation to the operational capacity of the system.
The Sony Court refused to hold the manufacturer and retailers of video tape recorders
liable for contributory infringement despite evidence that such machines could be and
were used to infringe plaintiffs’ copyrighted television shows. Sony stated that if liability
“is to be imposed on petitioners in this case, it must rest on the fact that they have sold
equipment with constructive knowledge of the fact that their customers may use that equipment
to make unauthorized copies of copyrighted material.” Id. at 439 (emphasis added). The
Sony Court declined to impute the requisite level of knowledge where the defendants
made and sold equipment capable of both infringing and “substantial noninfringing uses.”
Id. at 442 (adopting a modified “staple article of commerce” doctrine from patent law).
We are bound to follow Sony, and will not impute the requisite level of knowledge to
Napster merely because peer-to-peer file sharing technology may be used to infringe
plaintiffs’ copyrights. We depart from the reasoning of the district court that Napster
5 The district court found actual knowledge because: (1) a document authored by Napster co-founder
Sean Parker mentioned “the need to remain ignorant of users’ real names and IP addresses ‘since they are
exchanging pirated music’”; and (2) the Recording Industry Association of America (“RIAA”) informed
Napster of more than 12,000 infringing files, some of which are still available. The district court found
constructive knowledge because: (a) Napster executives have recording industry experience; (b) they have
enforced intellectual property rights in other instances; (c) Napster executives have downloaded copyrighted
songs from the system; and (d) they have promoted the site with “screen shots listing infringing files.”
failed to demonstrate that its system is capable of commercially significant noninfringing

uses. The district court improperly confined the use analysis to current uses, ignoring the
system’s capabilities. Consequently, the district court placed undue weight on the propor-
tion of current infringing use as compared to current and future noninfringing use. None-
theless, whether we might arrive at a different result is not the issue here. The instant ap-
peal occurs at an early point in the proceedings ***. Regardless of the number of Napster’s
infringing versus noninfringing uses, the evidentiary record here supported the district
court’s finding that plaintiffs would likely prevail in establishing that Napster knew or
had reason to know of its users’ infringement of plaintiffs’ copyrights.
*** We agree that if a computer system operator learns of specific infringing material
available on his system and fails to purge such material from the system, the operator
knows of and contributes to direct infringement. Conversely, absent any specific informa-
tion which identifies infringing activity, a computer system operator cannot be liable for
contributory infringement merely because the structure of the system allows for the ex-
change of copyrighted material. To enjoin simply because a computer network allows for
infringing use would, in our opinion, violate Sony and potentially restrict activity unre-
lated to infringing use.
We nevertheless conclude that sufficient knowledge exists to impose contributory liabil-
ity when linked to demonstrated infringing use of the Napster system. The record sup-
ports the district court’s finding that Napster has actual knowledge that specific infring-
ing material is available using its system, that it could block access to the system by sup-
pliers of the infringing material, and that it failed to remove the material.
B. Material Contribution
Under the facts as found by the district court, Napster materially contributes to the in-
fringing activity. Relying on Fonovisa, the district court concluded that “[w]ithout the
support services defendant provides, Napster users could not find and download the mu-
sic they want with the ease of which defendant boasts.” Napster, 114 F.Supp.2d at 919-
20. We agree that Napster provides “the site and facilities” for direct infringement. See
Fonovisa, 76 F.3d at 264. The district court correctly applied the reasoning in Fonovisa,
and properly found that Napster materially contributes to direct infringement.
We affirm the district court’s conclusion that plaintiffs have demonstrated a likelihood
of success on the merits of the contributory copyright infringement claim. We will ad-
dress the scope of the injunction in part VIII of this opinion.
V
We turn to the question whether Napster engages in vicarious copyright infringement.
Vicarious copyright liability is an “outgrowth” of respondeat superior. Fonovisa, 76 F.3d
at 262. In the context of copyright law, vicarious liability extends beyond an em-
ployer/employee relationship to cases in which a defendant “has the right and ability to
supervise the infringing activity and also has a direct financial interest in such activities.”
Id. (quoting Gershwin, 443 F.2d at 1162).
Before moving into this discussion, we note that Sony’s “staple article of commerce”
analysis has no application to Napster’s potential liability for vicarious copyright in-
fringement. The issues of Sony’s liability under the “doctrines of ‘direct infringement’ and
‘vicarious liability’” were not before the Supreme Court, although the Court recognized
that the “lines between direct infringement, contributory infringement, and vicarious li-
ability are not clearly drawn.” Id. at 435 n. 17. Consequently, when the Sony Court used
the term “vicarious liability,” it did so broadly and outside of a technical analysis of the
doctrine of vicarious copyright infringement. Id. at 435.
A. Financial Benefit
The district court determined that plaintiffs had demonstrated they would likely succeed
in establishing that Napster has a direct financial interest in the infringing activity. We
agree. Financial benefit exists where the availability of infringing material “acts as a ‘draw’
for customers.” Fonovisa, 76 F.3d at 263-64. Ample evidence supports the district court’s
finding that Napster’s future revenue is directly dependent upon “increases in userbase.”
More users register with the Napster system as the “quality and quantity of available mu-
sic increases.” We conclude that the district court did not err in determining that Napster
financially benefits from the availability of protected works on its system.
B. Supervision
The district court determined that Napster has the right and ability to supervise its users’
conduct. We agree in part.
The ability to block infringers’ access to a particular environment for any reason what-
soever is evidence of the right and ability to supervise. Here, plaintiffs have demonstrated
that Napster retains the right to control access to its system. Napster has an express reser-
vation of rights policy, stating on its website that it expressly reserves the “right to refuse
service and terminate accounts in [its] discretion, including, but not limited to, if Napster
believes that user conduct violates applicable law ... or for any reason in Napster’s sole dis-
cretion, with or without cause.”
To escape imposition of vicarious liability, the reserved right to police must be exercised
to its fullest extent. Turning a blind eye to detectable acts of infringement for the sake of
profit gives rise to liability. The district court correctly determined that Napster had the
right and ability to police its system and failed to exercise that right to prevent the ex-
change of copyrighted material. The district court, however, failed to recognize that the
boundaries of the premises that Napster “controls and patrols” are limited. Put differ-
ently, Napster’s reserved “right and ability” to police is cabined by the system’s current
architecture. As shown by the record, the Napster system does not “read” the content of
indexed files, other than to check that they are in the proper MP3 format.
Napster, however, has the ability to locate infringing material listed on its search indi-
ces, and the right to terminate users’ access to the system. The file name indices, there-
fore, are within the “premises” that Napster has the ability to police. We recognize that
the files are user-named and may not match copyrighted material exactly (for example,
the artist or song could be spelled wrong). For Napster to function effectively, however,
file names must reasonably or roughly correspond to the material contained in the files,
otherwise no user could ever locate any desired music. As a practical matter, Napster, its
users and the record company plaintiffs have equal access to infringing material by em-
ploying Napster’s “search function.”
Our review of the record requires us to accept the district court’s conclusion that plain-
tiffs have demonstrated a likelihood of success on the merits of the vicarious copyright
infringement claim. Napster’s failure to police the system’s “premises,” combined with a
showing that Napster financially benefits from the continuing availability of infringing
files on its system, leads to the imposition of vicarious liability. We address the scope of
the injunction in part VIII of this opinion.
VI
We next address whether Napster has asserted defenses which would preclude the entry
of a preliminary injunction. ***
A. Audio Home Recording Act

*** We agree with the district court that the Audio Home Recording Act does not cover
the downloading of MP3 files to computer hard drives. ***
B. Digital Millennium Copyright Act

Napster also interposes a statutory limitation on liability by asserting the protections of
the “safe harbor” from copyright infringement suits for “Internet service providers” con-
tained in the Digital Millennium Copyright Act, 17 U.S.C. § 512. ***
We need not accept a blanket conclusion that § 512 of the Digital Millennium Copy-
right Act will never protect secondary infringers. We do not agree that Napster’s poten-
tial liability for contributory and vicarious infringement renders the Digital Millennium
Copyright Act inapplicable per se. We instead recognize that this issue will be more fully
developed at trial. At this stage of the litigation, plaintiffs raise serious questions regard-
ing Napster’s ability to obtain shelter under § 512, and plaintiffs also demonstrate that
the balance of hardships tips in their favor.
Plaintiffs have raised and continue to raise significant questions under this statute, in-
cluding: (1) whether Napster is an Internet service provider as defined by 17 U.S.C.
§ 512(d); (2) whether copyright owners must give a service provider “official” notice of
infringing activity in order for it to have knowledge or awareness of infringing activity on
its system; and (3) whether Napster complies with § 512(i), which requires a service pro-
vider to timely establish a detailed copyright compliance policy. ***
VIII
The district court correctly recognized that a preliminary injunction against Napster’s
participation in copyright infringement is not only warranted but required. We believe,
however, that the scope of the injunction needs modification in light of our opinion. Spe-
cifically, we reiterate that contributory liability may potentially be imposed only to the
extent that Napster: (1) receives reasonable knowledge of specific infringing files with
copyrighted musical compositions and sound recordings; (2) knows or should know that
such files are available on the Napster system; and (3) fails to act to prevent viral distribu-
tion of the works. The mere existence of the Napster system, absent actual notice and
Napster’s demonstrated failure to remove the offending material, is insufficient to impose

contributory liability.
Conversely, Napster may be vicariously liable when it fails to affirmatively use its ability
to patrol its system and preclude access to potentially infringing files listed in its search
index. Napster has both the ability to use its search function to identify infringing musical
recordings and the right to bar participation of users who engage in the transmission of
infringing files.
The preliminary injunction which we stayed is overbroad because it places on Napster
the entire burden of ensuring that no “copying, downloading, uploading, transmitting, or
distributing” of plaintiffs’ works occur on the system. As stated, we place the burden on
plaintiffs to provide notice to Napster of copyrighted works and files containing such
works available on the Napster system before Napster has the duty to disable access to the
offending content. Napster, however, also bears the burden of policing the system within
the limits of the system. Here, we recognize that this is not an exact science in that the
files are user named. In crafting the injunction on remand, the district court should rec-
ognize that Napster’s system does not currently appear to allow Napster access to users’
MP3 files.
Based on our decision to remand, Napster’s additional arguments on appeal going to
the scope of the injunction need not be addressed. We, however, briefly address Napster’s
First Amendment argument so that it is not reasserted on remand. Napster contends that
the present injunction violates the First Amendment because it is broader than necessary.
The company asserts two distinct free speech rights: (1) its right to publish a “directory”
(here, the search index) and (2) its users’ right to exchange information. We note that
First Amendment concerns in copyright are allayed by the presence of the fair use doc-
trine. See 17 U.S.C. § 107. There was a preliminary determination here that Napster us-
ers are not fair users. Uses of copyrighted material that are not fair uses are rightfully en-
joined.
IX
We address Napster’s remaining arguments: (1) that the court erred in setting a $5 mil-
lion bond, and (2) that the district court should have imposed a constructive royalty pay-
ment structure in lieu of an injunction. ***
B. Royalties ***
Imposing a compulsory royalty payment schedule would give Napster an “easy out” of this
case. If such royalties were imposed, Napster would avoid penalties for any future viola-
tion of an injunction, statutory copyright damages and any possible criminal penalties for
continuing infringement. The royalty structure would also grant Napster the luxury of
either choosing to continue and pay royalties or shut down. On the other hand, the
wronged parties would be forced to do business with a company that profits from the
wrongful use of intellectual properties. Plaintiffs would lose the power to control their
intellectual property: they could not make a business decision not to license their property
to Napster, and, in the event they planned to do business with Napster, compulsory roy-
alties would take away the copyright holders’ ability to negotiate the terms of any contrac-
tual arrangement.
X
We affirm in part, reverse in part and remand.
We direct that the preliminary injunction fashioned by the district court prior to this
appeal shall remain stayed until it is modified by the district court to conform to the re-
quirements of this opinion. We order a partial remand of this case on the date of the fil-
ing of this opinion for the limited purpose of permitting the district court to proceed with
the settlement and entry of the modified preliminary injunction. ***
AFFIRMED IN PART, REVERSED IN PART AND REMANDED.
Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd.

380 F.3d 1154 (9th Cir. 2004), cert. granted
THOMAS, Circuit Judge: This appeal presents the question of whether distributors of
peer-to-peer file-sharing computer networking software may be held contributorily or
vicariously liable for copyright infringements by users. Under the circumstances presented
by this case, we conclude that the defendants are not liable for contributory and vicarious
copyright infringement and affirm the district court’s partial grant of summary judgment.
I. Background
From the advent of the player piano, every new means of reproducing sound has struck a
dissonant chord with musical copyright owners, often resulting in federal litigation. This
appeal is the latest reprise of that recurring conflict, and one of a continuing series of law-
suits between the recording industry and distributors of file-sharing computer software.
The plaintiffs in the consolidated cases (“Copyright Owners”) are songwriters, music
publishers, and motion picture studios who, by their own description, “own or control the
vast majority of copyrighted motion pictures and sound recordings in the United States.”
Defendants Grokster Ltd. and StreamCast Networks, Inc. (“Software Distributors”) are
companies that freely distribute software that allows users to share computer files with
each other, including digitized music and motion pictures. The Copyright Owners allege
that over 90% of the files exchanged through use of the “peer-to-peer” file-sharing soft-
ware offered by the Software Distributors involves copyrighted material, 70% of which is
owned by the Copyright Owners. Thus, the Copyright Owners argue, the Software Dis-
tributors are liable for vicarious and contributory copyright infringement pursuant to 17
U.S.C. §§ 501-13 (2000), for which the Copyright Owners are entitled to monetary and
injunctive relief. The district court granted the Software Distributors partial summary
judgment as to liability arising from present activities and certified the resolved questions
for appeal pursuant to Fed.R.Civ.P. 54(b). Metro-Goldwyn-Mayer Studios, Inc. v. Grok-
ster, Ltd., 259 F.Supp.2d 1029 (C.D. Cal. 2003) (“Grokster I “).
To analyze the legal issues properly, a rudimentary understanding of the peer-to-peer
file-sharing software at issue is required—particularly because peer-to-peer file sharing
differs from typical internet use. In a routine internet transaction, a user will connect via
the internet with a website to obtain information or transact business. In computer terms,
the personal computer used by the consumer is considered the “client” and the computer
that hosts the web page is the “server.” The client is obtaining information from a cen-
tralized source, namely the server.
In a peer-to-peer distribution network, the information available for access does not re-
side on a central server. No one computer contains all of the information that is available
to all of the users. Rather, each computer makes information available to every other
computer in the peer-to-peer network. In other words, in a peer-to-peer network, each
computer is both a server and a client.
Because the information is decentralized in a peer-to-peer network, the software must
provide some method of cataloguing the available information so that users may access it.
The software operates by connecting, via the internet, to other users of the same or simi-
lar software. At any given moment, the network consists of other users of similar or the
same software online at that time. Thus, an index of files available for sharing is a critical
component of peer-to-peer file-sharing networks.
At present, there are three different methods of indexing: (1) a centralized indexing sys-
tem, maintaining a list of available files on one or more centralized servers; (2) a com-
pletely decentralized indexing system, in which each computer maintains a list of files
available on that computer only; and (3) a “supernode” system, in which a select number
of computers act as indexing servers.
The first Napster system employed a proprietary centralized indexing software architec-
ture in which a collective index of available files was maintained on servers it owned and
operated. A user who was seeking to obtain a digital copy of a recording would transmit a
search request to the Napster server, the software would conduct a text search of the cen-
tralized index for matching files, and the search results would be transmitted to the re-
questing user. If the results showed that another Napster user was logged on to the Nap-
ster server and offering to share the requested recording, the requesting user could then
connect directly with the offering user and download the music file.
Under a decentralized index peer-to-peer file-sharing model, each user maintains an
index of only those files that the user wishes to make available to other network users.
Under this model, the software broadcasts a search request to all the computers on the
network and a search of the individual index files is conducted, with the collective results
routed back to the requesting computer. This model is employed by the Gnutella soft-
ware system and is the type of architecture now used by defendant StreamCast. Gnutella
is open-source software, meaning that the source code is either in the public domain or is
copyrighted and distributed under an open-source license that allows modification of the
software, subject to some restrictions.
The third type of peer-to-peer file-sharing network at present is the “supernode”
model, in which a number of select computers on the network are designated as indexing
servers. The user initiating a file search connects with the most easily accessible super-
node, which conducts the search of its index and supplies the user with the results. Any
computer on the network could function as a supernode if it met the technical require-
ments, such as processing speed. The “supernode” architecture was developed by KaZaa
BV, a Dutch company, and licensed under the name of “FastTrack” technology.
Both Grokster and StreamCast initially used the FastTrack technology. However,
StreamCast had a licensing dispute with KaZaa, and now uses its own branded “Mor-
pheus” version of the open-source Gnutella code. StreamCast users connect to other users
of Gnutella-based peer-to-peer file-sharing software.5 Both Grokster and StreamCast
distribute their separate softwares free of charge. Once downloaded onto a user’s com-
puter, the software enables the user to participate in the respective peer-to-peer file-
sharing networks over the internet.
Users of the software share digital audio, video, picture, and text files. Some of the files
are copyrighted and shared without authorization, others are not copyrighted (such as
public domain works), and still others are copyrighted, but the copyright owners have au-
thorized software users in peer-to-peer file-sharing networks to distribute their work.
The Copyright Owners assert, without serious contest by the Software Distributors, that
the vast majority of the files are exchanged illegally in violation of copyright law.
II. Analysis
The question of direct copyright infringement is not at issue in this case. Rather, the
Copyright Owners contend that the Software Distributors are liable for the copyright in-
fringement of the software users. The Copyright Owners rely on the two recognized
theories of secondary copyright liability: contributory copyright infringement and vicari-
ous copyright infringement. We agree with the district court’s well reasoned analysis that
the Software Distributors’ current activities do not give rise to liability under either the-
ory.
A. Contributory Copyright Infringement

The three elements required to prove a defendant liable under the theory of contributory
copyright infringement are: (1) direct infringement by a primary infringer, (2) knowledge
of the infringement, and (3) material contribution to the infringement. The element of
direct infringement is undisputed in this case.
1. Knowledge
Any examination of contributory copyright infringement must be guided by the seminal
case of Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984) (“Sony-
Betamax “). In Sony-Betamax, the Supreme Court held that the sale of video tape record-
ers could not give rise to contributory copyright infringement liability even though the
defendant knew the machines were being used to commit infringement. In analyzing the
5 The owners of the FastTrack Software successfully prevented users of the StreamCast version of Fast-
Track from being able to connect to the Grokster and KaZaa users of FastTrack by using a software up-
grade that was not sent to StreamCast users. Peer-to-peer file-sharing software upgrades can be coded in a
way that prevents those who do not accept the upgrade from communicating with those who do, but those
users who do not accept an upgrade may still be able to communicate with each other. The record indicates
this has already occurred, with a number of nonupgraded users still being able to communicate and share
files with each other.
contours of contributory copyright infringement, the Supreme Court drew on the “staple
article of commerce” doctrine from patent law. Id. at 440-42. Under that doctrine, it
would be sufficient to defeat a claim of contributory copyright infringement if the defen-
dant showed that the product was “capable of substantial” or “commercially significant
noninfringing uses.” In applying this doctrine, the Court found that because Sony’s Be-
tamax video tape recorder was capable of commercially significant noninfringing uses,
constructive knowledge of the infringing activity could not be imputed from the fact that
Sony knew the recorders, as a general matter, could be used for infringement.
In A & M Records v. Napster, 239 F.3d 1004, 1011-12 (9th Cir. 2001) (“Napster I”), we
construed Sony-Betamax to apply to the knowledge element of contributory copyright
infringement. Napster I held that if a defendant could show that its product was capable
of substantial or commercially significant noninfringing uses, then constructive knowl-
edge of the infringement could not be imputed. Rather, if substantial noninfringing use
was shown, the copyright owner would be required to show that the defendant had rea-
sonable knowledge of specific infringing files. See also A & M Records v. Napster, 284 F.3d
1091, 1095-96 (9th Cir. 2002) (“Napster II”).
Thus, in order to analyze the required element of knowledge of infringement, we must
first determine what level of knowledge to require. If the product at issue is not capable of
substantial or commercially significant noninfringing uses, then the copyright owner need
only show that the defendant had constructive knowledge of the infringement. On the
other hand, if the product at issue is capable of substantial or commercially significant
noninfringing uses, then the copyright owner must demonstrate that the defendant had
reasonable knowledge of specific infringing files and failed to act on that knowledge to
prevent infringement.
In this case, the district court found it undisputed that the software distributed by each
defendant was capable of substantial noninfringing uses. A careful examination of the re-
cord indicates that there is no genuine issue of material fact as to noninfringing use. In-
deed, the Software Distributors submitted numerous declarations by persons who permit
their work to be distributed via the software, or who use the software to distribute public
domain works. One striking example provided by the Software Distributors is the popular
band Wilco, whose record company had declined to release one of its albums on the basis
that it had no commercial potential. Wilco repurchased the work from the record com-
pany and made the album available for free downloading, both from its own website and
through the software user networks. The result sparked widespread interest and, as a re-
sult, Wilco received another recording contract. Other recording artists have debuted
their works through the user networks. Indeed, the record indicates that thousands of
other musical groups have authorized free distribution of their music through the inter-
net. In addition to music, the software has been used to share thousands of public domain
literary works made available through Project Gutenberg as well as historic public domain
films released by the Prelinger Archive. In short, from the evidence presented, the district
court quite correctly concluded that the software was capable of substantial noninfringing
uses and, therefore, that the Sony-Betamax doctrine applied.
The Copyright Owners submitted no evidence that could contradict these declarations.
Rather, the Copyright Owners argue that the evidence establishes that the vast majority
of the software use is for copyright infringement. This argument misapprehends the Sony
standard as construed in Napster I, which emphasized that in order for limitations im-
posed by Sony to apply, a product need only be capable of substantial noninfringing uses.9
In this case, the Software Distributors have not only shown that their products are ca-
pable of substantial noninfringing uses,10 but that the uses have commercial viability.
Thus, applying Napster I, Napster II, and Sony-Betamax to the record, the district court
correctly concluded that the Software Distributors had established that their products
were capable of substantial or commercially significant noninfringing uses. Therefore, the
district correctly reasoned, the Software Distributors could not be held liable for con-
structive knowledge of infringement, and the Copyright Owners were required to show
that the Software Distributors had reasonable knowledge of specific infringement to sat-
isfy the threshold knowledge requirement.
Having determined that the “reasonable knowledge of specific infringement” require-
ment applies here, we must then decide whether the Copyright Owners have raised suffi-
cient genuine issues of material fact to satisfy that higher standard. As the district court
correctly concluded, the time at which such knowledge is obtained is significant. Because
contributory copyright infringement requires knowledge and material contribution, the
Copyright Owners were required to establish that the Software Distributors had “specific
knowledge of infringement at a time at which they contribute[d] to the infringement, and
[ ] fail[ed] to act upon that information.” Grokster I, 259 F.Supp.2d at 1036 (citing Nap-
ster I, 239 F.3d at 1021). As the district court correctly observed, and as we explain fur-
ther in our discussion of material contribution, “Plaintiffs’ notices of infringing conduct
are irrelevant,” because “they arrive when Defendants do nothing to facilitate, and cannot
do anything to stop, the alleged infringement” of specific copyrighted content. Id. at
1037.
In the context of this case, the software design is of great import. As we have discussed,
the software at issue in Napster I and Napster II employed a centralized set of servers that
maintained an index of available files. In contrast, under both StreamCast’s decentralized,
Gnutella-type network and Grokster’s quasi-decentralized, supernode, KaZaa-type net-
work, no central index is maintained. Indeed, at present, neither StreamCast nor Grok-
ster maintains control over index files. As the district court observed, even if the Software
Distributors “closed their doors and deactivated all computers within their control, users
9 We are mindful that the Seventh Circuit has read Sony’s substantial noninfringing use standard differ-
ently. In re Aimster Copyright Litig., 334 F.3d 643, 651 (7th Cir. 2003). It determined that an important
additional factor is how “probable” the noninfringing uses of a product are. Id. at 653. The Copyright
Owners urge us to adopt the Aimster rationale. However, Aimster is premised specifically on a fundamental
disagreement with Napster I’s reading of Sony-Betamax. We are not free to reject our own Circuit’s binding
precedent. Even if we were free to do so, we do not read Sony-Betamax’s holding as narrowly as does the
Seventh Circuit. Regardless, it is not clear that application of the Aimster rationale would assist the Copy-
right Owners here. Implicit in the Aimster analysis is that a finding of substantial noninfringing use, includ-
ing potential use, would be fatal to a contributory infringement claim, regardless of the level of knowledge
possessed by the defendant. In Aimster, no evidence was tendered of any noninfringing product use.
10 Indeed, even at a 10% level of legitimate use, as contended by the Copyright Owners, the volume of
use would indicate a minimum of hundreds of thousands of legitimate file exchanges.
of their products could continue sharing files with little or no interruption.” Grokster I,
259 F.Supp.2d at 1041.
Therefore, we agree with the district court that the Software Distributors were entitled
to partial summary judgment on the element of knowledge.
2. Material Contribution
We also agree with the district court that with respect to their current software distribu-
tion and related activities, defendants do not materially contribute to copyright infringe-
ment.
In Napster I, we found material contribution after reciting the district court’s factual
finding that “Napster is an integrated service.” 239 F.3d at 1022. We “agree[d] that Nap-
ster provides the site and facilities for direct infringement.” Id. (internal quotation marks
omitted). We further cited the holding of Netcom, which found “substantial participation”
based on Netcom’s “failure to cancel [a user’s] infringing message and thereby stop an in-
fringing copy from being distributed worldwide.” Id. (quoting Religious Tech. Ctr. v. Net-
com On-Line Communication Servs., 907 F.Supp. 1361, 1372 (N.D. Cal. 1995)) (altera-
tion in original). We have also found material contribution where a defendant operated a
swap meet at which infringing products were sold and provided utilities, parking, and ad-
vertising. Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 261, 264 (9th Cir. 1996).
As indicated by the record, the Software Distributors do not provide the “site and fa-
cilities” for infringement, and do not otherwise materially contribute to direct infringe-
ment. Infringing messages or file indices do not reside on defendants’ computers, nor do
defendants have the ability to suspend user accounts.
While material contribution can be established through provision of site and facilities
for infringement, followed by a failure to stop specific instances of infringement once
knowledge of those infringements is acquired, the Software Distributors have not pro-
vided the site and facilities for infringement in the first place. If the Software Distributors
were true access providers, failure to disable that access after acquiring specific knowledge
of a user’s infringement might be material contribution. Or, if the Software Distributors
stored files or indices, failure to delete the offending files or offending index listings
might be material contribution. However, the Software Distributors here are not access
providers, and they do not provide file storage and index maintenance. Rather, it is the
users of the software who, by connecting to each other over the internet, create the net-
work and provide the access. “Failure” to alter software located on another’s computer is
simply not akin to the failure to delete a filename from one’s own computer, to the failure
to cancel the registration name and password of a particular user from one’s user list, or to
the failure to make modifications to software on one’s own computer.
The Copyright Owners have not provided evidence that defendants materially contrib-
ute in any other manner. StreamCast maintains an XML file from which user software
periodically retrieves parameters. These values may include the addresses of websites
where lists of active users are maintained. The owner of the FastTrack software, Shar-
man, maintains root nodes containing lists of currently active supernodes to which users
can connect. Both defendants also communicate with users incidentally, but not to facili-
tate infringement. All of these activities are too incidental to any direct copyright in-
fringement to constitute material contribution. No infringing files or lists of infringing

files are hosted by defendants, and the defendants do not regulate or provide access.
While Grokster and StreamCast in particular may seek to be the “next Napster,” the
peer-to-peer file-sharing technology at issue is not simply a tool engineered to get around
the holdings of Napster I and Napster II. The technology has numerous other uses, sig-
nificantly reducing the distribution costs of public domain and permissively shared art
and speech, as well as reducing the centralized control of that distribution. Especially in
light of the fact that liability for contributory copyright infringement does not require
proof of any direct financial gain from the infringement, we decline to expand contribu-
tory copyright liability in the manner that the Copyright Owners request.
B. Vicarious Copyright Infringement

Three elements are required to prove a defendant vicariously liable for copyright in-
fringement: (1) direct infringement by a primary party, (2) a direct financial benefit to the
defendant, and (3) the right and ability to supervise the infringers. Napster I, 239 F.3d at
1022. “Vicarious copyright liability is an ‘outgrowth’ of respondeat superior,” imposing
liability on those with a sufficiently supervisory relationship to the direct infringer. Id.
(citing Cherry Auction, 76 F.3d at 262). In Napster I, we held that Sony-Betamax “has no
application to ... vicarious copyright infringement” because the issue of vicarious liability
was “not before the Supreme Court” in that case.
The elements of direct infringement and a direct financial benefit, via advertising reve-
nue, are undisputed in this case.
1. Right and Ability To Supervise

We agree with the district court that there is no issue of material fact as to whether de-
fendants have the right and ability to supervise the direct infringers in this case. Alloca-
tion of liability in vicarious copyright liability cases has developed from a historical dis-
tinction between the paradigmatic “dance hall operator” and “landlord” defendants.
Cherry Auction, 76 F.3d at 262. The dance hall operator is liable, while the landlord es-
capes liability, because the dance hall operator has the right and ability to supervise in-
fringing conduct while the landlord does not. Thus, the “right and ability to supervise”
describes a relationship between the defendant and the direct infringer.
A salient characteristic of that relationship often, though not always, is a formal licens-
ing agreement between the defendant and the direct infringer. Indeed, Napster I found
especially important the fact that Napster had an express policy reserving the right to
block infringers’ access for any reason. 239 F.3d at 1023(“[A]bility to block infringers’
access to a particular environment for any reason whatsoever is evidence of the right and
ability to supervise.”).
In Cherry Auction, we held that the right and ability to supervise existed where a swap
meet operator reserved the right to terminate vendors for any reason, promoted the swap
meet, controlled access by customers, patrolled the meet, and could control direct infring-
ers through its rules and regulations. 76 F.3d at 262-63. Similarly in Napster I, we found
Napster had the right and ability to supervise Napster users because it controlled the cen-
tral indices of files, users were required to register with Napster, and access to the system
depended on the validity of a user’s registration.
It does not appear from any of the evidence in the record that either of the defendants
has the ability to block access to individual users. Grokster nominally reserves the right to
terminate access, while StreamCast does not maintain a licensing agreement with persons
who download Morpheus. However, given the lack of a registration and log-in process,
even Grokster has no ability to actually terminate access to filesharing functions, absent a
mandatory software upgrade to all users that the particular user refuses, or IP address-
blocking attempts.12 It is also clear that none of the communication between defendants
and users provides a point of access for filtering or searching for infringing files, since in-
fringing material and index information do not pass through defendants’ computers.
In the case of StreamCast, shutting down its XML file altogether would not prevent
anyone from using the Gnutella network. In the case of Grokster, its licensing agreement
with KaZaa/Sharman does not give it the ability to mandate that root nodes be shut
down. Moreover, the alleged ability to shut down operations altogether is more akin to
the ability to close down an entire swap meet or stop distributing software altogether,
rather than the ability to exclude individual participants, a practice of policing aisles, an
ability to block individual users directly at the point of log-in, or an ability to delete indi-
vidual filenames from one’s own computer. The sort of monitoring and supervisory rela-
tionship that has supported vicarious liability in the past is completely absent in this case.
The district court here found that unlike Napster, Grokster and StreamCast do not op-
erate and design an “integrated service,” Grokster I, 259 F.Supp.2d at 1045, which they
monitor and control. We agree. The nature of the relationship between Grokster and
StreamCast and their users is significantly different from the nature of the relationship
between a swap meet operator and its participants, or prior versions of Napster and its
users, since Grokster and StreamCast are more truly decentralized, peer-to-peer file-
sharing networks.
The district court correctly characterized the Copyright Owners’ evidence of the right
and ability to supervise as little more than a contention that “the software itself could be
altered to prevent users from sharing copyrighted files.” Grokster I, 259 F.Supp.2d at
1045. In arguing that this ability constitutes evidence of the right and ability to supervise,
the Copyright Owners confuse the right and ability to supervise with the strong duty im-
posed on entities that have already been determined to be liable for vicarious copyright
infringement; such entities have an obligation to exercise their policing powers to the
fullest extent, which in Napster’s case included implementation of new filtering mecha-
nisms. Napster II, 284 F.3d at 1098 (“The tolerance standard announced applies only to
copyrighted works which Plaintiffs have properly noticed as required by the modified prelimi-
nary injunction. That is, Napster must do everything feasible to block files from its sys-
tem which contain noticed copyrighted works.”) (emphasis added). But the potential duty
a district court may place on a vicariously liable defendant is not the same as the “ability”
contemplated by the “right and ability to supervise” test. Moreover, a duty to alter soft-
12 IP address-blocking will not be effective against a user who, like most persons, does not have a perma-
nent IP address, but is rather assigned one each time he connects to the Internet.
ware and files located on one’s own computer system is quite different in kind from a
duty to alter software located on another person’s computer. We agree with the district
court that possibilities for upgrading software located on another person’s computer are
irrelevant to determining whether vicarious liability exists.
C. Turning a “Blind Eye” to Infringement

The Copyright Owners finally argue that Grokster and StreamCast should not be able to
escape vicarious liability by turning a “blind eye” to the infringement of their users, and
that “[t]urning a blind eye to detectable acts of infringement for the sake of profit gives
rise to liability.” Napster I, 239 F.3d at 1023. If the Software Distributors had a right and
ability to control and supervise that they proactively refused to exercise, such refusal
would not absolve them of liability. However, although that rhetoric has occasionally
been employed in describing vicarious copyright infringement, there is no separate “blind
eye” theory or element of vicarious liability that exists independently of the traditional
elements of liability. Thus, this theory is subsumed into the Copyright Owners’ claim for
vicarious copyright infringement and necessarily fails for the same reasons.
III.
Resolution of these issues does not end the case. As the district court clearly stated, its
decision was limited to the specific software in use at the time of the district court deci-
sion. The Copyright Owners have also sought relief based on previous versions of the
software, which contain significant—and perhaps crucial—differences from the software
at issue. We express no opinion as to those issues.
As to the question at hand, the district court’s grant of partial summary judgment to the
Software Distributors is clearly dictated by applicable precedent. The Copyright Owners
urge a re-examination of the law in the light of what they believe to be proper public pol-
icy, expanding exponentially the reach of the doctrines of contributory and vicarious
copyright infringement. Not only would such a renovation conflict with binding prece-
dent, it would be unwise. Doubtless, taking that step would satisfy the Copyright Own-
ers’ immediate economic aims. However, it would also alter general copyright law in pro-
found ways with unknown ultimate consequences outside the present context.
Further, as we have observed, we live in a quicksilver technological environment with
courts ill-suited to fix the flow of internet innovation. The introduction of new technol-
ogy is always disruptive to old markets, and particularly to those copyright owners whose
works are sold through well-established distribution mechanisms. Yet, history has shown
that time and market forces often provide equilibrium in balancing interests, whether the
new technology be a player piano, a copier, a tape recorder, a video recorder, a personal
computer, a karaoke machine, or an MP3 player. Thus, it is prudent for courts to exercise
caution before restructuring liability theories for the purpose of addressing specific market
abuses, despite their apparent present magnitude.
Indeed, the Supreme Court has admonished us to leave such matters to Congress. In
Sony-Betamax, the Court spoke quite clearly about the role of Congress in applying copy-
right law to new technologies. As the Supreme Court stated in that case, “The direction
of Art. I is that Congress shall have the power to promote the progress of science and the
useful arts. When, as here, the Constitution is permissive, the sign of how far Congress
has chosen to go can come only from Congress.” 464 U.S. at 456 (quoting Deepsouth
Packing Co. v. Laitram Corp., 406 U.S. 518, 530 (1972)).
In this case, the district court correctly applied applicable law and properly declined the
invitation to alter it. We affirm the district court, and remand for resolution of the re-
maining issues.
AFFIRMED.

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Picker, Antitrust and IP Policy Seminar Spring, 2005 Page 1

Sony Corp. of America v. Universal City Studios, Inc.

20 35 U.S.C. § 271 provides:

A. Authorized Time Shifting

of contributory infringement. Only the most unimaginative manufacturer would be un-

A&M Records, Inc. v. Napster

A. Accessing the System

B. Listing Available Files

C. Searching For Available Files

D. Transferring Copies of an MP3 file

1. Purpose and Character of the Use

2. The Nature of the Use

3. The Portion Used

4. Effect of Use on Market

failed to demonstrate that its system is capable of commercially significant noninfringing

A. Audio Home Recording Act

B. Digital Millennium Copyright Act

Napster’s demonstrated failure to remove the offending material, is insufficient to impose

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd.

A. Contributory Copyright Infringement

fringement to constitute material contribution. No infringing files or lists of infringing

B. Vicarious Copyright Infringement

1. Right and Ability To Supervise

C. Turning a “Blind Eye” to Infringement

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