Grokster, Music Industry Settle; Inducement Definition Unsettled

WASHINGTON— Grokster and the content industries reached an out-of-court settlement that immediately shut down the Grokster system but left unanswered the standards by which peer-to-peer (P2P) companies could be found to be inducing copyright infringement.

The settlement includes a permanent injunction prohibiting Grokster from infringing on the plaintiffs' copyrighted works, immediately prohibiting the distribution of the Grokster application, and turning off the Grokster system and software. The settlement included the nation's major record companies, motion picture studios and music publishers, all of whom called it a victory.

Consumers who have already installed Grokster software on their PCs, however, will still be able to use it if they aren't caught by the music industry and prosecuted.

In settling the three-year-old suit, Grokster and the music industry avoided a decision by the court on what constitutes the inducement of copyright infringement. The content-industry suit against co-defendant StreamCast, however, is still active and could eventually lead to a Supreme Court definition of inducement.

Earlier this year, the Supreme Court ruled 9-0 that P2P file-sharing services such as Grokster and StreamCast could be sued and shut down if they intentionally induce copyright infringement, but the Court left it up to the lower court to determine whether file-sharing networks Grokster and StreamCast Networks intentionally encouraged infringement.

The Supreme Court also failed to define the standards by which companies could be found to be inducing copyright infringement, according to the P2P services, the Consumer Electronics Association and the Computer and Communications Industry Association. The ruling's lack of direction, they contended, will cause technology developers to twice about pursuing innovative technologies for fear of lawsuits by deep-pocket movie and music companies.

The Supreme Court ruled that “active inducement is part of contributory infringement,” but the justices sent “conflicting signals about what inducement means,” Grokster attorney Michael Page said at the time. Technology companies “can't be sure in advance how it [the decision] will apply [to them],” added Richard Taranto, who argued the case for Grokster and StreamCast before the Court.

In lauding the settlement, the Recording Industry Association of America (RIAA) said the “legitimate online marketplace has already begun to expand.” In addition to legal download and subscription services like Rhapsody, Napster, iTunes, Wal-Mart.com, Sony Connect, Yahoo! Music and others, RIAA said, “a nascent legal P2P network marketplace is emerging.” Legit P2P services include Wurld Media, PassAlong, Intent Media and iMesh. Individual record companies have also announced numerous licensing agreements in recent months with legit P2P contenders companies such as Mashboxx and Snocap.