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464 U.S. 417, 104 S.Ct. 774, 55 Rad. Reg. 2d (P & F) 156, 78 L.Ed.2d 574, 220 U.S.P.Q.

665, 1984
Copr.L.Dec. P 25,615

Supreme Court of the United States

SONY CORPORATION OF AMERICA, et al., Petitioners


v.
UNIVERSAL CITY STUDIOS, INC., etc., et al.

No. 81–1687.

Argued Jan. 18, 1983.


Reargued Oct. 3, 1983.
Decided Jan. 17, 1984.
Rehearing Denied March 19, 1984. See U.S., 104 S.Ct. 1619.

Owners of copyrights on television programs brought copyright infringement action against


manufacturers of home videotape recorders. The United States District Court for the Central District of
California, 480 F.Supp. 429, denied all relief sought by copyright owners and entered judgment for
manufacturers, and owners appealed. The United States Court of Appeals for the Ninth Circuit, 659 F.2d
963,reversed district court's judgment on copyright claim, and manufacturers petitioned for writ of
certiorari. The Supreme Court, Justice Stevens, held that manufacturers of home videotape recorders
demonstrated a significant likelihood that substantial numbers of copyright holders who licensed their
works for broadcast on free television would not object to having their broadcasts time shifted by
private viewers and owners of copyrights on television programs 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 and therefore home videotape recorder was capable of substantial
noninfringing uses; thus, manufacturers' sale of such equipment to general public did not constitute
contributory infringement of respondents' copyrights.

Reversed.

Justice Blackmun filed dissenting opinion in which Justice Marshall, Justice Powell and Justice Rehnquist
joined.

West Headnotes

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99 Copyrights and Intellectual Property


99I Copyrights
99I(A) Nature and Subject Matter
99k1 k. Nature of statutory copyright. Most Cited Cases

291 Patents KeyCite Citing References for this Headnote


291I In General
291k401 k. In general. Most Cited Cases
(Formerly 291k1)

Monopoly privileges that Congress may authorize are neither unlimited nor primarily designed to
provide a special private benefit; rather, limited grant is a means by which an important purpose may be
achieved and is intended to motivate the creative activity of authors and inventors by the provision of a
special reward, and to allow public access to the products of their genius after the limited period of
exclusive control has expired. U.S.C.A. Const. Art. 1787, 1, § 8.

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99 Copyrights and Intellectual Property


99I Copyrights
99I(A) Nature and Subject Matter
99k1 k. Nature of statutory copyright. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k73 k. Nature of remedy. Most Cited Cases

Protection given to copyrights is wholly statutory and remedies for infringement are only those
prescribed by Congress.

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99 Copyrights and Intellectual Property


99I Copyrights
99I(A) Nature and Subject Matter
99k1 k. Nature of statutory copyright. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(A) Nature and Subject Matter
99k12 Originality of Work; Creativity
99k12(1) k. In general. Most Cited Cases
(Formerly 99k12)
Copyright protection subsists in original works of authorship fixed in any tangible medium of expression,
however, this protection has never accorded copyright owner complete control over all possible uses of
his work; rather, Copyright Act grants copyright holder exclusive rights to use and to authorize the use of
his work in five qualified ways, including reproduction of copyrighted work in copies. Lanham Trade-
Mark Act, § 43(a), 15 U.S.C.A. § 1125(a); 17 U.S.C.A. § 101 et seq.

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99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases

All reproductions of copyrighted work are not within exclusive domain of copyright owners; some are in
the public domain.

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99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases

Any individual may reproduce a copyrighted work for a “fair use,” copyright owner does not possess
exclusive right to such a use. 17 U.S.C.A. § 106.

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99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53 Acts Constituting Infringement
99k53(1) k. In general. Most Cited Cases
(Formerly 99k53)

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases

Anyone who trespasses into copyright owner's exclusive domain by using or authorizing use of the
copyrighted work in one of the five ways set forth in the statute is an infringer of the copyright;
conversely, anyone who is authorized by copyright owner to use the copyrighted work in a way specified
in the statute or who makes a fair use of the work is not an infringer of the copyright with respect to
such use. 17 U.S.C.A. § 501(a).

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99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k71 k. Seizure and forfeiture. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k86 k. Permanent relief. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k87 Damages and Profits
99k87(1) k. Recovery in general; actual damages and profits. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k87 Damages and Profits
99k87(3) Statutory Damages; Minimum Award
99k87(3.1) k. In general. Most Cited Cases
(Formerly 99k87(3))

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k90 Costs
99k90(2) k. Attorney fees. Most Cited Cases

Copyright Act provides owner of the copyright with a potent arsenal of remedies against an infringer of
his work, including an injunction to restrain infringer from violating his rights, 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 infringer or a recovery of statutory damages and
attorney fees. 17 U.S.C.A. §§ 502–505.

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99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k70 k. Penalties and actions therefor, and offenses and prosecutions therefor. Most Cited
Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k71 k. Seizure and forfeiture. Most Cited Cases

180 Forfeitures KeyCite Citing References for this Headnote


180II Grounds of Forfeiture
180k41 Probable or Reasonable Cause
180k48 Particular Cases
180k48(18) k. Copyrights. Most Cited Cases

Anyone who willfully infringes copyright to reproduce a motion picture for purposes of commercial
advantage or private financial gain is subject to criminal penalties of one year imprisonment and a
$25,000 fine for the first offense and two years imprisonment and a $50,000 fine for each subsequent
offense and the fruits and instrumentalities of the crime are forfeited upon conviction. 17 U.S.C.A. §
506(a, b).

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99 Copyrights and Intellectual Property


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99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Decision in Kalem Co. v. Harper Brothers, which held that producer of an unauthorized film
dramatization of a copyrighted book was liable for his sale of the motion picture to jobbers who in turn
arranged for the commercial exhibition of the film did not establish a basis upon which to hold
manufacturers of home videotape recorders liable to owners of copyrights on television programs for
copyright infringement on theory that manufacturers had “contributed” to infringement of copyrights
by the users of the recorders.

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99 Copyrights and Intellectual Property


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99I(J)2 Remedies
99k72 Actions for Infringement
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Manufacturers of home videotape recorders could not be held vicariously liable to owners of copyrights
on television programs for alleged infringements of the copyrights by users of recorders.

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Sale of copying equipment, like sale of other articles of commerce, does not constitute a contributory
infringement if the product is widely used for legitimate, unobjectionable purposes.

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99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Manufacturers of home videotape recorders demonstrated a significant likelihood that substantial


numbers of copyright holders who licensed their works for broadcast on free television would not object
to having their broadcasts time shifted by private viewers and owners of copyrights on television
programs 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 and therefore home videotape
recorder was capable of substantial noninfringing uses; thus, manufacturers' sale of such equipment to
general public did not constitute contributory infringement of respondents' copyrights.

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99 Copyrights and Intellectual Property


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99I(J)2 Remedies
99k72 Actions for Infringement
99k76 k. Persons entitled to sue. Most Cited Cases

In an action for contributory infringement against seller of copying equipment, copyright holder may not
prevail unless the relief that he seeks affects only his programs, or unless he speaks for virtually all
copyright holders with an interest in the outcome.

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99 Copyrights and Intellectual Property


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99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53 Acts Constituting Infringement
99k53(1) k. In general. Most Cited Cases
(Formerly 99k53)

Even unauthorized uses of copyrighted work are not necessarily infringing; an unlicensed use of
copyright is not an infringement unless it conflicts with one of the specific exclusive rights conferred by
copyright statute. 17 U.S.C.A. § 106.

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99 Copyrights and Intellectual Property


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99I(J)1 What Constitutes Infringement
99k53 Acts Constituting Infringement
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(Formerly 99k53)

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
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99k72 Actions for Infringement
99k83 Evidence
99k83(1) k. Presumptions and burden of proof. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
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99k83 Evidence
99k83(3) Weight and Sufficiency
99k83(3.1) k. In general. Most Cited Cases
(Formerly 99k83(3))

Challenge to a noncommercial use of the copyrighted work requires proof either that the particular use
is harmful, or that if it should become widespread, it would adversely affect potential market for the
copyrighted work; actual present harm need not be shown nor is it necessary to show with certainty
that harm will result; what is necessary is a showing by a preponderance of evidence that some
meaningful likelihood of future harm exists and if the intended use is for commercial gain, that
likelihood may be presumed, however, if it is for a noncommercial purpose, the likelihood must be
demonstrated.

*417 **776 Syllabus FN*

FN* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter
of Decisions for the convenience of the reader. See United States v. Detroit Lumber Co., 200 U.S. 321,
337, 26 S.Ct. 282, 287, 50 L.Ed. 499.

Petitioner Sony Corp. manufactures home video tape recorders (VTR's), and markets them through retail
establishments, some of which are also petitioners. Respondents own the copyrights on some of the
television programs that are broadcast on the public airwaves. Respondents brought an action against
petitioners in Federal District Court, alleging that VTR consumers had been recording some of
respondents' copyrighted works that had been exhibited on commercially sponsored television and
thereby infringed respondents' copyrights, and further that petitioners were liable for such copyright
infringement because of their marketing of the VTR's. Respondents sought money damages, an
equitable accounting of profits, and an injunction against the manufacture and marketing of the VTR's.
The District Court denied respondents all relief, holding that noncommercial home use recording of
material broadcast over the public airwaves was a fair use of copyrighted works and did not constitute
copyright infringement, and that petitioners could not be held liable as contributory infringers even if
the home use of a VTR was considered an infringing use. The Court of Appeals reversed, holding
petitioners liable for contributory infringement and ordering the District Court to fashion appropriate
relief.

Held: The sale of the VTR's to the general public does not constitute contributory infringement of
respondents' copyrights. Pp. 782 – 796.

(a) The protection given to copyrights is wholly statutory, and, in a case like this, in which Congress has
not plainly marked the course to be followed by the judiciary, this Court must be circumspect in
construing the scope of rights created by a statute that never contemplated such a calculus of interests.
Any individual may reproduce a copyrighted work for a “fair use”; the copyright owner does not possess
the exclusive right to such a use. Pp. 782 – 785.

(b) Kalem Co. v. Harper Brothers, 222 U.S. 55, 32 S.Ct. 20, 56 L.Ed. 92, does not support respondents'
novel theory that supplying the “means” to accomplish an infringing activity and encouraging that
activity through advertisement are sufficient to establish liability for copyright infringement. This case
does not fall in the category of those in which it is manifestly just to *418 **777 impose vicarious
liability because the “contributory” infringer was in a position to control the use of copyrighted works by
others and had authorized the use without permission from the copyright owner. Here, the only contact
between petitioners and the users of the VTR's occurred at the moment of sale. And there is no
precedent for imposing vicarious liability on the theory that petitioners sold the VTR's with constructive
knowledge that their customers might use the equipment to make unauthorized copies of copyrighted
material. 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, or,
indeed, is merely capable of substantial noninfringing uses. Pp. 785 – 788.

(c) The record and the District Court's findings show (1) that there is a significant likelihood that
substantial numbers of copyright holders who license their works for broadcast on free television would
not object to having their broadcast time-shifted by private viewers ( i.e., recorded at a time when the
VTR owner cannot view the broadcast so that it can be watched at a later time); and (2) that there is no
likelihood that time-shifting would cause nonminimal harm to the potential market for, or the value of,
respondents' copyrighted works. The VTR's are therefore capable of substantial noninfringing uses.
Private, noncommercial time-shifting in the home satisfies this standard of noninfringing uses both
because respondents have no right to prevent other copyright holders from authorizing such time-
shifting for their programs, and because the District Court's findings reveal that even the unauthorized
home time-shifting of respondents' programs is legitimate fair use. Pp. 789 – 795.

659 F.2d 963, reversed.

Dean C. Dunlavey reargued the cause for petitioners. With him on the briefs were Donald E. Sloan and
Marshall Rutter.

Stephen A. Kroft reargued the cause for respondents. With him on the brief was Sondra E. Berchin.*

* Briefs of amici curiae urging reversal were filed for the Virginia Citizens' Consumer Council, Inc., et al.
by William A. Dobrovir; for the American Library Association by Newton N. Minow; for the Consumer
Electronics Group by J. Edward Day; for the Educators Ad Hoc Committee on Copyright Law by Michael
H. Cardozo, August W. Steinhilber, and Gwendolyn H. Gregory; for General Electric Co. et al. by Alfred B.
Engelberg, Morton Amster, Jesse Rothstein, and Joel E. Lutzker; for Hitachi, Ltd., et al. by John W.
Armagost and Craig B. Jorgensen; for McCann-Erickson, Inc., et al. by John A. Donovan, A. Howard Matz,
and David Fleischer; for Minnesota Mining and Manufacturing Co. et. al. by Sidney A. Diamond and Grier
Curran Raclin; for the National Retail Merchants Association by Peter R. Stern, Theodore S. Steingut, and
Robert A. Weiner; for Sanyo Electric, Inc., by Anthony Liebig; for Sears, Roebuck and Co. by Max L. Gillam
and Mary E. Woytek; for TDK Electronics Co., Ltd., by Ko-Yung Tung and Adam Yarmolinsky; for Toshiba
Corp. et al. by Donald J. Zoeller and Herve Gouraige; for Pfizer Inc. by Steven C. Kany; and for Viare
Publishing by Peter F. Marvin.

Briefs of amici curiae urging affirmance were filed for the Association of American Publishers, Inc., et al.
by Charles H. Lieb and Jon A. Baumgarten; for the Authors League of America, Inc., by Irwin Karp; for CBS
Inc. by Lloyd N. Cutler, Louis R. Cohen, and George Vradenburg III; for Creators and Distributors of
Programs by Stuart Robinowitz and Andrew J. Peck; for the International Alliance of Theatrical Stage
Employees and Moving Picture Machine Operators of the United States and Canada, AFL-CIO, by Leo
Geffner; for the Motion Picture Association of America, Inc., by Richard M. Cooper, Ellen S. Huvelle, and
William Nix; for the National Music Publishers' Association, Inc., by Jon A. Baumgarten; for the Recording
Industry Association of America, Inc., by James F. Fitzpatrick, Cary H. Sherman, and Ernest S. Meyers; for
Volunteer Lawyers for the Arts, Inc., by I. Fred Koenigsberg; and for the Writers Guild of America, West,
Inc., et al. by Paul P. Selvin, Jerome B. Lurie, and Paul S. Berger.

Briefs of amici curiae were filed for the State of Missouri et al. by John Ashcroft, Attorney General of
Missouri, and by the Attorneys General for their respective States as follows: Charles A. Graddick of
Alabama, John Steven Clark of Arkansas, Michael J. Bowers of Georgia, Tany S. Hong of Hawaii, Tyrone C.
Fahner of Illinois, Thomas J. Miller of Iowa, William J. Guste, Jr., of Louisiana, William A. Allain of
Mississippi, Michael T. Greely of Montana, Rufus L. Edmisten of North Carolina, William J. Brown of
Ohio, Jan Eric Cartwright of Oklahoma, Dennis J. Roberts II of Rhode Island, John J. Easton of Vermont,
Gerald L. Baliles of Virginia, and Bronson C. La Follette of Wisconsin; and for the Committee on
Copyright and Literary Property of the Association of the Bar of the City of New York by Michael S.
Oberman and David H. Marks.

*419 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*420 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 petitioners' 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 respondents' copyrights. Respondents further maintained that petitioners were
liable for the copyright infringement allegedly committed by Betamax consumers because of petitioners'
marketing of the Betamax VTR's.FN1 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 Betamax VTR's.

FN1. The respondents also asserted causes of action under state law and § 43(a) of the Trademark Act of
1946, 60 Stat. 441, 15 U.S.C. § 1125(a). These claims are not before this Court.

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 **778
petitioners liable for contributory infringement and ordering the District Court to fashion appropriate
relief. *421 659 F.2d 963 (1981). We granted certiorari, 457 U.S. 1116, 102 S.Ct. 2926, 73 L.Ed.2d 1328
(1982); since we had not completed our study of the case last Term, we ordered reargument, 463 U.S.
1226, 103 S.Ct. 3568, 77 L.Ed.2d 1409 (1983). We now reverse.

An explanation of our rejection of respondents' unprecedented attempt to impose copyright liability


upon the distributors of copying equipment requires a quite detailed recitation of the findings of the
District Court. In summary, those findings reveal that the average 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 respondents 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 enjoin 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
monopolies to encompass control over an article of commerce that is not the subject of copyright
protection. Such an expansion of the copyright privilege is beyond the limits of the grants authorized by
Congress.

The two respondents in this action, Universal Studios, Inc. and Walt Disney Productions, produce and
hold the copyrights on a substantial number of motion pictures and other audiovisual works. In the
current marketplace, they can exploit their rights in these works in a number of ways: *422 by
authorizing theatrical exhibitions, by licensing limited showings on cable and network television, by
selling syndication rights for repeated airings on local television stations, and by marketing programs on
prerecorded videotapes or videodiscs. Some works are suitable for exploitation through all of these
avenues, while the market for other works is more limited.

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.FN2 Sony's
Betamax VTR is a mechanism consisting of three basic components: (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 recorder, 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.

FN2. The four retailers are Carter, Hawley, Hales, Stores, Inc.; Associated Dry Goods Corp.; Federated
Department Stores, Inc.; and Henry's Camera Corp. The principal defendants are Sony Corporation, the
manufacturer of the equipment, and its wholly owned subsidiary, Sony Corporation of America. The
advertising agency of Doyle, Dane, Burnbock, Inc., also involved in marketing the Betamax, is also a
petitioner. An individual VTR user, Willis Griffiths, was named as a defendant in the District Court, but
respondent sought no relief against him. Griffiths is not a petitioner. For convenience, we shall refer to
petitioners collectively as Sony.

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 **779 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 predetermined *423 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 Betamax 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
accumulated libraries of tapes.FN3 Sony's survey indicated *424 that over 80% of the interviewees
watched at least as much regular television as they had before owning a Betamax.FN4 Respondents
offered no evidence of decreased television viewing by Betamax owners.FN5

FN3. As evidence of how a VTR may be used, respondents offered the testimony of William Griffiths.
Griffiths, although named as an individual defendant, was a client of plaintiffs' law firm. The District
Court summarized his testimony as follows:

“He owns approximately 100 tapes. When Griffiths bought his Betamax, he intended not only to time-
shift (record, play-back and then erase) but also to build a library of cassettes. Maintaining a library,
however, proved too expensive, and he is now erasing some earlier tapes and reusing them.

“Griffiths copied about 20 minutes of a Universal motion picture called ‘Never Give An Inch,’ and two
episodes from Universal television series entitled ‘Baa Baa Black Sheep’ and ‘Holmes and Yo Yo.’ He
would have erased each of these but for the request of plaintiffs' counsel that it be kept. Griffiths also
testified that he had copied but already erased Universal films called ‘Alpha Caper’ (erased before
anyone saw it) and ‘Amelia Earhart.’ At the time of his deposition Griffiths did not intend to keep any
Universal film in his library.

“Griffiths has also recorded documentaries, news broadcasts, sporting events and political programs
such as a rerun of the Nixon/Kennedy debate.” 480 F.Supp., at 436–437.

Four other witnesses testified to having engaged in similar activity.


FN4. The District Court summarized some of the findings in these surveys as follows:

“According to plaintiffs' survey, 75.4% of the VTR owners use their machines to record for time-shifting
purposes half or most of the time. Defendants' survey showed that 96% of the Betamax owners had
used the machine to record programs they otherwise would have missed.

“When plaintiffs asked interviewees how many cassettes were in their library, 55.8% said there were 10
or fewer. In defendants' survey, of the total programs viewed by interviewees in the past month, 70.4%
had been viewed only that one time and for 57.9%, there were no plans for further viewing.” 480
F.Supp., at 438.

FN5. “81.9% of the defendants' interviewees watched the same amount or more of regular television as
they did before owning a Betamax. 83.2% reported their frequency of movie going was unaffected by
Betamax.” 480 F.Supp., at 439.

Sony introduced considerable evidence describing television programs that could be copied without
objection from any copyright holder, with special emphasis on sports, religious, 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 **780 to the recording of their televised events for home use.FN6

FN6. See Def.Exh. OT, Table 20; Tr. 2447–2450, 2480, 2486–2487, 2515–2516, 2530–2534.

*425 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. Id., at 469.

The District Court's Decision

The lengthy trial of the case in the District Court concerned the private, home use of VTR's for recording
programs broadcast on the public airwaves without charge to the viewer.FN7 No issue concerning the
transfer of tapes to other persons, the use of home-recorded tapes for public performances, or the
copying of programs transmitted on pay or cable television systems was raised. See 480 F.Supp. 429,
432–433, 442 (1979).

FN7. The trial also briefly touched upon demonstrations of the Betamax by the retailer petitioners which
were alleged to be infringements by respondents. The District Court held against respondents on this
claim, 480 F.Supp., at 456–457, the Court of Appeals affirmed this holding, 659 F.2d, at 976, and
respondents did not cross-petition on this issue.
The District Court concluded that noncommercial home use recording of material broadcast over the
public airwaves was a fair use of copyrighted works and did not constitute copyright infringement. It
emphasized the fact that the material was broadcast free to the public at large, the noncommercial
character of the use, and the private character of the activity conducted entirely within the home.
Moreover, the court found that the purpose of this use served the public interest in increasing access to
television programming, an interest that “is consistent with the First Amendment policy of providing the
fullest possible access to information through the public airwaves. Columbia Broadcasting System, Inc. v.
Democratic National Committee, 412 U.S. 94, 102 [93 S.Ct. 2080, 2086, 36 L.Ed.2d 772].” 480 F.Supp., at
454.FN8 Even when an entire copyrighted work was recorded, *426 the District Court regarded the
copying as fair use “because there is no accompanying reduction in the market for ‘plaintiff's original
work.’ ” Ibid.

FN8. The court also found that this “access is not just a matter of convenience, as plaintiffs have
suggested. Access has been limited not simply by inconvenience but by the basic need to work. Access
to the better program has also been limited by the competitive practice of counterprogramming.” 480
F.Supp., at 454.

As an independent ground of decision, the District Court also concluded that Sony could not be held
liable as a contributory infringer even if the home use of a VTR was considered an infringing use. The
District Court noted that Sony had no direct involvement with any Betamax purchasers who recorded
copyrighted works off the air. Sony's advertising was silent on the subject of possible copyright
infringement, but its instruction booklet contained the following statement:

“Television programs, films, videotapes and other materials may be copyrighted. Unauthorized
recording of such material may be contrary to the provisions of the United States copyright laws.” Id., at
436.

The District Court assumed that Sony had constructive knowledge of the probability that the Betamax
machine would be used to record copyrighted programs, but found that Sony merely sold a “product
capable of a variety of uses, some of them allegedly infringing.” Id., at 461. It reasoned:

“Selling a staple article of commerce e.g., a typewriter, a recorder, a camera, a photocopying machine
technically contributes to any infringing use subsequently made thereof, but this kind of ‘contribution,’
if deemed sufficient as a basis for liability, would expand the theory**781 beyond precedent and
arguably beyond judicial management.

“Commerce would indeed be hampered if manufacturers of staple items were held liable as
contributory infringers whenever they ‘constructively’ knew that some purchasers on some occasions
would use their product *427 for a purpose which a court later deemed, as a matter of first impression,
to be an infringement.” Ibid.

Finally, the District Court discussed the respondents' prayer for injunctive relief, noting that they had
asked for an injunction either preventing the future sale of Betamax machines, or requiring that the
machines be rendered incapable of recording copyrighted works off the air. The court stated that it had
“found no case in which the manufacturers, distributors, retailers, and advertisors of the instrument
enabling the infringement were sued by the copyright holders,” and that the request for relief in this
case “is unique.” 480 F.Supp., at 465.

It concluded that an injunction was wholly inappropriate because any possible harm to respondents was
outweighed by the fact that “the Betamax could still legally be used to record noncopyrighted material
or material whose owners consented to the copying. An injunction would deprive the public of the
ability to use the Betamax for this noninfringing off-the-air recording.” 480 F.Supp., at 468.

The Court of Appeals' Decision

The Court of Appeals reversed the District Court's judgment on respondents' copyright claim. It did not
set aside any of the District Court's findings of fact. Rather, it concluded as a matter of law that the
home use of a VTR was not a fair use because it was not a “productive use.” FN9 It therefore held that it
was unnecessary for plaintiffs to prove any harm to the potential market for the copyrighted works, but
then observed that it seemed clear that the cumulative effect of mass reproduction made possible by
VTR's would tend to diminish the potential market for respondents' works. 659 F.2d, at 974.

FN9. “Without a ‘productive use’, i.e. when copyrighted material is reproduced for its intrinsic use, the
mass copying of the sort involved in this case precludes an application of fair use.” 659 F.2d, at 971–972.

*428 On the issue of contributory infringement, the Court of Appeals first rejected the analogy to staple
articles of commerce such as tape recorders or photocopying machines. It noted that such machines
“may have substantial benefit for some purposes” and do not “even remotely raise copyright problems.”
Id., at 975. VTR's, however, are sold “for the primary purpose of reproducing television programming”
and “virtually all” such programming is copyrighted material. Ibid. The Court of Appeals concluded,
therefore, that VTR's were not suitable for any substantial noninfringing use even if some copyright
owners elect not to enforce their rights.

The Court of Appeals also rejected the District Court's reliance on Sony's lack of knowledge that home
use constituted infringement. Assuming that the statutory provisions defining the remedies for
infringement applied also to the non-statutory tort of contributory infringement, the court stated that a
defendant's good faith would merely reduce his damages liability but would not excuse the infringing
conduct. It held that Sony was chargeable with knowledge of the homeowner's infringing activity
because the reproduction of copyrighted materials was either “the most conspicuous use” or “the major
use” of the Betamax product. Ibid.

On the matter of relief, the Court of Appeals concluded that “statutory damages may be appropriate,”
that the District Court should reconsider its determination that an injunction would not be an
appropriate remedy; and, referring to “the analogous photocopying area,” suggested that a continuing
royalty pursuant to a judicially created compulsory license may **782 very well be an acceptable
resolution of the relief issue. 659 F.2d, at 976.

II

Article I, Sec. 8 of the Constitution provides that:

“The Congress shall have Power ... to Promote the Progress of Science and useful Arts, by securing for
limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

[1] *429 The monopoly privileges that Congress may authorize are neither unlimited nor primarily
designed to provide a special private benefit. Rather, the limited grant is a means by which an important
public purpose may be achieved. It is intended to motivate the creative activity of authors and inventors
by the provision of a special reward, and to allow the public access to the products of their genius after
the limited period of exclusive control has expired.

“The copyright law, like the patent statute, makes reward to the owner a secondary consideration. In
Fox Film Corp. v. Doyal, 286 U.S. 123, 127 [52 S.Ct. 546, 547, 76 L.Ed. 1010], Chief Justice Hughes spoke
as follows respecting the copyright monopoly granted by Congress, ‘The sole interest of the United
States and the primary object in conferring the monopoly lie in the general benefits derived by the
public from the labors of authors.’ It is said that reward to the author or artist serves to induce release
to the public of the products of his creative genius.” United States v. Paramount Pictures, 334 U.S. 131,
158, 68 S.Ct. 915, 929, 92 L.Ed. 1260.

As the text of the Constitution makes plain, it is Congress that has been assigned the task of defining the
scope of the limited monopoly that should be granted to authors or to inventors in order to give the
public appropriate access to their work product. Because this task involves a difficult balance between
the interests of authors and inventors in the control and exploitation of their writings and discoveries on
the one hand, and society's competing interest in the free flow of ideas, information, and commerce on
the other hand, our patent and copyright statutes have been amended repeatedly.FN10
FN10. In its report accompanying the comprehensive revision of the Copyright Act in 1909, the Judiciary
Committee of the House of Representatives explained this balance:

“The enactment of copyright legislation by Congress under the terms of the Constitution is not based
upon any natural right that the author has in his writings, ... but upon the ground that the welfare of the
public will be served and progress of science and useful arts will be promoted by securing to authors for
limited periods the exclusive rights to their writings.

***

“In enacting a copyright law Congress must consider ... two questions: First, how much will the
legislation stimulate the producer and so benefit the public, and, second, how much will the monopoly
granted be detrimental to the public? The granting of such exclusive rights, under the proper terms and
conditions, confers a benefit upon the public that outweighs the evils of the temporary monopoly.”
H.R.Rep. No. 2222, 60th Cong., 2d Sess. 7 (1909).

[2] *430 From its beginning, the law of copyright has developed in response to significant changes in
technology.FN11 Indeed, it **783 was the invention of a new form of copying equipment—the printing
press—that gave rise to the original need for copyright protection.FN12 Repeatedly, as new
developments have *431 occurred in this country, it has been the Congress that has fashioned the new
rules that new technology made necessary. Thus, long before the enactment of the Copyright Act of
1909, 35 Stat. 1075, it was settled that the protection given to copyrights is wholly statutory. Wheaton
v. Peters, 33 U.S. (8 Peters) 591, 661–662, 8 L.Ed. 1055 (1834). The remedies for infringement “are only
those prescribed by Congress.” Thompson v. Hubbard, 131 U.S. 123, 151, 9 S.Ct. 710, 720, 33 L.Ed. 76
(1889).

FN11. Thus, for example, the development and marketing of player pianos and perforated roles of
music, see White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1, 28 S.Ct. 319, 52 L.Ed. 655 (1908),
preceded the enactment of the Copyright Act of 1909; innovations in copying techniques gave rise to
the statutory exemption for library copying embodied in § 108 of the 1976 revision of the Copyright law;
the development of the technology that made it possible to retransmit television programs by cable or
by microwave systems, see Fortnightly Corp. v. United Artists, 392 U.S. 390, 88 S.Ct. 2084, 20 L.Ed.2d
1176 (1968), and Teleprompter Corp. v. CBS, 415 U.S. 394, 94 S.Ct. 1129, 39 L.Ed.2d 415 (1974),
prompted the enactment of the complex provisions set forth in 17 U.S.C. § 111(d)(2)(B) and § 111(d)(5)
after years of detailed congressional study, see Eastern Microwave, Inc. v. Doubleday Sports, Inc., 691
F.2d 125, 129 (CA2 1982).

By enacting the Sound Recording Amendment of 1971, 85 Stat. 391, Congress also provided the solution
to the “record piracy” problems that had been created by the development of the audio tape recorder.
Sony argues that the legislative history of that Act, see especially H.Rep. No. 487, 92nd Cong., 1st Sess.,
p. 7, indicates that Congress did not intend to prohibit the private home use of either audio or video
tape recording equipment. In view of our disposition of the contributory infringement issue, we express
no opinion on that question.

FN12. “Copyright protection became necessary with the invention of the printing press and had its early
beginnings in the British censorship laws. The fortunes of the law of copyright have always been closely
connected with freedom of expression, on the one hand, and with technological improvements in
means of dissemination, on the other. Successive ages have drawn different balances among the
interest of the writer in the control and exploitation of his intellectual property, the related interest of
the publisher, and the competing interest of society in the untrammeled dissemination of ideas.”
Foreword to B. Kaplan, An Unhurried View of Copyright vii-viii (1967).

The judiciary's reluctance to expand the protections afforded by the copyright without explicit legislative
guidance is a recurring theme. See, e.g., Teleprompter Corp. v. CBS, 415 U.S. 394, 94 S.Ct. 1129, 39
L.Ed.2d 415 (1974); Fortnightly Corp. v. United Artists, 392 U.S. 390, 88 S.Ct. 2084, 20 L.Ed.2d 1176
(1968); White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1, 28 S.Ct. 319, 52 L.Ed. 655 (1908);
Williams and Wilkins v. United States, 487 F.2d 1345, 203 Ct.Cl. 74 (1973), affirmed by an equally divided
court, 420 U.S. 376, 95 S.Ct. 1344, 43 L.Ed.2d 264 (1975). 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 institutional 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 interests. In doing so, we are guided by Justice Stewart's exposition of the correct approach
to ambiguities in the law of copyright:

“The limited scope of the copyright holder's statutory monopoly, like the limited copyright duration
required by the Constitution, reflects a balance of competing claims upon the public interest: Creative
work is to be *432 encouraged and rewarded, but private motivation must ultimately serve the cause of
promoting broad public availability of literature, music, and the other arts. The immediate effect of our
copyright law is to secure a fair return for an ‘author's' creative labor. But the ultimate aim is, by this
incentive, to stimulate artistic creativity for the general public good. ‘The sole interest of the United
States and the primary object in conferring the monopoly,’ this Court has said, ‘lie in the general
benefits derived by the public from the labors of authors.’ Fox Film Corp. v. Doyal, 286 U.S. 123, 127 [52
S.Ct. 546, 547, 76 L.Ed. 1010]. See Kendall v. Winsor, 21 How. 322, 327–328 [16 L.Ed. 165]; Grant v.
Raymond, 6 Pet. 218, 241–242 [8 L.Ed. 376]. When technological change has rendered its literal terms
ambiguous, the Copyright Act must be construed in light of this basic purpose.” Twentieth Century
Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 2043, 45 L.Ed.2d 84 (footnotes omitted).
**784 [3] [4] [5] Copyright protection “subsists ... in original works of authorship fixed in any
tangible medium of expression.” 17 U.S.C. § 102(a). This protection has never accorded the copyright
owner complete control over all possible uses of his work.FN13 Rather, the Copyright Act grants the
*433 copyright holder “exclusive” rights to use and to authorize the use of his work in five qualified
ways, including reproduction of the copyrighted work in copies. Id., § 106.FN14 All reproductions of the
work, however, are not within the exclusive domain of the copyright owner; some are in the public
domain. Any individual may reproduce a copyrighted work for a “fair use;” the copyright owner does not
possess the exclusive right to such a use. Compare id., § 106 with id., § 107.

FN13. See, e.g., White-Smith Music Publishing Co. v. Apollo Co., 209 U.S. 1, 19, 28 S.Ct. 319, 323, 52 L.Ed.
655 (1908); cf. Deep South Packing Co. v. Lathram Corp., 406 U.S. 518, 530–531, 92 S.Ct. 1700, 1707–
1708, 32 L.Ed.2d 273 (1972). While the law has never recognized an author's right to absolute control of
his work, the natural tendency of legal rights to express themselves in absolute terms to the exclusion of
all else is particularly pronounced in the history of the constitutionally sanctioned monopolies of the
copyright and the patent. See e.g., United States v. Paramount Pictures, 334 U.S. 131, 156–158, 68 S.Ct.
915, 928–929, 92 L.Ed. 1260 (1948) (copyright owners claiming right to tie license of one film to license
of another under copyright law); Fox Film Corp. v. Doyal, 286 U.S. 123, 52 S.Ct. 546, 76 L.Ed. 1010 (1932)
(copyright owner claiming copyright renders it immune from state taxation of copyright royalties);
Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 349–351, 28 S.Ct. 722, 725–726, 52 L.Ed. 1086 (1908)
(copyright owner claiming that a right to fix resale price of his works within the scope of his copyright);
International Business Machines v. United States, 298 U.S. 131, 56 S.Ct. 701, 80 L.Ed. 1085 (1936)
(patentees claiming right to tie sale of unpatented article to lease of patented device).

FN14. Section 106 of the Act provides:

“ ‘Subject to sections 107 through 118, the owner of copyright under this title has the exclusive rights to
do and to authorize any of the following:

(1) to reproduce the copyrighted work in copies or phonorecords;

(2) to prepare derivative works based upon the copyrighted work;

(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer
of ownership, or by rental, lease, or lending;

(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion
pictures and other audiovisual works, to perform the copyrighted work publicly; and
(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial,
graphic, or sculptural works, including the individual images of a motion picture or other audiovisual
work, to display the copyrighted work publicly.”

[6] “Anyone who violates any of the exclusive rights of the copyright owner,” that is, anyone who
trespasses into his exclusive domain by using or authorizing the use of the copyrighted work in one of
the five ways set forth in the statute, “is an infringer of the copyright.” Id., § 501(a). Conversely, anyone
who is authorized by the copyright owner to use the copyrighted work in a way specified in the statute
or who makes a fair use of the work is not an infringer of the copyright with respect to such use.

[7] [8] 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*434 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.FN15

FN15. Moreover, anyone who willfully infringes the copyright to reproduce a motion picture for
purposes of commercial advantage or private financial gain is subject to criminal penalties of one year
imprisonment and a $25,000 fine for the first offense and two years imprisonment and a $50,000 fine
for each subsequent offense, 17 U.S.C. § 506(a), and the fruits and instrumentalities of the crime are
forfeited upon conviction, id., § 506(b).

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 **785 have to bring infringement actions based on Betamax copying of
their works.FN16 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.

FN16. In this regard, we reject respondent's attempt to cast this action as comparable to a class action
because of the positions taken by amici with copyright interests and their attempt to treat the
statements made by amici as evidence in this case. See Brief for Respondent, at 1, and n. 1, 6, 52, 53 and
n. 116. The stated desires of amici concerning the outcome of this or any litigation are no substitute for
a class action, are not evidence in the case, and do not influence our decision; we examine an amicus
curiae brief solely for whatever aid it provides in analyzing the legal questions before us.

III
The Copyright Act does not expressly render anyone liable for infringement committed by another. In
contrast, the *435 Patent Act expressly brands anyone who “actively induces infringement 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 infringing activity.FN17 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
identifying the circumstances in which it is just to hold one individual accountable for the actions of
another.

FN17. As the District Court correctly observed, however, “the lines between direct infringement,
contributory infringement, and vicarious liability are not clearly drawn....” 480 F.Supp. 457–458. The lack
of clarity in this area may, in part, be attributable to the fact that an infringer is not merely one who uses
a work without authorization by the copyright owner, but also one who authorizes the use of a
copyrighted work without actual authority from the copyright owner.

We note the parties' statements that the questions of petitioners' liability under the “doctrines” of
“direct infringement” and “vicarious liability” are not nominally before this Court. Compare
Respondents' Brief, at 9, n. 22, 41, n. 90 with Petitioners' Reply Brief, at 1, n. 2. We also observe,
however, that reasoned analysis of respondents' unprecedented contributory infringement claim
necessarily entails consideration of arguments and case law which may also be forwarded under the
other labels, and indeed the parties to a large extent rely upon such arguments and authority in support
of their respective positions on the issue of contributory infringement.

[9] Such circumstances were plainly present in Kalem Co. v. Harper Brothers, 222 U.S. 55, 32 S.Ct. 20,
56 L.Ed. 92 (1911), the copyright decision of this Court on which respondents place their principal
reliance. In Kalem, the Court held that the producer of an unauthorized film dramatization of the
copyrighted book Ben Hur was liable for his sale of the motion picture to jobbers, who in turn arranged
for the commercial exhibition of the film. Justice Holmes, writing for the Court, explained:

“The defendant not only expected but invoked by advertisement the use of its films for dramatic
reproduction*436 of the story. That was the most conspicuous purpose for which they could be used,
and the one for which especially they were made. If the defendant did not contribute to the
infringement it is impossible to do so except by taking part in the final act. It is liable on principles
recognized in every part of the law.” 222 U.S., at 63, 32 S.Ct., at 22.

The use for which the item sold in Kalem had been “especially” made was, of course, to display the
performance that had already been recorded upon it. The producer had personally appropriated the
copyright owner's protected work and, as the owner of the tangible medium of expression upon which
the protected work was recorded, **786 authorized that use by his sale of the film to jobbers. But that
use of the film was not his to authorize: the copyright owner possessed the exclusive right to authorize
public performances of his work. Further, the producer personally advertised the unauthorized public
performances, dispelling any possible doubt as to the use of the film which he had authorized.

Respondents argue that Kalem stands for the proposition that supplying the “means” to accomplish an
infringing activity and encouraging that activity through advertisement are sufficient to establish liability
for copyright infringement. This argument rests on a gross generalization that cannot withstand scrutiny.
The producer in Kalem did not merely provide the “means” to accomplish an infringing activity; the
producer supplied the work itself, albeit in a new medium of expression. Petitioners in the instant case
do not supply Betamax consumers with respondents' works; respondents do. Petitioners supply a piece
of equipment that is generally capable of copying the entire range of programs that may be televised:
those that are uncopyrighted, those that are copyrighted but may be copied without objection from the
copyright holder, and those that the copyright holder would prefer not to have copied. The Betamax can
be used to *437 make authorized or unauthorized uses of copyrighted works, but the range of its
potential use is much broader than the particular infringing use of the film Ben Hur involved in Kalem.
Kalem does not support respondents' novel theory of liability.

Justice Holmes stated that the producer had “contributed” to the infringement of the copyright, and the
label “contributory infringement” has been applied in a number of lower court copyright cases involving
an ongoing relationship between the direct infringer and the contributory infringer at the time the
infringing conduct occurred. In such cases, as in other situations in which the imposition of vicarious
liability is manifestly just, the “contributory” infringer was in a position to control the use of copyrighted
works by others and had authorized the use without permission from the copyright owner. FN18 This
**787 case, however, plainly does not fall *438 in that category. The only contact between Sony and the
users of the Betamax that is disclosed by this record occurred at the moment of sale. The District Court
expressly found that “no employee of Sony, Sonam or DDBI had either direct involvement with the
allegedly infringing activity or direct contact with purchasers of Betamax who recorded copyrighted
works off-the-air.” 480 F.Supp., at 460. And it further found that “there was no evidence that any of the
copies made by Griffiths or the other individual witnesses in this suit were influenced or encouraged by
[Sony's] advertisements.” Ibid.

FN18. The so-called “dance hall cases,” Famous Music Corp. v. Bay State Harness Horse Racing and
Breeding Ass'n, 554 F.2d 1213 (CA1 1977) (racetrack retained infringer to supply music to paying
customers); KECA MUSIC, Inc. v. Dingus McGee's Co., 432 F.Supp. 72 (W.D.Mo.1977) (cocktail lounge
hired musicians to supply music to paying customers); Dreamland Ball Room v. Shapiro, Bernstein & Co.,
36 F.2d 354 (CA7 1929) (dance hall hired orchestra to supply music to paying customers) are often
contrasted with the so-called landlord-tenant cases, in which landlords who leased premises to a direct
infringer for a fixed rental and did not participate directly in any infringing activity were found not to be
liable for contributory infringement. E.g., Deutsch v. Arnold, 98 F.2d 686 (CA2 1938).

In Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304 (CA2 1963) the owner of twenty-three chain
stores retained the direct infringer to run its record departments. The relationship was structured as a
licensing arrangement, so that the defendant bore none of the business risk of running the department.
Instead, it received 10% or 12% of the direct infringer's gross receipts. The Court of Appeals concluded:

“[The dance-hall cases] and this one lie closer on the spectrum to the employer-employee model, than
to the landlord-tenant model. On the particular facts before us, ... Green's relationship to its infringing
licensee, as well as its strong concern for the financial success of the phonograph record concession,
renders it liable for the unauthorized sales of the ‘bootleg’ records.

“[T]he imposition of vicarious liability in the case before us cannot be deemed unduly harsh or unfair.
Green has the power to police carefully the conduct of its concessionaire; our judgment will simply
encourage it to do so, thus placing responsibility where it can and should be effectively exercised.” Id.,
at 308 (emphasis in original).

In Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159 (CA2 1971), the direct
infringers retained the contributory infringer to manage their performances. The contributory infringer
would contact each direct infringer, obtain the titles of the musical compositions to be performed, print
the programs, and then sell the programs to its own local organizations for distribution at the time of
the direct infringement. Id., at 1161. The Court of Appeals emphasized that the contributory infringer
had actual knowledge that the artists it was managing were performing copyrighted works, was in a
position to police the infringing conduct of the artists, and derived substantial benefit from the actions
of the primary infringers. Id., at 1163.

In Screen Gems-Columbia Music, Inc. v. Mark-Fi Records, Inc., 256 F.Supp. 399 (SDNY 1966), the direct
infringer manufactured and sold bootleg records. In denying a motion for summary judgment, the
District Court held that the infringer's advertising agency, the radio stations that advertised the
infringer's works, and the service agency that boxed and mailed the infringing goods could all be held
liable, if at trial it could be demonstrated that they knew or should have known that they were dealing in
illegal goods.

[10] *439 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 customers 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. FN19

FN19. E.g., United States v. Paramount Pictures, 334 U.S. 131, 158, 68 S.Ct. 915, 929, 92 L.Ed. 1260
(1948); Fox Film Corp. v. Doyal, 286 U.S. 123, 131, 52 S.Ct. 546, 548, 76 L.Ed. 1010 (1932); Wheaton and
Donaldson v. Peters and Grigg, 33 U.S. (8 Pet.) 591, 657–658, 8 L.Ed. 1055 (1834). The two areas of the
law, naturally, are not identical twins, and we exercise the caution which we have expressed in the past
in applying doctrine formulated in one area to the other. See generally, Mazer v. Stein, 347 U.S. 201,
217–218, 74 S.Ct. 460, 470, 98 L.Ed. 630 (1954); Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 345, 28 S.Ct.
722, 724, 52 L.Ed. 1086 (1908).

We have consistently rejected the proposition that a similar kinship exists between copyright law and
trademark law, and in the process of doing so have recognized the basic similarities between copyrights
and patents. The Trade-Mark Cases, 100 U.S. 82, 91–92, 25 L.Ed. 550 (1879); see also, United Drug Co. v.
Rectanus Co., 248 U.S. 90, 97, 39 S.Ct. 48, 50, 63 L.Ed. 141 (1918) (trademark right “has little or no
analogy” to copyright or patent); McLean v. Fleming, 96 U.S. 245, 254 (1877); Canal Co. v. Clark, 13 Wall.
311, 322, 20 L.Ed. 581 (1871). Given the fundamental differences between copyright law and trademark
law, in this copyright case we do not look to the standard for contributory infringement set forth in
Inwood Laboratories v. Ives Laboratories, 456 U.S. 844, 854–855, 102 S.Ct. 2182, 2188, 72 L.Ed.2d 606
(1982), which was crafted for application in trademark cases. There we observed that a manufacturer or
distributor could be held liable to the owner of a trademark if it intentionally induced a merchant down
the chain of distribution to pass off its product as that of the trademark owner's or if it continued to
supply a product which could readily be passed off to a particular merchant whom it knew was
mislabeling the product with the trademark owner's mark. If Inwood's narrow standard for contributory
trademark infringement governed here, respondents' claim of contributory infringement would merit
little discussion. Sony certainly does not “intentionally induce[ ]” its customers to make infringing uses
of respondents' copyrights, nor does it supply its products to identified individuals known by it to be
engaging in continuing infringement of respondents' copyrights, see id., at 855, 102 S.Ct., at 2188.

*440 In the Patent Code both the concept of infringement and the concept of contributory infringement
are expressly defined by statute.FN20 The prohibition against contributory**788 infringement 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 patentee 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 commodity of commerce suitable for substantial noninfringing use” is not contributory
infringement.

FN20. 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 composition, 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 infringement of
such patent, and not a staple article or commodity of commerce suitable for substantial 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 patent; (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.”

When a charge of contributory infringement is predicated entirely on the sale of an article 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 *441 finding of contributory infringement 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. FN21

FN21. It seems extraordinary to suggest that the Copyright Act confers upon all copyright owners
collectively, 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 request 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.

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 extend 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 any commercial noninfringing use.” Dawson Chemical
Co. v. Rohm & Hass Co., 448 U.S. 176, 198, 100 S.Ct. 2601, 2614, 65 L.Ed.2d 696 (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 contributory infringement. “To form the basis for
contributory infringement the item must almost be uniquely suited as a component of the patented
invention.” P. Rosenberg, Patent 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, 32 S.Ct. 364, 379, 56 L.Ed. 645 (1912), overruled on other grounds, *442 Motion Picture
Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 517, 37 S.Ct. 416, 421, 61 L.Ed. 871 (1917).
[11] 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 duplication of a device or
publication to the products or activities that make such duplication 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
**789 engage in substantially unrelated 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

[12] The question is thus whether the Betamax is capable of commercially significant noninfringing
uses. In order to resolve that question, we need not explore all the different potential uses of the
machine and determine whether or not they would constitute infringement. 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 findings reveal that even the
unauthorized home time-shifting of respondents' programs is legitimate fair use.

*443 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 percentage is not specified, but
it is well below 10%. FN22 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. Nevertheless 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.FN23

FN22. The record suggests that Disney's programs at the time of trial consisted of approximately one
hour a week of network television and one syndicated series. Universal's percentage in the Los Angeles
market on commercial television stations was under 5%. See Tr. 532–533, 549–550.

FN23. The District Court did not make any explicit findings with regard to how much broadcasting is
wholly uncopyrighted. The record does include testimony that at least one movie— My Man Godfrey —
falls within that category, Tr. 2300–2301, and certain broadcasts produced by the federal government
are also uncopyrighted. See 17 U.S.C. § 105. Cf. Schnapper v. Foley, 667 F.2d 102 (CADC 1981)
(explaining distinction between work produced by the government and work commissioned by the
government). To the extent such broadcasting is now significant, it further bolsters our conclusion.
Moreover, since copyright protection is not perpetual, the number of audiovisual works in the public
domain necessarily increases each year.

The District Court found:

“Even if it were deemed that home-use recording of copyrighted material constituted infringement, the
Betamax could still legally be used to record noncopyrighted material or material whose owners
consented to the copying. An injunction would deprive the public of the ability to use the Betamax for
this noninfringing off-the-air recording.

*444 “Defendants introduced considerable testimony at trial about the potential for such copying of
sports, religious, educational and other programming. This included 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**790 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 remedy, 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 concerning “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,FN24 two items in the record deserve specific mention.

FN24. See Tr. 2447–2450 (Alexander Hadden, Major League Baseball); Tr. 2480, 2486–2487 (Jay Moyer,
National Football League); Tr. 2515–2516 (David Stern, National Basketball Association); Tr. 2530–2534
(Gilbert Stein, National Hockey League); Tr. 2543–2552 (Thomas Hansen, National Collegiate Athletic
Association); Tr. 2565–2572 (Benjamin Armstrong, National Religious Broadcasters). Those officials were
authorized to be the official spokespersons for their respective institutions in this litigation. Tr. 2432,
2479, 2509–2510, 2530, 2538, 2563. See Fed.Rules Civ.Proc. 30(b)(6).

*445 First is the testimony of John Kenaston, the station manager of Channel 58, an educational station
in Los Angeles affiliated with the Public Broadcasting Service. He explained and authenticated the
station's published guide to its programs.FN25 For each program, the guide tells whether unlimited
home taping is authorized, home taping is authorized subject to certain restrictions (such as erasure
within seven days), or home taping is not authorized at all. The Spring 1978 edition of the guide
described 107 programs. Sixty-two of those programs or 58% authorize some home taping. Twenty-one
of them or almost 20% authorize unrestricted home taping.FN26

FN25. Tr. 2863–2902; Def. Exh. PI.

FN26. See also Tr. 2833–2844 (similar testimony by executive director of New Jersey Public Broadcasting
Authority). Cf. Tr. 2592–2605 (testimony by chief of New York Education Department's Bureau of Mass
Communications approving home taping for educational purposes).

Second is 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 children's programs and to show them at appropriate
times.FN27

FN27. “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 television life. Very frankly, I am opposed to people being programmed by
others. My whole approach in broadcasting has always been ‘You are an important person just the way
you are. You can make healthy decisions.’ 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. See also Def. Exh. PI, p. 85.

*446 If there are millions of owners of VTR's who make copies of televised sports events, religious
broadcasts, and educational programs such as Mister Rogers' Neighborhood, and if the proprietors of
those programs welcome the practice, the business of supplying the equipment that makes such
copying feasible should not be stifled simply because the equipment is used by some individuals to make
unauthorized**791 reproductions of respondents' 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.

[13] 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 direct infringement of respondents' copyrights.
But in an action for contributory infringement 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 copyright 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 audience that results from the
practice of time-shifting for private home use.FN28 The seller of the equipment that expands those
producers' audiences cannot be a contributory*447 infringer if, as is true in this case, it has had no
direct involvement with any infringing activity.

FN28. It may be rare for large numbers of copyright owners to authorize duplication of their works
without demanding a fee from the copier. In the context of public broadcasting, however, the user of
the copyrighted work is not required to pay a fee for access to the underlying work. The traditional
method by which copyright owners capitalize upon the television medium—commercially sponsored
free public broadcast over the public airwaves—is predicated upon the assumption that compensation
for the value of displaying the works will be received in the form of advertising revenues.

In the context of television programming, some producers evidently believe that permitting 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. No one could dispute the
legitimacy of that market if the producers had authorized home taping of their programs in exchange for
a license fee paid directly by the home user. The legitimacy of that market is not compromised simply
because these producers have authorized home taping of their programs without demanding a fee from
the home user. The copyright law does not require a copyright owner to charge a fee for the use of his
works, and as this record clearly demonstrates, the owner of a copyright may well have economic or
noneconomic reasons for permitting certain kinds of copying to occur without receiving direct
compensation from the copier. It is not the role of the courts to tell copyright holders the best way for
them to exploit their copyrights: even if respondents' competitors were ill-advised in authorizing home
videotaping, that would not change the fact that they have created a substantial market for a
paradigmatic non-infringing use of petitioners' product.

B. Unauthorized Time-Shifting

[14] Even unauthorized uses of a copyrighted work are not necessarily infringing. An unlicensed use
of the copyright is not an infringement unless it conflicts with one of the specific exclusive rights
conferred by the copyright statute. Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 154–155, 95
S.Ct. 2040, 2043, 45 L.Ed.2d 84. Moreover, the definition of exclusive 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 pertinent in this case is § 107, the legislative endorsement of the doctrine of “fair use.”
FN29

FN29. The Copyright Act of 1909, 35 Stat. 1075, did not have a “fair use” provision. Although that Act's
compendium of exclusive rights “to print, reprint, publish, copy, and vend the copyrighted work” was
broad enough to encompass virtually all potential interactions with a copyrighted work, the statute was
never so construed. The courts simply refused to read the statute literally in every situation. When
Congress amended the statute in 1976, it indicated that it “intended to restate the present judicial
doctrine of fair use, not to change, narrow, or enlarge it in any way.” House Report No. 94–1476, 94th
Cong., 2d Sess., p. 66, U.S.Code Code & Admin.News 1976, pp. 5659, 5679.

*448 **792 That section identifies various factors FN30 that enable a Court to apply an “equitable rule
of reason” analysis to particular claims of infringement.FN31 Although not conclusive, the first *449
factor requires that “the commercial or nonprofit character of an activity” be weighed in any fair use
decision.FN32 If the Betamax were used to make copies for a commercial or profit-making purpose,
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
*450 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.FN33

FN30. Section 107 provides:

“Notwithstanding the provisions of section 106, the fair use of a copyrighted work, including such use by
reproduction in copies or phonorecords or by any other means specified by that section, for purposes
such as criticism, comment, news reporting, teaching (including multiple copies for classroom use),
scholarship, or research, is not an infringement of copyright. In determining whether the use made of a
work in any particular case is a fair use the factors to be considered shall include—

“(1) the purpose and character of the use, including whether such use is of a commercial nature or is for
nonprofit educational purposes;

“(2) the nature of the copyrighted work;


“(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole;
and

“(4) the effect of the use upon the potential market for or value of the copyrighted work.” 17 U.S.C. §
107.

FN31. The House Report expressly stated that the fair use doctrine is an “equitable rule of reason” in its
explanation of the fair use section:

“Although the courts have considered and ruled upon the fair use doctrine over and over again, no real
definition of the concept has ever emerged. Indeed, since the doctrine is an equitable rule of reason, no
generally applicable definition is possible, and each case raising the question must be decided on its own
facts....

General intention behind the provision

“The statement of the fair use doctrine in section 107 offers some guidance to users in determining
when the principles of the doctrine apply. However, the endless variety of situations and combinations
of circumstances that can rise in particular cases precludes the formulation of exact rules in the statute.
The bill endorses the purpose and general scope of the judicial doctrine of fair use, but there is no
disposition to freeze the doctrine in the statute, especially during a period of rapid technological change.
Beyond a very broad statutory explanation of what fair use is and some of the criteria applicable to it,
the courts must be free to adapt the doctrine to particular situations on a case-by-case basis.” H.Rep.
No. 94–1476, pp. 65–66, U.S.Code Cong. & Admin.News 1976, p. 5680.

The Senate Committee similarly eschewed a rigid, bright line approach to fair use. The Senate Report
endorsed the view “that off-the-air recording for convenience” could be considered “fair use” under
some circumstances, although it then made it clear that it did not intend to suggest that off-the-air
recording for convenience should be deemed fair use under any circumstances imaginable. Senate
Report 94–473, pp. 65–66. The latter qualifying statement is quoted by the dissent, post, at 809, and if
read in isolation, would indicate that the Committee intended to condemn all off-the-air recording for
convenience. Read in context, however, it is quite clear that that was the farthest thing from the
Committee's intention.

FN32. “The Committee has amended the first of the criteria to be considered—‘the purpose and
character of the use’—to state explicitly that this factor includes a consideration of ‘whether such use is
of a commercial nature or is for non-profit educational purposes.’ This amendment is not intended to be
interpreted as any sort of not-for-profit limitation on educational uses of copyrighted works. It is an
express recognition that, as under the present law, the commercial or non-profit character of an activity,
while not conclusive with respect to fair use, can and should be weighed along with other factors in fair
use decisions.” H.Rep. No. 94–1476, p. 66, U.S.Code Cong. & Admin.News 1976, p. 5679.

FN33. 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 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).
Furthermore, “[t]he error in excusing such theft as noncommercial,” we are told, “can be seen by simple
analogy: jewel theft is not converted into a noncommercial veniality if stolen jewels are simply worn
rather than sold.” Ibid. The premise and the analogy are indeed simple, but they add nothing to the
argument. The use to which stolen jewelery is put is quite irrelevant in determining whether depriving
its true owner of his present possessory interest in it is venial; because of the nature of the item and the
true owner's interests in physical possession of it, the law finds the taking objectionable even if the thief
does not use the item at all. 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.

**793 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 demonstrable 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 *451 merely inhibit access to ideas without any
countervailing benefit. FN34

FN34. Cf. Latman, Fair Use of Copyrighted Works (1958), reprinted as Study No. 14 in Senate Judiciary
Committee, Copyright Law Revision, Studies Prepared for the Subcommittee on Patents, Trademarks,
and Copyrights, 86th Cong., 2d Sess., p. 30 (1960):

“In certain situations, the copyright owner suffers no substantial harm from the use of the work.... Here
again, is the partial marriage between the doctrine of fair use and the legal maxim de minimis non curat
lex.”

[15] 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, noncommercial uses
are a different matter. 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. Actual present harm need not be shown; such a requirement
would leave the copyright 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. The District
Court described respondents' evidence as follows:

“Plaintiffs' experts admitted at several points in the trial that the time-shifting without librarying would
result in ‘not a great deal of harm.’ Plaintiffs' greatest concern about time-shifting is with ‘a point of
important philosophy that transcends even commercial judgment.’ They fear that with any Betamax
usage, ‘invisible boundaries' are passed: ‘the copyright owner has lost control over his program.’ ” 480
F.Supp., at 467.

*452 Later in its opinion, the District Court observed:

“Most of plaintiffs' predictions of harm hinge on speculation about audience viewing patterns and
ratings, a measurement system which Sidney Sheinberg, MCA's president, calls a ‘black art’ because of
the significant level of imprecision**794 involved in the calculations.” Id., at 469.FN35

FN35. See also 480 F.Supp., at 451:

“It should be noted, however, that plaintiffs' argument is more complicated and speculative than was
the plaintiff's in Williams & Wilkins.... Here, plaintiffs ask the court to find harm based on many more
assumptions.... As is discussed more fully in Part IV, infra, some of these assumptions are based on
neither fact nor experience, and plaintiffs admit that they are to some extent inconsistent and illogical.”

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 technology allows the Betamax audience to be reflected. Id., at
466.FN36 It rejected respondents' prediction “that live television*453 or movie audiences will decrease
as more people watch Betamax tapes as an alternative,” with the observation that “[t]here is no factual
basis for [the underlying] assumption.” Ibid. FN37 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. FN38 And it declared that respondents' suggestion
“that theater or film rental exhibition of a program will suffer because of time-shift recording of that
program” “lacks merit.” 480 F.Supp., at 467.FN39

FN36. “There was testimony at trial, however, that Nielsen Ratings has already developed the ability to
measure when a Betamax in a sample home is recording the program. Thus, the Betamax will be
measured as a part of the live audience. The later diary can augment that measurement with
information about subsequent viewing.” 480 F.Supp., at 466.

In a separate section, the District Court rejected plaintiffs' suggestion that the commercial 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 recorded
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.

FN37. “Here plaintiffs assume that people will view copies when they would otherwise be watching
television or going to the movie theater. There is no factual basis for this assumption. It seems equally
likely that Betamax owners will play their tapes when there is nothing on television they wish to see and
no movie they want to attend. Defendants' survey does not show any negative effect of Betamax
ownership on television viewing or theater attendance.” Ibid.

FN38. “The underlying assumptions here are particularly difficult to accept. Plaintiffs explain that the
Betamax increases access to the original televised material and that the more people there are in this
original audience, the fewer people the rerun will attract. Yet current marketing practices, including the
success of syndication, show just the opposite. Today, the larger the audience for the original telecast,
the higher the price plaintiffs can demand from broadcasters from rerun rights. There is no survey
within the knowledge of this court to show that the rerun audience is comprised of persons who have
not seen the program. In any event, if ratings can reflect Betamax recording, original audiences may
increase and, given market practices, this should aid plaintiffs rather than harm them.” Ibid.

FN39. “This suggestion lacks merit. By definition, time-shift recording entails viewing and erasing, so the
program will no longer be on tape when the later theater run begins. Of course, plaintiffs may fear that
the Betamax will keep the tapes long enough to satisfy all their interest in the program and will,
therefore, not patronize later theater exhibitions. To the extent this practice involves librarying, it is
addressed in section V.C., infra. It should also be noted that there is no evidence to suggest that the
public interest in later theatrical exhibitions of motion pictures will be reduced any more by Betamax
recording than it already is by the television broadcast of the film.” 480 F.Supp., at 467.

*454 **795 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, broadcasters, 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 profitable 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. Earlier this year, in Community
Television of Southern California v. Gottfried, ––– U.S. ––––, –––– – ––––, n. 12, 103 S.Ct. 885, 891–892,
74 L.Ed.2d 705 (1983), we acknowledged the public interest in making television broadcasting more
available. 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 likelihood of harm before he may
condemn a private act of time-shifting as a violation of federal law.

When these factors are all weighed in the “equitable rule of reason” balance, we must conclude that
this record amply *455 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.FN40

FN40. The Court of Appeals chose not to engage in any “equitable rule of reason” analysis in this case.
Instead, it assumed that the category of “fair use” is rigidly circumscribed by a requirement that every
such use must be “productive.” It therefore concluded that copying a television program merely to
enable the viewer to receive information or entertainment that he would otherwise miss because of a
personal scheduling conflict could never be fair use. That understanding of “fair use” was erroneous.

Congress has plainly instructed us that fair use analysis calls for a sensitive balancing of interests. The
distinction between “productive” and “unproductive” uses may be helpful in calibrating the balance, but
it cannot be wholly determinative. Although copying to promote a scholarly endeavor certainly has a
stronger claim to fair use than copying to avoid interrupting a poker game, the question is not simply
two-dimensional. For one thing, it is not true that all copyrights are fungible. Some copyrights govern
material with broad potential secondary markets. Such material may well have a broader claim to
protection because of the greater potential for commercial harm. Copying a news broadcast may have a
stronger claim to fair use than copying a motion picture. And, of course, not all uses are fungible.
Copying for commercial gain has a much weaker claim to fair use than copying for personal enrichment.
But the notion of social “productivity” cannot be a complete answer to this analysis. A teacher who
copies to prepare lecture notes is clearly productive. But so is a teacher who copies for the sake of
broadening his personal understanding of his specialty. Or a legislator who copies for the sake of
broadening her understanding of what her constituents are watching; or a constituent who copies a
news program to help make a decision on how to vote.

Making a copy of a copyrighted work for the convenience of a blind person is expressly identified by the
House Committee Report as an example of fair use, with no suggestion that anything more than a
purpose to entertain or to inform need motivate the copying. In a hospital setting, using a VTR to enable
a patient to see programs he would otherwise miss has no productive purpose other than contributing
to the psychological well-being of the patient. Virtually any time-shifting that increases viewer access to
television programming may result in a comparable benefit. The statutory language does not identify
any dichotomy between productive and nonproductive time-shifting, but does require consideration of
the economic consequences of copying.

*456 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 **796 copyright holders who license
their works for broadcast on free television would not object to having 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.

“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.” Deepsouth Packing Co. v. Laitram Corp., 406 U.S. 518, 530, 92 S.Ct. 1700,
1707, 32 L.Ed.2d 273 (1972).

One may search the Copyright Act in vain for any sign that the elected representatives of the millions of
people who watch television every day have made it unlawful to copy a program for later viewing at
home, or have enacted a flat prohibition against the sale of machines that make such copying possible.

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 reversed.

It is so ordered.
*457 Justice BLACKMUN, with whom Justice MARSHALL, Justice POWELL, and Justice REHNQUIST join,
dissenting.

A restatement of the facts and judicial history of this case is necessary, in my view, for a proper focus
upon the issues. Respondents' position is hardly so “unprecedented,” ante, at 778, in the copyright law,
nor does it really embody a “gross generalization,” ante, at 786, or a “novel theory of liability,” ante, at
786, and the like, as the Court, in belittling their claims, describes the efforts of respondents.

The introduction of the home videotape recorder (VTR) upon the market has enabled millions of
Americans to make recordings of television programs in their homes, for future and repeated viewing at
their own convenience. While this practice has proved highly popular with owners of television sets and
VTRs, it understandably has been a matter of concern for the holders of copyrights in the recorded
programs. A result is the present litigation, raising the issues whether the home recording of a
copyrighted television program is an infringement of the copyright, and, if so, whether the
manufacturers and distributors of VTRs are liable as contributory infringers. I would hope that these
questions ultimately will be considered seriously and in depth by the Congress and be resolved there,
despite the fact that the Court's decision today provides little incentive for congressional action. Our
task in the meantime, however, is to resolve these issues as best we can in the light of ill-fitting existing
copyright law.

It is no answer, of course, to say and stress, as the Court does, this Court's “consistent deference to
Congress” whenever “major technological innovations” appear. Ante, at 783. Perhaps a better and more
accurate description is that the Court has tended to evade the hard issues when they arise in the area of
copyright law. I see no reason for the Court to be particularly pleased with this tradition or to continue
it. Indeed, it is fairly clear from the legislative history of the 1976 Act that Congress meant to change the
old pattern and *458 enact a statute that would cover new technologies, as well as old.

**797 II

In 1976, respondents Universal City Studios, Inc., and Walt Disney Productions (Studios) brought this
copyright infringement action in the United States District Court for the Central District of California
against, among others, petitioners Sony Corporation, a Japanese corporation, and Sony Corporation of
America, a New York corporation, the manufacturer and distributor, respectively, of the Betamax VTR.
The Studios sought damages, profits, and a wide-ranging injunction against further sales or use of the
Betamax or Betamax tapes.

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.FN1 Two kinds of Betamax usage are at issue
here.FN2 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*459 -building,” in which the user records a program in order to keep it for repeated viewing
over a longer term. Sony's advertisements, at various times, have suggested that Betamax users “record
favorite shows” or “build a library.” Sony's Betamax advertising has never contained warnings about
copyright infringement, although a warning does appear in the Betamax operating instructions.

FN1. The Betamax has three primary components: a tuner that receives television (“RF”) signals
broadcast over the airwaves; an adapter that converts the RF signals into audio-video signals; and a
recorder that places the audio-video signals on magnetic tape. Sony also manufactures VTRs without
built-in tuners; these are capable of playing back prerecorded tapes and recording home movies on
videotape, but cannot record off the air. Since the Betamax has its own tuner, it can be used to record
off one channel while another channel is being watched.

The Betamax is available with auxiliary features, including a timer, a pause control, and a fast-forward
control; these allow Betamax owners to record programs without being present, to avoid (if they are
present) recording commercial messages, and to skip over commercials while playing back the
recording. Videotape is reusable; the user erases its record by recording over it.

FN2. 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.

The Studios produce copyrighted “movies” and other works that they release to theaters and license for
television broadcast. They also rent and sell their works on film and on prerecorded videotapes and
videodiscs. License fees for television broadcasts are set according to audience ratings, compiled by
rating services that do not measure any playbacks of videotapes. The Studios make the serious claim
that VTR recording may result in a decrease in their revenue from licensing their works to television and
from marketing them in other ways.

After a 5-week trial, the District Court, with a detailed opinion, ruled that home VTR recording did not
infringe the Studios' copyrights under either the Act of March 4, 1909 (1909 Act), 35 Stat. 1075, as
amended (formerly codified as 17 U.S.C. § 1 et seq. (1976 ed.)), or the Copyright Revision Act of 1976
(1976 Act), 90 Stat. 2541, 17 U.S.C. § 101 et seq. (1982 ed.).FN3 The District Court also held that even if
home VTR recording were an infringement, Sony could not be held liable under theories of direct
infringement, contributory infringement, or vicarious liability. Finally, the court concluded that an
injunction against sales of the Betamax would be inappropriate even if Sony were liable under one or
more of those theories. 480 F.Supp. 429 (1979).

FN3. At the trial, the Studios proved 32 individual instances where their copyrighted works were
recorded on Betamax VTRs. Two of these instances occurred after January 1, 1978, the primary effective
date of the 1976 Act; all the others occurred while the 1909 Act was still effective. My analysis focuses
primarily on the 1976 Act, but the principles governing copyright protection for these works are the
same under either Act.

*460 The United States Court of Appeals for the Ninth Circuit reversed in virtually **798 every respect.
659 F.2d 963 (1981). It held that the 1909 Act and the 1976 Act contained no implied exemption for
“home use” recording, that such recording was not “fair use,” and that the use of the Betamax to record
the Studios' copyrighted works infringed their copyrights. The Court of Appeals also held Sony liable for
contributory infringement, reasoning that Sony knew and anticipated that the Betamax would be used
to record copyrighted material off the air, and that Sony, indeed, had induced, caused, or materially
contributed to the infringing conduct. The Court of Appeals remanded the case to the District Court for
appropriate relief; it suggested that the District Court could consider the award of damages or a
continuing royalty in lieu of an injunction. Id., at 976.

III

The Copyright Clause of the Constitution, Art. I, § 8, cl. 8, empowers Congress “To promote the Progress
of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to
their respective Writings and Discoveries.” This Nation's initial copyright statute was passed by the First
Congress. Entitled “An Act for the encouragement of learning,” it gave an author “the sole right and
liberty of printing, reprinting, publishing and vending” his “map, chart, book or books” for a period of 14
years. Act of May 31, 1790, § 1, 1 Stat. 124. Since then, as the technology available to authors for
creating and preserving their writings has changed, the governing statute has changed with it. By many
amendments, and by complete revisions in 1831, 1870, 1909, and 1976,FN4 authors' rights have been
*461 expanded to provide protection to any “original works of authorship fixed in any tangible medium
of expression,” including “motion pictures and other audiovisual works.” 17 U.S.C. § 102(a).FN5

FN4. Act of Feb. 3, 1831, ch. 16, 4 Stat. 436; Act of July 8, 1870, §§ 85–111, 16 Stat. 212–217; Act of Mar.
4, 1909, 35 Stat. 1075 (formerly codified as 17 U.S.C. § 1 et seq. (1976 ed.)); Copyright Revision Act of
1976, 90 Stat. 2541 (codified as 17 U.S.C. § 101 et seq. (1982 ed.)).

FN5. Section 102(a) provides:

“Copyright protection subsists, in accordance with this title, in original works of authorship fixed in any
tangible medium of expression, now known or later developed, from which they can be perceived,
reproduced, or otherwise communicated, either directly or with the aid of a machine or device. Works
of authorship include the following categories:

“(1) literary works;

“(2) musical works, including any accompanying words;

“(3) dramatic works, including any accompanying music;

“(4) pantomimes and choreographic works;

“(5) pictorial, graphic, and sculptural works;


“(6) motion pictures and other audiovisual works; and

“(7) sound recordings.”

Definitions of terms used in § 102(a)(6) are provided by § 101:¶ “Audiovisual works” are “works that
consist of a series of related images which are intrinsically intended to be shown by the use of machines,
or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if
any, regardless of the nature of the material objects, such as films or tapes, in which the works are
embodied.” And “motion pictures” are “audiovisual works consisting of a series of related images which,
when shown in succession, impart an impression of motion, together with accompanying sounds, if
any.” Most commercial television programs, if fixed on film or tape at the time of broadcast or before,
qualify as “audiovisual works.” Since the categories set forth in § 102(a) are not mutually exclusive, a
particular television program may also qualify for protection as a dramatic, musical, or other type of
work.

Section 106 of the 1976 Act grants the owner of a copyright a variety of exclusive rights in the
copyrighted work,FN6 including*462 **799 the right “to reproduce the copyrighted work in copies or
phonorecords.” FN7 This grant expressly is made subject to §§ 107– 118, which create a number of
exemptions and limitations on the copyright owner's rights. The most important of these sections, for
present purposes, is § 107; that section states that “the fair use of a copyrighted work ... is not an
infringement of copyright.” FN8

FN6. Section 106 provides:

“Subject to sections 107 through 118, the owner of copyright under this title has the exclusive rights to
do and to authorize any of the following:

“(1) to reproduce the copyrighted work in copies or phonorecords;

“(2) to prepare derivative works based upon the copyrighted work;

“(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer
of ownership, or by rental, lease, or lending;

“(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion
pictures and other audiovisual works, to perform the copyrighted work publicly; and

“(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial,
graphic, or sculptural works, including the individual images of a motion picture or other audiovisual
work, to display the copyrighted work publicly.”

FN7. A “phonorecord” is defined by § 101 as a reproduction of sounds other than sounds accompanying
an audiovisual work, while a “copy” is a reproduction of a work in any form other than a phonorecord.

FN8. Section 107 provides:

“Notwithstanding the provisions of section 106, the fair use of a copyrighted work, including such use by
reproduction in copies or phonorecords or by any other means specified by that section, for purposes
such as criticism, comment, news reporting, teaching (including multiple copies for classroom use),
scholarship, or research, is not an infringement of copyright. In determining whether the use made of a
work in any particular case is a fair use the factors to be considered shall include—

“(1) the purpose and character of the use, including whether such use is of a commercial nature or is for
nonprofit educational purposes;

“(2) the nature of the copyrighted work;

“(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole;
and

“(4) the effect of the use upon the potential market for or value of the copyrighted work.”

Section 101 makes it clear that the four factors listed in this section are “illustrative and not limitative.”

The 1976 Act, like its predecessors,FN9 does not give the copyright owner full and complete control over
all possible *463 uses of his work. If the work is put to some use not enumerated in § 106, the use is not
an infringement. See Fortnightly Corp. v. United Artists, 392 U.S. 390, 393–395, 88 S.Ct. 2084, 2085–
2086, 20 L.Ed.2d 1176 (1968). Thus, before considering whether home videotaping comes within the
scope of the fair use exemption, one first must inquire whether the practice appears to violate the
exclusive right, granted in the first instance by § 106(1), “to reproduce the copyrighted work in copies or
phonorecords.”

FN9. The 1976 Act was the product of a revision effort lasting more than 20 years. Spurred by the
recognition that “significant developments in technology and communications” had rendered the 1909
Act inadequate, S.Rep. No. 94–473, p. 47 (1975); see H.R.Rep. No. 94–1476, p. 47 (1976), U.S.Code Cong.
& Admin.News 1976, p. 5660, Congress in 1955 authorized the Copyright Office to prepare a series of
studies on all aspects of the existing copyright law. Thirty-four studies were prepared and presented to
Congress. The Register of Copyrights drafted a comprehensive report with recommendations, House
Committee on the Judiciary, Copyright Law Revision, Report of the Register of Copyrights on the General
Revision of the U.S. Copyright Law, 87th Cong., 1st Sess. (Comm.Print 1961) (Register's 1961 Report),
and general revision bills were introduced near the end of the 88th Congress in 1964. H.R.11947/S.3008,
88th Cong., 2d Sess. (1964). The Register issued a second report in 1965, with revised recommendations.
House Committee on the Judiciary, Copyright Law Revision, Pt. 6, Supplementary Report of the Register
of Copyrights on the General Revision of the U.S. Copyright Law: 1965 Revision Bill, 89th Cong., 1st Sess.
(Comm.Print 1965) (Register's Supplementary Report). Action on copyright revision was delayed from
1967 to 1974 by a dispute on cable television, see generally Second Supplementary Report of the
Register of Copyrights on the General Revision of the U.S. Copyright Law: 1975 Revision Bill, ch. V, pp. 2–
26 (Draft Oct.-Dec. 1975) (Register's Second Supplementary Report), but a compromise led to passage of
the present Act in 1976.

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 Senate and House Reports explain: “The
references to ‘copies or phonorecords,’ although in the plural, are intended here and throughout the bill
to include the singular (1 U.S.C. § 1).” FN10 *464 **800 S.Rep. No. 94–473, p. 58 (1975) (1975 Senate
Report); H.R.Rep. No. 94–1476, p. 61 (1976) (1976 House Report), U.S.Code Cong. & Admin.News 1976,
p. 5675. The Reports then describe the reproduction right established by § 106(1):

FN10. 1 U.S.C. § 1 provides in relevant part:

“In determining the meaning of any Act of Congress, unless the context indicates otherwise ... words
importing the plural include the singular....”

“[T]he right ‘to reproduce the copyrighted work in copies or phonorecords' means the right to produce a
material object in which the work is duplicated, transcribed, imitated, or simulated in a fixed form from
which it can be ‘perceived, reproduced, or otherwise communicated, either directly or with the aid of a
machine or device.’ As under the present law, a copyrighted work would be infringed by reproducing it
in whole or in any substantial part, and by duplicating it exactly or by imitation or simulation.” 1975
Senate Report 58; 1976 House Report 61, U.S.Code Cong. & Admin.News 1976, p. 5675.
The making 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 personal 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.FN11 § 108(e); see also § 112(a) (broadcaster*465 may “make no
more than one copy or phonorecord of a particular transmission program,” and only under certain
conditions). In other respects, the making of single copies is permissible only within the limited confines
of the fair use doctrine. The Senate report, in a section headed “Single and multiple copying,” notes that
the fair use doctrine would permit a teacher to make a single copy of a work for use in the classroom,
but only if the work was not a “sizable” one such as a novel or treatise. 1975 Senate Report 63–64;
accord, 1976 House Report 68–69, 71. Other situations in which the making of a single copy would be
fair use are described in the House and Senate reports.FN12 But neither the statute nor its legislative
history suggests any intent to create a general exemption for a single copy made for personal or private
use.

FN11. The library photocopying provisions of § 108 do not excuse any person who requests “a copy”
from a library if the requester's use exceeds fair use. § 108(f)(2). Moreover, a library is absolved from
liability for the unsupervised use of its copying equipment provided that the equipment bears a notice
informing users that “the making of a copy” may violate the copyright law. § 108(f)(1).

FN12. For example, “the making of a single copy or phonorecord by an individual as a free service for a
blind person” would be a fair use, as would “a single copy reproduction of an excerpt from a copyrighted
work by a calligrapher for a single client” or “a single reproduction of excerpts from a copyrighted work
by a student calligrapher or teacher in a learning situation.” 1975 Senate Report 66–67; see 1976 House
Report 73–74, U.S.Code Cong. & Admin.News 1976, p. 5687. Application of the fair use doctrine in these
situations, of course, would be unnecessary if the 1976 Act created a general exemption for the making
of a single copy.

Indeed, it appears that Congress considered and rejected the very possibility of a special private use
exemption. The issue was raised early in the revision process, in one of the studies prepared for
Congress under the supervision of the Copyright Office. Latman, Fair Use of Copyrighted Works (1958),
reprinted in Senate Committee on the Judiciary, Copyright Law Revision, Studies Prepared for the
Subcommittee on Patents, Trademarks, and Copyrights, 86th Cong., 2d Sess., 1 (1960) (Latman Fair Use
Study). This study found no reported case supporting the existence of an exemption for private use,
although it noted that “the purpose**801 and nature of a private use, and in some *466 cases the small
amount taken, might lead a court to apply the general principles of fair use in such a way as to deny
liability.” Id., at 12. After reviewing a number of foreign copyright laws that contained explicit statutory
exemptions for private or personal use, id., at 25, Professor Latman outlined several approaches that a
revision bill could take to the general issue of exemptions and fair use. One of these was the adoption of
particularized rules to cover specific situations, including “the field of personal use.” Id., at 33.FN13

FN13. Professor Latman made special mention of the “personal use” issue because the area was one
that

“has become disturbed by recent developments .... Photoduplication devices may make authors' and
publishers' groups apprehensive. The Copyright Charter recently approved by [the International
Confederation of Societies of Authors and Composers] emphasizes the concern of authors over ‘private’
uses which, because of technological developments, are said to be competing seriously with the
author's economic interests.” Latman Fair Use Study 33–34.

Rejecting the latter alternative, the 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,FN14 preferring, instead, to rely on the
judge-made fair use doctrine to resolve new problems as they arose. See Register's 1961 Report 25;
Register's Supplementary Report 27–28.

FN14. The one exemption proposed by the Register, permitting a library to make a single photocopy of
an out-of-print work and of excerpts that a requester certified were needed for research, met with
opposition and was not included in the bills initially introduced in Congress. See Register's 1961 Report
26; H.R. 11947/S. 3008, 88th Cong., 2d Sess. (1964); Register's Supplementary Report 26. A library
copying provision was restored to the bill in 1969, after pressure from library associations. Register's
Second Supplementary Report, ch. III, pp. 10–11; see S. 543, 91st Cong., 1st Sess., § 108 (Comm.Print
Dec. 10, 1969); 1975 Senate Report 48.

The Register's approach was reflected in the first copyright revision bills, drafted by the Copyright Office
in 1964. *467 These bills, like the 1976 Act, granted the copyright owner the exclusive right to
reproduce the copyrighted work, subject only to the exceptions set out in later sections. H.R. 11947/S.
3008, 88th Cong., 2d Sess., § 5(a) (1964). The primary exception was fair use, § 6, containing language
virtually identical to § 107 of the 1976 Act. Although the copyright revision bills underwent change in
many respects from their first introduction in 1964 to their final passage in 1976, these portions of the
bills did not change.FN15 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.FN16

FN15. The 1964 bills provided that the fair use of copyrighted material for purposes “such as criticism,
comment, news reporting, teaching, scholarship, or research” was not an infringement of copyright, and
listed four “factors to be considered” in determining whether any other particular use was fair.
H.R.11947/S.3008, 88th Cong., 2d Sess., § 6 (1964). Revised bills, drafted by the Copyright Office in 1965,
contained a fair use provision merely mentioning the doctrine but not indicating its scope:
“Notwithstanding the provisions of section 106, the fair use of a copyrighted work is not an infringement
of copyright.” H.R.4347/S.1006, 89th Cong., 1st Sess., § 107 (1965). The House Judiciary Committee
restored the provision to its earlier wording, H.R.Rep. No. 2237, 89th Cong., 2d Sess., 5, 58 (1966), and
the language adopted by the Committee remained in the bill in later Congresses. See H.R.2512/S.597,
90th Cong., 1st Sess., § 107 (1967); S.543, 91st Cong., 1st Sess., § 107 (1969); S.644, 92d Cong., 1st Sess.,
§ 107 (1971); S.1361, 93d Cong., 1st Sess., § 107 (1973); H.R.2223/S.22, 94th Cong., 1st Sess., § 107
(1975). With a few additions by the House Judiciary Committee in 1976, see 1976 House Report 5;
H.R.Conf.Rep. No. 94–1733, p. 70 (1976), U.S.Code Cong. & Admin.News 1976, p. 5659, the same
language appears in § 107 of the 1976 Act.

FN16. In Williams & Wilkins Co. v. United States, 203 Ct.Cl. 74, 487 F.2d 1345 (1973), aff'd by an equally
divided Court, 420 U.S. 376, 95 S.Ct. 1344, 43 L.Ed.2d 264 (1975), decided during the process of the
revision of the copyright statutes, the Court of Claims suggested that copying for personal use might be
outside the scope of copyright protection under the 1909 Act. The court reasoned that because “hand
copying” for personal use has always been regarded as permissible, and because the practice of making
personal copies continued after typewriters and photostat machines were developed, the making of
personal copies by means other than hand copying should be permissible as well. Id., at 84–88, 487 F.2d,
at 1350–1352.

There appear to me to be several flaws in this reasoning. First, it is by no means clear that the making of
a “hand copy” of an entire work is permissible; the most that can be said is that there is no reported
case on the subject, possibly because no copyright owner ever thought it worthwhile to sue. See Latman
Fair Use Study 11–12; 3 M. Nimmer, Copyright § 13.05[E][4][a] (1982). At least one early treatise
asserted that infringement would result “if an individual made copies for his personal use, even in his
own handwriting, as there is no rule of law excepting manuscript copies from the law of infringment.” A.
Weil, American Copyright Law § 1066 (1917). Second, hand copying or even copying by typewriter is
self-limiting. The drudgery involved in making hand copies ordinarily ensures that only necessary and
fairly small portions of a work are taken; it is unlikely that any user would make a hand copy as a
substitute for one that could be purchased. The harm to the copyright owner from hand copying thus is
minimal. The recent advent of inexpensive and readily available copying machines, however, has
changed the dimensions of the problem. See Register's Second Supplementary Report ch. III, p. 3;
Hearings on H.R. 2223 before the Subcommittee on Courts, Civil Liberties, and the Administration of
Justice of the House Judiciary Committee, 94th Cong., 1st Sess., 194 (1975) (1975 House Hearings)
(remarks of Rep. Danielson); id., at 234 (statement of Robert W. Cairns); id., at 250 (remarks of Rep.
Danielson); id., at 354 (testimony of Irwin Karp); id., at 467 (testimony of Rondo Cameron); id., at 1795
(testimony of Barbara Ringer, Register of Copyrights). Thus, “[t]he supposition that there is no tort
involved in a scholar copying a copyrighted text by hand does not much advance the question of
machine copying.” B. Kaplan, An Unhurried View of Copyright 101–102 (1967).

*468 **802 When Congress intended special and protective treatment for private use, moreover, it said
so explicitly. One such explicit statement appears in § 106 itself. The copyright owner's exclusive right to
perform a copyrighted work, in contrast to his right to reproduce the work in copies, is limited. Section
106(4) grants a copyright owner the exclusive right to perform the work “publicly,” but does not afford
the owner protection with respect to private performances by others. A motion picture is “performed”
whenever its images are shown or its sounds are made audible. § 101. Like “sing*469 [ing] a copyrighted
lyric in the shower,” Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 155, 95 S.Ct. 2040, 2043, 45
L.Ed.2d 84 (1975), watching television at home with one's family and friends is now considered a
performance. 1975 Senate Report 59–60; 1976 House Report 63. FN17 Home television viewing
nevertheless does not infringe any copyright—but only because § 106(4) contains the word “publicly.”
FN18 See generally 1975 Senate Report 60–61; 1976 House Report 63–64; Register's 1961 Report 29–30.
No such distinction between public and private uses appears in § 106(1)'s prohibition on the making of
copies. FN19

FN17. In a trio of cases, Fortnightly Corp. v. United Artists, 392 U.S. 390, 398, 88 S.Ct. 2084, 2088, 20
L.Ed.2d 1176 (1968); Teleprompter Corp. v. Columbia Broadcasting System, Inc., 415 U.S. 394, 403–405,
94 S.Ct. 1129, 1135–1136, 39 L.Ed.2d 415 (1974); and Twentieth Century Music Corp. v. Aiken, 422 U.S.
151, 95 S.Ct. 2040, 45 L.Ed.2d 84 (1975), this Court had held that the reception of a radio or television
broadcast was not a “performance” under the 1909 Act. The Court's “narrow construction” of the word
“perform” was “completely overturned by the [1976 Act] and its broad definition of ‘perform’ in section
101.” 1976 House Report 87, U.S.Code Cong. & Admin.News 1976, p. 5701.

FN18. A work is performed “publicly” if it takes place “at a place open to the public or at any place
where a substantial number of persons outside of a normal circle of a family and its social acquaintances
is gathered.” § 101.

FN19. One purpose of the exemption for private performances was to permit the home viewing of
lawfully made videotapes. The Register noted in 1961 that “[n]ew technical devices will probably make it
practical in the future to reproduce televised motion pictures in the home. We do not believe the
private use of such a reproduction can or should be precluded by copyright.” Register's 1961 Report 30
(emphasis added). The Register did not suggest that the private making of a reproduction of a televised
motion picture would be permitted by the copyright law. The Register later reminded Congress that “[i]n
general the concept of ‘performance’ must be distinguished sharply from the reproduction of copies.”
Register's Supplementary Report 22.

**803 Similarly, an explicit reference to private use appears in § 108. Under that section, a library can
make a copy for a patron only for specific types of private use: “private study, scholarship, or research.”
FN20 §§ 108(d)(1) and (e)(1); see *470 37 CFR § 201.14(b) (1982). Limits also are imposed on the extent
of the copying and the type of institution that may make copies, and the exemption expressly is made
inapplicable to motion pictures and certain other types of works. § 108(h). These limitations would be
wholly superfluous if an entire copy of any work could be made by any person for private use.FN21

FN20. During hearings on this provision, Representative Danielson inquired whether it would apply to
works of fiction such as “Gone With the Wind,” or whether it was limited to “strictly technical types of
information.” The uncontradicted response was that it would apply only in “general terms of science ...
[and] the useful arts.” 1975 House Hearings 251 (testimony of Robert W. Cairns); cf. id., at 300
(statement of Harry Rosenfield) (“We are not asking ... for the right to copy ‘Gone With the Wind’ ”).

FN21. The mention in the Senate and House Reports of situations in which copies for private use would
be permissible under the fair use doctrine—for example, the making of a free copy for a blind person,
1975 Senate Report 66; 1975 House Report 73, or the “recordings of performances by music students
for purposes of analysis and criticism,” 1975 Senate Report 63—would be superfluous as well. See n. 12,
supra.

The District Court in this case nevertheless concluded that the 1976 Act contained an implied exemption
for “home-use recording.” 480 F.Supp., at 444–446. The court relied primarily on the legislative history
of a 1971 amendment to the 1909 Act, a reliance that this Court today does not duplicate. Ante, at 782,
n. 11. That amendment, however, was addressed to the specific problem of commercial piracy of sound
recordings. Act of Oct. 15, 1971, 85 Stat. 391 (1971 Amendment). The House Report on the 1971
Amendment, in a section entitled “Home Recording,” contains the following statement:

“In approving the creation of a limited copyright in sound recordings it is the intention of the Committee
that this limited copyright not grant any broader rights than are accorded to other copyright proprietors
under the existing title 17. Specifically, it is not the intention of the Committee to restrain the home
recording, from broadcasts or from tapes or records, of recorded performances,*471 where the home
recording is for private use and with no purpose of reproducing or otherwise capitalizing commercially
on it. This practice is common and unrestrained today, and the record producers and performers would
be in no different position from that of the owners of copyright in recorded musical compositions over
the past 20 years.” H.R.Rep. No. 92–487, p. 7 (1971) (1971 House Report).

Similar statements were made during House hearings on the bill FN22 and on the House floor,FN23
although not in the Senate *472 **804 proceedings. In concluding that these statements created a
general exemption for home recording, the District Court, in my view, paid too little heed to the context
in which the statements were made, and failed to consider the limited purpose of the 1971 Amendment
and the structure of the 1909 Act.

FN22. The following exchange took place during the testimony of Barbara Ringer, then Assistant Register
of Copyrights:
“[Rep.] Biester.... I can tell you I must have a small pirate in my own home. My son has a cassette tape
recorder, and as a particular record becomes a hit, he will retrieve it onto his little set.... [T]his
legislation, of course, would not point to his activities, would it?

“Miss Ringer. I think the answer is clearly, ‘No, it would not.’ I have spoken at a couple of seminars on
video cassettes lately, and this question is usually asked: ‘What about the home recorders?’ The answer
I have given and will give again is that this is something you cannot control. You simply cannot control it.
My own opinion, whether this is philosophical dogma or not, is that sooner or later there is going to be a
crunch here. But that is not what this legislation is addressed to, and I do not see the crunch coming in
the immediate future.... I do not see anybody going into anyone's home and preventing this sort of
thing, or forcing legislation that would engineer a piece of equipment not to allow home taping.”
Hearings on S. 646 and H.R. 6927 before Subcommittee No. 3 of the House Committee on the Judiciary,
92d Cong., 1st Sess., 22–23 (1971) (1971 House Hearings).

FN23. Shortly before passage of the bill, a colloquy took place between Representative Kastenmeier,
chairman of the House subcommittee that produced the bill, and Representative Kazen, who was not on
the committee:

“Mr. Kazen. Am I correct in assuming that the bill protects copyrighted material that is duplicated for
commercial purposes only?

“Mr. Kastenmeier. Yes.

“Mr. Kazen. In other words, if your child were to record off of a program which comes through the air on
the radio or television, and then used it for her own personal pleasure, for listening pleasure, this use
would not be included under the penalties of this bill?

“Mr. Kastenmeier. This is not included in the bill. I am glad the gentleman raises the point.

“On page 7 of the report, under ‘Home Recordings,’ Members will note that under the bill the same
practice which prevails today is called for; namely, this is considered both presently and under the
proposed law to be fair use. The child does not do this for commercial purposes. This is made clear in
the report.” 117 Cong.Rec. 34748–34749 (1971).

Unlike television broadcasts and other types of motion pictures, sound recordings were not protected
by copyright prior to the passage of the 1971 Amendment. Although the underlying musical work could
be copyrighted, the 1909 Act provided no protection for a particular performer's rendition of the work.
Moreover, copyrighted musical works that had been recorded for public distribution were subject to a
“compulsory license”: any person was free to record such a work upon payment of a 2-cent royalty to
the copyright owner. § 1(e), 35 Stat. 1075–1076. While reproduction without payment of the royalty
was an infringement under the 1909 Act, damages were limited to three times the amount of the unpaid
royalty. § 25(e), 35 Stat. 1081–1082; Shapiro, Bernstein & Co. v. Goody, 248 F.2d 260, 262–263, 265
(CA2 1957), cert. denied, 355 U.S. 952, 78 S.Ct. 536, 2 L.Ed.2d 529 (1958). It was observed that the
practical effect of these provisions was to legalize record piracy. See S.Rep. No. 92–72, p. 4 (1971); 1971
House Report 2.
In order to suppress this piracy, the 1971 Amendment extended copyright protection beyond the
underlying work and to the sound recordings themselves. Congress chose, however, to provide only
limited protection: owners of copyright in sound recordings were given the exclusive right “[t]o
reproduce [their works] and distribute [them] to the public.” *473 1971 Amendment, § 1(a), 85 Stat. 391
(formerly codified as 17 U.S.C. § 1(f) (1976 ed.)).FN24 This right was merely the right of commercial
distribution. See 117 Cong.Rec. 34748–34749 (1971) (colloquy of Reps. Kazen & Kastenmeier) (“the bill
protects copyrighted material that is duplicated for commercial purposes only”).

FN24. The 1909 Act's grant of an exclusive right to “copy,” § 1(a), was of no assistance to the owner of a
copyright in a sound recording, because a reproduction of a sound recording was technically considered
not to be a “copy.” See 1971 House Hearings 18 (testimony of Barbara Ringer, Assistant Register of
Copyrights); 1971 Amendment, § 1(e), 85 Stat. 391 (formerly codified as 17 U.S.C. § 26 (1976 ed.)) (“For
the purposes of [specified sections, not including § 1(a) ], but not for any other purpose, a reproduction
of a [sound recording] shall be considered to be a copy thereof”). This concept is carried forward into
the 1976 Act, which distinguishes between “copies” and “phonorecords.” See n. 7, supra.

Against this background, the statements regarding home recording under the 1971 Amendment appear
in a very different light. If home recording was “common and unrestrained” under the 1909 Act, see
1971 House Report 7, it was because sound recordings had no copyright protection and the owner of a
copyright in the underlying musical work could collect no more than a 2-cent royalty plus 6 cents in
damages for each unauthorized use. With so little at stake, it is not at all surprising that the Assistant
Register “d[id] not see anybody going into anyone's home and preventing this sort of thing.” 1971 House
Hearings 23.

But the references to home sound recording in the 1971 Amendment's legislative history demonstrate
no congressional intent to create a generalized home use exemption from copyright protection.
Congress,**805 having recognized that the 1909 Act had been unsuccessful in controlling home sound
recording, addressed only the specific problem of commercial record piracy. To quote Assistant Register
Ringer again, home use was “not what this legislation [was] addressed to.” 1971 House Hearings
22.FN25

FN25. During consideration of the 1976 Act, Congress, of course, was well aware of the limited nature of
the protection granted to sound recordings under the 1971 Amendment. See 1975 House Hearings 113
(testimony of Barbara Ringer, Register of Copyrights) (1971 Amendment “created a copyright in a sound
recording ... but limited it to the particular situation of so-called piracy”); id., at 1380 (letter from John
Lorenz, Acting Librarian of Congress) (under 1971 Amendment “only the unauthorized reproduction and
distribution to the public of copies of the sound recording is prohibited. Thus, the duplication of sound
recordings for private, personal use and the performance of sound recordings through broadcasting or
other means are outside the scope of the amendment”).

*474 While the 1971 Amendment narrowed the sound recordings loophole in then existing copyright
law, motion pictures and other audiovisual works have been accorded full copyright protection since at
least 1912, see Act of Aug. 24, 1912, 37 Stat. 488, and perhaps before, see Edison v. Lubin, 122 F. 240
(CA3 1903), app. dism'd, 195 U.S. 625, 25 S.Ct. 790, 49 L.Ed. 349 (1904). Congress continued this
protection in the 1976 Act. Unlike the sound recording rights created by the 1971 Amendment, the
reproduction rights associated with motion pictures under § 106(1) are not limited to reproduction for
public distribution; the copyright owner's right to reproduce the work exists independently, and the
“mere duplication of a copy may constitute an infringement even if it is never distributed.” Register's
Supplementary Report 16; see 1975 Senate Report 57 and 1976 House Report 61. Moreover, the 1976
Act was intended as a comprehensive treatment of all aspects of copyright law. The reports
accompanying the 1976 Act, unlike the 1971 House Report, contain no suggestion that home-use
recording is somehow outside the scope of this all-inclusive statute. It was clearly the intent of Congress
that no additional exemptions were to be implied.FN26

FN26. Representative Kastenmeier, the principal House sponsor of the 1976 revision bill and chairman of
the House subcommittee that produced it, made this explicit on the opening day of the House hearings:

“[F]rom time to time, certain areas have not been covered in the bill. But is it not the case, this being a
unified code, that the operation of the bill does apply whether or not we specifically deal with a subject
or not? ...

“Therefore, we can really not fail to deal with an issue. It will be dealt with one way or the other. The
code, title 17, will cover it. So we have made a conscious decision even by omission....

“By virtue of passing this bill, we will deal with every issue. Whether we deal with it completely or not
for the purpose of resolving the issues involved is the only question, not whether it has dealt with the
four corners of the bill because the four corners of the bill will presume to deal with everything in
copyright.” 1975 House Hearings 115.

*475 I therefore find in the 1976 Act no implied exemption 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 unless it is permitted by the fair use exemption contained in § 107 of
the 1976 Act. I now turn to that issue.

IV

Fair Use

The doctrine of fair use has been called, with some justification, “the most troublesome in the whole
law of copyright.” Dellar v. Samuel Goldwyn, Inc., 104 F.2d 661, 662 (CA2 1939); see Triangle
Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171, 1174 (CA5 1980); Meeropol v. Nizer,
560 F.2d 1061, 1068 (CA2 1977), cert. denied, 434 U.S. 1013, 98 S.Ct. 727, 54 L.Ed.2d 756 (1978).
Although courts have constructed lists of factors to be considered in determining whether a particular
use is fair,FN27 no fixed criteria **806 have emerged by which that *476 determination can be made.
This Court thus far has provided no guidance; although fair use issues have come here twice, on each
occasion the Court was equally divided and no opinion was forthcoming. Williams & Wilkins Co. v.
United States, 203 Ct.Cl. 74, 487 F.2d 1345 (1973), aff'd, 420 U.S. 376, 95 S.Ct. 1344, 43 L.Ed.2d 264
(1975); Benny v. Loew's, Inc., 239 F.2d 532 (CA9 1956), aff'd sub nom. CBS, Inc. v. Loew's Inc., 356 U.S.
43, 78 S.Ct. 667, 2 L.Ed.2d 583 (1958).

FN27. The precise phrase “fair use” apparently did not enter the case law until 1869, see Lawrence v.
Dana, 15 F.Cas. 26, 60 (No. 8,136) (CC Mass.), but the doctrine itself found early expression in Folsom v.
Marsh, 9 F.Cas. 342 (No. 4,901) (CC Mass.1841). Justice Story was faced there with the “intricate and
embarrassing questio[n]” whether a biography containing copyrighted letters was “a justifiable use of
the original materials, such as the law recognizes as no infringement of the copyright of the plaintiffs.”
Id., at 344, 348. In determining whether the use was permitted, it was necessary, said Justice Story, to
consider “the nature and objects of the selections made, the quantity and value of the materials used,
and the degree in which the use may prejudice the sale, or diminish the profits, or supersede the
objects, of the original work.... Much must, in such cases, depend upon the nature of the new work, the
value and extent of the copies, and the degree in which the original authors may be injured thereby.”
Id., at 348–349.

Similar lists were compiled by later courts. See, e.g., Tennessee Fabricating Co. v. Moultrie Mfg. Co., 421
F.2d 279, 283 (CA5), cert. denied, 398 U.S. 928, 90 S.Ct. 1819, 26 L.Ed.2d 91 (1970); Mathews Conveyer
Co. v. Palmer-Bee Co., 135 F.2d 73, 85 (CA6 1943); Columbia Pictures Corp. v. National Broadcasting Co.,
137 F.Supp. 348 (SD Cal.1955); Shapiro, Bernstein & Co. v. P.F. Collier & Son Co., 26 U.S.P.Q. 40, 43
(SDNY 1934); Hill v. Whalen & Martell, Inc., 220 F. 359, 360 (SDNY 1914).

Nor did Congress provide definitive rules when it codified the fair use doctrine in the 1976 Act; it simply
incorporated a list of factors “to be considered”: the “purpose and character of the use,” the “nature of
the copyrighted work,” the “amount and substantiality of the portion used,” and, perhaps the most
important, the “effect of the use upon the potential market for or value of the copyrighted work”
(emphasis supplied). § 107. No particular weight, however, was assigned to any of these, and the list
was not intended to be exclusive. The House and Senate Reports explain that § 107 does no more than
give “statutory recognition” to the fair use doctrine; it was intended “to restate the present judicial
doctrine of fair use, not to change, narrow, or enlarge it in any way.” 1976 House Report 66, U.S.Code
Cong. & Admin.News 1976, p. 5680. See 1975 Senate Report 62; S.Rep. No. 93–983, p. 116 (1974);
H.R.Rep. No. 83, 90th Cong., 1st Sess., 32 (1967); H.R.Rep. No. 2237, 89th Cong., 2d Sess., 61 (1966).

*477 A

Despite this absence of clear standards, the fair use doctrine plays a crucial role in the law of copyright.
The purpose of copyright protection, in the words of the Constitution, is to “promote the Progress of
Science and useful Arts.” Copyright is based on the belief that by granting authors the exclusive rights to
reproduce their works, they are given an incentive to create, and that “encouragement of individual
effort by personal gain is the best way to advance public welfare through the talents of authors and
inventors in ‘Science and the useful Arts.’ ” Mazer v. Stein, 347 U.S. 201, 219, 74 S.Ct. 460, 471, 98 L.Ed.
630 (1954). The monopoly created by copyright thus rewards the individual author in order to benefit
the public. Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 2043, 45 L.Ed.2d 84
(1975); Fox Film Corp. v. Doyal, 286 U.S. 123, 127–128, 52 S.Ct. 546, 547, 76 L.Ed. 1010 (1932); see
H.R.Rep. No. 2222, 60th Cong., 2d Sess., 7 (1909).

There are situations, nevertheless, in which strict enforcement of this monopoly would inhibit the very
“Progress of Science and useful Arts” that copyright is intended to promote. An obvious example is the
researcher or scholar whose own work depends on the ability to refer to and to quote the work of prior
scholars. Obviously, no author could create a new work if he were first required to repeat the research
of every author who had gone before him. FN28 **807 The scholar, like the ordinary user, of course
could be left to bargain with each copyright owner for permission to quote from or refer to prior works.
But there is a crucial difference between the scholar and the ordinary user. When the ordinary user
decides that the owner's price is too high, and forgoes use of the work, only the individual is the loser.
When the scholar forgoes the use of a prior work, not only does his own *478 work suffer, but the public
is deprived of his contribution to knowledge. The scholar's work, in other words, produces external
benefits from which everyone profits. In such a case, the fair use doctrine acts as a form of subsidy—
albeit at the first author's expense—to permit the second author to make limited use of the first
author's work for the public good. See Latman Fair Use Study 31; Gordon, Fair Use as Market Failure: A
Structural Analysis of the Betamax Case and its Predecessors, 82 Colum.L.Rev. 1600, 1630 (1982).

FN28. “The world goes ahead because each of us builds on the work of our predecessors. ‘A dwarf
standing on the shoulders of a giant can see farther than the giant himself.’ ” Chafee, Reflections on the
Law of Copyright: I, 45 Colum.L.Rev. 503, 511 (1945).

A similar subsidy may be appropriate in a range of areas other than pure scholarship. The situations in
which fair use is most commonly recognized are listed in § 107 itself; fair use may be found when a work
is used “for purposes such as criticism, comment, news reporting, teaching, ... scholarship, or research.”
The House and Senate Reports expand on this list somewhat, FN29 and other examples may be found in
the case law.FN30 Each of these uses, however, reflects a common theme: each is a productive use,
resulting in some added benefit to the public beyond that produced by the first author's work.FN31 The
fair use doctrine, in other words, permits works *479 to be used for “socially laudable purposes.” See
Copyright Office, Briefing Papers on Current Issues, reprinted in 1975 House Hearings 2051, 2055. I am
aware of no case in which the reproduction of a copyrighted work for the sole benefit of the user has
been held to be fair use.FN32

FN29. Quoting from the Register's 1961 Report, the Senate and House Reports give examples of possible
fair uses:

“ ‘quotation of excerpts in a review or criticism for purposes of illustration or comment; quotation of


short passages in a scholarly or technical work, for illustration or clarification of the author's
observations; use in a parody of some of the content of the work parodied; summary of an address or
article, with brief quotations, in a news report; reproduction by a library of a portion of a work to
replace part of a damaged copy; reproduction by a teacher or student of a small part of a work to
illustrate a lesson; reproduction of a work in legislative or judicial proceedings or reports; incidental and
fortuitous reproduction, in a newsreel or broadcast, of a work located in the scene of an event being
recorded.’ ” 1975 Senate Report 61–62; 1976 House Report 65, U.S.Code Cong. & Admin.News 1976, p.
5678.

FN30. See, e.g., Triangle Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171 (CA5 1980)
(comparative advertising).

FN31. Professor Seltzer has characterized these lists of uses as “reflect [ing] what in fact the subject
matter of fair use has in the history of its adjudication consisted in: it has always had to do with the use
by a second author of a first author's work.” L. Seltzer, Exemptions and Fair Use in Copyright 24 (1978)
(emphasis removed). He distinguishes “the mere reproduction of a work in order to use it for its intrinsic
purpose—to make what might be called the ‘ordinary’ use of it.” When copies are made for “ordinary”
use of the work, “ordinary infringement has customarily been triggered, not notions of fair use”
(emphasis in original). Ibid. See also M. Nimmer, Copyright § 13.05[A][1] (1982) ( “Use of a work in each
of the foregoing contexts either necessarily or usually involves its use in a derivative work”).

FN32. Williams & Wilkins Co. v. United States, 203 Ct.Cl. 74, 487 F.2d 1345 (1973), aff'd by an equally
divided Court, 420 U.S. 376, 95 S.Ct. 1344, 43 L.Ed.2d 264 (1975), involved the photocopying of scientific
journal articles; the Court of Claims stressed that the libraries performing the copying were “devoted
solely to the advancement and dissemination of medical knowledge,” 203 Ct.Cl., at 91, 487 F.2d, at
1354, and that “medical science would be seriously hurt if such library photocopying were stopped.” Id.,
at 95, 487 F.2d, at 1356.

The issue of library copying is now covered by § 108 of the 1976 Act. That section, which Congress
regarded as “authoriz[ing] certain photocopying practices which may not qualify as a fair use,” 1975
Senate Report 67; 1976 House Report 74, U.S.Code Cong. & Admin.News 1976, p. 5688, permits the
making of copies only for “private study, scholarship, or research.” §§ 108(d)(1) and (e)(1).

**808 I do not suggest, of course, that every productive use is a fair use. A finding of fair use still must
depend on the facts of the individual case, and on whether, under the circumstances, it is reasonable to
expect the user to bargain with the copyright owner for use of the work. 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 monopoly will reduce their incentive to create, and, on the other, that granting authors
a complete monopoly will reduce the creative ability of others.FN33 The inquiry is *480 necessarily a
flexible 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 author's expense.

FN33. In the words of Lord Mansfield: “[W]e must take care to guard against two extremes equally
prejudicial; the one, that men of ability, who have employed their time for the service of the
community, may not be deprived of their just merits, and the reward of their ingenuity and labour; the
other, that the world may not be deprived of improvements, nor the progress of the arts be retarded.”
Sayre v. Moore, 1 East 361 n. (b), 102 Eng.Rep. 139, 140 n. (b) (K.B.1785). See Register's Supplementary
Report 13.
The making of a videotape recording for home viewing is an ordinary rather than a productive use of the
Studios' copyrighted works. The District Court found that “Betamax owners use the copy for the same
purpose as the original. They add nothing of their own.” 480 F.Supp., at 453. Although applying the fair
use doctrine to home VTR recording, as Sony argues, may increase public access to material broadcast
free over the public airwaves, I think Sony's argument misconceives the nature of copyright. Copyright
gives the author a right to limit or even to cut off access to his work. Fox Film Corp. v. Doyal, 286 U.S.
123, 127, 52 S.Ct. 546, 547, 76 L.Ed. 1010 (1932). A VTR recording creates no public benefit sufficient to
justify limiting this right. Nor is this right extinguished by the copyright 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 performance 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
borrowed from the public library may not be copied any more freely than a book that is purchased.

It may be tempting, as, in my view, the Court today is tempted, to stretch the doctrine of fair use so as
to permit unfettered use of this new technology in order to increase access*481 to television
programming. But such an extension risks eroding the very basis of copyright law, by depriving authors
of control over their works and consequently of their incentive to create. FN34 **809 Even in the
context of highly productive educational uses, Congress has avoided this temptation; in passing the 1976
Act, Congress made it clear that off-the-air videotaping was to be permitted only in very limited
situations. See 1976 House Report 71; 1975 Senate Report 64. And, the Senate report adds, “[t]he
committee does not intend to suggest ... that off-the-air recording for convenience would under any
circumstances, be considered ‘fair use.’ ” Id., at 66. I cannot disregard these admonitions.

FN34. This point was brought home repeatedly by the Register of Copyrights. Mentioning the “multitude
of technological developments” since passage of the 1909 Act, including “remarkable developments in
the use of video tape,” Register's Supplementary Report xiv-xv, the Register cautioned:

“I realize, more clearly now than I did in 1961, that the revolution in communications has brought with it
a serious challenge to the author's copyright. This challenge comes not only from the ever-growing
commercial interests who wish to use the author's works for private gain. An equally serious attack has
come from people with a sincere interest in the public welfare who fully recognize ... ‘that the real heart
of civilization ... owes its existence to the author’; ironically, in seeking to make the author's works
widely available by freeing them from copyright restrictions, they fail to realize that they are whittling
away the very thing that nurtures authorship in the first place. An accommodation among conflicting
demands must be worked out, true enough, but not by denying the fundamental constitutional
directive: to encourage cultural progress by securing the author's exclusive rights to him for a limited
time.” Id., at xv; see 1975 House Hearings 117 (testimony of Barbara Ringer, Register of Copyrights).

I recognize, nevertheless, that there are situations where permitting even an unproductive 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 *482
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 purpose is served by preserving the author's monopoly, and the use may be regarded
as fair.

Courts should move with caution, however, in depriving authors of protection from unproductive
“ordinary” uses. As has been noted above, even in the case of a productive use, § 107(4) requires
consideration of “the effect of the use upon the potential market for or value of the copyrighted work”
(emphasis added). “[A] particular use which may seem to have little or no economic impact on the
author's rights today can assume tremendous importance in times to come.” Register's Supplementary
Report 14. Although such a use may seem harmless when viewed in isolation, “[i]solated instances of
minor infringements, when multiplied many times, become in the aggregate a major inroad on copyright
that must be prevented.” 1975 Senate Report 65.

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. See 3 M.
Nimmer, Copyright § 13.05[E] [4] [c], p. 13–84 (1982). Proof of actual harm, or even probable harm, may
be impossible in an area where the effect of a new technology is speculative, and requiring such proof
would present the “real danger ... of confining the scope of an author's rights on the basis of the present
technology so that, as the years go by, his copyright loses much of its value because of unforeseen
technical advances.” Register's Supplementary Report 14. Infringement thus would be found if the
copyright owner demonstrates a reasonable possibility that harm will result from the proposed use.
When the use is one that creates no benefit to the public at large, copyright protection should not be
denied on the basis that a new technology that may result in harm has not yet done so.

*483 The Studios have identified a number of ways in which VTR recording could damage their
copyrights. VTR recording could reduce their ability to market their works in movie theaters and through
the rental or sale of pre-recorded videotapes 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.FN35

FN35. A VTR owner who has taped a favorite movie for repeated viewing will be less likely to rent or buy
a tape containing the same movie, watch a televised rerun, or pay to see the movie at a theater.
Although time-shifting may not replace theater or rerun viewing or the purchase of prerecorded tapes
or discs, it may well replace rental usage; a VTR user who has recorded a first-run movie for later
viewing will have no need to rent a copy when he wants to see it. Both library-builders and time-shifters
may avoid commercials; the library builder may use the pause control to record without them, and all
users may fast-forward through commercials on playback.

The Studios introduced expert testimony that both time-shifting and librarying would tend to decrease
their revenue from copyrighted works. See 480 F.Supp., at 440. The District Court's findings also show
substantial library-building and avoidance of commercials. Both sides submitted surveys showing that
the average Betamax user owns between 25 and 32 tapes. The Studios' survey showed that at least 40%
of users had more than 10 tapes in a “library”; Sony's survey showed that more than 40% of users
planned to view their tapes more than once; and both sides' surveys showed that commercials were
avoided at least 25% of the time. Id., at 438–439.

**810 Although the District Court found no likelihood of harm from VTR use, 480 F.Supp., at 468, I
conclude that it applied an incorrect substantive standard and misallocated the *484 burden of proof.
The District Court reasoned that the Studios had failed to prove that library-building would occur “to any
significant extent,” id., at 467; that the Studios' prerecorded videodiscs could compete with VTR
recordings and were “arguably ... more desirable,” ibid; that it was “not clear that movie audiences will
decrease,” id., at 468; and that the practice of deleting commercials “may be too tedious” for many
viewers, ibid. To the extent any decrease in advertising revenues would occur, the court concluded that
the Studios had “marketing alternatives at hand to recoup some of that predicted loss.” Id., at 452.
Because the Studios' prediction of harm was “based on so many assumptions and on a system of
marketing which is rapidly changing,” the court was “hesitant to identify ‘probable effects' of home-use
copying.” Ibid.

The District Court's reluctance to engage in prediction in this area is understandable, but, in my view,
the court was mistaken in concluding that the Studios should bear the risk created by this uncertainty.
The Studios have demonstrated a potential for harm, which has not been, and could not be, refuted at
this early stage of technological development.

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 required by § 107(4).FN36 The
requirement that a putatively infringing use *485 of a copyrighted work, to be “fair,” must not impair a
“potential” market for the work has two implications. 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 infringement 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 compensating the copyright holder. **811 See Iowa State University
Research Foundation, Inc. v. American Broadcasting Cos., 621 F.2d 57 (CA2 1980).
FN36. Concern over the impact of a use upon “potential” markets is to be found in cases decided both
before and after § 107 lent Congress' imprimatur to the judicially-created doctrine of fair use. See, e.g.,
Iowa State University Research Foundation, Inc. v. American Broadcasting Cos., 621 F.2d 57, 60 (CA2
1980) (“the effect of the use on the copyright holder's potential market for the work”); Meeropol v.
Nizer, 560 F.2d 1061, 1070 (CA2 1977) (“A key issue in fair use cases is whether the defendant's work
tends to diminish or prejudice the potential sale of plaintiff's work”), cert. denied, 434 U.S. 1013, 98 S.Ct.
727, 54 L.Ed.2d 756 (1978); Williams & Wilkins Co. v. United States, 203 Ct.Cl. 74, 88, 487 F.2d 1345,
1352 (1973) (“the effect of the use on a copyright owner's potential market for and value of his work”),
aff'd by an equally divided Court, 420 U.S. 376, 95 S.Ct. 1344, 43 L.Ed.2d 264 (1975); Encyclopaedia
Britannica Educational Corp. v. Crooks, 542 F.Supp. 1156, 1173 (WDNY 1982) (“[T]he concern here must
be focused on a copyrighted work's potential market. It is perfectly possible that plaintiffs' profits would
have been greater, but for the kind of videotaping in question”) (emphasis in original).

In this case, the Studios and their amici demonstrate that the advent of the VTR technology 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 *486 adverse effect upon the “potential market for” the Studios' copyrighted works.
Accordingly, even under the formulation of the fair use doctrine advanced by Sony, time-shifting cannot
be deemed a fair use.

Contributory Infringement

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.

It is well established that liability for copyright infringement can be imposed on persons other than
those who actually carry out the infringing activity. Kalem Co. v. Harper Brothers, 222 U.S. 55, 62–63, 32
S.Ct. 20, 21–22, 56 L.Ed. 92 (1911); 3 M. Nimmer, Copyright § 12.04[A] (1982); see Twentieth Century
Music Corp. v. Aiken, 422 U.S. 151, 160, n. 11, 95 S.Ct. 2040, 2046, n. 11, 45 L.Ed.2d 84 (1975); Buck v.
Jewell-LaSalle Realty Co., 283 U.S. 191, 198, 51 S.Ct. 410, 411, 75 L.Ed. 971 (1931). Although the liability
provision of the 1976 Act provides simply that “[a]nyone who violates any of the exclusive rights of the
copyright owner ... is an infringer of the copyright,” 17 U.S.C. § 501(a), the House and Senate Reports
demonstrate that Congress intended to retain judicial doctrines of contributory infringement. 1975
Senate Report 57; 1976 House Report 61.FN37

FN37. This intent is manifested further by provisions of the 1976 Act that exempt from liability persons
who, while not participating directly in any infringing activity, could otherwise be charged with
contributory infringement. See § 108(f)(1) (library not liable “for the unsupervised use of reproducing
equipment located on its premises,” provided that certain warnings are posted); § 110(6)
(“governmental body” or “nonprofit agricultural or horticultural organization” not liable for infringing
performance by concessionaire “in the course of an annual agricultural or horticultural fair or
exhibition”).

*487 The doctrine of contributory copyright infringement, however, is not well-defined. One of the few
attempts at definition appears in Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443
F.2d 1159 (CA2 1971). In that case the Second Circuit stated that “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.” Id., at 1162 (footnote omitted). While I have no quarrel with
this general statement, it does not easily resolve the present case; the District Court and the Court of
Appeals, both purporting to apply it, reached diametrically opposite results.

In absolving Sony from liability, the District Court reasoned that Sony had no direct**812 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. 480 F.Supp., at 460. I agree with the Gershwin
court that contributory liability may be imposed even when the defendant has no formal control over
the infringer. The defendant in Gershwin was a concert promoter operating through local concert
associations that it sponsored; it had no formal control over the infringing performers themselves. 443
F.2d, at 1162–1163. See also Twentieth Century Music Corp. v. Aiken, 422 U.S., at 160, n. 11, 95 S.Ct., at
2046, n. 11. Moreover, a finding of contributory infringement has never depended on actual knowledge
of particular instances of infringement; it is sufficient that the defendant have reason to know that
infringement is taking place. *488 443 F.2d, at 1162; see Screen Gems-Columbia Music, Inc. v. Mark-Fi
Records, Inc., 256 F.Supp. 399 (SDNY 1966).FN38 In the so-called “dance hall” cases, in which questions
of contributory infringement arise with some frequency, proprietors of entertainment establishments
routinely are held liable for unauthorized performances on their premises, even when they have no
knowledge that copyrighted works are being performed. In effect, the proprietors in those cases are
charged with constructive knowledge of the performances. FN39

FN38. In Screen Gems, on which the Gershwin court relied, the court held that liability could be imposed
on a shipper of unauthorized “bootleg” records and a radio station that broadcast advertisements of the
records, provided they knew or should have known that the records were infringing. The court
concluded that the records' low price and the manner in which the records were marketed could
support a finding of “constructive knowledge” even if actual knowledge were not shown.

FN39. See, e.g., Famous Music Corp. v. Bay State Harness Horse Racing & Breeding Assn., Inc., 554 F.2d
1213 (CA1 1977); Dreamland Ball Room, Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354 (CA7 1929); M.
Witmark & Sons v. Tremont Social & Athletic Club, 188 F.Supp. 787, 790 (Mass.1960); see also Twentieth
Century Music Corp. v. Aiken, 422 U.S., at 157, 95 S.Ct., at 2044; Buck v. Jewell-LaSalle Realty Co., 283
U.S. 191, 198–199, 51 S.Ct. 410, 411–412, 75 L.Ed. 971 (1931); 3 M. Nimmer, Copyright § 12.04[A], pp.
12–35 (1982).

Courts have premised liability in these cases on the notion that the defendant had the ability to
supervise or control the infringing activities, see, e.g., Shapiro, Bernstein & Co. v. H.L. Green Co., 316
F.2d 304, 307 (CA2 1963); KECA Music, Inc. v. Dingus McGee's Co., 432 F.Supp. 72, 74 (WD Mo.1977).
This notion, however, is to some extent fictional; the defendant cannot escape liability by instructing the
performers not to play copyrighted music, or even by inserting a provision to that effect into the
performers' contract. Famous Music Corp. v. Bay State Harness Horse Racing & Breeding Assn., Inc., 554
F.2d, at 1214–1215; KECA Music, Inc. v. Dingus McGee's Co., 432 F.Supp., at 75; Shapiro, Bernstein & Co.
v. Veltin, 47 F.Supp. 648, 649 (WD La.1942). Congress expressly rejected a proposal to exempt
proprietors from this type of liability under the 1976 Act. See 1975 Senate Report 141–142; 1976 House
Report 159–160; 1975 House Hearings 1812–1813 (testimony of Barbara Ringer, Register of Copyrights);
id., at 1813 (colloquy between Rep. Pattison and Barbara Ringer).

The Court's attempt to distinguish these cases on the ground of “control,” ante, at 786, is obviously
unpersuasive. The direct infringer ordinarily is not employed by the person held liable; instead, he is an
independent contractor. Neither is he always an agent of the person held liable; Screen Gems makes this
apparent.

*489 Nor is it necessary that the defendant be aware that the infringing activity violates the copyright
laws. Section 504(c)(2) of the 1976 Act provides for a reduction in statutory damages when an infringer
proves he “was not aware and had no reason to believe that his or her acts constituted an infringement
of copyright,” but the statute establishes no general exemption for those who believe their infringing
activities are legal. Moreover, such an exemption would be meaningless in a case such as this, in which
prospective relief is sought; once a court has established that the copying at issue is infringement, the
defendants are necessarily aware of that fact for the future. It is undisputed in this case that Sony had
reason to know the Betamax would be used by some owners to tape copyrighted works off the air. See
480 F.Supp., at 459–460.

**813 The District Court also concluded that Sony had not caused, induced, or contributed materially to
any infringing activities of Betamax owners. 480 F.Supp., at 460. In a case of this kind, however,
causation can be shown indirectly; it does not depend on evidence that particular Betamax owners
relied on particular advertisements. In an analogous case decided just two Terms ago, this Court
approved a lower court's conclusion that liability for contributory trademark infringement could be
imposed on a manufacturer who “suggested, even by implication” that a retailer use the manufacturer's
goods to infringe the trademark of another. Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S.
844, 851, 102 S.Ct. 2182, 2186, 72 L.Ed.2d 606 (1982); see id., at 860, 102 S.Ct., at 2191 (concurring
opinion). I think this standard is equally appropriate in the copyright context.

The District Court found that Sony has advertised the Betamax as suitable for off-the-air recording of
“favorite shows,” “novels for television,” and “classic movies,” 480 F.Supp., at 436, with no visible
warning that such recording *490 could constitute copyright infringement. It is only with the aid of the
Betamax 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.FN40

FN40. My conclusion respecting contributory infringement does not include the retailer defendants. The
District Court found that one of the retailer defendants had assisted in the advertising campaign for the
Betamax, but made no other findings respecting their knowledge of the Betamax's intended uses. I do
not agree with the Court of Appeals, at least on this record, that the retailers “are sufficiently engaged in
the enterprise to be held accountable,” 659 F.2d, at 976. In contrast, the advertising agency employed
to promote the Betamax was far more actively engaged in the advertising campaign, and petitioners
have not argued that the agency's liability differs in any way from that of Sony Corporation and Sony
Corporation of America.

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. Brief for Petitioners 41–42. The
District Court so held, borrowing the “staple article of commerce” doctrine governing liability for
contributory infringement of patents. See 35 U.S.C. § 271.FN41 This Court today is much less positive.
See *491 ante, at 788. I do not agree that this technical judge-made doctrine of patent law, based in
part on considerations irrelevant to the field of copyright, see generally Dawson Chemical Co. v. Rohm &
Haas Co., 448 U.S. 176, 187–199, 100 S.Ct. 2601, 2608–2614, 65 L.Ed.2d 696 (1980), should be imported
wholesale into copyright law. Despite their common constitutional source, see U.S. Const., Art. I, § 8, cl.
8, **814 patent and copyright protections have not developed in a parallel fashion, and this Court in
copyright cases in the past has borrowed patent concepts only sparingly. See Bobbs-Merrill Co. v. Straus,
210 U.S. 339, 345–346, 28 S.Ct. 722, 724, 52 L.Ed. 1086 (1908).

FN41. The “staple article of commerce” doctrine protects those who manufacture products
incorporated into or used with patented inventions—for example, the paper and ink used with patented
printing machines, Henry v. A.B. Dick Co., 224 U.S. 1, 32 S.Ct. 364, 56 L.Ed. 645 (1912), or the dry ice
used with patented refrigeration systems, Carbice Corp. v. American Patents Corp., 283 U.S. 27, 51 S.Ct.
334, 75 L.Ed. 819 (1931). Because a patent-holder has the right to control the use of the patented item
as well as its manufacture, see Motion Picture Patents Co. v. Universal Film Co., 243 U.S. 502, 509–510,
37 S.Ct. 416, 417–418, 61 L.Ed. 871 (1917); 35 U.S.C. 271(a), such protection for the manufacturer of the
incorporated product is necessary to prevent patent-holders from extending their monopolies by
suppressing competition in unpatented components and supplies suitable for use with the patented
item. See Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176, 197–198, 100 S.Ct. 2601, 2613–2614,
65 L.Ed.2d 696 (1980). The doctrine of contributory patent infringement has been the subject of
attention by the courts and by Congress, see id., at 202–212, 100 S.Ct., at 2616–2621, and has been
codified since 1952, 66 Stat. 792, but was never mentioned during the copyright law revision process as
having any relevance to contributory copyright infringement.

I recognize, however, that many of the concerns underlying the “staple article of commerce” doctrine
are present in copyright law as well. As the District Court noted, if liability for contributory infringement
were imposed on the manufacturer or seller of every product used to infringe—a typewriter, a camera,
a photocopying machine—the “wheels of commerce” would be blocked. 480 F.Supp., at 461; see also
Kalem Co. v. Harper Brothers, 222 U.S., at 62, 32 S.Ct., at 21.

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. See ante, at 788. 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 extended beyond its proper bounds; the manufacturer of such a
product contributes to the infringing activities of others and profits directly thereby, while *492
providing no benefit to the public sufficient to justify the infringement.

The Court of Appeals concluded that Sony should be held liable for contributory infringement, reasoning
that “[v]ideotape recorders are manufactured, advertised, and sold for the primary purpose of
reproducing television programming,” and “[v]irtually all television programming is copyrighted
material.” 659 F.2d, at 975. While I agree with the first of these propositions,FN42 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.FN43 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,FN44 and the District Court specifically declined to make *493
findings on the “percentage of legal versus illegal home-use recording.” 480 F.Supp., at 468. **815 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 District Court.

FN42. Although VTRs also may be used to watch prerecorded video cassettes and to make home motion
pictures, these uses do not require a tuner such as the Betamax contains. See n. 1, supra. The Studios do
not object to Sony's sale of VTRs without tuners. Brief for Respondents 5, n. 9. 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.
FN43. Noninfringing uses would include, for example, recording works that are not protected by
copyright, recording works that have entered the public domain, recording with permission of the
copyright owner, and, of course, any recording that qualifies as fair use. See, e.g., Bruzzone v. Miller
Brewing Co., 202 U.S.P.Q. 809 (N.D.Cal.1979) (use of home VTR for market research studies).

FN44. Sony asserts that much or most television broadcasting is available for home recording because
(1) no copyright owner other than the Studios has brought an infringement action, and (2) much
televised material is ineligible for copyright protection because videotapes of the broadcasts are not
kept. The first of these assertions is irrelevant; Sony's liability does not turn on the fact that only two
copyright owners thus far have brought suit. The amount of infringing use must be determined through
consideration of the television market as a whole. Sony's second assertion is based on a faulty premise;
the Copyright Office permits audiovisual works transmitted by television to be registered by deposit of
sample frames plus a description of the work. See 37 CFR §§ 202.20(c)(2)(ii) and 202.21(g) (1982).
Moreover, although an infringement action cannot be brought unless the work is registered, 17 U.S.C. §
411(a), registration is not a condition of copyright protection. § 408(a). Copying an unregistered work
still may be infringement. Cf. § 506(a) (liability for criminal copyright infringement; not conditioned on
prior registration).

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 contributory infringement as they have
been developed by Congress and the courts. Should Congress 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 conclusion, if correct, would settle the
issue of Sony's liability under almost any definition of contributory infringement. The Court concludes
that time-shifting is fair use for two reasons. 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, at 789. The Court explains that 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.” *494 Ante, at 790. 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
concerns 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 royalty 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
remedy 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.FN45

FN45. Even if concern with remedy were appropriate at the liability stage, the Court's use of the District
Court's findings is somewhat cavalier. The Court relies heavily on testimony by representatives of
professional sports leagues to the effect that they have no objection to VTR recording. The Court never
states, however, whether the sports leagues are copyright holders, and if so, whether they have
exclusive copyrights to sports broadcasts. Of course, one who does not hold an exclusive copyright does
not have authority to consent to copying.

Assuming that the various sports leagues do have exclusive copyrights in some of their broadcasts, the
amount of authorized time-shifting still would not be overwhelming. Sony's own survey indicated that
only 7.3 percent of all Betamax use is to record sports events of all kinds. Def. Exh. OT, Table 20.
Because Sony's witnesses did not represent all forms of sports events, moreover, this figure provides
only a tenuous basis for this Court to engage in fact-finding of its own.

The only witness at trial who was clearly an exclusive copyright owner and who expressed no objection
to unauthorized time-shifting was the owner of the copyright in Mister Rogers' Neighborhood. But the
Court cites no evidence in the record to the effect that anyone makes VTR copies of that program. The
simple fact is that the District Court made no findings on the amount of authorized time-shifting that
takes place. The Court seems to recognize this gap in its reasoning, and phrases its argument as a
hypothetical. The Court states: “ If there are millions of owners of VTR's who make copies of televised
sports events, religious broadcasts, and educational programs such as Mister Rogers' Neighborhood, and
if the proprietors of those programs welcome the practice,” the sale of VTR's “should not be stifled” in
order to protect respondent's copyrights. Ante, at 790 (emphasis supplied). Given that the Court seems
to recognize that its argument depends on findings that have not been made, it seems that a remand is
inescapable.

*495 **816 The Court's second stated reason for finding that Sony is not liable for contributory
infringement is its conclusion that even unauthorized time-shifting is fair use. Ante, at 791. This
conclusion is even more troubling. The Court begins by suggesting that the fair use doctrine 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 history 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 consumption on the scale
involved in this case,FN46 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.
FN46. As has been explained, some uses of time-shifting, such as copying an old newspaper clipping for
a friend, are fair use because of their de minimis effect on the copyright holder. The scale of copying
involved in this case, of course, is of an entirely different magnitude, precluding application of such an
exception.

*496 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 describes time-shifting as a noncommercial,
nonprofit activity. It is clear, however, that personal 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
noncommercial in the sense that that term is used in the statute. As one commentator has observed,
time-shifting is noncommercial in the same sense that stealing jewelry and wearing it—instead of
reselling it—is noncommercial.FN47 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.

FN47. Home Recording of Copyrighted Works: Hearing before Subcomm. on Courts, Civil Liberties and
the Administration of Justice of the House Comm. on the Judiciary, 97th Cong., 2d Sess., pt. 2, p. 1250
(1982) (memorandum of Prof. Laurence H. Tribe).

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 *497 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 **817 surveys indicate that entertainment shows account for more than
80 percent of the programs recorded by Betamax owners.FN48

FN48. See A Survey of Betamax Owners, R. 2353, Def. Exh. OT, Table 20, cited in Brief for Respondents
52.

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 substitute 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 productive 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.FN49
FN49. The Court's one oblique acknowledgement of this third factor, ante, at 792, seems to suggest that
the fact that time-shifting involves copying complete works is not very significant because the viewers
already have been asked to watch the initial broadcast free. This suggestion misses the point. As has
been noted, a book borrowed from a public library may not be copied any more freely than one that has
been purchased. An invitation to view a showing is completely different from an invitation to copy a
copyrighted work.

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 statute requires a court to consider the effect of the use
on the potential market for the copyrighted 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 *498 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.FN50 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.

FN50. The Court implicitly has recognized that this market is very significant. The central concern
underlying the Court's entire opinion is that there is a large audience who would like very much to be
able to view programs at times other than when they are broadcast. Ante, at 790. The Court simply
misses the implication of its own concerns.

Because of the Court's conclusion concerning the legality of time-shifting, it never addresses 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, particularly 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 noninfringing
uses.” Ante, at 788 (emphasis supplied). Such a definition essentially eviscerates the concept of
contributory infringement. Only the most unimaginative manufacturer would be unable to demonstrate
that a image-duplicating product is “capable” of substantial noninfringing uses. Surely Congress desired
to prevent the sale of products that are used almost exclusively to infringe copyrights; *499 the fact that
noninfringing uses exist presumably would have little bearing on that desire.

**818 More importantly, the rationale for the Court's narrow standard of contributory infringement
reveals that, once again, the Court has confused the issue of liability with that of remedy. The Court
finds that a narrow definition of contributory infringement is necessary in order to protect “the rights of
others freely to engage in substantially unrelated areas of commerce.” Ante, at 788. But application of
the contributory infringement doctrine implicates such rights only if the remedy attendant upon a
finding of liability were an injunction against the manufacture of the product in question. The issue of an
appropriate remedy is not before the Court at this time, but it seems likely that a broad injunction is not
the remedy that would be ordered. It is unfortunate that the Court has allowed its concern over a
remedy to infect its analysis of liability.

VII

The Court of Appeals, having found Sony liable, remanded for the District Court to consider 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.FN51
Although I express no view on the merits *500 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 feasible. 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 relief may be unavailable, should not affect our
interpretation of the statute.

FN51. Other Nations have imposed royalties on the manufacturers of products used to infringe
copyright. See, e.g., Copyright Laws and Treaties of the World (UNESCO/BNA 1982) (English translation),
reprinting Federal Act On Copyright in Works of Literature and Art and on Related Rights (Austria), §
42(5)–(7), and An Act dealing with Copyright and Related Rights (Federal Republic of Germany), Art.
53(5). A study produced for the Commission of European Communities has recommended that these
requirements “serve as a pattern” for the European community. A. Dietz, Copyright Law in the European
Community 135 (1978). While these royalty systems ordinarily depend on the existence of authors'
collecting societies, see id., at 119, 136, such collecting societies are a familiar part of our copyright law.
See generally Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 4–5, 99 S.Ct. 1551,
1554, 60 L.Ed.2d 1 (1979). Fashioning relief of this sort, of course, might require bringing other copyright
owners into court through certification of a class or otherwise.

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, 95 S.Ct., at 2049 (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, 88
S.Ct. 2084, 2090, 20 L.Ed.2d 1176 (1968), and “do as little damage as possible to traditional copyright
principles ... until the Congress legislates.” Id., at 404, 88 S.Ct., at 2091 (dissenting opinion).

464 U.S. 417, 104 S.Ct. 774, 55 Rad. Reg. 2d (P & F) 156, 78 L.Ed.2d 574, 220 U.S.P.Q. 665, 1984
Copr.L.Dec. P 25,615

END OF DOCUMENT
United States Court of Appeals,

Ninth Circuit.

FONOVISA, INC., Plaintiff–Appellant,


v.
CHERRY AUCTION, INC.; Richard Pilegard, W.D. Mitchell, Margaret Mitchell, Defendants–Appellees.

No. 94–15717.

Argued and Submitted Nov. 13, 1995.


Decided Jan. 25, 1996.

Owner of copyrights and trademarks for musical recordings sued operators of swap meet for
infringement based on sales of counterfeit recordings by independent vendors at meets. The United
States District Court for the Eastern District of California, Robert E. Coyle, Chief Judge, 847 F.Supp. 1492,
dismissed suit on pleadings, and plaintiff appealed. The Court of Appeals, Schroeder, Circuit Judge, held
that: (1) complaint stated cause of action for vicarious copyright infringement; (2) complaint stated
cause of action for contributory copyright infringement; and (3) complaint stated cause of action for
contributory trademark infringement.

Reversed and remanded.

West Headnotes

[1] KeyCite Citing References for this Headnote

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Complaint sufficiently alleged that operators of swap meet had control over premises on which
independent vendors sold counterfeit recordings, as required for operators to be held vicariously liable
for copyright infringement; according to complaint, operators had right to terminate vendors for any
reason whatsoever and through that right had ability to control activities of vendors on premises, and
operators promoted swap meet and controlled access of customers to swap meet area.

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Complaint sufficiently alleged that operators of swap meet obtained direct financial benefit from sales
of counterfeit recordings by independent vendors at swap meet, as required for operators to be held
vicariously liable for copyright infringement; complaint alleged that operators reaped substantial
financial benefits from daily rental fees paid by vendors, admission fees paid by customers who wanted
to buy counterfeit recordings, concession stand sales, and parking fees.

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One who, with knowledge of infringing activity, induces, causes, or materially contributes to infringing
conduct of another, may be held liable as contributory infringer.

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Complaint sufficiently alleged that operators of swap meet materially contributed to sale of counterfeit
recordings by independent vendors, as required for operators to be held liable for contributory
copyright infringement; operators allegedly provided support services for swap meet, including space,
utilities, parking, advertising, plumbing, and customers, and operators allegedly knew that sales of
counterfeit recordings were occurring at meet.

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Providing site and facilities for known infringing activity is sufficient to establish contributory liability for
copyright infringement.

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Contributory trademark liability is applicable if defendant intentionally induces another to infringe on


trademark or continues to supply product knowing that recipient is using product to engage in
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Trademark holder adequately stated claim for contributory trademark infringement by alleging that
operators of swap meet were supplying necessary marketplace for sale of substantial quantities of
counterfeit recordings by independent vendors.

*260 Craig E. Lindberg, J. Craig Williams, Callahan, Blaine & Williams, Irvine, California, for Plaintiff–
Appellant.

Stephen R. Cornwell and Bruce William Kelley, McCormick, Barstow, Sheppard, Wayte & Carruth,
Fresno, California, for Defendants–Appellees.

Anthony M. Keats, Larry W. McFarland, Rebecca I. Lobl, Baker & Hostetler, Los Angeles, California, for
the International Anticounterfeiting Coalition, Inc. as amicus curiae in support of plaintiff-appellant.
Russell J. Frackman, argued, and Robert C. Welsh, Mitchell, Silberberg & Knupp, Los Angeles, California;
Jose Zorrilla Jr., Zorrilla Law Corporation, Irvine, California; David A. Gauntlett and Leo E. Lundberg, Jr.,
Gauntlett & Associates, Irvine, California; Craig E. Lindberg, formerly of Callahan & Gauntlett, Irvine,
California, for Plaintiff–Appellant Fonovisa, Inc.

Robert C. Welsh and Russell J. Frackman, Mitchell, Silberberg & Knupp, Los Angeles, California, for the
Recording Industry Association of America, Inc., as amicus curiae in support of Plaintiff–Appellant.

Appeal from the United States District Court for the Eastern District of California.

Before: SCHROEDER and ALARCON, Circuit Judges, and PANNER,FN*District Court Judge.

FN* Honorable Owen M. Panner, Senior United States District Judge for the District of Oregon, sitting by
designation.

SCHROEDER, Circuit Judge:

This is a copyright and trademark enforcement action against the operators of a swap meet, sometimes
called a flea market, where third-party vendors routinely sell counterfeit recordings that infringe on the
plaintiff's copyrights and trademarks. The district court dismissed on the pleadings, holding that the
plaintiffs, as a matter of law, could not maintain any cause of action against the swap meet for sales by
vendors who leased *261 its premises. The district court's decision is published. Fonovisa Inc. v. Cherry
Auction, Inc., 847 F.Supp. 1492 (E.D.Cal.1994). We reverse.

Background

The plaintiff and appellant is Fonovisa, Inc., a California corporation that owns copyrights and
trademarks to Latin/Hispanic music recordings. Fonovisa filed this action in district court against
defendant-appellee, Cherry Auction, Inc., and its individual operators (collectively “Cherry Auction”). For
purposes of this appeal, it is undisputed that Cherry Auction operates a swap meet in Fresno, California,
similar to many other swap meets in this country where customers come to purchase various
merchandise from individual vendors. See generally, Flea Market Owner Sued for Trademark
Infringement, 4 No. 3 J. Proprietary Rts. 22 (1992). The vendors pay a daily rental fee to the swap meet
operators in exchange for booth space. Cherry Auction supplies parking, conducts advertising and
retains the right to exclude any vendor for any reason, at any time, and thus can exclude vendors for
patent and trademark infringement. In addition, Cherry Auction receives an entrance fee from each
customer who attends the swap meet.

There is also no dispute for purposes of this appeal that Cherry Auction and its operators were aware
that vendors in their swap meet were selling counterfeit recordings in violation of Fonovisa's trademarks
and copyrights. Indeed, it is alleged that in 1991, the Fresno County Sheriff's Department raided the
Cherry Auction swap meet and seized more than 38,000 counterfeit recordings. The following year, after
finding that vendors at the Cherry Auction swap meet were still selling counterfeit recordings, the
Sheriff sent a letter notifying Cherry Auction of the on-going sales of infringing materials, and reminding
Cherry Auction that they had agreed to provide the Sheriff with identifying information from each
vendor. In addition, in 1993, Fonovisa itself sent an investigator to the Cherry Auction site and observed
sales of counterfeit recordings.

Fonovisa filed its original complaint in the district court on February 25, 1993, and on March 22, 1994,
the district court granted defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6). In this appeal, Fonovisa does not challenge the district court's dismissal of its claim for direct
copyright infringement, but does appeal the dismissal of its claims for contributory copyright
infringement, vicarious copyright infringement and contributory trademark infringement.

The copyright claims are brought pursuant to 17 U.S.C. §§ 101 et seq. Although the Copyright Act does
not expressly impose liability on anyone other than direct infringers, courts have long recognized that in
certain circumstances, vicarious or contributory liability will be imposed. See Sony Corp. of America v.
Universal City Studios, Inc., 464 U.S. 417, 435, 104 S.Ct. 774, 785, 78 L.Ed.2d 574 (1984) (explaining that
“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 identifying circumstances in which it is just
to hold one individually accountable for the actions of another”).

Similar principles have also been applied in the trademark field. See Inwood Laboratories v. Ives
Laboratories, 456 U.S. 844, 844–46, 102 S.Ct. 2182, 2184, 72 L.Ed.2d 606 (1982). The Seventh Circuit, for
example, has upheld the imposition of liability for contributory trademark infringement against the
owners of a flea market similar to the swap meet operated by Cherry Auction. Hard Rock Cafe Licensing
Corp. v. Concession Services, Inc., 955 F.2d 1143 (7th Cir.1992). The district court in this case, however,
expressly rejected the Seventh Circuit's reasoning on the contributory trademark infringement claim.
Contributory and vicarious copyright infringement, however, were not addressed in Hard Rock Cafe,
making this the first case to reach a federal appeals court raising issues of contributory and vicarious
copyright infringement in the context of swap meet or flea market operations.

We analyze each of the plaintiff's claims in turn.

Vicarious Copyright Infringement

The concept of vicarious copyright liability was developed in the Second Circuit as an *262 outgrowth of
the agency principles of respondeat superior. The landmark case on vicarious liability for sales of
counterfeit recordings is Shapiro, Bernstein and Co. v. H.L. Green Co., 316 F.2d 304 (2d Cir.1963). In
Shapiro, the court was faced with a copyright infringement suit against the owner of a chain of
department stores where a concessionaire was selling counterfeit recordings. Noting that the normal
agency rule of respondeat superior imposes liability on an employer for copyright infringements by an
employee, the court endeavored to fashion a principle for enforcing copyrights against a defendant
whose economic interests were intertwined with the direct infringer's, but who did not actually employ
the direct infringer.

The Shapiro court looked at the two lines of cases it perceived as most clearly relevant. In one line of
cases, the landlord-tenant cases, the courts had held that a landlord who lacked knowledge of the
infringing acts of its tenant and who exercised no control over the leased premises was not liable for
infringing sales by its tenant. See e.g. Deutsch v. Arnold, 98 F.2d 686 (2d Cir.1938); c.f. Fromont v.
Aeolian Co., 254 F. 592 (S.D.N.Y.1918). In the other line of cases, the so-called “dance hall cases,” the
operator of an entertainment venue was held liable for infringing performances when the operator (1)
could control the premises and (2) obtained a direct financial benefit from the audience, who paid to
enjoy the infringing performance. See e.g. Buck v. Jewell–LaSalle Realty Co., 283 U.S. 191, 198–199, 51
S.Ct. 410, 411–12, 75 L.Ed. 971 (1931); Dreamland Ball Room, Inc. v. Shapiro, Bernstein & Co., 36 F.2d
354 (7th Cir.1929).

From those two lines of cases, the Shapiro court determined that the relationship between the store
owner and the concessionaire in the case before it was closer to the dance-hall model than to the
landlord-tenant model. It imposed liability even though the defendant was unaware of the infringement.
Shapiro deemed the imposition of vicarious liability neither unduly harsh nor unfair because the store
proprietor had the power to cease the conduct of the concessionaire, and because the proprietor
derived an obvious and direct financial benefit from the infringement. 316 F.2d at 307. The test was
more clearly articulated in a later Second Circuit case as follows: “even in the absence of an employer-
employee relationship one may be vicariously liable if he has the right and ability to supervise the
infringing activity and also has a direct financial interest in such activities.” Gershwin Publishing Corp. v.
Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir.1971). See also 3 Melville Nimmer &
David Nimmer, Nimmer on Copyright § 1204(A)[1], at 1270–72 (1995). The most recent and
comprehensive discussion of the evolution of the doctrine of vicarious liability for copyright
infringement is contained in Judge Keeton's opinion in Polygram Intern. Pub., Inc. v. Nevada/TIG, Inc.,
855 F.Supp. 1314 (D.Mass.1984).

[1] The district court in this case agreed with defendant Cherry Auction that Fonovisa did not, as a
matter of law, meet either the control or the financial benefit prong of the vicarious copyright
infringement test articulated in Gershwin, supra. Rather, the district court concluded that based on the
pleadings, “Cherry Auction neither supervised nor profited from the vendors' sales.” 847 F.Supp. at
1496. In the district court's view, with respect to both control and financial benefit, Cherry Auction was
in the same position as an absentee landlord who has surrendered its exclusive right of occupancy in its
leased property to its tenants.
This analogy to absentee landlord is not in accord with the facts as alleged in the district court and which
we, for purposes of appeal, must accept. The allegations below were that vendors occupied small
booths within premises that Cherry Auction controlled and patrolled. According to the complaint, Cherry
Auction had the right to terminate vendors for any reason whatsoever and through that right had the
ability to control the activities of vendors on the premises. In addition, Cherry Auction promoted the
swap meet and controlled the access of customers to the swap meet area. In terms of control, the
allegations before us are strikingly similar to those in Shapiro and Gershwin.

In Shapiro, for example, the court focused on the formal licensing agreement between defendant
department store and the direct infringer-concessionaire. There, the concessionaire selling the bootleg
recordings had a *263 licensing agreement with the department store (H.L. Green Company) that
required the concessionaire and its employees to “abide by, observe and obey all regulations
promulgated from time to time by the H.L. Green Company,” and H.L. Green Company had the
“unreviewable discretion” to discharge the concessionaires' employees. 316 F.2d at 306. In practice, H.L.
Green Company was not actively involved in the sale of records and the concessionaire controlled and
supervised the individual employees. Id. Nevertheless, H.L. Green's ability to police its concessionaire—
which parallels Cherry Auction's ability to police its vendors under Cherry Auction's similarly broad
contract with its vendors—was sufficient to satisfy the control requirement. Id. at 308.

In Gershwin, the defendant lacked the formal, contractual ability to control the direct infringer.
Nevertheless, because of defendant's “pervasive participation in the formation and direction” of the
direct infringers, including promoting them (i.e. creating an audience for them), the court found that
defendants were in a position to police the direct infringers and held that the control element was
satisfied. 443 F.2d at 1163. As the promoter and organizer of the swap meet, Cherry Auction wields the
same level of control over the direct infringers as did the Gershwin defendant. See also Polygram, 855
F.Supp. at 1329 (finding that the control requirement was satisfied because the defendant (1) could
control the direct infringers through its rules and regulations; (2) policed its booths to make sure the
regulations were followed; and (3) promoted the show in which direct infringers participated).

The district court's dismissal of the vicarious liability claim in this case was therefore not justified on the
ground that the complaint failed to allege sufficient control.

[2] We next consider the issue of financial benefit. The plaintiff's allegations encompass many
substantive benefits to Cherry Auction from the infringing sales. These include the payment of a daily
rental fee by each of the infringing vendors; a direct payment to Cherry Auction by each customer in the
form of an admission fee, and incidental payments for parking, food and other services by customers
seeking to purchase infringing recordings.
Cherry Auction nevertheless contends that these benefits cannot satisfy the financial benefit prong of
vicarious liability because a commission, directly tied to the sale of particular infringing items, is
required. They ask that we restrict the financial benefit prong to the precise facts presented in Shapiro,
where defendant H.L. Green Company received a 10 or 12 per cent commission from the direct
infringers' gross receipts. Cherry Auction points to the low daily rental fee paid by each vendor,
discounting all other financial benefits flowing to the swap meet, and asks that we hold that the swap
meet is materially similar to a mere landlord. The facts alleged by Fonovisa, however, reflect that the
defendants reap substantial financial benefits from admission fees, concession stand sales and parking
fees, all of which flow directly from customers who want to buy the counterfeit recordings at bargain
basement prices. The plaintiff has sufficiently alleged direct financial benefit.

Our conclusion is fortified by the continuing line of cases, starting with the dance hall cases, imposing
vicarious liability on the operator of a business where infringing performances enhance the
attractiveness of the venue to potential customers. In Polygram, for example, direct infringers were
participants in a trade show who used infringing music to communicate with attendees and to cultivate
interest in their wares. 855 F.Supp. at 1332. The court held that the trade show participants “derived a
significant financial benefit from the attention” that attendees paid to the infringing music. Id.; See also
Famous Music Corp. v. Bay State Harness Horse Racing and Breeding Ass'n, 554 F.2d 1213, 1214 (1st
Cir.1977) (race track owner vicariously liable for band that entertained patrons who were not “absorbed
in watching the races”); Shapiro, 316 F.2d at 307 (dance hall cases hold proprietor liable where
infringing “activities provide the proprietor with a source of customers and enhanced income”). In this
case, the sale of pirated recordings at the Cherry Auction swap meet is a “draw” for customers, as was
*264 the performance of pirated music in the dance hall cases and their progeny.

Plaintiffs have stated a claim for vicarious copyright infringement.

Contributory Copyright Infringement

[3] Contributory infringement originates in tort law and stems from the notion that one who directly
contributes to another's infringement should be held accountable. See Sony v. Universal City, 464 U.S. at
417, 104 S.Ct. at 774–776; 1 Niel Boorstyn, Boorstyn On Copyright § 10.06[2], at 10–21 (1994) ( “In other
words, the common law doctrine that one who knowingly participates in or furthers a tortious act is
jointly and severally liable with the prime tortfeasor, is applicable under copyright law”). Contributory
infringement has been described as an outgrowth of enterprise liability, see 3 Nimmer § 1204[a] [2], at
1275; Demetriades v. Kaufmann, 690 F.Supp. 289, 292 (S.D.N.Y.1988), and imposes liability where one
person knowingly contributes to the infringing conduct of another. The classic statement of the doctrine
is in Gershwin, 443 F.2d 1159, 1162: “[O]ne 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.” See also Universal City Studios v. Sony Corp. of America, 659 F.2d 963, 975 (9th
Cir.1981), rev'd on other grounds, 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) (adopting Gershwin
in this circuit).
[4] There is no question that plaintiff adequately alleged the element of knowledge in this case. The
disputed issue is whether plaintiff adequately alleged that Cherry Auction materially contributed to the
infringing activity. We have little difficulty in holding that the allegations in this case are sufficient to
show material contribution to the infringing activity. Indeed, it would be difficult for the infringing
activity to take place in the massive quantities alleged without the support services provided by the
swap meet. These services include, inter alia, the provision of space, utilities, parking, advertising,
plumbing, and customers.

Here again Cherry Auction asks us to ignore all aspects of the enterprise described by the plaintiffs, to
concentrate solely on the rental of space, and to hold that the swap meet provides nothing more. Yet
Cherry Auction actively strives to provide the environment and the market for counterfeit recording
sales to thrive. Its participation in the sales cannot be termed “passive,” as Cherry Auction would prefer.

[5] The district court apparently took the view that contribution to infringement should be limited to
circumstances in which the defendant “expressly promoted or encouraged the sale of counterfeit
products, or in some manner protected the identity of the infringers.” 847 F.Supp. 1492, 1496. Given the
allegations that the local sheriff lawfully requested that Cherry Auction gather and share basic,
identifying information about its vendors, and that Cherry Auction failed to comply, the defendant
appears to qualify within the last portion of the district court's own standard that posits liability for
protecting infringers' identities. Moreover, we agree with the Third Circuit's analysis in Columbia
Pictures Industries, Inc. v. Aveco, Inc., 800 F.2d 59 (3rd Cir.1986) that providing the site and facilities for
known infringing activity is sufficient to establish contributory liability. See 2 William F. Patry, Copyright
Law & Practice 1147 (“Merely providing the means for infringement may be sufficient” to incur
contributory copyright liability).

Contributory Trademark Infringement

[6] [7] Just as liability for copyright infringement can extend beyond those who actually
manufacture or sell infringing materials, our law recognizes liability for conduct that assists others in
direct trademark infringement. In Inwood Laboratories, 456 U.S. 844, 102 S.Ct. 2182, the Court said that
contributory trademark liability is applicable if defendant (1) intentionally induces another to infringe on
a trademark or (2) continues to supply a product knowing that the recipient is using the product to
engage in trademark infringement. Inwood at 854–55, 102 S.Ct. at 2188–89. As Cherry Auction points
out, the Inwood case involved a manufacturer-*265 distributor, and the Inwood standard has generally
been applied in such cases. The Court in Inwood, however, laid down no limiting principle that would
require defendant to be a manufacturer or distributor.
The defendant in Inwood distributed drugs to a pharmacist, knowing that the pharmacist was
mislabeling the drugs with a protected trademark rather than a generic label. In this case, plaintiffs
correctly point our that while Cherry Auction is not alleged to be supplying the recordings themselves, it
is supplying the necessary marketplace for their sale in substantial quantities.

In Hard Rock Cafe, 955 F.2d 1143, the Seventh Circuit applied the Inwood test for contributory
trademark liability to the operator of a flea market. In that case, there was no proof that the flea market
had actual knowledge of the sale by vendors of counterfeit Hard Rock Cafe trademark merchandise, but
the court held that contributory liability could be imposed if the swap meet was “willfully blind” to the
ongoing violations. Hard Rock Cafe, 955 F.2d at 1149. It observed that while trademark infringement
liability is more narrowly circumscribed than copyright infringement, the courts nevertheless recognize
that a company “is responsible for the torts of those it permits on its premises ‘knowing or having
reason to know that the other is acting or will act tortiously....’ ” Id. quoting Restatement (Second) of
Torts § 877(c) & cmt. d (1979).

Hard Rock Cafe's application of the Inwood test is sound; a swap meet can not disregard its vendors'
blatant trademark infringements with impunity. Thus, Fonovisa has also stated a claim for contributory
trademark infringement.

The judgment of the district court is REVERSED and the case is REMANDED FOR FURTHER PROCEEDINGS.

C.A.9 (Cal.),1996.
Fonovisa, Inc. v. Cherry Auction, Inc.
76 F.3d 259, 64 USLW 2465, 1995 Copr.L.Dec. P 27,487, 37 U.S.P.Q.2d 1590, 96 Cal. Daily Op. Serv. 517,
96 Daily Journal D.A.R. 840
United States Court of Appeals,

Ninth Circuit.

A&M RECORDS, INC., a corporation; Geffen Records, Inc., a corporation; Interscope Records; Sony
Music Entertainment, Inc.; MCA Records, Inc.; Atlantic Recording Corp.; Island Records, Inc.; Motown
Record Co.; Capitol Records, Inc., Plaintiffs–Appellees,
v.
NAPSTER, INC., Defendant–Appellant.
Jerry Leiber, individually and doing business as, Jerry Leiber Music; Mike Stoller and Frank Music
Corp., on behalf of themselves and all others similarly situated, Plaintiffs–Appellees,
v.
Napster, Inc., Defendant–Appellant.

Nos. 00–16401, 00–16403.

Argued and Submitted Oct. 2, 2000


Filed Feb. 12, 2001
As Amended April 3, 2001.

Record companies and music publishers brought copyright infringement action against Napster, an
Internet service that facilitated the transmission and retention of digital audio files by its users. The
United States District Court for the Northern District of California, Marilyn Hall Patel, Chief District
Judge, ruled on admissibility of experts' reports, 2000 WL 1170106, and granted preliminary injunction
in favor of plaintiffs, 114 F.Supp.2d 896. Service appealed. The Court of Appeals, Beezer, Circuit Judge,
held that: (1) plaintiffs established prima facie case of direct copyright infringement; (2) users' activities
did not amount to fair use of the copyrighted works; (3) plaintiffs demonstrated likelihood of success on
merits of contributory infringement claim; (4) plaintiffs demonstrated likelihood of success on merits of
vicarious infringement claim; (5) Audio Home Recording Act was inapplicable; (6) plaintiffs raised
sufficiently serious questions, and established that balance of hardships tipped in its favor, as to
service's claim that it was entitled to “safe harbor” under the Digital Millennium Copyright Act; (7)
service did not establish defenses of waiver, implied license, or copyright misuse; (8) preliminary
injunction was overbroad; (9) $5 million bond amount was sufficient; and (10) service was not entitled
to imposition of compulsory royalties rather than preliminary injunction.

Affirmed in part, reversed in part, and remanded.

West Headnotes

[1] KeyCite Citing References for this Headnote

170B Federal Courts


170BXVII Courts of Appeals
170BXVII(K) Scope and Extent of Review
170BXVII(K)2 Standard of Review
170Bk3612 Remedial Matters
170Bk3616 Injunction
170Bk3616(2) k. Preliminary injunction; temporary restraining order. Most Cited Cases
(Formerly 170Bk815)

Court of Appeals reviews a grant or denial of a preliminary injunction for abuse of discretion, and
application of erroneous legal principles represents an abuse of discretion by the district court.

[2] KeyCite Citing References for this Headnote

170B Federal Courts


170BXVII Courts of Appeals
170BXVII(K) Scope and Extent of Review
170BXVII(K)2 Standard of Review
170Bk3612 Remedial Matters
170Bk3616 Injunction
170Bk3616(2) k. Preliminary injunction; temporary restraining order. Most Cited Cases
(Formerly 170Bk776)

If the district court is claimed to have relied on an erroneous legal premise in reaching its decision to
grant or deny a preliminary injunction, Court of Appeals will review the underlying issue of law de novo.

[3] KeyCite Citing References for this Headnote

170B Federal Courts


170BXVII Courts of Appeals
170BXVII(K) Scope and Extent of Review
170BXVII(K)2 Standard of Review
170Bk3612 Remedial Matters
170Bk3616 Injunction
170Bk3616(2) k. Preliminary injunction; temporary restraining order. Most Cited Cases
(Formerly 170Bk767)

In reviewing grant of preliminary injunction, Court of Appeals is required to determine whether the
court employed the appropriate legal standards governing the issuance of a preliminary injunction and
whether the district court correctly apprehended the law with respect to the underlying issues in the
case; as long as the district court got the law right, it will not be reversed simply because the appellate
court would have arrived at a different result if it had applied the law to the facts of the case.

[4] KeyCite Citing References for this Headnote


212 Injunction
212II Preliminary, Temporary, and Interlocutory Injunctions in General
212II(B) Factors Considered in General
212k1092 k. Grounds in general; multiple factors. Most Cited Cases
(Formerly 212k138.1)

Preliminary injunctive relief is available to a party who demonstrates either (1) a combination of
probable success on the merits and the possibility of irreparable harm, or (2) that serious questions are
raised and the balance of hardships tips in its favor; these two formulations represent two points on a
sliding scale in which the required degree of irreparable harm increases as the probability of success
decreases.

[5] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Secondary liability for copyright infringement does not exist in the absence of direct infringement by a
third party.

[6] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k83 Evidence
99k83(3) Weight and Sufficiency
99k83(3.1) k. In general. Most Cited Cases

Plaintiffs must satisfy two requirements to present a prima facie case of direct copyright infringement:
(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. 17 U.S.C.A. §§
106, 501(a).

[7] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k67.2 k. Sound recordings. Most Cited Cases
(Formerly 99k66)

Record companies and music publishers that may have owned or administered more than 70% of files
available on Internet service that facilitated transmission and retention of digital audio files by its users
established prima facie case of direct copyright infringement by users of service, based on users'
activities of downloading and uploading copyrighted music, in violation of copyright holders' exclusive
rights of reproduction and distribution. 17 U.S.C.A. § 106(1, 3).

[8] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k67.2 k. Sound recordings. Most Cited Cases
(Formerly 99k66)

Uploading and downloading of digital audio files containing copyrighted music, through Internet service
that facilitated transmission and retention of such files by its users, was not fair use of copyrighted
works, as such use was not transformative, use was commercial in that it could save users the expense
of purchasing authorized copies, works were creative in nature and were copied in their entirety, and
such use could impair market for the works by reducing sales and raising barrier to copyright owners'
entry into market for digital downloading of music. 17 U.S.C.A. § 107.

[9] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases

Fair use factor which looks at the purpose and character of the use of a copyrighted work focuses on
whether the new work merely replaces the object of the original creation or instead adds a further
purpose or different character; the factor asks whether and to what extent the new work is
transformative. 17 U.S.C.A. § 107(1).

[10] KeyCite Citing References for this Headnote


99 Copyrights and Intellectual Property
99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases

Fair use factor which looks at the purpose and character of the use of a copyrighted work requires the
district court to determine whether the allegedly infringing use is commercial or noncommercial; a
commercial use weighs against a finding of fair use but is not conclusive on the issue. 17 U.S.C.A. §
107(1).

[11] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases

Direct economic benefit is not required to demonstrate a commercial use, for purpose of fair use factor
which looks at the purpose and character of the use of a copyrighted work; rather, repeated and
exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a
commercial use. 17 U.S.C.A. § 107(1).

[12] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(A) Nature and Subject Matter
99k12 Originality of Work; Creativity
99k12(1) k. In general. Most Cited Cases

Works that are creative in nature are closer to the core of intended copyright protection than are more
fact-based works.

[13] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases
While wholesale copying of a copyrighted work does not preclude fair use per se, copying an entire work
militates against a finding of fair use. 17 U.S.C.A. § 107.

[14] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases

Under certain circumstances, the use of a copyrighted work may be a fair use even when the protected
work is copied in its entirety. 17 U.S.C.A. § 107.

[15] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53.2 k. Fair use and other permitted uses in general. Most Cited Cases

Fair use, when properly applied, is limited to copying by others which does not materially impair the
marketability of the work which is copied, and the importance of the fair use factor that looks at the
effect of use on the market will vary, not only with the amount of harm, but also with the relative
strength of the showing on the other relevant factors. 17 U.S.C.A. § 107(4).

[16] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k83 Evidence
99k83(1) k. Presumptions and burden of proof. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k83 Evidence
99k83(3) Weight and Sufficiency
99k83(3.1) k. In general. Most Cited Cases

A challenge to a noncommercial use of a copyrighted work, which is alleged to be a fair use, 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, the likelihood of market harm may be presumed, but if it is for a noncommercial purpose, the
likelihood must be demonstrated. 17 U.S.C.A. § 107(4).

[17] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(B) Scope
99k35 Scope of Exclusive Rights; Limitations
99k36 k. In general. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k53 Acts Constituting Infringement
99k53(1) k. In general. Most Cited Cases

Lack of harm to an established market by infringer's activities cannot deprive the copyright holder of the
right to develop alternative markets for its works.

[18] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k85 k. Preliminary injunction. Most Cited Cases

Record companies and music publishers were likely to prevail on their claim that specific activity of
sampling music in order to decide whether to purchase a copyrighted recording, by users of Internet
service that facilitated transmission and retention of digital audio files, was not fair use of copyrighted
musical works, for purpose of companies' and publishers' motion for preliminary injunction, as such use
was commercial in nature and had adverse impact on markets for audio compact discs (CDs) and digital
downloads; evidence that sampling could increase sales of audio CDs would not deprive copyright
owners of their rights to license the works and to develop alternative markets such as the digital
download market. 17 U.S.C.A. § 107.

[19] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k67.2 k. Sound recordings. Most Cited Cases
(Formerly 99k66)

Activities of users of Internet service that facilitated transmission and retention of digital audio files,
which consisted of downloading such files in order to listen to music that user already owned on audio
compact disc (CD), did not amount to mere “space-shifting” for purpose of fair use analysis, as alleged
space-shifting involved distribution of copyrighted material to the general public, not just exposure of
work to the original user. 17 U.S.C.A. § 107.

[20] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

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 copyright infringer;
liability exists if the defendant engages in personal conduct that encourages or assists the infringement.

[21] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k85 k. Preliminary injunction. Most Cited Cases

Record companies and music publishers were likely to succeed on merits of contributory infringement
claim against Internet service that facilitated transmission and retention of digital audio files by its users,
for purpose of companies' and publishers' motion for preliminary injunction, in view of evidence that
service had actual knowledge that specific infringing material was available using its system, that it could
block access to system by suppliers of infringing material, that it failed to remove infringing material,
and that service materially contributed to infringing activity by providing site and facilities for direct
infringement.

[22] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Contributory liability for copyright infringement requires that the secondary infringer know or have
reason to know of direct infringement.

[23] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

In determining whether Internet service that facilitated transmission and retention of digital audio files
by its users had knowledge of alleged direct infringement of copyrighted musical works by users, for
purpose of contributory infringement claim, district court should have considered system's capabilities
for noninfringing uses, in addition to current infringing uses.

[24] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

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, but,
absent any specific information which identifies infringing activity, a computer system operator cannot
be liable for contributory infringement merely because the structure of the system allows for the
exchange of copyrighted material.

[25] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k85 k. Preliminary injunction. Most Cited Cases

Record companies and music publishers were likely to succeed on merits of claim of vicarious copyright
infringement against Internet service that facilitated transmission and retention of digital audio files by
its users, for purpose of companies' and publishers' motion for preliminary injunction, in view of
evidence that service had direct financial interest in the infringing activity and that service had limited
right and ability to police its system but failed to exercise that right to prevent the exchange of
copyrighted material.

[26] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Vicarious copyright liability is an outgrowth of respondeat superior, but vicarious liability extends
beyond an employer/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.

[27] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Financial benefit that may support claim of vicarious copyright infringement exists where the availability
of infringing material acts as a draw for customers.
[28] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

To escape imposition of vicarious liability for copyright infringement, a reserved right to police infringing
activity 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.

[29] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)1 What Constitutes Infringement
99k67.2 k. Sound recordings. Most Cited Cases
(Formerly 99k66)

Audio Home Recording Act section precluding copyright infringement actions based on manufacture,
importation, or distribution of digital audio recording device or digital audio recording medium, or based
on noncommercial use by a consumer of such a device or medium for making digital musical recordings,
did not extend to downloading of digital audio files to computer hard drives; computers and their hard
drives were not “digital audio recording devices” because their primary purpose was not to make digital
audio copied recordings, and computers did not make digital music recordings as defined by the Act. 17
U.S.C.A. § 1008.

[30] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k85 k. Preliminary injunction. Most Cited Cases

Record companies and music publishers alleging contributory and vicarious copyright infringement by
Internet service that facilitated transmission and retention of digital audio files by its users raised
sufficiently serious questions, and established that balance of hardships tipped in its favor, as to
service's claim that Digital Millennium Copyright Act's “safe harbor” provision protected service from
liability, for purpose of companies' and publishers' motion for preliminary injunction. 17 U.S.C.A. § 512.

[31] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(C) Abandonment
99k40 k. In general. Most Cited Cases

Waiver or abandonment of copyright occurs only if there is an intent by the copyright proprietor to
surrender rights in his work.

[32] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(C) Abandonment
99k40 k. In general. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k75 k. Defenses. Most Cited Cases

Record companies' and music publishers' alleged acts of providing consumers with technology designed
to copy and distribute digital audio files over the Internet did not amount to waiver of companies' and
publishers' legal authority to exercise exclusive control over creation and distribution of such files, and
thus did not preclude their copyright infringement claims against Internet service that facilitated
transmission and retention of digital audio files by its users.

[33] KeyCite Citing References for this Headnote

170B Federal Courts


170BXVII Courts of Appeals
170BXVII(K) Scope and Extent of Review
170BXVII(K)2 Standard of Review
170Bk3576 Procedural Matters
170Bk3591 k. Depositions and discovery. Most Cited Cases
(Formerly 170Bk820)
170B Federal Courts KeyCite Citing References for this Headnote
170BXVII Courts of Appeals
170BXVII(K) Scope and Extent of Review
170BXVII(K)2 Standard of Review
170Bk3576 Procedural Matters
170Bk3598 Evidence
170Bk3598(1) k. In general. Most Cited Cases
(Formerly 170Bk823)

The denial of an evidentiary hearing is reviewed for abuse of discretion, as is the court's decision to deny
further discovery.

[34] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(E) Transfer
99k48 k. Licenses in general. Most Cited Cases

Record companies and music publishers alleging contributory and vicarious copyright infringement by
Internet service that facilitated transmission and retention of digital audio files by its users did not grant
implied license to service merely by encouraging file exchange over the Internet.

[35] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k75 k. Defenses. Most Cited Cases

The defense of “copyright misuse” forbids a copyright holder from securing an exclusive right or limited
monopoly not granted by the Copyright Office.

[36] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k75 k. Defenses. Most Cited Cases

Record companies and music publishers alleging contributory and vicarious copyright infringement by
Internet service that facilitated transmission and retention of digital audio files by its users did not
engage in copyright misuse by seeking to control online distribution of copyrighted works; there was no
evidence that companies and publishers sought to control areas outside of their grant of monopoly but
only that they sought to control reproduction and distribution of their copyrighted works, which were
among their exclusive rights as copyright holders. 17 U.S.C.A. § 106.

[37] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k85 k. Preliminary injunction. Most Cited Cases

Scope of preliminary injunction entered against Internet service that facilitated transmission and
retention of digital audio files by its users, in copyright infringement action brought by record companies
and music publishers, which placed on service the entire burden of ensuring that no copying,
downloading, uploading, transmitting, or distributing of plaintiffs' works occurred on the system, was
overbroad; contributory liability was to be imposed only to the extent that plaintiffs provided notice to
service of copyrighted works and files containing such works, since only with such notice would service
have duty to disable access to offending content.

[38] KeyCite Citing References for this Headnote

92 Constitutional Law
92XVIII Freedom of Speech, Expression, and Press
92XVIII(C) Trade or Business
92k1603 k. Copyrights. Most Cited Cases
(Formerly 92k90.1(1))

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k85 k. Preliminary injunction. Most Cited Cases
First Amendment concerns in copyright are allayed by the presence of the fair use doctrine, and uses of
copyrighted material that are not fair uses are rightfully enjoined. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. §
107.

[39] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k85 k. Preliminary injunction. Most Cited Cases

Bond of $5 million imposed by district court upon granting preliminary injunction in favor of record
companies and music publishers, in their action alleging copyright infringement by Internet service that
facilitated transmission and retention of digital audio files by its users, was not abuse of discretion,
although service alleged that its value was between $1.5 and $2 billion; district court considered
competing evidence of service's value and the deleterious effect that any injunction would have upon its
system. Fed.Rules Civ.Proc.Rule 65(c), 28 U.S.C.A.

[40] KeyCite Citing References for this Headnote

170B Federal Courts


170BXVII Courts of Appeals
170BXVII(K) Scope and Extent of Review
170BXVII(K)2 Standard of Review
170Bk3612 Remedial Matters
170Bk3616 Injunction
170Bk3616(2) k. Preliminary injunction; temporary restraining order. Most Cited Cases
(Formerly 170Bk815)

Court of Appeals reviews objections to the amount of a bond granted in connection with a preliminary
injunction for abuse of discretion. Fed.Rules Civ.Proc.Rule 65(c), 28 U.S.C.A.

[41] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k85 k. Preliminary injunction. Most Cited Cases
99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k87 Damages and Profits
99k87(1) k. Recovery in general; actual damages and profits. Most Cited Cases

Internet service that facilitated transmission and retention of digital audio files by its users was not
entitled to imposition of compulsory royalty, rather than preliminary injunction, in copyright
infringement action brought by record companies and music publishers, as case did not involve any
special circumstances, and injunction would not cause great public injury. 17 U.S.C.A. § 115.

*1009 David Boies, Jonathan Schiller and Robert Silver, Boies, Schiller & Flexner, Armonk, New York,
Laurence F. Pulgram, David L. Hayes, Daniel Johnson, Jr. and Darryl M. Woo, Fenwick & West, Palo Alto,
California, for defendant-appellant.

Russell J. Frackman (argued), George M. Borkowski, Jeffrey D. Goldman, Roy L. Shults, Peter B. Gelblum,
Mitchell Silberberg & Knupp LLP, Los Angeles, CA, Leon P. Gold, Hank Goldsmith, Lawrence I. Weinstein,
Frank P. Scibilia, Proskauer Rose LLP, New York, New York, Steven B. Fabrizio, Recording Industry Ass'n
of America, Inc., Washington, DC, for A & M Records, Inc. Plaintiffs–Appellees.

Carey R. Ramos (argued), Aidan Synnott, Michael C. Keats, Lewis E. Farberman, Paul Weiss Rifkind
Wharton & Garrison, New York, New York, Jeffrey G. Knowles, Keith Evans-Orville, Julia D. Greer,
Coblentz, Patch, Duffy & Bass LLP, San Francisco, California, for Leiber plaintiffs-appellees.

Hannah Bentley, San Anselmo, California, for amicus Casanova Records.

Andrew P. Bridges, Wilson, Sonsini, Goodrich & Rosati, Palo Alto, California, for amicus Digital Media
Association.

Bruce G. Joseph, Thomas W. Kirby, and Scott E. Bain, Wiley, Rein & Fielding, Washington, D.C., for amici
Ad Hoc Copyright Coalition; Commercial Internet Exchange; Computer & Communications Industry
Association; Information Technology Association of America; Netcoalition.com; United States Internet
Industry Association, and United States Telecommunications Association.

Scott R. McIntosh, Civil Division, Department of Justice, Washington, D.C., for amicus United States.

Ann Brick, San Francisco, California, for amici American Civil Liberties Union and the American Civil
Liberties Union of Northern California.

Judith B. Jennison, Perkins Coie, San Francisco, California, for amicus Scour, Inc.

Ralph Oman, Dechert, Price & Rhoads, Washington, D.C., as amicus.


Christopher Tayback, Quinn, Emanuel, Urquhart, Oliver & Hedges, Los Angeles, California, for amicus
National Academy of Recording Arts & Sciences.

*1010 E. Edward Bruce, Covington & Burling, Washington, D.C., for amicus Business Software Alliance.

Kevin T. Baine, Williams & Connolly, Washington, D.C., for amici Motion Picture Association of America,
Inc., Software & Information Industry Association, American Film Marketing Association, Association of
American Publishers, American Society of Media Photographers, Professional Photographers
Association, Graphic Artists Guild, Interactive Digital Software Association, American Society of
Composers, Authors and Publishers, Broadcast Music, Inc., Producers Guild of America, Directors Guild
of America, Inc., Writers Guild of America, West, Inc., American Federation of Musicians of the United
States and Canada, Reed Elsevier, Inc., American Federation of Television and Radio Artists, Office of the
Commissioner of Baseball, Songwriters Guild of America, and AmSong, Inc.; Joel M. Litvin, New York,
New York, for amicus National Basketball Association.

Salvatore A. Romano, Seyfarth, Shaw, Washington, D.C., for amici National Association of Recording
Merchandisers, Inc. and Video Software Dealers Association.

Erwin Chemerinsky, University of Southern California School of Law, Los Angeles, California, for amicus
Law Professors Erwin Chemerinsky, Kenneth L. Karst, Steven Shiffrin, Rodney A. Smolla and Marcy
Strauss.

Barry I. Slotnick, Richards & O'Neil, New York, New York, for amicus Association for Independent Music.

Morton David Goldberg, Cowan, Liebowitz & Latman, New York, New York, for amici Alliance
Entertainment Corp., Audible Inc., Blue Spike, Inc., The Clandestine Group, Inc., Digimarc Corporation,
Digital Media on Demand, Inc., FullAudio Corporation, InterTrust Technologies Corporation, Oak
Technology, Inc., Reciprocal, Inc., RioPort, Inc., RPK SecureMedia Inc., Verance Corporation, and VNU
USA, Inc.

Richie T. Thomas, Squire, Sanders & Dempsey, Washington, D.C., for amici Consumer Electronics
Association, Digital Future Coalition, and Computer & Communications Industry Association.

Karen B. Tripp, Houston, Texas, for amici Association of American Physicians & Surgeons, Inc. and Eagle
Forum Education and Legal Defense Fund.

Professor Jessica Litman, Wayne State University Law School, Detroit, Michigan; Professor Keith Aoki,
University of Oregon School of Law; Professor Ann Bartow, University of South Carolina School of Law;
Professor Dan Burk, University of Minnesota; Professor Julie Cohen, Georgetown University School of
Law; Professors Christine Haight Farley and Peter Jaszi, Washington College of Law, American University;
Professor Lydia Pallas Loren, Lewis and Clark College Northwestern School of Law; Professor Pamela
Samuelson, Boalt Hall School of Law, University of California Berkeley; Professor Shubha Ghosh,
University at Buffalo, SUNY; Professors Paul J. Heald, Allen Post Professor of Law, L. Ray Patterson, Pope
Brock Professor of Law, and Laura N. Gasaway, University of Georgia School of Law; Professor Michael
Madison, University of Pittsburgh School of Law; Professor Ruth Okediji, University of Oklahoma Law
School; Alfred C. Yen, Associate Dean for Academic Affairs and Professor of Law, Boston College Law
School; Professor Diame Zimmerman, New York University School of Law, and Professor Dennis Karjala,
Arizona State University College of Law, for amicus Copyright Law Professors.

Appeal from the United States District Court for the Northern District of California; Marilyn Hall Patel,
Chief District Judge, Presiding. D.C. Nos. CV–99–05183–MHP, CV–00–00074– MHP.

Before: SCHROEDER, Chief Judge, BEEZER and PAEZ, Circuit Judges.

BEEZER, Circuit Judge:

Plaintiffs are engaged in the commercial recording, distribution and sale of copyrighted*1011 musical
compositions and sound recordings. The complaint alleges that Napster, Inc. (“Napster”) is a
contributory and vicarious copyright infringer. On July 26, 2000, the district court granted plaintiffs'
motion for a preliminary injunction. The injunction was slightly modified by written opinion on August
10, 2000. A & M Records, Inc. v. Napster, Inc., 114 F.Supp.2d 896 (N.D.Cal.2000). The district court
preliminarily enjoined Napster “from engaging in, or facilitating others in copying, downloading,
uploading, transmitting, or distributing plaintiffs' copyrighted musical compositions and sound
recordings, protected by either federal or state law, without express permission of the rights owner.” Id.
at 927. Federal Rule of Civil Procedure 65(c) requires successful plaintiffs to post a bond for damages
incurred by the enjoined party in the event that the injunction was wrongfully issued. The district court
set bond in this case at $5 million.

We entered a temporary stay of the preliminary injunction pending resolution of this appeal. We have
jurisdiction pursuant to 28 U.S.C. § 1292(a)(1). We affirm in part, reverse in part and remand.

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 FN1 the MusicShare software to his individual computer. See http://www.Napster.com.
Once the software is installed, the user can access the Napster system. A first-time user is required to
register with the Napster system by creating a “user name” and password.

FN1. “To download means to receive information, typically a file, from another computer to yours via
your modem.... The opposite term is upload, which means to send a file to another computer.” United
States v. Mohrbacher, 182 F.3d 1041, 1048 (9th Cir.1999) (quoting Robin Williams, Jargon, An Informal
Dictionary of Computer Terms 170–71 (1993)).

B. Listing Available Files

If a registered user wants to list available files stored in his computer's hard drive on Napster for others
to access, he *1012 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 collective 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 collective 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 designated 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 system. 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). See generally Brookfield Communications, Inc. v. West Coast Entm't Corp., 174 F.3d
1036, 1044 (9th Cir.1999) (describing, in detail, the structure of the Internet). 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 transmission mechanics as


opposed to the content of the transmissions. The content *1013 is the subject of our copyright
infringement analysis.
II

[1] [2] We review a grant or denial of a preliminary injunction for abuse of discretion. Gorbach v.
Reno, 219 F.3d 1087, 1091 (9th Cir.2000) (en banc). Application of erroneous legal principles represents
an abuse of discretion by the district court. Rucker v. Davis, 237 F.3d 1113, 1118–19 (9th Cir.2001) (en
banc). If the district court is claimed to have relied on an erroneous legal premise in reaching its decision
to grant or deny a preliminary injunction, we will review the underlying issue of law de novo. Id. at 1118
(citing Does 1–5 v. Chandler, 83 F.3d 1150, 1152 (9th Cir.1996)).

[3] On review, we are required to determine, “whether the court employed the appropriate legal
standards governing the issuance of a preliminary injunction and whether the district court correctly
apprehended the law with respect to the underlying issues in the case.” Id. “As long as the district court
got the law right, ‘it will not be reversed simply because the appellate court would have arrived at a
different result if it had applied the law to the facts of the case.’ ” Gregorio T. v. Wilson, 59 F.3d 1002,
1004 (9th Cir.1995) (quoting Sports Form, Inc. v. United Press, Int'l, 686 F.2d 750, 752 (9th Cir.1982)).

[4] Preliminary injunctive relief is available to a party who demonstrates either: (1) a combination of
probable success on the merits and the possibility of irreparable harm; or (2) that serious questions are
raised and the balance of hardships tips in its favor. Prudential Real Estate Affiliates, Inc. v. PPR Realty,
Inc., 204 F.3d 867, 874 (9th Cir.2000). “These two formulations represent two points on a sliding scale in
which the required degree of irreparable harm increases as the probability of success decreases.” Id.

III

[5] Plaintiffs claim Napster users are engaged in the wholesale reproduction and distribution of
copyrighted works, all constituting direct infringement.FN2 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.

FN2. Secondary liability for copyright infringement does not exist in the absence of direct infringement
by a third party. Religious Tech. Ctr. v. Netcom On–Line Communication Servs., Inc., 907 F.Supp. 1361,
1371 (N.D.Cal.1995) (“[T]here can be no contributory infringement by a defendant without direct
infringement by another.”). It follows that Napster does not facilitate infringement of the copyright laws
in the absence of direct infringement by its users.

A. Infringement
[6] [7] Plaintiffs must satisfy two requirements to present a prima facie case of direct
infringement: (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); see also Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th Cir.1987); see, e.g., S.O.S.,
Inc. v. Payday, Inc., 886 F.2d 1081, 1085 n. 3 (9th Cir.1989) (“The word ‘copying’ is shorthand for the
infringing of any of the copyright owner's five exclusive rights....”). Plaintiffs have sufficiently
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*1014 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' distribution 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 plaintiffs' copyrighted
musical compositions and sound recordings.

B. Fair Use

[8] 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 specific alleged fair uses: sampling, where users
make temporary copies of a work before purchasing; 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.FN3 *1015 We agree. We first address the court's overall fair use
analysis.

FN3. Napster asserts that because plaintiffs seek injunctive relief, they have the burden of showing a
likelihood that they would prevail against any affirmative defenses raised by Napster, including its fair
use defense under 17 U.S.C. § 107. See Atari Games Corp. v. Nintendo, 975 F.2d 832, 837 (Fed.Cir.1992)
(following Ninth Circuit law, and stating that plaintiff must show likelihood of success on prima facie
copyright infringement case and likelihood that it would overcome copyright misuse defense); see also
Dr. Seuss Enters. v. Penguin Books USA, 924 F.Supp. 1559, 1562 (S.D.Cal.1996) (“The plaintiff's burden of
showing a likelihood of success on the merits includes the burden of showing a likelihood that it would
prevail against any affirmative defenses raised by the defendant.”), aff'd, 109 F.3d 1394 (9th Cir.1997);
Religious Tech. Ctr. v. Netcom On–Line Communication Servs., 923 F.Supp. 1231, 1242 n. 12 (1995)
(same); 2 William W. Schwarzer et al., California Practice Guide, Federal Civil Procedure Before Trial ¶
13:47 (2000) (advising that when a preliminary injunction is sought “plaintiff must demonstrate a
likelihood of prevailing on any affirmative defense as well as on plaintiff's case in chief”). But see Fair
Use of Copyrighted Works, H.R. Rep. 102–836 n.3 (criticizing a Northern District of New York case in
which “the district court erroneously held that where the copyright owner seeks a preliminary
injunction, the copyright owner bears the burden of disproving the [fair use] defense”); see also 1
William F. Patry, Copyright Law & Practice, 725, 725 n.27 (1994) (citing cases placing burden on
defendant at preliminary injunction stage).

The district court stated that “defendant bears the burden of proving ... affirmative defenses.” Napster,
114 F.Supp.2d at 912. Plaintiffs assert that the district court did not err in placing the burden on Napster.
We conclude that even if plaintiffs bear the burden of establishing that they would likely prevail against
Napster's affirmative defenses at the preliminary injunction stage, the record supports the district
court's conclusion that Napster users do not engage in fair use of the copyrighted materials.

1. Purpose and Character of the Use

[9] 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 factor asks “whether and to
what extent the new work is ‘transformative.’ ” See Campbell v. Acuff–Rose Music, Inc., 510 U.S. 569,
579, 114 S.Ct. 1164, 127 L.Ed.2d 500 (1994).

The district court first concluded that downloading MP3 files does not transform the copyrighted work.
Napster, 114 F.Supp.2d at 912. This conclusion is supportable. Courts have been reluctant to find fair
use when an original work is merely retransmitted in a different medium. See, e.g., Infinity Broadcast
Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir.1998) (concluding that retransmission of radio broadcast
over telephone lines is not transformative); UMG Recordings, Inc. v. MP3.com, Inc., 92 F.Supp.2d 349,
351 (S.D.N.Y.) (finding that reproduction of audio CD into MP3 format does not “transform” the work),
certification denied, 2000 WL 710056 (S.D.N.Y. June 1, 2000) (“Defendant's copyright infringement was
clear, and the mere fact that it was clothed in the exotic webbing of the Internet does not disguise its
illegality.”).
[10] 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, 114 S.Ct.
1164. A commercial use weighs against a finding of fair use but is not conclusive on the issue. Id. The
district court determined that Napster users engage in commercial use of the copyrighted 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.” Napster, 114 F.Supp.2d at 912. The district court's findings are not clearly
erroneous.

[11] Direct economic benefit is not required to demonstrate a commercial use. Rather, repeated and
exploitative copying of copyrighted works, even if the copies are not offered for sale, may constitute a
commercial use. See Worldwide Church of God v. Philadelphia Church of God, 227 F.3d 1110, 1118 (9th
Cir.2000) (stating that church that copied religious text for its members “unquestionably profit[ed]”
from the unauthorized “distribution and use of [the text] without having to account to the copyright
holder”); American Geophysical Union v. Texaco, Inc., 60 F.3d 913, 922 (2d Cir.1994) (finding that
researchers at for-profit laboratory gained indirect economic advantage by photocopying copyrighted
scholarly articles). In the record before us, commercial use is demonstrated by a showing that repeated
and exploitative unauthorized copies of copyrighted works were made to save the expense of
purchasing authorized copies. See Worldwide Church, 227 F.3d at 1117–18; Sega Enters. Ltd. v. MAPHIA,
857 F.Supp. 679, 687 (N.D.Cal.1994) (finding commercial use when individuals downloaded copies of
video games “to avoid having to buy video game cartridges”); see also American Geophysical, 60 F.3d at
922. Plaintiffs made such a showing before the district court. FN4

FN4. Napster counters that even if certain users engage in commercial use by downloading instead of
purchasing the music, space-shifting and sampling are nevertheless non commercial in nature. We
address this contention in our discussion of these specific uses, infra.

We also note that the definition of a financially motivated transaction for the purposes of criminal
copyright actions includes trading infringing copies of a work for other items, “including the receipt of
other copyrighted works.” See No Electronic Theft Act (“NET Act”), Pub.L. No. 105–147, 18 U.S.C. § 101
(defining “Financial Gain”).

*1016 2. The Nature of the Use

[12] 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, 114 S.Ct. 1164. The district court determined
that plaintiffs' “copyrighted musical compositions and sound recordings are creative 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

[13] [14] “While ‘wholesale copying does not preclude fair use per se,’ copying an entire work
‘militates 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. We
note, however, that under certain circumstances, a court will conclude that a use is fair even when the
protected work is copied in its entirety. See, e.g., Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417,
449–50, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984) (acknowledging that fair use of time-shifting necessarily
involved making a full copy of a protected work).

4. Effect of Use on Market

[15] [16] “Fair use, when properly applied, is limited to copying by others which does not
materially impair the marketability of the work which is copied.” Harper & Row Publishers, Inc. v. Nation
Enters., 471 U.S. 539, 566–67, 105 S.Ct. 2218, 85 L.Ed.2d 588 (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, 114 S.Ct. 1164. 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, 104 S.Ct. 774 (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 barriers 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 recordings. In a separate memorandum and order regarding the parties'
objections to the expert reports, the district court examined each report, finding some more
appropriate and probative than others. A & M Records, Inc. v. Napster, Inc., Nos. 99–5183 & 00–0074,
2000 WL 1170106 (N.D.Cal. August 10, 2000). Notably, plaintiffs' expert, Dr. E. Deborah Jay, conducted a
survey (the “Jay Report”) using a random sample of college and university students to track their
reasons for using Napster and the impact Napster had on their music purchases. Id. at *2. The court
recognized that the Jay Report focused on just one segment of the Napster user population and found
“evidence of lost sales attributable to college use to be probative of irreparable harm for purposes of
the preliminary injunction motion.” Id. at *3.

Plaintiffs also offered a study conducted by Michael Fine, Chief Executive Officer of Soundscan, (the
“Fine Report”) to determine the effect of online sharing of MP3 *1017 files in order to show irreparable
harm. Fine found that online file sharing had resulted in a loss of “album” sales within college markets.
After reviewing defendant's objections to the Fine Report and expressing some concerns regarding the
methodology and findings, the district court refused to exclude the Fine Report insofar as plaintiffs
offered it to show irreparable harm. Id. at *6.

Plaintiffs' expert Dr. David J. Teece studied several issues (“Teece Report”), including whether plaintiffs
had suffered or were likely to suffer harm in their existing and planned businesses due to Napster use.
Id. Napster objected that the report had not undergone peer review. The district court noted that such
reports generally are not subject to such scrutiny and overruled defendant's objections. Id.

As for defendant's experts, plaintiffs objected to the report of Dr. Peter S. Fader, in which the expert
concluded that Napster is beneficial to the music industry because MP3 music file-sharing stimulates
more audio CD sales than it displaces. Id. at *7. The district court found problems in Dr. Fader's minimal
role in overseeing the administration of the survey and the lack of objective data in his report. The court
decided the generality of the report rendered it “of dubious reliability and value.” The court did not
exclude the report, however, but chose “not to rely on Fader's findings in determining the issues of fair
use and irreparable harm.” Id. at *8.

The district court cited both the Jay and Fine Reports in support of its finding that Napster use harms the
market for plaintiffs' copyrighted musical compositions and sound recordings by reducing CD sales
among college students. The district court cited the Teece Report to show the harm Napster use caused
in raising barriers to plaintiffs' entry into the market for digital downloading of music. Napster, 114
F.Supp.2d at 910. 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 exercise 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.

[17] 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. See L.A. Times v. Free Republic, 54 U.S.P.Q.2d 1453, 1469–71 (C.D.Cal.2000) (stating that
online market for plaintiff newspapers' articles was harmed because plaintiffs demonstrated that
“[defendants] are attempting to exploit the market for viewing their articles online”); see also UMG
Recordings, 92 F.Supp.2d at 352 (“Any allegedly positive impact of defendant's activities on plaintiffs'
prior market in no way frees defendant to usurp a further market that directly derives from
reproduction of the plaintiffs' copyrighted works.”). Here, similar to L.A. Times and UMG Recordings, the
record supports the district court's finding that the “record company plaintiffs have already expended
considerable funds and effort to commence Internet sales and licensing for digital downloads.” 114
F.Supp.2d at 915. 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.

*1018 a. Sampling

[18] Napster contends that its users download MP3 files to “sample” the music in order to decide
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) erroneously concluded that sampling is not a fair use because it
determined that samplers may also engage in other infringing activity.

The district court determined that sampling remains a commercial use even if some users eventually
purchase the music. We find no error in the district court's determination. Plaintiffs have established
that they are likely to succeed in proving that even authorized temporary downloading of individual
songs for sampling purposes is commercial in nature. See Napster, 114 F.Supp.2d at 913. 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. Id.
Evidence relied on by the district court demonstrates that the free downloads provided by the record
companies consist of thirty-to-sixty second samples or are full songs programmed to “time out,” that is,
exist only for a short time on the downloader's computer. Id. at 913–14. In comparison, Napster users
download a full, free and permanent copy of the recording. Id. at 914–15. The determination by the
district court as to the commercial purpose and character of sampling is not clearly erroneous.
The district court further found that both the market for audio CDs and market for online distribution
are adversely affected by Napster's service. As stated in our discussion of the district court's general fair
use analysis: the court did not abuse its discretion when it found that, overall, Napster has an adverse
impact on the audio CD and digital download markets. Contrary to Napster's assertion that the district
court failed to specifically address the market impact of sampling, the district court determined that
“[e]ven if the type of sampling supposedly done on Napster were a non-commercial use, plaintiffs have
demonstrated a substantial likelihood that it would adversely affect the potential market for their
copyrighted works if it became widespread.” Napster, 114 F.Supp.2d at 914. The record supports the
district court's preliminary determinations that: (1) the more music that sampling users download, the
less likely they are to eventually purchase the recordings on audio CD; and (2) even if the audio CD
market is not harmed, Napster has adverse effects on the developing digital download market.

Napster further argues that the district court erred in rejecting its evidence that the users' 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. See
Campbell, 510 U.S. at 591 n. 21, 114 S.Ct. 1164 (“Even favorable evidence, without more, is no
guarantee of fairness. Judge Leval gives the example of the film producer's appropriation of a
composer's previously unknown song that turns the song into a commercial success; the boon to the
song does not make the film's simple copying fair.”); see also L.A. Times, 54 U.S.P.Q.2d at 1471–72. Nor
does positive impact in one market, here the audio CD market, deprive the copyright holder of the right
to develop identified alternative markets, here the digital download market. See id. at 1469–71.

*1019 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

[19] 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. See id. at 915–
16. Napster asserts that we have already held that space-shifting of musical compositions 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, 104 S.Ct. 774
(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 methods of shifting in these cases did
not also simultaneously involve distribution of the copyrighted 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. See UMG Recordings, 92 F.Supp.2d at 351–52 (finding space-shifting of
MP3 files not a fair use even when previous ownership is demonstrated before a download is allowed);
cf. Religious Tech. Ctr. v. Lerma, No. 95–1107A, 1996 WL 633131, at *6 (E.D.Va. Oct.4, 1996) (suggesting
that storing copyrighted material on computer disk for later review is not a fair use).

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.
Napster, 114 F.Supp.2d at 917. Plaintiffs do not challenge these uses on appeal.

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 doctrines of copyright law: contributory
copyright infringement and vicarious copyright infringement.

IV

[20] We first address plaintiffs' claim that Napster is liable for contributory copyright infringement.
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 “personal conduct that encourages or assists the infringement.” Matthew Bender
& Co. v. West Publ'g Co., 158 F.3d 693, 706 (2d Cir.1998).

*1020 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

[21] [22] Contributory liability requires that the secondary infringer “know or have reason to
know” of direct infringement. Cable/Home Communication Corp. v. Network Prods., Inc., 902 F.2d 829,
845 & 846 n. 29 (11th Cir.1990); Religious Tech. Ctr. v. Netcom On–Line Communication Servs., Inc., 907
F.Supp. 1361, 1373–74 (N.D.Cal.1995) (framing issue as “whether Netcom knew or should have known
of” the infringing activities). 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 distinguish 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 constructive,FN5 of direct
infringement. Napster claims that it is nevertheless protected from contributory liability by the teaching
of Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (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.

FN5. 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. 114
F.Supp.2d at 918. 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.” Id. at 919.

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, 104 S.Ct. 774 (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). See also Universal City Studios, Inc. v. Sony Corp., 480 F.Supp. 429, 459 (C.D.Cal.1979) (“This court
agrees with defendants that their knowledge was insufficient to make them contributory infringers.”),
rev'd, 659 F.2d 963 (9th Cir.1981), rev'd, 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984); Alfred C.
Yen, Internet Service Provider Liability for Subscriber Copyright Infringement, Enterprise Liability, and
the First Amendment, 88 Geo. L.J. 1833, 1874 & 1893 n.210 (2000) (suggesting that, after Sony, most
Internet service providers lack “the requisite level of knowledge” for the imposition of contributory
liability).

[23] We are bound to follow Sony, and will not impute the requisite level of knowledge to Napster
merely because *1021 peer-to-peer file sharing technology may be used to infringe plaintiffs' copyrights.
See 464 U.S. at 436, 104 S.Ct. 774 (rejecting argument that merely supplying the “ ‘means' to accomplish
an infringing activity” leads to imposition of liability). We depart from the reasoning of the district court
that Napster failed to demonstrate that its system is capable of commercially significant noninfringing
uses. See Napster, 114 F.Supp.2d at 916, 917–18. The district court improperly confined the use analysis
to current uses, ignoring the system's capabilities. See generally Sony, 464 U.S. at 442–43, 104 S.Ct. 774
(framing inquiry as whether the video tape recorder is “ capable of commercially significant
noninfringing uses”) (emphasis added). Consequently, the district court placed undue weight on the
proportion of current infringing use as compared to current and future noninfringing use. See generally
Vault Corp. v. Quaid Software Ltd., 847 F.2d 255, 264–67 (5th Cir.1988) (single noninfringing use
implicated Sony ). Nonetheless, whether we might arrive at a different result is not the issue here. See
Sports Form, Inc. v. United Press Int'l, Inc., 686 F.2d 750, 752 (9th Cir.1982). The instant appeal occurs at
an early point in the proceedings and “the fully developed factual record may be materially different
from that initially before the district court....” Id. at 753. 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.

This analysis is similar to that of Religious Technology Center v. Netcom On–Line Communication
Services, Inc., which suggests that in an online context, evidence of actual knowledge of specific acts of
infringement is required to hold a computer system operator liable for contributory copyright
infringement. 907 F.Supp. at 1371. Netcom considered the potential contributory copyright liability of a
computer bulletin board operator whose system supported the posting of infringing material. Id. at
1374. The court, in denying Netcom's motion for summary judgment of noninfringement and plaintiff's
motion for judgment on the pleadings, found that a disputed issue of fact existed as to whether the
operator had sufficient knowledge of infringing activity. Id. at 1374–75.

The court determined that for the operator to have sufficient knowledge, the copyright holder must
“provide the necessary documentation to show there is likely infringement.” 907 F.Supp. at 1374; cf.
Cubby, Inc. v. CompuServe, Inc., 776 F.Supp. 135, 141 (S.D.N.Y.1991) (recognizing that online service
provider does not and cannot examine every hyperlink for potentially defamatory material). If such
documentation was provided, the court reasoned that Netcom would be liable for contributory
infringement because its failure to remove the material “and thereby stop an infringing copy from being
distributed worldwide constitutes substantial participation” in distribution of copyrighted material. Id.
[24] 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. See Netcom, 907 F.Supp. at 1374. Conversely, absent any specific information
which identifies infringing activity, a computer system operator cannot be liable for contributory
infringement merely because the structure of the system allows for the exchange of copyrighted
material. See Sony, 464 U.S. at 436, 442–43, 104 S.Ct. 774. To enjoin simply because a computer
network allows for infringing use would, in our opinion, violate Sony and potentially restrict activity
unrelated to infringing use.

We nevertheless conclude that sufficient knowledge exists to impose contributory liability when linked
to demonstrated infringing use of the Napster system. See Napster, 114 F.Supp.2d at 919 (“*1022
Religious Technology Center would not mandate a determination that Napster, Inc. lacks the knowledge
requisite to contributory infringement.”). The record supports the district court's finding that Napster
has actual knowledge that specific infringing material is available using its system, that it could block
access to the system by suppliers of the infringing material, and that it failed to remove the material.
See Napster, 114 F.Supp.2d at 918, 920–21. FN6

FN6. As stated by the district court:

Plaintiff[s] ... demonstrate that defendant had actual notice of direct infringement because the RIAA
informed it of more than 12,000 infringing files. See Creighton 12/3/99 Dec., Exh. D. Although Napster,
Inc. purportedly terminated the users offering these files, the songs are still available using the Napster
service, as are the copyrighted works which the record company plaintiffs identified in Schedules A and
B of their complaint. See Creighton Supp. Dec. ¶¶ 3–4.

114 F.Supp.2d at 918.

B. Material Contribution

Under the facts as found by the district court, Napster materially contributes to the infringing activity.
Relying on Fonovisa, the district court concluded that “[w]ithout the support services defendant
provides, Napster users could not find and download the music they want with the ease of which
defendant boasts.” Napster, 114 F.Supp.2d at 919–20 (“Napster is an integrated service designed to
enable users to locate and download MP3 music files.”). We agree that Napster provides “the site and
facilities” for direct infringement. See Fonovisa, 76 F.3d at 264; cf. Netcom, 907 F.Supp. at 1372
(“Netcom will be liable for contributory infringement since its failure to cancel [a user's] infringing
message and thereby stop an infringing copy from being distributed worldwide constitutes substantial
participation.”). 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 address the scope of the injunction in
part VIII of this opinion.

[25] [26] 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 employer/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); see also Polygram Int'l
Publ'g, Inc. v. Nevada/TIG, Inc., 855 F.Supp. 1314, 1325–26 (D.Mass.1994) (describing vicarious liability
as a form of risk allocation).

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 infringement. See Sony, 464 U.S. at
434–435, 104 S.Ct. 774; see generally 3 Melville B. Nimmer & David Nimmer, Nimmer On Copyright §§
12.04[A][2] & [A][2][b] (2000) (confining Sony to contributory infringement analysis: “Contributory
infringement itself is of two types—personal conduct that forms part of or furthers the infringement and
contribution of machinery or goods that provide the means to infringe”). 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 liability are not clearly drawn.” Id. at 435 n. 17, 104 S.Ct. 774. Consequently,
when the Sony Court used the term “vicarious *1023 liability,” it did so broadly and outside of a
technical analysis of the doctrine of vicarious copyright infringement. Id. at 435 (“[V]icarious 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 identifying the circumstances in which it is just to hold one individual
accountable for the actions of another.”); see also Black's Law Dictionary 927 (7th ed. 1999) (defining
“vicarious liability” in a manner similar to the definition used in Sony).

A. Financial Benefit

[27] 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. Napster, 114 F.Supp.2d
at 921–22. We agree. Financial benefit exists where the availability of infringing material “acts as a
‘draw’ for customers.” Fonovisa, 76 F.3d at 263–64 (stating that financial benefit may be shown “where
infringing performances enhance the attractiveness of a venue”). 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 music increases.” 114
F.Supp.2d at 902. 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.
Napster, 114 F.Supp.2d at 920–21 (finding that Napster's representations to the court regarding “its
improved methods of blocking users about whom rights holders complain ... is tantamount to an
admission that defendant can, and sometimes does, police its service”). We agree in part.

The ability to block infringers' access to a particular environment for any reason whatsoever is evidence
of the right and ability to supervise. See Fonovisa, 76 F.3d at 262 (“Cherry Auction had the right to
terminate vendors for any reason whatsoever and through that right had the ability to control the
activities of vendors on the premises.”); cf. Netcom, 907 F.Supp. at 1375–76 (indicating that plaintiff
raised a genuine issue of fact regarding ability to supervise by presenting evidence that an electronic
bulletin board service can suspend subscriber's accounts). Here, plaintiffs have demonstrated that
Napster retains the right to control access to its system. Napster has an express reservation 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 discretion, with or without cause.”

[28] 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. See, e.g., Fonovisa, 76 F.3d at 261 (“There is no dispute for the purposes of this appeal that
Cherry Auction and its operators were aware that vendors in their swap meets were selling counterfeit
recordings.”); see also Gershwin, 443 F.2d at 1161–62 (citing Shapiro, Bernstein & Co. v. H.L. Green Co.,
316 F.2d 304 (2d Cir.1963), for the proposition that “failure to police the conduct of the primary
infringer” leads to imposition of vicarious liability for copyright infringement).

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 exchange of copyrighted material. The district court,
however, failed to recognize that the boundaries of the premises that Napster “controls and patrols” are
limited. See, e.g., Fonovisa, 76 F.3d at 262–63 (in addition to having the right to exclude vendors,
defendant “controlled and patrolled” the premises); see also Polygram, 855 F.Supp. at 1328–29 (in
addition to having the contractual right to remove exhibitors, trade show operator reserved the right to
police during the show and had its “employees walk the *1024 aisles to ensure ‘rules compliance’ ”). Put
differently, 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 indices, and the right
to terminate users' access to the system. The file name indices, therefore, 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
employing Napster's “search function.”

Our review of the record requires us to accept the district court's conclusion that plaintiffs 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.

Napster alleges that two statutes insulate it from liability. First, Napster asserts that its users engage in
actions protected by § 1008 of the Audio Home Recording Act of 1992, 17 U.S.C. § 1008. Second,
Napster argues that its liability for contributory and vicarious infringement is limited by the Digital
Millennium Copyright Act, 17 U.S.C. § 512. We address the application of each statute in turn.

A. Audio Home Recording Act

[29] The statute states in part:

No action may be brought under this title alleging infringement of copyright based on the manufacture,
importation, or distribution of a digital audio recording device, a digital audio recording medium, an
analog recording device, or an analog recording medium, or based on the noncommercial use by a
consumer of such a device or medium for making digital musical recordings or analog musical
recordings.

17 U.S.C. § 1008 (emphases added). Napster contends that MP3 file exchange is the type of
“noncommercial use” protected from infringement actions by the statute. Napster asserts it cannot be
secondarily liable for users' nonactionable exchange of copyrighted musical recordings.
The district court rejected Napster's argument, stating that the Audio Home Recording Act is “irrelevant”
to the action because: (1) plaintiffs did not bring claims under the Audio Home Recording Act; and (2)
the Audio Home Recording Act does not cover the downloading of MP3 files. Napster, 114 F.Supp.2d at
916 n. 19.

We agree with the district court that the Audio Home Recording Act does not cover the downloading of
MP3 files to computer hard drives. First, “[u]nder the plain meaning of the Act's definition of digital
audio recording devices, computers (and their hard drives) are not digital audio recording devices
because their ‘primary purpose’ is not to make digital audio copied recordings.” Recording Indus. Ass'n
of Am. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1078 (9th Cir.1999). Second, notwithstanding
Napster's claim that computers are “digital audio recording devices,” computers do not make “digital
music recordings” as defined by the Audio Home Recording Act. Id. at 1077 (citing S. Rep. 102–294)
(“There are simply no *1025 grounds in either the plain language of the definition or in the legislative
history for interpreting the term ‘digital musical recording’ to include songs fixed on computer hard
drives.”).

B. Digital Millennium Copyright Act

[30] Napster also interposes a statutory limitation on liability by asserting the protections of the “safe
harbor” from copyright infringement suits for “Internet service providers” contained in the Digital
Millennium Copyright Act, 17 U.S.C. § 512. See Napster, 114 F.Supp.2d at 919 n. 24. The district court
did not give this statutory limitation any weight favoring a denial of temporary injunctive relief. The
court concluded that Napster “has failed to persuade this court that subsection 512(d) shelters
contributory infringers.” Id.

We need not accept a blanket conclusion that § 512 of the Digital Millennium Copyright Act will never
protect secondary infringers. See S. Rep. 105–190, at 40 (1998) (“The limitations in subsections (a)
through (d) protect qualifying service providers from liability for all monetary relief for direct, vicarious,
and contributory infringement.”), reprinted in Melville B. Nimmer & David Nimmer, Nimmer on
Copyright: Congressional Committee Reports on the Digital Millennium Copyright Act and Concurrent
Amendments (2000); see also Charles S. Wright, Actual Versus Legal Control: Reading Vicarious Liability
for Copyright Infringement Into the Digital Millennium Copyright Act of 1998, 75 Wash. L.Rev. 1005,
1028–31 (July 2000) (“[T]he committee reports leave no doubt that Congress intended to provide some
relief from vicarious liability”).

We do not agree that Napster's potential 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 regarding
Napster's ability to obtain shelter under § 512, and plaintiffs also demonstrate that the balance of
hardships tips in their favor. See Prudential Real Estate, 204 F.3d at 874; see also Micro Star v. Formgen,
Inc. 154 F.3d 1107, 1109 (9th Cir.1998) (“A party seeking a preliminary injunction must show ... ‘that
serious questions going to the merits were raised and the balance of hardships tips sharply in its favor.’
”).

Plaintiffs have raised and continue to raise significant questions under this statute, including: (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 provider to timely establish a detailed copyright compliance policy. See A
& M Records, Inc. v. Napster, Inc., No. 99–05183, 2000 WL 573136 (N.D.Cal. May 12, 2000) (denying
summary judgment to Napster under a different subsection of the Digital Millennium Copyright Act, §
512(a)).

The district court considered ample evidence to support its determination that the balance of hardships
tips in plaintiffs' favor:

Any destruction of Napster, Inc. by a preliminary injunction is speculative compared to the statistical
evidence of massive, unauthorized downloading and uploading of plaintiffs' copyrighted works-as many
as 10,000 files per second by defendant's own admission. See Kessler Dec. ¶ 29. The court has every
reason to believe that, without a preliminary injunction, these numbers will mushroom as Napster users,
and newcomers attracted by the publicity, scramble to obtain as much free music as possible before
trial.

114 F.Supp.2d at 926.

VII

Napster contends that even if the district court's preliminary determinations that it is liable for
facilitating copyright infringement are correct, the district court *1026 improperly rejected valid
affirmative defenses of waiver, implied license and copyright misuse. We address the defenses in turn.

A. Waiver

[31] “Waiver is the intentional relinquishment of a known right with knowledge of its existence and
the intent to relinquish it.” United States v. King Features Entm't, Inc., 843 F.2d 394, 399 (9th Cir.1988).
In copyright, waiver or abandonment of copyright “occurs only if there is an intent by the copyright
proprietor to surrender rights in his work.” 4 Melville B. Nimmer & David Nimmer, Nimmer On Copyright
¶ 13.06 (2000); see also Micro Star v. Formgen, Inc., 154 F.3d 1107, 1114 (9th Cir.1998) (discussing
abandonment).
[32] [33] Napster argues that the district court erred in not finding that plaintiffs knowingly
provided consumers with technology designed to copy and distribute MP3 files over the Internet and,
thus, waived any legal authority to exercise exclusive control over creation and distribution of MP3 files.
The district court, however, was not convinced “that the record companies created the monster that is
now devouring their intellectual property rights.” Napster, 114 F.Supp.2d at 924. We find no error in the
district court's finding that “in hastening the proliferation of MP3 files, plaintiffs did [nothing] more than
seek partners for their commercial downloading ventures and develop music players for files they
planned to sell over the Internet.” Id.FN7

FN7. Napster additionally asserts that the district court improperly refused to allow additional discovery
into affirmative defenses and also erroneously failed to hold an evidentiary hearing. The denial of an
evidentiary hearing is reviewed for abuse of discretion, Kenneally v. Lungren, 967 F.2d 329, 335 (9th
Cir.1992), as is the court's decision to deny further discovery. See Sablan v. Dep't of Finance, 856 F.2d
1317, 1321 (9th Cir.1988) (stating that decision to deny discovery will not be disturbed except upon a
clear showing “that the denial of discovery results in actual and substantial prejudice”). We conclude
that the court did not abuse its discretion in denying further discovery and refusing to conduct an
evidentiary hearing.

B. Implied License

[34] Napster also argues that plaintiffs granted the company an implied license by encouraging MP3
file exchange over the Internet. Courts have found implied licenses only in “narrow” circumstances
where one party “created a work at [the other's] request and handed it over, intending that [the other]
copy and distribute it.” SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharms., Inc., 211
F.3d 21, 25 (2d Cir.2000) (quoting Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558 (9th Cir.1990)), cert.
denied, 531 U.S. 872, 121 S.Ct. 173, 148 L.Ed.2d 118 (2000). The district court observed that no evidence
exists to support this defense: “indeed, the RIAA gave defendant express notice that it objected to the
availability of its members' copyrighted music on Napster.” Napster, 114 F.Supp.2d at 924–25. The
record supports this conclusion.

C. Misuse

[35] [36] The defense of copyright misuse forbids a copyright holder from “secur[ing] an exclusive
right or limited monopoly not granted by the Copyright Office.” Lasercomb Am., Inc. v. Reynolds, 911
F.2d 970, 977–79 (4th Cir.1990), quoted in Practice Mgmt. Info. Corp. v. American Med. Ass'n, 121 F.3d
516, 520 (9th Cir.), amended by 133 F.3d 1140 (9th Cir.1997). Napster alleges that online distribution is
not within the copyright monopoly. According to Napster, plaintiffs have colluded to “use their
copyrights to extend their control to online distributions.”
We find no error in the district court's preliminary rejection of this affirmative defense. The misuse
defense prevents copyright holders from leveraging their limited monopoly to allow them control of
areas outside the monopoly. See Lasercomb, 911 F.2d at 976–77; see also *1027 Religious Tech. Ctr. v.
Lerma, No. 95–1107A, 1996 WL 633131, at *11 (E.D.Va. Oct.4, 1996) (listing circumstances which
indicate improper leverage).FN8 There is no evidence here that plaintiffs seek to control areas outside of
their grant of monopoly. Rather, plaintiffs seek to control reproduction and distribution of their
copyrighted works, exclusive rights of copyright holders. 17 U.S.C. § 106; see also, e.g., UMG Recordings,
92 F.Supp.2d at 351 (“A [copyright holder's] ‘exclusive’ rights, derived from the Constitution and the
Copyright Act, include the right, within broad limits, to curb the development of such a derivative
market by refusing to license a copyrighted work or by doing so only on terms the copyright owner finds
acceptable.”). That the copyrighted works are transmitted in another medium-MP3 format rather than
audio CD-has no bearing on our analysis. See id. at 351 (finding that reproduction of audio CD into MP3
format does not “transform” the work).

FN8. The district court correctly stated that “most of the cases” that recognize the affirmative defense of
copyright misuse involve unduly restrictive licensing schemes. See Napster, 114 F.Supp.2d at 923; see
also Lasercomb, 911 F.2d at 973 (stating that “a misuse of copyright defense is inherent in the law of
copyright”). We have also suggested, however, that a unilateral refusal to license a copyright may
constitute wrongful exclusionary conduct giving rise to a claim of misuse, but assume that the “desire to
exclude others ... is a presumptively valid business justification for any immediate harm to consumers.”
See Image Tech. Servs. v. Eastman Kodak Co., 125 F.3d 1195, 1218 (9th Cir.1997). But see Intergraph
Corp. v. Intel Corp., 195 F.3d 1346, 1362 (Fed.Cir.1999) ( “[M]arket power does not ‘impose on the
intellectual property owner an obligation to license the use of that property to others.’ ”) (quoting
United States Dep't of Justice & Fed. Trade Comm'n, Antitrust Guidelines for the Licensing of Intellectual
Property 4 (1995)).

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. Specifically, 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
distribution of the works. See Netcom, 907 F.Supp. at 1374–75. 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. See Sony, 464 U.S. at 442–43, 104 S.Ct. 774.

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.
[37] 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 recognize that
Napster's system does not currently appear to allow Napster access to users' MP3 files.

[38] Based on our decision to remand, Napster's additional arguments on appeal *1028 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 doctrine. See 17 U.S.C. § 107; see generally Nihon Keizai Shimbun v. Comline
Business Data, Inc., 166 F.3d 65, 74 (2d Cir.1999); Netcom, 923 F.Supp. at 1258 (stating that the
Copyright Act balances First Amendment concerns with the rights of copyright holders). There was a
preliminary determination here that Napster users are not fair users. Uses of copyrighted material that
are not fair uses are rightfully enjoined. See Dr. Seuss Enters. v. Penguin Books USA, Inc., 109 F.3d 1394,
1403 (9th Cir.1997) (rejecting defendants' claim that injunction would constitute a prior restraint in
violation of the First Amendment).

IX

We address Napster's remaining arguments: (1) that the court erred in setting a $5 million bond, and (2)
that the district court should have imposed a constructive royalty payment structure in lieu of an
injunction.

A. Bond

[39] [40] Napster argues that the $5 million bond is insufficient because the company's value is
between $1.5 and $2 billion. We review objections to the amount of a bond for abuse of discretion.
Walczak v. EPL Prolong, Inc., 198 F.3d 725 (9th Cir.1999).

We are reluctant to dramatically raise bond amounts on appeal. See GoTo.com, Inc. v. The Walt Disney
Co., 202 F.3d 1199, 1211 (9th Cir.2000); see also Fed.R.Civ.P. 65(c). The district court considered
competing evidence of Napster's value and the deleterious effect that any injunction would have upon
the Napster system. We cannot say that Judge Patel abused her discretion when she fixed the penal sum
required for the bond.

B. Royalties

[41] Napster contends that the district court should have imposed a monetary penalty by way of a
compulsory royalty in place of an injunction. We are asked to do what the district court refused.

Napster tells us that “where great public injury would be worked by an injunction, the courts might ...
award damages or a continuing royalty instead of an injunction in such special circumstances.” Abend v.
MCA, Inc., 863 F.2d 1465, 1479 (9th Cir.1988) (quoting 3 Melville B. Nimmer & David Nimmer, Nimmer
On Copyright § 14.06[B] (1988)), aff'd, 495 U.S. 207, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990). We are at a
total loss to find any “special circumstances” simply because this case requires us to apply well-
established doctrines of copyright law to a new technology. Neither do we agree with Napster that an
injunction would cause “great public injury.” Further, we narrowly construe any suggestion that
compulsory royalties are appropriate in this context because Congress has arguably limited the
application of compulsory royalties to specific circumstances, none of which are present here. See 17
U.S.C. § 115.

The Copyright Act provides for various sanctions for infringers . See, e.g., 17 U.S.C. §§ 502 (injunctions);
504 (damages); and 506 (criminal penalties); see also 18 U.S.C. § 2319A (criminal penalties for the
unauthorized fixation of and trafficking in sound recordings and music videos of live musical
performances). These statutory sanctions represent a more than adequate legislative solution to the
problem created by copyright infringement.

Imposing a compulsory royalty payment schedule would give Napster an “easy out” of this case. If such
royalties were imposed,*1029 Napster would avoid penalties for any future violation 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 royalties would take away the
copyright holders' ability to negotiate the terms of any contractual arrangement.

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 requirements of this opinion. We order
a partial remand of this case on the date of the filing of this opinion for the limited purpose of
permitting the district court to proceed with the settlement and entry of the modified preliminary
injunction.

Even though the preliminary injunction requires modification, appellees have substantially and primarily
prevailed on appeal. Appellees shall recover their statutory costs on appeal. See Fed. R.App. P. 39(a)(4)
(“[i]f a judgment is affirmed in part, reversed in part, modified, or vacated, costs are taxed only as the
court orders.”).

AFFIRMED IN PART, REVERSED IN PART AND REMANDED.

239 F.3d 1004, 2001 Copr.L.Dec. P 28,200, 57 U.S.P.Q.2d 1729, 01 Cal. Daily Op. Serv. 1255, 2001 Daily
Journal D.A.R. 1611
Supreme Court of the United States

METRO–GOLDWYN–MAYER STUDIOS INC., et al., Petitioners,


v.
GROKSTER, LTD., et al.

No. 04–480.

Argued March 29, 2005.


Decided June 27, 2005.

Background: Copyright holders including songwriters, music publishers, and motion picture studios
brought copyright infringement action against distributors of peer-to-peer file sharing computer
networking software. The United States District Court for the Central District of California, Stephen V.
Wilson, J., 259 F.Supp.2d 1029, granted partial summary judgment in favor of the distributors on issues
of contributory and vicarious infringement, and plaintiffs appealed. The United States Court of Appeals
for the Ninth Circuit, 380 F.3d 1154,affirmed, and the Supreme Court granted certiorari.

Holding: The Supreme Court, Justice Souter, held that one who distributes a device with the object of
promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to
foster infringement, is liable for the resulting acts of infringement by third parties.

Vacated and remanded.

Justice Ginsburg filed concurring opinion in which Chief Justice Rehnquist and Justice Kennedy joined.

Justice Breyer filed concurring opinion in which Justice Stevens and Justice O'Connor joined.

West Headnotes

[1] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

One infringes a copyright contributorily by intentionally inducing or encouraging direct infringement and
infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or
limit it.

[2] KeyCite Citing References for this Headnote

291 Patents
291VII Patent Infringement
291VII(A) In General
291k1597 Indirect Infringement
291k1598 k. In general. Most Cited Cases
(Formerly 291k259(1))

Under patent law's traditional “staple article of commerce doctrine,” distribution of a component of a
patented device will not violate the patent if it is suitable for use in other ways. 35 U.S.C.A. § 271(c).

[3] KeyCite Citing References for this Headnote

291 Patents
291VII Patent Infringement
291VII(A) In General
291k1559 Intent or Purpose, and Knowledge
291k1560 k. In general. Most Cited Cases
(Formerly 291k227)

One who makes and sells articles which are only adapted to be used in a patented combination will be
presumed to intend the natural consequences of his acts; he will be presumed, for purpose of resulting
infringement action, to intend that they shall be used in the combination of the patent. 35 U.S.C.A. §
271(c).

[4] KeyCite Citing References for this Headnote

291 Patents
291VII Patent Infringement
291VII(A) In General
291k1559 Intent or Purpose, and Knowledge
291k1560 k. In general. Most Cited Cases
(Formerly 291k227)
Where an article is good for nothing else but patent infringement, there is no legitimate public interest
in its unlicensed availability, and there is no injustice in presuming or imputing to one who makes and
sells the article an intent to infringe. 35 U.S.C.A. § 271(c).

[5] KeyCite Citing References for this Headnote

291 Patents
291VII Patent Infringement
291VII(A) In General
291k1597 Indirect Infringement
291k1598 k. In general. Most Cited Cases
(Formerly 291k259(1))

Patent law's “staple article of commerce doctrine” absolves the equivocal conduct of selling an item
with substantial lawful as well as unlawful uses, and limits liability for infringement to instances of more
acute fault than the mere understanding that some of one's products will be misused, leaving breathing
room for innovation and a vigorous commerce. 35 U.S.C.A. § 271(c).

[6] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
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99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Although secondary liability for copyright infringement may not be imposed by presuming or imputing
intent to cause infringement solely from the design or distribution of a product capable of substantial
lawful use, which the distributor knows is in fact used for infringement, this bar does not mean that a
producer can never be held contributorily liable for third parties' infringing use of a product capable of
substantial lawful use, notwithstanding an actual purpose to cause infringing use, unless the distributors
had specific knowledge of infringement at a time when they contributed to the infringement and failed
to act upon that information.

[7] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases
Where evidence goes beyond characteristics of product that may be used to infringe copyrights or
knowledge that such product may be put to infringing uses, and shows statements or actions directed to
promoting infringement, the staple-article rule set forth in Sony Corp. of America v. Universal City
Studios, Inc., limiting the imputing of culpable intent as a matter of law from the characteristics or uses
of a distributed product, will not preclude liability for inducing copyright infringement.

[8] KeyCite Citing References for this Headnote

291 Patents
291VII Patent Infringement
291VII(A) In General
291k1597 Indirect Infringement
291k1600 k. Inducement to infringe. Most Cited Cases
(Formerly 291k259(1))

Patent Act's exemption from liability for those who distribute a staple article of commerce does not
extend to those who induce patent infringement. 35 U.S.C.A. § 271(b, c).

[9] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

291 Patents KeyCite Citing References for this Headnote


291VII Patent Infringement
291VII(A) In General
291k1559 Intent or Purpose, and Knowledge
291k1560 k. In general. Most Cited Cases
(Formerly 291k227)

Evidence of active steps taken to encourage direct patent or copyright infringement, such as advertising
an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the
product be used to infringe, and a showing that infringement was encouraged overcomes the law's
reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful
use.

[10] KeyCite Citing References for this Headnote


99 Copyrights and Intellectual Property
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

One who distributes a device with the object of promoting its use to infringe copyright, as shown by
clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of
infringement by third parties.

[11] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Mere knowledge of infringing potential or of actual infringing uses would not be enough to subject to
copyright infringement liability a distributor of a product capable of infringing uses, nor would ordinary
acts incident to product distribution, such as offering customers technical support or product updates,
support liability in themselves; instead, liability for inducement of infringement is premised on
purposeful, culpable expression and conduct, and thus does nothing to compromise legitimate
commerce or discourage innovation having a lawful promise.

[12] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
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99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Proving that a message was sent out to potential copyright infringers is the preeminent but not
exclusive way of showing that active steps were taken by message sender that distributed device
capable of infringing uses, with the purpose of bringing about infringing acts, for purpose of contributory
copyright infringement claim against sender, and of showing that infringing acts took place by using the
device distributed.

[13] KeyCite Citing References for this Headnote


99 Copyrights and Intellectual Property
99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

In the absence of other evidence of intent to cause copyright infringement by distribution of a product
with infringing uses, a court would be unable to find contributory infringement liability as to one who
makes and sells the product merely based on a failure to take affirmative steps to prevent infringement,
if the device otherwise was capable of substantial noninfringing uses.

[14] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
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99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Inducement liability for copyright infringement goes beyond encouraging a particular consumer to
infringe a copyright, and the distribution of a product can itself give rise to liability where evidence
shows that the distributor intended and encouraged the product to be used to infringe; in such a case,
the culpable act is not merely the encouragement of infringement but also the distribution of the tool
intended for infringing use.

**2766 *913 Syllabus FN*

FN* The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter
of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200
U.S. 321, 337, 26 S.Ct. 282, 50 L.Ed. 499.

Respondent companies distribute free software that allows computer users to share electronic files
through peer-to-peer networks, so called because the computers communicate directly with each other,
not through central servers. Although such networks can be used to share any type of digital file,
recipients of respondents' software have mostly used them to share copyrighted music and video files
without authorization. Seeking damages and an injunction, a group of movie studios and other copyright
holders (hereinafter MGM) sued respondents for their users' copyright infringements, alleging that
respondents knowingly and intentionally distributed their software to enable users to infringe
copyrighted works in violation of the Copyright Act.
Discovery revealed that billions of files are shared across peer-to-peer networks each month.
Respondents are aware that users employ their software primarily to download copyrighted files,
although the decentralized networks do not reveal which files are copied, and when. Respondents have
sometimes learned about the infringement directly when users have e-mailed questions regarding
copyrighted works, and respondents have replied with guidance. Respondents are not merely passive
recipients of information about infringement. The record is replete with evidence that when they began
to **2767 distribute their free software, each of them clearly voiced the objective that recipients use
the software to download copyrighted works and took active steps to encourage infringement. After the
notorious file-sharing service, Napster, was sued by copyright holders for facilitating copyright
infringement, both respondents promoted and marketed themselves as Napster alternatives. They
receive no revenue from users, but, instead, generate income by selling advertising space, then
streaming the advertising to their users. As the number of users increases, advertising opportunities are
worth more. There is no evidence that either respondent made an effort to filter copyrighted material
from users' downloads or otherwise to impede the sharing of copyrighted files.

While acknowledging that respondents' users had directly infringed MGM's copyrights, the District Court
nonetheless granted respondents summary judgment as to liability arising from distribution of their
software.*914 The Ninth Circuit affirmed. It read Sony Corp. of America v. Universal City Studios, Inc.,
464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574, as holding that the distribution of a commercial product
capable of substantial noninfringing uses could not give rise to contributory liability for infringement
unless the distributor had actual knowledge of specific instances of infringement and failed to act on
that knowledge. Because the appeals court found respondents' software to be capable of substantial
noninfringing uses and because respondents had no actual knowledge of infringement owing to the
software's decentralized architecture, the court held that they were not liable. It also held that they did
not materially contribute to their users' infringement because the users themselves searched for,
retrieved, and stored the infringing files, with no involvement by respondents beyond providing the
software in the first place. Finally, the court held that respondents could not be held liable under a
vicarious infringement theory because they did not monitor or control the software's use, had no
agreed-upon right or current ability to supervise its use, and had no independent duty to police
infringement.

Held: One who distributes a device with the object of promoting its use to infringe copyright, as shown
by clear expression or other affirmative steps taken to foster infringement, going beyond mere
distribution with knowledge of third-party action, is liable for the resulting acts of infringement by third
parties using the device, regardless of the device's lawful uses. Pp. 2775–2783.

(a) The tension between the competing values of supporting creativity through copyright protection and
promoting technological innovation by limiting infringement liability is the subject of this case. Despite
offsetting considerations, the argument for imposing indirect liability here is powerful, given the number
of infringing downloads that occur daily using respondents' software. When a widely shared product is
used to commit infringement, it may be impossible to enforce rights in the protected work effectively
against all direct infringers, so that the only practical alternative is to go against the device's distributor
for secondary liability on a theory of contributory or vicarious infringement. One infringes contributorily
by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from
direct infringement while declining to exercise the right to stop or limit it. Although “[t]he Copyright Act
does not expressly render anyone liable for [another's] infringement,” Sony, 464 U.S., at 434, 104 S.Ct.
774, these secondary liability doctrines emerged from common law **2768 principles and are well
established in the law, e.g., id., at 486, 104 S.Ct. 774. Pp. 2775–2776.

(b) Sony addressed a claim that secondary liability for infringement can arise from the very distribution
of a commercial product. There, *915 copyright holders sued Sony, the manufacturer of videocassette
recorders, claiming that it was contributorily liable for the infringement that occurred when VCR owners
taped copyrighted programs. The evidence showed that the VCR's principal use was “time-shifting,” i.e.,
taping a program for later viewing at a more convenient time, which the Court found to be a fair,
noninfringing use. 464 U.S., at 423–424, 104 S.Ct. 774. Moreover, there was no evidence that Sony had
desired to bring about taping in violation of copyright or taken active steps to increase its profits from
unlawful taping. Id., at 438, 104 S.Ct. 774. On those facts, the only conceivable basis for liability was on a
theory of contributory infringement through distribution of a product. Id., at 439, 104 S.Ct. 774. Because
the VCR was “capable of commercially significant noninfringing uses,” the Court held that Sony was not
liable. Id., at 442, 104 S.Ct. 774. This theory reflected patent law's traditional staple article of commerce
doctrine that distribution of a component of a patented device will not violate the patent if it is suitable
for use in other ways. 35 U.S.C. § 271(c). The doctrine absolves the equivocal conduct of selling an item
with lawful and unlawful uses and limits liability to instances of more acute fault. In this case, the Ninth
Circuit misread Sony to mean that when a product is capable of substantial lawful use, the producer
cannot be held contributorily liable for third parties' infringing use of it, even when an actual purpose to
cause infringing use is shown, unless the distributors had specific knowledge of infringement at a time
when they contributed to the infringement and failed to act upon that information. Sony did not
displace other secondary liability theories. Pp. 2776–2779.

(c) Nothing in Sony requires courts to ignore evidence of intent to promote infringement if such
evidence exists. It was never meant to foreclose rules of fault-based liability derived from the common
law. 464 U.S., at 439, 104 S.Ct. 774. Where evidence goes beyond a product's characteristics or the
knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting
infringement, Sony's staple-article rule will not preclude liability. At common law a copyright or patent
defendant who “not only expected but invoked [infringing use] by advertisement” was liable for
infringement. Kalem Co. v. Harper Brothers, 222 U.S. 55, 62–63, 32 S.Ct. 20, 56 L.Ed. 92. The rule on
inducement of infringement as developed in the early cases is no different today. Evidence of active
steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to
engage in an infringing use, shows an affirmative intent that the product be used to infringe, and
overcomes the law's reluctance to find liability when a defendant merely sells a commercial product
suitable for some lawful use. A rule that premises liability on purposeful, culpable expression and
conduct *916 does nothing to compromise legitimate commerce or discourage innovation having a
lawful promise. Pp. 2779–2780.

(d) On the record presented, respondents' unlawful objective is unmistakable. The classic instance of
inducement is by advertisement or solicitation that broadcasts a message designed to stimulate others
to commit violations. MGM argues persuasively that such a message is shown here. Three features of
the evidence of intent are particularly notable. First, **2769 each of the respondents showed itself to be
aiming to satisfy a known source of demand for copyright infringement, the market comprising former
Napster users. Respondents' efforts to supply services to former Napster users indicate a principal, if not
exclusive, intent to bring about infringement. Second, neither respondent attempted to develop filtering
tools or other mechanisms to diminish the infringing activity using their software. While the Ninth
Circuit treated that failure as irrelevant because respondents lacked an independent duty to monitor
their users' activity, this evidence underscores their intentional facilitation of their users' infringement.
Third, respondents make money by selling advertising space, then by directing ads to the screens of
computers employing their software. The more their software is used, the more ads are sent out and
the greater the advertising revenue. Since the extent of the software's use determines the gain to the
distributors, the commercial sense of their enterprise turns on high-volume use, which the record shows
is infringing. This evidence alone would not justify an inference of unlawful intent, but its import is clear
in the entire record's context. Pp. 2780–2782.

(e) In addition to intent to bring about infringement and distribution of a device suitable for infringing
use, the inducement theory requires evidence of actual infringement by recipients of the device, the
software in this case. There is evidence of such infringement on a gigantic scale. Because substantial
evidence supports MGM on all elements, summary judgment for respondents was error. On remand,
reconsideration of MGM's summary judgment motion will be in order. Pp. 2782–2783.

380 F.3d 1154, vacated and remanded.

SOUTER, J., delivered the opinion for a unanimous Court. GINSBURG, J., filed a concurring opinion, in
which REHNQUIST, C. J., and KENNEDY, J., joined, post, p. 2783. BREYER, J., filed a concurring opinion, in
which STEVENS and O'CONNOR, JJ., joined, post, p. 2787.

Paul D. Clement, for United States as amicus curiae, by special leave of the Court, supporting the
Petitioners.

Kenneth W. Starr, Steven A. Engel, Susan E. Engel, Kirkland & Ellis LLP, Washington, DC, Russell J.
Frackman, George M. Borkowski, Mitchell, Silberberg & Knupp LLP, Los Angeles, CA, Donald B. Verrilli,
Jr., Counsel of Record, Ian Heath Gershengorn, William M. Hohengarten, Steven B. Fabrizio, Thomas J.
Perrelli, Matthew J. Oppenheim, Jenner & Block LLP, Washington, DC, David E. Kendall, Robert J.
Shaughnessy, Thomas G. Hentoff, Williams & Connolly LLP, Washington, DC, Gregory P. Goeckner, Dean
C. Garfield, Motion Picture Association of America, Inc., Encino, CA, Elaine J. Goldenberg, Matthew
Hersh, Kathleen R. Hartnett, Brian Hauck, Jenner & Block LLP, Washington, DC, Steven M. Marks, Stanley
Pierre-Louis, Recording Industry Association of America, Inc., Washington, DC, Counsel for Motion
Picture Studio and Recording Company Petitioners.

Robert M. Schwartz, Drew E. Breuder, O'Melveny & Myers LLP, Los Angeles, California, Counsel for
Petitioners Warner Bros. Entertainment Inc. and New Line Cinema Corporation.

Kelli L. Sager, Andrew J. Thomas, Jeffrey H. Blum, Jeffrey L. Fisher, Davis Wright Tremaine LLP, Los
Angeles, CA, Carey R. Ramos, Counsel of Record, Peter L. Felcher, Aidan Synnott, **2770 Theodore K.
Cheng, John H. Longwell, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, Counsel for
Songwriter and Music Publisher Petitioners.

Michael H. Page, Mark A. Lemley, Keker & Van Nest, LLP, San Francisco, CA, Counsel for Grokster.

Charles S. Baker, Porter & Hedges, LLP, Houston, TX, Cindy A. Cohn, Counsel of Record, Fred Von
Lohmann, Electronic Frontier Fndtn., San Francisco, CA, Counsel for StreamCast.

Matthew A. Neco, Wendy Millar Goodkin, StreamCast Networks, Inc., Woodland Hills, CA, Counsel for
StreamCast.

Richard G. Taranto, H. Bartow Farr, III, Farr & Taranto, Washington, DC, Counsel for Respondents.

Justice SOUTER delivered the opinion of the Court.

*918 The question is under what circumstances the distributor of a product capable of both lawful and
unlawful use is liable *919 for acts of copyright infringement by third parties using the product. We hold
that one who distributes a device with the object of promoting its use to infringe copyright, as shown by
clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of
infringement by third parties.

Respondents, Grokster, Ltd., and StreamCast Networks, Inc., defendants in the trial court, distribute free
software products that allow computer users to share electronic files through peer-to-peer networks, so
called because users' computers communicate directly with each other, not through *920 central
servers. The advantage of peer-to-peer networks over information networks of other types shows up in
their substantial and growing popularity. Because they need no central computer server to mediate the
exchange of information or files among users, the high-bandwidth communications capacity for a server
may be dispensed with, and the need for costly server storage space is eliminated. Since copies of a file
(particularly a popular one) are available on many users' computers, file requests and retrievals may be
faster than on other types of networks, and since file exchanges do not travel through a server,
communications can take place between any computers that remain connected to the network without
risk that a glitch in the server will disable the network in its entirety. Given these benefits in security,
cost, and efficiency, peer-to-peer networks are employed to store and distribute electronic files by
universities, government agencies, corporations, and libraries, among others. FN1

FN1. Peer-to-peer networks have disadvantages as well. Searches on peer-to-peer networks may not
reach and uncover all available files because search requests may not be transmitted to every computer
on the network. There may be redundant copies of popular files. The creator of the software has no
incentive to minimize storage or bandwidth consumption, the costs of which are borne by every user of
the network. Most relevant here, it is more difficult to control the content of files available for retrieval
and the behavior of users.

Other users of peer-to-peer networks include individual recipients of Grokster's and StreamCast's
software, and although **2771 the networks that they enjoy through using the software can be used to
share any type of digital file, they have prominently employed those networks in sharing copyrighted
music and video files without authorization. A group of copyright holders (MGM for short, but including
motion picture studios, recording companies, songwriters, and music publishers) sued Grokster and
StreamCast for their users' copyright infringements, alleging that they *921 knowingly and intentionally
distributed their software to enable users to reproduce and distribute the copyrighted works in violation
of the Copyright Act, 17 U.S.C. § 101 et seq. (2000 ed. and Supp. II).FN2 MGM sought damages and an
injunction.

FN2. The studios and recording companies and the songwriters and music publishers filed separate suits
against the defendants that were consolidated by the District Court.

Discovery during the litigation revealed the way the software worked, the business aims of each
defendant company, and the predilections of the users. Grokster's eponymous software employs what is
known as FastTrack technology, a protocol developed by others and licensed to Grokster. StreamCast
distributes a very similar product except that its software, called Morpheus, relies on what is known as
Gnutella technology.FN3 A user who downloads and installs either software possesses the protocol to
send requests for files directly to the computers of others using software compatible with FastTrack or
Gnutella. On the FastTrack network opened by the Grokster software, the user's request goes to a
computer given an indexing capacity by the software and designated a supernode, or to some other
computer with comparable power and capacity to collect temporary indexes of the files available on the
computers of users connected to it. The supernode (or indexing computer) searches its own index and
may communicate the search request to other supernodes. If the file is found, the supernode discloses
its location to the computer requesting it, and the requesting user can download the file directly from
the computer located. The copied file is placed in a designated sharing folder on the requesting user's
computer, where it is available for other users to download in turn, along with any other file in that
folder.

FN3. Subsequent versions of Morpheus, released after the record was made in this case, apparently rely
not on Gnutella but on a technology called Neonet. These developments are not before us.

*922 In the Gnutella network made available by Morpheus, the process is mostly the same, except that
in some versions of the Gnutella protocol there are no supernodes. In these versions, peer computers
using the protocol communicate directly with each other. When a user enters a search request into the
Morpheus software, it sends the request to computers connected with it, which in turn pass the request
along to other connected peers. The search results are communicated to the requesting computer, and
the user can download desired files directly from peers' computers. As this description indicates,
Grokster and StreamCast use no servers to intercept the content of the search requests or to mediate
the file transfers conducted by users of the software, there being no central point through which the
substance of the communications passes in either direction.FN4

FN4. There is some evidence that both Grokster and StreamCast previously operated supernodes, which
compiled indexes of files available on all of the nodes connected to them. This evidence, pertaining to
previous versions of the defendants' software, is not before us and would not affect our conclusions in
any event.

**2772 Although Grokster and StreamCast do not therefore know when particular files are copied, a few
searches using their software would show what is available on the networks the software reaches. MGM
commissioned a statistician to conduct a systematic search, and his study showed that nearly 90% of the
files available for download on the FastTrack system were copyrighted works.FN5 Grokster and
StreamCast dispute this figure, raising methodological problems and arguing that free copying even of
copyrighted works may be authorized by the rightholders. They also argue that potential noninfringing
uses of their software are significant in kind, even if infrequent in practice. Some musical performers, for
example, have gained new audiences by distributing *923 their copyrighted works for free across peer-
to-peer networks, and some distributors of unprotected content have used peer-to-peer networks to
disseminate files, Shakespeare being an example. Indeed, StreamCast has given Morpheus users the
opportunity to download the briefs in this very case, though their popularity has not been quantified.

FN5. By comparison, evidence introduced by the plaintiffs in A&M Records, Inc. v. Napster, Inc., 239 F.3d
1004 (C.A.9 2001), showed that 87% of files available on the Napster file-sharing network were
copyrighted, id., at 1013.
As for quantification, the parties' anecdotal and statistical evidence entered thus far to show the
content available on the FastTrack and Gnutella networks does not say much about which files are
actually downloaded by users, and no one can say how often the software is used to obtain copies of
unprotected material. But MGM's evidence gives reason to think that the vast majority of users'
downloads are acts of infringement, and because well over 100 million copies of the software in
question are known to have been downloaded, and billions of files are shared across the FastTrack and
Gnutella networks each month, the probable scope of copyright infringement is staggering.

Grokster and StreamCast concede the infringement in most downloads, Brief for Respondents 10, n. 6,
and it is uncontested that they are aware that users employ their software primarily to download
copyrighted files, even if the decentralized FastTrack and Gnutella networks fail to reveal which files are
being copied, and when. From time to time, moreover, the companies have learned about their users'
infringement directly, as from users who have sent e-mail to each company with questions about
playing copyrighted movies they had downloaded, to whom the companies have responded with
guidance.FN6 App. 559–563, 808–816, 939–954. And MGM notified the companies of 8 million
copyrighted files that could be obtained using their software.

FN6. The Grokster founder contends that in answering these e-mails he often did not read them fully.
App. 77, 769.

Grokster and StreamCast are not, however, merely passive recipients of information about infringing
use. The record is replete with evidence that from the moment Grokster *924 and StreamCast began to
distribute their free software, each one clearly voiced the objective that recipients use it to download
copyrighted works, and each took active steps to encourage infringement.

After the notorious file-sharing service, Napster, was sued by copyright holders for facilitation of
copyright infringement, A&M Records, Inc. v. Napster, Inc., 114 F.Supp.2d 896 (N.D.Cal.2000), aff'd in
part, rev'd in part, 239 F.3d 1004 (C.A.9 2001), StreamCast gave away a software program of a kind
known as OpenNap, **2773 designed as compatible with the Napster program and open to Napster
users for downloading files from other Napster and OpenNap users' computers. Evidence indicates that
“[i]t was always [StreamCast's] intent to use [its OpenNap network] to be able to capture email
addresses of [its] initial target market so that [it] could promote [its] StreamCast Morpheus interface to
them,” App. 861; indeed, the OpenNap program was engineered “ ‘to leverage Napster's 50 million user
base,’ ” id., at 746.

StreamCast monitored both the number of users downloading its OpenNap program and the number of
music files they downloaded. Id., at 859, 863, 866. It also used the resulting OpenNap network to
distribute copies of the Morpheus software and to encourage users to adopt it. Id., at 861, 867, 1039.
Internal company documents indicate that StreamCast hoped to attract large numbers of former
Napster users if that company was shut down by court order or otherwise, and that StreamCast planned
to be the next Napster. Id., at 861. A kit developed by StreamCast to be delivered to advertisers, for
example, contained press articles about StreamCast's potential to capture former Napster users, id., at
568–572, and it introduced itself to some potential advertisers as a company “which is similar to what
Napster was,” id., at 884. It broadcast banner advertisements to users of other Napster-compatible
software, urging them to adopt its OpenNap. Id., at 586. An internal e-mail from a company executive
stated: “ ‘We have put this network in *925 place so that when Napster pulls the plug on their free
service ... or if the Court orders them shut down prior to that ... we will be positioned to capture the
flood of their 32 million users that will be actively looking for an alternative.’ ” Id., at 588–589, 861.

Thus, StreamCast developed promotional materials to market its service as the best Napster alternative.
One proposed advertisement read: “Napster Inc. has announced that it will soon begin charging you a
fee. That's if the courts don't order it shut down first. What will you do to get around it?” Id., at 897.
Another proposed ad touted StreamCast's software as the “# 1 alternative to Napster” and asked
“[w]hen the lights went off at Napster ... where did the users go?” Id., at 836 (ellipsis in original).FN7
StreamCast even planned to flaunt the illegal uses of its software; when it launched the OpenNap
network, the chief technology officer of the company averred that “[t]he goal is to get in trouble with
the law and get sued. It's the best way to get in the new[s].” Id., at 916.

FN7. The record makes clear that StreamCast developed these promotional materials but not whether it
released them to the public. Even if these advertisements were not released to the public and do not
show encouragement to infringe, they illuminate StreamCast's purposes.

The evidence that Grokster sought to capture the market of former Napster users is sparser but
revealing, for Grokster launched its own OpenNap system called Swaptor and inserted digital codes into
its Web site so that computer users using Web search engines to look for “Napster” or “[f]ree file
sharing” would be directed to the Grokster Web site, where they could download the Grokster software.
Id., at 992–993. And Grokster's name is an apparent derivative of Napster.

StreamCast's executives monitored the number of songs by certain commercial artists available on their
networks, and an internal communication indicates they aimed to have a larger number of copyrighted
songs available on their networks*926 than other file-sharing networks.**2774 Id., at 868. The point, of
course, would be to attract users of a mind to infringe, just as it would be with their promotional
materials developed showing copyrighted songs as examples of the kinds of files available through
Morpheus. Id., at 848. Morpheus in fact allowed users to search specifically for “Top 40” songs, id., at
735, which were inevitably copyrighted. Similarly, Grokster sent users a newsletter promoting its ability
to provide particular, popular copyrighted materials. Brief for Motion Picture Studio and Recording
Company Petitioners 7–8.
In addition to this evidence of express promotion, marketing, and intent to promote further, the
business models employed by Grokster and StreamCast confirm that their principal object was use of
their software to download copyrighted works. Grokster and StreamCast receive no revenue from users,
who obtain the software itself for nothing. Instead, both companies generate income by selling
advertising space, and they stream the advertising to Grokster and Morpheus users while they are
employing the programs. As the number of users of each program increases, advertising opportunities
become worth more. Cf. App. 539, 804. While there is doubtless some demand for free Shakespeare,
the evidence shows that substantive volume is a function of free access to copyrighted work. Users
seeking Top 40 songs, for example, or the latest release by Modest Mouse, are certain to be far more
numerous than those seeking a free Decameron, and Grokster and StreamCast translated that demand
into dollars.

Finally, there is no evidence that either company made an effort to filter copyrighted material from
users' downloads or otherwise impede the sharing of copyrighted files. Although Grokster appears to
have sent e-mails warning users about infringing content when it received threatening notice from the
copyright holders, it never blocked anyone from continuing to use its software to share copyrighted
files. *927 Id., at 75–76. StreamCast not only rejected another company's offer of help to monitor
infringement, id., at 928–929, but blocked the Internet Protocol addresses of entities it believed were
trying to engage in such monitoring on its networks, id., at 917–922.

After discovery, the parties on each side of the case cross-moved for summary judgment. The District
Court limited its consideration to the asserted liability of Grokster and StreamCast for distributing the
current versions of their software, leaving aside whether either was liable “for damages arising from
past versions of their software, or from other past activities.” 259 F.Supp.2d 1029, 1033 (C.D.Cal.2003).
The District Court held that those who used the Grokster and Morpheus software to download
copyrighted media files directly infringed MGM's copyrights, a conclusion not contested on appeal, but
the court nonetheless granted summary judgment in favor of Grokster and StreamCast as to any liability
arising from distribution of the then-current versions of their software. Distributing that software gave
rise to no liability in the court's view, because its use did not provide the distributors with actual
knowledge of specific acts of infringement. Case No. CV 01 08541 SVW (PJWx) (CD Cal., June 18, 2003),
App. 1213.

The Court of Appeals affirmed. 380 F.3d 1154 (C.A.9 2004). In the court's analysis, a defendant was liable
as a contributory infringer when it had knowledge of direct infringement and materially contributed to
the infringement. But the court read **2775 Sony Corp. of America v. Universal City Studios, Inc., 464
U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984), as holding that distribution of a commercial product
capable of substantial noninfringing uses could not give rise to contributory liability for infringement
unless the distributor had actual knowledge of specific instances of infringement and failed to act on
that knowledge. The fact that the software was capable of substantial noninfringing uses in the Ninth
Circuit's view meant *928 that Grokster and StreamCast were not liable, because they had no such
actual knowledge, owing to the decentralized architecture of their software. The court also held that
Grokster and StreamCast did not materially contribute to their users' infringement because it was the
users themselves who searched for, retrieved, and stored the infringing files, with no involvement by
the defendants beyond providing the software in the first place.

The Ninth Circuit also considered whether Grokster and StreamCast could be liable under a theory of
vicarious infringement. The court held against liability because the defendants did not monitor or
control the use of the software, had no agreed-upon right or current ability to supervise its use, and had
no independent duty to police infringement. We granted certiorari. 543 U.S. 1032, 125 S.Ct. 686, 160
L.Ed.2d 518 (2004).

II

MGM and many of the amici fault the Court of Appeals's holding for upsetting a sound balance between
the respective values of supporting creative pursuits through copyright protection and promoting
innovation in new communication technologies by limiting the incidence of liability for copyright
infringement. The more artistic protection is favored, the more technological innovation may be
discouraged; the administration of copyright law is an exercise in managing the tradeoff. See Sony Corp.
v. Universal City Studios, supra, at 442, 104 S.Ct. 774; see generally Ginsburg, Copyright and Control
Over New Technologies of Dissemination, 101 Colum. L.Rev. 1613 (2001); Lichtman & Landes, Indirect
Liability for Copyright Infringement: An Economic Perspective, 16 Harv. J.L. & Tech. 395 (2003).

The tension between the two values is the subject of this case, with its claim that digital distribution of
copyrighted material threatens copyright holders as never before, because every copy is identical to the
original, copying is easy, *929 and many people (especially the young) use file-sharing software to
download copyrighted works. This very breadth of the software's use may well draw the public directly
into the debate over copyright policy, Peters, Brace Memorial Lecture: Copyright Enters the Public
Domain, 51 J. Copyright Soc. 701, 705–717 (2004) (address by Register of Copyrights), and the
indications are that the ease of copying songs or movies using software like Grokster's and Napster's is
fostering disdain for copyright protection, Wu, When Code Isn't Law, 89 Va. L.Rev. 679, 724–726 (2003).
As the case has been presented to us, these fears are said to be offset by the different concern that
imposing liability, not only on infringers but on distributors of software based on its potential for
unlawful use, could limit further development of beneficial technologies. See, e.g., Lemley & Reese,
Reducing Digital Copyright Infringement Without Restricting Innovation, 56 Stan. L.Rev. 1345, 1386–
1390 (2004); Brief for Innovation Scholars and Economists as Amici Curiae 15–20; Brief for Emerging
Technology Companies as Amici Curiae 19–25; Brief for Intel Corporation**2776 as Amicus Curiae 20–
22.FN8
FN8. The mutual exclusivity of these values should not be overstated, however. On the one hand
technological innovators, including those writing file-sharing computer programs, may wish for effective
copyright protections for their work. See, e.g., Wu, When Code Isn't Law, 89 Va. L.Rev. 679, 750 (2003).
(StreamCast itself was urged by an associate to “get [its] technology written down and [its intellectual
property] protected.” App. 866.) On the other hand the widespread distribution of creative works
through improved technologies may enable the synthesis of new works or generate audiences for
emerging artists. See Eldred v. Ashcroft, 537 U.S. 186, 223–226, 123 S.Ct. 769, 154 L.Ed.2d 683 (2003)
(STEVENS, J., dissenting); Van Houweling, Distributive Values in Copyright, 83 Texas L.Rev. 1535, 1539–
1540, 1562–1564 (2005); Brief for Sovereign Artists et al. as Amici Curiae 11.

The argument for imposing indirect liability in this case is, however, a powerful one, given the number of
infringing downloads that occur every day using StreamCast's and Grokster's software. When a widely
shared service or product is used to commit infringement, it may be impossible to *930 enforce rights in
the protected work effectively against all direct infringers, the only practical alternative being to go
against the distributor of the copying device for secondary liability on a theory of contributory or
vicarious infringement. See In re Aimster Copyright Litigation, 334 F.3d 643, 645–646 (C.A.7 2003).

[1] One infringes contributorily by intentionally inducing or encouraging direct infringement, see
Gershwin Pub. Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (C.A.2 1971), and
infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or
limit it, Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 307 (C.A.2 1963).FN9 Although “[t]he
Copyright Act does not expressly render anyone liable for infringement committed by another,” Sony
Corp. v. Universal City Studios, 464 U.S., at 434, 104 S.Ct. 774, these doctrines of secondary liability
emerged from common law principles and are well established in the law, id., at 486, 104 S.Ct. 774
(Blackmun, J., dissenting); Kalem Co. v. Harper Brothers, 222 U.S. 55, 62–63, 32 S.Ct. 20, 56 L.Ed. 92
(1911); *931 Gershwin Pub. Corp. v. Columbia Artists Management, supra, at 1162; 3 M. Nimmer & D.
Nimmer, Copyright § 12.04[A] (2005).

FN9. We stated in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78
L.Ed.2d 574 (1984), that “ ‘the lines between direct infringement, contributory infringement and
vicarious liability are not clearly drawn’ ....[R]easoned analysis of [the Sony plaintiffs' contributory
infringement claim] necessarily entails consideration of arguments and case law which may also be
forwarded under the other labels, and indeed the parties ... rely upon such arguments and authority in
support of their respective positions on the issue of contributory infringement,” id., at 435, n. 17, 104
S.Ct. 774 (quoting Universal City Studios, Inc. v. Sony Corp. of America, 480 F.Supp. 429, 457–458
(C.D.Cal.1979)). In the present case MGM has argued a vicarious liability theory, which allows imposition
of liability when the defendant profits directly from the infringement and has a right and ability to
supervise the direct infringer, even if the defendant initially lacks knowledge of the infringement. See,
e.g., Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 308 (C.A.2 1963); Dreamland Ball Room,
Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354, 355 (C.A.7 1929). Because we resolve the case based on an
inducement theory, there is no need to analyze separately MGM's vicarious liability theory.

Despite the currency of these principles of secondary liability, this Court has dealt with secondary
copyright infringement in only one recent case, and because MGM has tailored its principal claim to our
opinion there, a look at our earlier holding is in order. In **2777 Sony Corp. v. Universal City Studios,
supra, this Court addressed a claim that secondary liability for infringement can arise from the very
distribution of a commercial product. There, the product, novel at the time, was what we know today as
the videocassette recorder or VCR. Copyright holders sued Sony as the manufacturer, claiming it was
contributorily liable for infringement that occurred when VCR owners taped copyrighted programs
because it supplied the means used to infringe, and it had constructive knowledge that infringement
would occur. At the trial on the merits, the evidence showed that the principal use of the VCR was for “
‘time-shifting,’ ” or taping a program for later viewing at a more convenient time, which the Court found
to be a fair, not an infringing, use. Id., at 423–424, 104 S.Ct. 774. There was no evidence that Sony had
expressed an object of bringing about taping in violation of copyright or had taken active steps to
increase its profits from unlawful taping. Id., at 438, 104 S.Ct. 774. Although Sony's advertisements
urged consumers to buy the VCR to “ ‘record favorite shows' ” or “ ‘build a library’ ” of recorded
programs, id., at 459, 104 S.Ct. 774 (Blackmun, J., dissenting), neither of these uses was necessarily
infringing, id., at 424, 454–455, 104 S.Ct. 774.

On those facts, with no evidence of stated or indicated intent to promote infringing uses, the only
conceivable basis for imposing liability was on a theory of contributory infringement arising from its sale
of VCRs to consumers with knowledge that some would use them to infringe. Id., at 439, 104 S.Ct. 774.
But because the VCR was “capable of commercially significant noninfringing uses,” we held the
manufacturer *932 could not be faulted solely on the basis of its distribution. Id., at 442, 104 S.Ct. 774.

[2] [3] This analysis reflected patent law's traditional staple article of commerce doctrine, now
codified, that distribution of a component of a patented device will not violate the patent if it is suitable
for use in other ways. 35 U.S.C. § 271(c); Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476,
485, 84 S.Ct. 1526, 12 L.Ed.2d 457 (1964) (noting codification of cases); id., at 486, n. 6, 84 S.Ct. 1526
(same). The doctrine was devised to identify instances in which it may be presumed from distribution of
an article in commerce that the distributor intended the article to be used to infringe another's patent,
and so may justly be held liable for that infringement. “One who makes and sells articles which are only
adapted to be used in a patented combination will be presumed to intend the natural consequences of
his acts; he will be presumed to intend that they shall be used in the combination of the patent.” New
York Scaffolding Co. v. Whitney, 224 F. 452, 459 (C.A.8 1915); see also James Heekin Co. v. Baker, 138 F.
63, 66 (C.A.8 1905); Canda v. Michigan Malleable Iron Co., 124 F. 486, 489 (C.A.6 1903); Thomson–
Houston Electric Co. v. Ohio Brass Co., 80 F. 712, 720–721 (C.A.6 1897); Red Jacket Mfg. Co. v. Davis, 82
F. 432, 439 (C.A.7 1897); Holly v. Vergennes Machine Co., 4 F. 74, 82 (C.C.D.Vt.1880); Renwick v. Pond,
20 F.Cas. 536, 541 (No. 11,702) (C.C.S.D.N.Y.1872).
[4] [5] In sum, where an article is “good for nothing else” but infringement, Canda v. Michigan
Malleable Iron Co., supra, at 489, there is no legitimate public interest in its unlicensed availability, and
there is no injustice in presuming or imputing an intent to infringe, see Henry v. A.B. Dick Co., 224 U.S. 1,
48, 32 S.Ct. 364, 56 L.Ed. 645 (1912), overruled on other grounds, Motion Picture Patents Co. v.
Universal Film Mfg. Co., 243 U.S. 502, 37 S.Ct. 416, 61 L.Ed. 871 (1917). Conversely, the doctrine**2778
absolves the equivocal conduct of selling an item with substantial lawful as well as unlawful uses, and
limits liability to instances of more acute *933 fault than the mere understanding that some of one's
products will be misused. It leaves breathing room for innovation and a vigorous commerce. See Sony
Corp. v. Universal City Studios, 464 U.S., at 442, 104 S.Ct. 774; Dawson Chemical Co. v. Rohm & Haas Co.,
448 U.S. 176, 221, 100 S.Ct. 2601, 65 L.Ed.2d 696 (1980); Henry v. A.B. Dick Co., supra, at 48, 32 S.Ct.
364.

[6] The parties and many of the amici in this case think the key to resolving it is the Sony rule and, in
particular, what it means for a product to be “capable of commercially significant noninfringing uses.”
Sony Corp. v. Universal City Studios, supra, at 442, 104 S.Ct. 774. MGM advances the argument that
granting summary judgment to Grokster and StreamCast as to their current activities gave too much
weight to the value of innovative technology, and too little to the copyrights infringed by users of their
software, given that 90% of works available on one of the networks was shown to be copyrighted.
Assuming the remaining 10% to be its noninfringing use, MGM says this should not qualify as
“substantial,” and the Court should quantify Sony to the extent of holding that a product used
“principally” for infringement does not qualify. See Brief for Motion Picture Studio and Recording
Company Petitioners 31. As mentioned before, Grokster and StreamCast reply by citing evidence that
their software can be used to reproduce public domain works, and they point to copyright holders who
actually encourage copying. Even if infringement is the principal practice with their software today, they
argue, the noninfringing uses are significant and will grow.

We agree with MGM that the Court of Appeals misapplied Sony, which it read as limiting secondary
liability quite beyond the circumstances to which the case applied. Sony barred secondary liability based
on presuming or imputing intent to cause infringement solely from the design or distribution of a
product capable of substantial lawful use, which the distributor knows is in fact used for infringement.
The *934 Ninth Circuit has read Sony's limitation to mean that whenever a product is capable of
substantial lawful use, the producer can never be held contributorily liable for third parties' infringing
use of it; it read the rule as being this broad, even when an actual purpose to cause infringing use is
shown by evidence independent of design and distribution of the product, unless the distributors had
“specific knowledge of infringement at a time at which they contributed to the infringement, and failed
to act upon that information.” 380 F.3d, at 1162 (internal quotation marks and brackets omitted).
Because the Circuit found the StreamCast and Grokster software capable of substantial lawful use, it
concluded on the basis of its reading of Sony that neither company could be held liable, since there was
no showing that their software, being without any central server, afforded them knowledge of specific
unlawful uses.
This view of Sony, however, was error, converting the case from one about liability resting on imputed
intent to one about liability on any theory. Because Sony did not displace other theories of secondary
liability, and because we find below that it was error to grant summary judgment to the companies on
MGM's inducement claim, we do not revisit Sony further, as MGM requests, to add a more quantified
description of the point of balance between protection and commerce when liability rests solely on
distribution with knowledge that unlawful use will occur. It is enough **2779 to note that the Ninth
Circuit's judgment rested on an erroneous understanding of Sony and to leave further consideration of
the Sony rule for a day when that may be required.

[7] [8] Sony's rule limits imputing culpable intent as a matter of law from the characteristics or
uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is
such evidence, and the case was never meant to foreclose rules of fault-based liability derived from
*935 the common law.FN10 Sony Corp. v. Universal City Studios, supra, at 439, 104 S.Ct. 774 (“If
vicarious liability is to be imposed on Sony in this case, it must rest on the fact that it has sold equipment
with constructive knowledge” of the potential for infringement). Thus, where evidence goes beyond a
product's characteristics or the knowledge that it may be put to infringing uses, and shows statements
or actions directed to promoting infringement, Sony's staple-article rule will not preclude liability.

FN10. Nor does the Patent Act's exemption from liability for those who distribute a staple article of
commerce, 35 U.S.C. § 271(c), extend to those who induce patent infringement, § 271(b).

The classic case of direct evidence of unlawful purpose occurs when one induces commission of
infringement by another, or “entic[es] or persuad[es] another” to infringe, Black's Law Dictionary 790
(8th ed.2004), as by advertising. Thus at common law a copyright or patent defendant who “not only
expected but invoked [infringing use] by advertisement” was liable for infringement “on principles
recognized in every part of the law.” Kalem Co. v. Harper Brothers, 222 U.S., at 62–63, 32 S.Ct. 20
(copyright infringement). See also Henry v. A.B. Dick Co., 224 U.S., at 48–49, 32 S.Ct. 364 (contributory
liability for patent infringement may be found where a good's “most conspicuous use is one which will
co–operate in an infringement when sale to such user is invoked by advertisement” of the infringing
use); Thomson–Houston Electric Co. v. Kelsey Electric R. Specialty Co., 75 F. 1005, 1007–1008 (C.A.2
1896) (relying on advertisements and displays to find defendant's “willingness ... to aid other persons in
any attempts which they may be disposed to make towards [patent] infringement”); Rumford Chemical
Works v. Hecker, 20 F.Cas. 1342, 1346 (No. 12,133) (C.C.D.N.J.1876) (demonstrations of infringing
activity along with “avowals of the [infringing] purpose and use for which it was made” supported
liability for patent infringement).
[9] *936 The rule on inducement of infringement as developed in the early cases is no different
today.FN11 Evidence of “active steps ... taken to encourage direct infringement,” Oak Industries, Inc. v.
Zenith Electronics Corp., 697 F.Supp. 988, 992 (N.D.Ill.1988), such as advertising an infringing use or
instructing how to engage in an infringing use, show an affirmative intent that the product be used to
infringe, and a showing that infringement was encouraged overcomes the law's reluctance to find
liability when a defendant merely sells a commercial product suitable for some lawful use, see, e.g.,
Water Technologies Corp. v. Calco, Ltd., 850 F.2d 660, 668 (C.A.Fed.1988) (liability for inducement
where one “actively and knowingly aid [s] and abet[s] another's direct infringement” (emphasis
deleted)); Fromberg, Inc. v. Thornhill, 315 F.2d 407, 412–413 (C.A.5 1963) (demonstrations by sales staff
of infringing**2780 uses supported liability for inducement); Haworth Inc. v. Herman Miller Inc., 37
U.S.P.Q.2d 1080, 1090, 1994 WL 875931 (W.D.Mich.1994) (evidence that defendant “demonstrate[d]
and recommend[ed] infringing configurations” of its product could support inducement liability); Sims v.
Mack Trucks, Inc., 459 F.Supp. 1198, 1215 (E.D.Pa.1978) (finding inducement where the use “depicted
by the defendant in its promotional film and brochures infringes the ... patent”), overruled on other
grounds, 608 F.2d 87 (C.A.3 1979). Cf. W. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser and Keeton
on Law of Torts 37 (5th ed. 1984) (“There is a definite tendency to impose greater responsibility upon a
defendant whose conduct was intended to do harm, or was morally wrong”).

FN11. Inducement has been codified in patent law. Ibid.

[10] [11] For the same reasons that Sony took the staple-article doctrine of patent law as a model
for its copyright safe-harbor rule, the inducement rule, too, is a sensible one for copyright. We adopt it
here, holding that one who distributes a device with the object of promoting its use to infringe
copyright, as *937 shown by clear expression or other affirmative steps taken to foster infringement, is
liable for the resulting acts of infringement by third parties. We are, of course, mindful of the need to
keep from trenching on regular commerce or discouraging the development of technologies with lawful
and unlawful potential. Accordingly, just as Sony did not find intentional inducement despite the
knowledge of the VCR manufacturer that its device could be used to infringe, 464 U.S., at 439, n. 19, 104
S.Ct. 774, mere knowledge of infringing potential or of actual infringing uses would not be enough here
to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as
offering customers technical support or product updates, support liability in themselves. The
inducement rule, instead, premises liability on purposeful, culpable expression and conduct, and thus
does nothing to compromise legitimate commerce or discourage innovation having a lawful promise.

III

The only apparent question about treating MGM's evidence as sufficient to withstand summary
judgment under the theory of inducement goes to the need on MGM's part to adduce evidence that
StreamCast and Grokster communicated an inducing message to their software users. The classic
instance of inducement is by advertisement or solicitation that broadcasts a message designed to
stimulate others to commit violations. MGM claims that such a message is shown here. It is undisputed
that StreamCast beamed onto the computer screens of users of Napster-compatible programs ads
urging the adoption of its OpenNap program, which was designed, as its name implied, to invite the
custom of patrons of Napster, then under attack in the courts for facilitating massive infringement.
Those who accepted StreamCast's OpenNap program were offered software to perform the same
services, which a factfinder could conclude *938 would readily have been understood in the Napster
market as the ability to download copyrighted music files. Grokster distributed an electronic newsletter
containing links to articles promoting its software's ability to access popular copyrighted music. And
anyone whose Napster or free file-sharing searches turned up a link to Grokster would have understood
Grokster to be offering the same file-sharing ability as Napster, and to the same people who probably
used Napster for infringing downloads; that would also have been the understanding of anyone offered
Grokster's**2781 suggestively named Swaptor software, its version of OpenNap. And both companies
communicated a clear message by responding affirmatively to requests for help in locating and playing
copyrighted materials.

[12] In StreamCast's case, of course, the evidence just described was supplemented by other
unequivocal indications of unlawful purpose in the internal communications and advertising designs
aimed at Napster users (“When the lights went off at Napster ... where did the users go?” App. 836
(ellipsis in original)). Whether the messages were communicated is not to the point on this record. The
function of the message in the theory of inducement is to prove by a defendant's own statements that
his unlawful purpose disqualifies him from claiming protection (and incidentally to point to actual
violators likely to be found among those who hear or read the message). See supra, at 2779–2780.
Proving that a message was sent out, then, is the preeminent but not exclusive way of showing that
active steps were taken with the purpose of bringing about infringing acts, and of showing that
infringing acts took place by using the device distributed. Here, the summary judgment record is replete
with other evidence that Grokster and StreamCast, unlike the manufacturer and distributor in Sony,
acted with a purpose to cause copyright violations by use of software suitable for illegal use. See supra,
at 2772–2774.

*939 Three features of this evidence of intent are particularly notable. First, each company showed itself
to be aiming to satisfy a known source of demand for copyright infringement, the market comprising
former Napster users. StreamCast's internal documents made constant reference to Napster, it initially
distributed its Morpheus software through an OpenNap program compatible with Napster, it advertised
its OpenNap program to Napster users, and its Morpheus software functions as Napster did except that
it could be used to distribute more kinds of files, including copyrighted movies and software programs.
Grokster's name is apparently derived from Napster, it too initially offered an OpenNap program, its
software's function is likewise comparable to Napster's, and it attempted to divert queries for Napster
onto its own Web site. Grokster and StreamCast's efforts to supply services to former Napster users,
deprived of a mechanism to copy and distribute what were overwhelmingly infringing files, indicate a
principal, if not exclusive, intent on the part of each to bring about infringement.
[13] Second, this evidence of unlawful objective is given added significance by MGM's showing that
neither company attempted to develop filtering tools or other mechanisms to diminish the infringing
activity using their software. While the Ninth Circuit treated the defendants' failure to develop such
tools as irrelevant because they lacked an independent duty to monitor their users' activity, we think
this evidence underscores Grokster's and StreamCast's intentional facilitation of their users'
infringement. FN12

FN12. Of course, in the absence of other evidence of intent, a court would be unable to find
contributory infringement liability merely based on a failure to take affirmative steps to prevent
infringement, if the device otherwise was capable of substantial noninfringing uses. Such a holding
would tread too close to the Sony safe harbor.

[14] Third, there is a further complement to the direct evidence of unlawful objective. It is useful to
recall that StreamCast *940 and Grokster make money by selling advertising space, by directing ads to
the screens of computers employing their software. As the record shows, the **2782 more the software
is used, the more ads are sent out and the greater the advertising revenue becomes. Since the extent of
the software's use determines the gain to the distributors, the commercial sense of their enterprise
turns on high-volume use, which the record shows is infringing. FN13 This evidence alone would not
justify an inference of unlawful intent, but viewed in the context of the entire record its import is clear.

FN13. Grokster and StreamCast contend that any theory of liability based on their conduct is not
properly before this Court because the rulings in the trial and appellate courts dealt only with the
present versions of their software, not “past acts ... that allegedly encouraged infringement or assisted
... known acts of infringement.” Brief for Respondents 14; see also id., at 34. This contention
misapprehends the basis for their potential liability. It is not only that encouraging a particular consumer
to infringe a copyright can give rise to secondary liability for the infringement that results. Inducement
liability goes beyond that, and the distribution of a product can itself give rise to liability where evidence
shows that the distributor intended and encouraged the product to be used to infringe. In such a case,
the culpable act is not merely the encouragement of infringement but also the distribution of the tool
intended for infringing use. See Kalem Co. v. Harper Brothers, 222 U.S. 55, 62–63, 32 S.Ct. 20, 56 L.Ed. 92
(1911); Cable/Home Communication Corp. v. Network Productions, Inc., 902 F.2d 829, 846 (C.A.11
1990); A&M Records, Inc. v. Abdallah, 948 F.Supp. 1449, 1456 (C.D.Cal.1996).

The unlawful objective is unmistakable.

In addition to intent to bring about infringement and distribution of a device suitable for infringing use,
the inducement theory of course requires evidence of actual infringement by recipients of the device,
the software in this case. As the account of the facts indicates, there is evidence of infringement on a
gigantic scale, and there is no serious issue of the adequacy of MGM's showing on this point in order to
survive the companies' summary judgment requests. Although*941 an exact calculation of infringing
use, as a basis for a claim of damages, is subject to dispute, there is no question that the summary
judgment evidence is at least adequate to entitle MGM to go forward with claims for damages and
equitable relief.

***

In sum, this case is significantly different from Sony and reliance on that case to rule in favor of
StreamCast and Grokster was error. Sony dealt with a claim of liability based solely on distributing a
product with alternative lawful and unlawful uses, with knowledge that some users would follow the
unlawful course. The case struck a balance between the interests of protection and innovation by
holding that the product's capability of substantial lawful employment should bar the imputation of
fault and consequent secondary liability for the unlawful acts of others.

MGM's evidence in this case most obviously addresses a different basis of liability for distributing a
product open to alternative uses. Here, evidence of the distributors' words and deeds going beyond
distribution as such shows a purpose to cause and profit from third-party acts of copyright infringement.
If liability for inducing infringement is ultimately found, it will not be on the basis of presuming or
imputing fault, but from inferring a patently illegal objective from statements and actions showing what
that objective was.

There is substantial evidence in MGM's favor on all elements of inducement, and summary judgment in
favor of Grokster and StreamCast was error. On remand, reconsideration of MGM's motion for summary
judgment will be in order.

**2783 The judgment of the Court of Appeals is vacated, and the case is remanded for further
proceedings consistent with this opinion.

It is so ordered.

Justice GINSBURG, with whom THE CHIEF JUSTICE and Justice KENNEDY join, concurring

*942 I concur in the Court's decision, which vacates in full the judgment of the Court of Appeals for the
Ninth Circuit, ante, at 2782–2783, and write separately to clarify why I conclude that the Court of
Appeals misperceived, and hence misapplied, our holding in Sony Corp. of America v. Universal City
Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984). There is here at least a “genuine issue as
to [a] material fact,” Fed. Rule Civ. Proc. 56(c), on the liability of Grokster or StreamCast, not only for
actively inducing copyright infringement, but also, or alternatively, based on the distribution of their
software products, for contributory copyright infringement. On neither score was summary judgment
for Grokster and StreamCast warranted.

At bottom, however labeled, the question in this case is whether Grokster and StreamCast are liable for
the direct infringing acts of others. Liability under our jurisprudence may be predicated on actively
encouraging (or inducing) infringement through specific acts (as the Court's opinion develops) or on
distributing a product distributees use to infringe copyrights, if the product is not capable of
“substantial” or “commercially significant” noninfringing uses. Sony, 464 U.S., at 442, 104 S.Ct. 774; see
also 3 M. Nimmer & D. Nimmer, Nimmer on Copyright § 12.04[A][2] (2005). While the two categories
overlap, they capture different culpable behavior. Long coexisting, both are now codified in patent law.
Compare 35 U.S.C. § 271(b) (active inducement liability) with § 271(c) (contributory liability for
distribution of a product not “suitable for substantial noninfringing use”).

In Sony, 464 U.S. 417, 104 S.Ct. 774, the Court considered Sony's liability for selling the Betamax
videocassette recorder. It did so enlightened by a full trial record. Drawing an analogy to the staple
article of commerce doctrine from patent law, *943 the Sony Court observed that the “sale of an article
... adapted to [a patent] infringing use” does not suffice “to make the seller a contributory infringer” if
the article “is also adapted to other and lawful uses.” Id., at 441, 104 S.Ct. 774 (quoting Henry v. A.B.
Dick Co., 224 U.S. 1, 48, 32 S.Ct. 364, 56 L.Ed. 645 (1912), overruled on other grounds, Motion Picture
Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 517, 37 S.Ct. 416, 61 L.Ed. 871 (1917)).

“The staple article of commerce doctrine” applied to copyright, the Court stated, “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 unrelated areas of
commerce.” Sony, 464 U.S., at 442, 104 S.Ct. 774. “Accordingly,” the Court held, “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.” Ibid. Thus, to resolve the Sony case, the Court explained, it had to
determine “whether the Betamax is capable of commercially significant noninfringing uses.” Ibid.

To answer that question, the Court considered whether “a significant number of [potential uses of the
Betamax were] noninfringing.” Ibid. The Court homed in on **2784 one potential use—private,
noncommercial time-shifting of television programs in the home ( i.e., recording a broadcast TV program
for later personal viewing). Time-shifting was noninfringing, the Court concluded, because in some cases
trial testimony showed it was authorized by the copyright holder, id., at 443–447, 104 S.Ct. 774, and in
others it qualified as legitimate fair use, id., at 447–455, 104 S.Ct. 774. Most purchasers used the
Betamax principally to engage in time-shifting, id., at 421, 423, 104 S.Ct. 774, a use that “plainly
satisfie[d]” the Court's standard, id., at 442, 104 S.Ct. 774. Thus, there was no need in Sony to “give
precise content to the question of how much [actual or potential] use is commercially*944 significant.”
Ibid. FN1 Further development was left for later days and cases.

FN1. Justice BREYER finds in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct.
774, 78 L.Ed.2d 574 (1984), a “ clear” rule permitting contributory liability for copyright infringement
based on distribution of a product only when the product “will be used almost exclusively to infringe
copyrights.” Post, at 2791. But cf. Sony, 464 U.S., at 442, 104 S.Ct. 774 (recognizing “copyright holder's
legitimate demand for effective—not merely symbolic—protection”). Sony, as I read it, contains no
clear, near-exclusivity test. Nor have Courts of Appeals unanimously recognized Justice BREYER's clear
rule. Compare A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1021 (C.A.9 2001) (“[E]vidence of
actual knowledge of specific acts of infringement is required to hold a computer system operator liable
for contributory copyright infringement.”), with In re Aimster Copyright Litigation, 334 F.3d 643, 649–
650 (C.A.7 2003) (“[W]hen a supplier is offering a product or service that has noninfringing as well as
infringing uses, some estimate of the respective magnitudes of these uses is necessary for a finding of
contributory infringement. ... But the balancing of costs and benefits is necessary only in a case in which
substantial noninfringing uses, present or prospective, are demonstrated.”). See also Matthew Bender &
Co. v. West Pub. Co., 158 F.3d 693, 707 (C.A.2 1998) (“The Supreme Court applied [the Sony ] test to
prevent copyright holders from leveraging the copyrights in their original work to control distribution of
... products that might be used incidentally for infringement, but that had substantial noninfringing
uses.... The same rationale applies here [to products] that have substantial, predominant and
noninfringing uses as tools for research and citation.”). All Members of the Court agree, moreover, that
“the Court of Appeals misapplied Sony,” at least to the extent it read that decision to limit “secondary
liability” to a hardly ever category, “quite beyond the circumstances to which the case applied.” Ante, at
2778.

The Ninth Circuit went astray, I will endeavor to explain, when that court granted summary judgment to
Grokster and StreamCast on the charge of contributory liability based on distribution of their software
products. Relying on its earlier opinion in A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (C.A.9
2001), the Court of Appeals held that “if substantial noninfringing use was shown, the copyright owner
would be required to show that the defendant had reasonable knowledge of specific infringing files.”
380 F.3d 1154, 1161 (C.A.9 2004). “A careful examination of the record,” the *945 court concluded,
“indicates that there is no genuine issue of material fact as to noninfringing use.” Ibid. The appeals court
pointed to the band Wilco, which made one of its albums available for free downloading, to other
recording artists who may have authorized free distribution of their music through the Internet, and to
public domain literary works and films available through Grokster's and StreamCast's software. Ibid.
Although it acknowledged petitioners' (hereinafter MGM) assertion that “the vast majority of the
software use is for copyright infringement,” the court concluded that Grokster's and StreamCast's
proffered evidence met Sony's requirement that “a product need only be capable of substantial
noninfringing**2785 uses.” 380 F.3d, at 1162.FN2

FN2. Grokster and StreamCast, in the Court of Appeals' view, would be entitled to summary judgment
unless MGM could show that that the software companies had knowledge of specific acts of
infringement and failed to act on that knowledge—a standard the court held MGM could not meet. 380
F.3d, at 1162–1163.

This case differs markedly from Sony. Cf. Peters, Brace Memorial Lecture: Copyright Enters the Public
Domain, 51 J. Copyright Soc. 701, 724 (2004) (“The Grokster panel's reading of Sony is the broadest that
any court has given it ....”). Here, there has been no finding of any fair use and little beyond anecdotal
evidence of noninfringing uses. In finding the Grokster and StreamCast software products capable of
substantial noninfringing uses, the District Court and the Court of Appeals appear to have relied largely
on declarations submitted by the defendants. These declarations include assertions (some of them
hearsay) that a number of copyright owners authorize distribution of their works on the Internet and
that some public domain material is available through peer-to-peer networks including those accessed
through Grokster's and StreamCast's software. 380 F.3d, at 1161, 259 F.Supp.2d 1029, 1035–1036
(C.D.Cal.2004); App. 125–171.

*946 The District Court declared it “undisputed that there are substantial noninfringing uses for
Defendants' software,” thus obviating the need for further proceedings. 259 F.Supp.2d, at 1035. This
conclusion appears to rest almost entirely on the collection of declarations submitted by Grokster and
StreamCast. Ibid. Review of these declarations reveals mostly anecdotal evidence, sometimes obtained
secondhand, of authorized copyrighted works or public domain works available online and shared
through peer-to-peer networks, and general statements about the benefits of peer-to-peer technology.
See, e.g., Decl. of Janis Ian ¶ 13, App. 128 (“P2P technologies offer musicians an alternative channel for
promotion and distribution.”); Decl. of Gregory Newby ¶ 12, id., at 136 (“Numerous authorized and
public domain Project Gutenberg eBooks are made available on Morpheus, Kazaa, Gnutella, Grokster,
and similar software products.”); Decl. of Aram Sinnreich ¶ 6, id., at 151 (“file sharing seems to have a
net positive impact on music sales”); Decl. of John Busher ¶ 8, id., at 166 (“I estimate that Acoustica
generates sales of between $1,000 and $10,000 per month as a result of the distribution of its trialware
software through the Gnutella and FastTrack Networks.”); Decl. of Patricia D. Hoekman ¶¶ 3–4, id., at
169–170 (search on Morpheus for “President Bush speeches” found several video recordings, searches
for “Declaration of Independence” and “Bible” found various documents and declarant was able to
download a copy of the Declaration); Decl. of Sean L. Mayers ¶ 11, id., at 67 (“Existing open,
decentralized peer-to-peer file-sharing networks ... offer content owners distinct business advantages
over alternate online distribution technologies.”). Compare Decl. of Brewster Kahle ¶ 20, id., at 142
(“Those who download the Prelinger films ... are entitled to redistribute those files, and the Archive
welcomes their redistribution by the Morpheus–Grokster–KaZaa community of users.”), with Deposition
of Brewster Kahle (Sept. 18, *947 2002), id., at 396–403 (testifying that he has no knowledge of any
person downloading a Prelinger film using Morpheus, Grokster, or KaZaA). Compare also Decl. of
Richard Prelinger ¶ 17, id., at 147 (“[W]e welcome further redistribution of the Prelinger films ... by
individuals using peer-to-peer software products like Morpheus, KaZaA and Grokster.”), with Deposition
of Richard Prelinger**2786 (Oct. 1, 2002), id., at 410–411 (“Q. What is your understanding of Grokster?
A. I have no understanding of Grokster .... Q. Do you know whether any user of the Grokster software
has made available to share any Prelinger film? A. No.”). See also Deposition of Aram Sinnreich (Sept. 25,
2002), id., at 390 (testimony about the band Wilco based on “[t]he press and industry news groups and
scuttlebutt.”). These declarations do not support summary judgment in the face of evidence, proffered
by MGM, of overwhelming use of Grokster's and StreamCast's software for infringement.FN3
FN3. Justice BREYER finds support for summary judgment in this motley collection of declarations and in
a survey conducted by an expert retained by MGM. Post, at 2788–2790. That survey identified 75% of
the files available through Grokster as copyrighted works owned or controlled by the plaintiffs, and 15%
of the files as works likely copyrighted. App. 439. As to the remaining 10% of the files, “there was not
enough information to form reasonable conclusions either as to what those files even consisted of,
and/or whether they were infringing or non-infringing.” Id., at 479. Even assuming, as Justice BREYER
does, that the Sony Court would have absolved Sony of contributory liability solely on the basis of the
use of the Betamax for authorized time-shifting, post, at 2788, summary judgment is not inevitably
appropriate here. Sony stressed that the plaintiffs there owned “well below 10%” of copyrighted
television programming, 464 U.S., at 443, 104 S.Ct. 774, and found, based on trial testimony from
representatives of the four major sports leagues and other individuals authorized to consent to home
recording of their copyrighted broadcasts, that a similar percentage of program copying was authorized,
id., at 424, 104 S.Ct. 774. Here, the plaintiffs allegedly control copyrights for 70% or 75% of the material
exchanged through the Grokster and StreamCast software, 380 F.3d, at 1158; App. 439, and the District
Court does not appear to have relied on comparable testimony about authorized copying from copyright
holders.

*948 Even if the absolute number of noninfringing files copied using the Grokster and StreamCast
software is large, it does not follow that the products are therefore put to substantial noninfringing uses
and are thus immune from liability. The number of noninfringing copies may be reflective of, and
dwarfed by, the huge total volume of files shared. Further, the District Court and the Court of Appeals
did not sharply distinguish between uses of Grokster's and StreamCast's software products (which this
case is about) and uses of peer-to-peer technology generally (which this case is not about).

In sum, when the record in this case was developed, there was evidence that Grokster's and
StreamCast's products were, and had been for some time, overwhelmingly used to infringe, ante, at
2771–2773; App. 434–439, 476–481, and that this infringement was the overwhelming source of
revenue from the products, ante, at 2773–2774; 259 F.Supp.2d, at 1043–1044. Fairly appraised, the
evidence was insufficient to demonstrate, beyond genuine debate, a reasonable prospect that
substantial or commercially significant noninfringing uses were likely to develop over time. On this
record, the District Court should not have ruled dispositively on the contributory infringement charge by
granting summary judgment to Grokster and StreamCast. FN4

FN4. The District Court's conclusion that “[p]laintiffs do not dispute that [d]efendants' software is being
used, and could be used, for substantial noninfringing purposes,” 259 F.Supp.2d 1029, 1036
(C.D.Cal.2003); accord 380 F.3d, at 1161, is, to say the least, dubious. In the courts below and in this
Court, MGM has continuously disputed any such conclusion. Brief for Motion Picture Studio and
Recording Company Petitioners 30–38; Brief for MGM Plaintiffs–Appellants in No. 03–55894 etc. (CA9),
p. 41; App. 356–357, 361–365.
If, on remand, the case is not resolved on summary judgment in favor of MGM **2787 based on
Grokster and StreamCast actively inducing infringement, the Court of Appeals, I *949 would emphasize,
should reconsider, on a fuller record, its interpretation of Sony's product distribution holding.

Justice BREYER, with whom Justice STEVENS and Justice O'CONNOR join, concurring.

I agree with the Court that the distributor of a dual-use technology may be liable for the infringing
activities of third parties where he or she actively seeks to advance the infringement. Ante, at 2770. I
further agree that, in light of our holding today, we need not now “revisit” Sony Corp. of America v.
Universal City Studios, Inc., 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984). Ante, at 2778–2779.
Other Members of the Court, however, take up the Sony question: whether Grokster's product is
“capable of ‘substantial’ or ‘commercially significant’ noninfringing uses.” Ante, at 2783 (GINSBURG, J.,
concurring) (quoting Sony, supra, at 442, 104 S.Ct. 774). And they answer that question by stating that
the Court of Appeals was wrong when it granted summary judgment on the issue in Grokster's favor.
Ante, at 2784. I write to explain why I disagree with them on this matter.

The Court's opinion in Sony and the record evidence (as described and analyzed in the many briefs
before us) together convince me that the Court of Appeals' conclusion has adequate legal support.

I begin with Sony's standard. In Sony, the Court considered the potential copyright liability of a company
that did not itself illegally copy protected material, but rather sold a machine—a videocassette recorder
(VCR)—that could be used to do so. A buyer could use that machine for non-infringing purposes, such as
recording for later viewing (sometimes called “ ‘time-shifting,’ ” Sony, 464 U.S., at 421, 104 S.Ct. 774)
uncopyrighted television programs or copyrighted programs with a copyright holder's permission. The
buyer could use *950 the machine for infringing purposes as well, such as building libraries of taped
copyrighted programs. Or, the buyer might use the machine to record copyrighted programs under
circumstances in which the legal status of the act of recording was uncertain ( i.e., where the copying
may, or may not, have constituted a “fair use,” id., at 425–426, 104 S.Ct. 774). Sony knew many
customers would use its VCRs to engage in unauthorized copying and “ ‘library-building.’ ” Id., at 458–
459, 104 S.Ct. 774 (Blackmun, J., dissenting). But that fact, said the Court, was insufficient to make Sony
itself an infringer. And the Court ultimately held that Sony was not liable for its customers' acts of
infringement.

In reaching this conclusion, the Court recognized the need for the law, in fixing secondary copyright
liability, to “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 unrelated areas of commerce.” Id., at 442, 104 S.Ct. 774. It pointed to patent law's “staple
article of commerce” doctrine, ibid., under which a distributor of a product is not liable for patent
infringement by its customers unless that product is “unsuited for any commercial noninfringing use.”
Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176, 198, 100 S.Ct. 2601, 65 L.Ed.2d 696 (1980). The
Court wrote that the sale of copying equipment, “like the sale of other articles of commerce, does not
constitute contributory infringement if the **2788 product is widely used for legitimate,
unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.” Sony,
464 U.S., at 442, 104 S.Ct. 774 (emphasis added). The Court ultimately characterized the legal “question”
in the particular case as “whether [Sony's VCR] is capable of commercially significant noninfringing uses
” (while declining to give “precise content” to these terms). Ibid. (emphasis added).

It then applied this standard. The Court had before it a survey (commissioned by the District Court and
then prepared by the respondents) showing that roughly 9% of all *951 VCR recordings were of the
type—namely, religious, educational, and sports programming—owned by producers and distributors
testifying on Sony's behalf who did not object to time-shifting. See Brief for Respondents, O.T.1983, No.
81–1687, pp. 52–53; see also Sony, supra, at 424, 104 S.Ct. 774 (7.3% of all Sony VCR use is to record
sports programs; representatives of the sports leagues do not object). A much higher percentage of VCR
users had at one point taped an authorized program, in addition to taping unauthorized programs. And
the plaintiffs—not a large class of content providers as in this case—owned only a small percentage of
the total available un authorized programming. See ante, at 2786, n. 3 (GINSBURG, J., concurring). But of
all the taping actually done by Sony's customers, only around 9% was of the sort the Court referred to as
authorized.

The Court found that the magnitude of authorized programming was “significant,” and it also noted the
“significant potential for future authorized copying.” 464 U.S., at 444, 104 S.Ct. 774. The Court
supported this conclusion by referencing the trial testimony of professional sports league officials and a
religious broadcasting representative. Id., at 444, and n. 24, 104 S.Ct. 774. It also discussed (1) a Los
Angeles educational station affiliated with the Public Broadcasting Service that made many of its
programs available for home taping, and (2) Mr. Rogers' Neighborhood, a widely watched children's
program. Id., at 445, 104 S.Ct. 774. On the basis of this testimony and other similar evidence, the Court
determined that producers of this kind had authorized duplication of their copyrighted programs “in
significant enough numbers to create a substantial market for a noninfringing use of the” VCR. Id., at
447, n. 28, 104 S.Ct. 774 (emphasis added).

The Court, in using the key word “substantial,” indicated that these circumstances alone constituted a
sufficient basis for rejecting the imposition of secondary liability. See id., at 456, 104 S.Ct. 774 (“Sony
demonstrated a significant likelihood that substantial numbers of copyright holders” would not object
*952 to time-shifting (emphasis added)). Nonetheless, the Court buttressed its conclusion by finding
separately that, in any event, un authorized time-shifting often constituted not infringement, but “fair
use.” Id., at 447–456, 104 S.Ct. 774.
B

When measured against Sony's underlying evidence and analysis, the evidence now before us shows
that Grokster passes Sony's test—that is, whether the company's product is capable of substantial or
commercially significant noninfringing uses. Id., at 442, 104 S.Ct. 774. For one thing, petitioners'
(hereinafter MGM) own expert declared that 75% of current files available on Grokster are infringing
and 15% are “likely infringing.” See App. 436–439, ¶¶ 6–17 (Decl. of Dr. Ingram Olkin); cf. ante, at 2771–
2772 (opinion of the **2789 Court). That leaves some number of files near 10% that apparently are
noninfringing, a figure very similar to the 9% or so of authorized time-shifting uses of the VCR that the
Court faced in Sony.

As in Sony, witnesses here explained the nature of the noninfringing files on Grokster's network without
detailed quantification. Those files include:

—Authorized copies of music by artists such as Wilco, Janis Ian, Pearl Jam, Dave Matthews, John Mayer,
and others. See App. 152–153, ¶¶ 9–13 (Decl. of Aram Sinnreich) (Wilco's “lesson has already been
adopted by artists still signed to their major labels”); id., at 170, ¶¶ 5–7 (Decl. of Patricia D. Hoekman)
(locating “numerous audio recordings” that were authorized for swapping); id., at 74, ¶ 10 (Decl. of
Daniel B. Rung) (describing Grokster's partnership with a company that hosts music from thousands of
independent artists)

—Free electronic books and other works from various online publishers, including Project Gutenberg.
See id., at 136, ¶ 12 (Decl. of Gregory Newby) (“Numerous authorized and public domain Project
Gutenberg eBooks are made available” on Grokster. Project Gutenberg “welcomes this widespread *953
sharing ... using these software products[,] since they assist us in meeting our objectives”); id., at 159–
160, ¶ 32 (Decl. of Sinnreich)

—Public domain and authorized software, such as WinZip 8.1. Id., at 170, ¶ 8 (Decl. of Hoekman); id., at
165, ¶¶ 4–7 (Decl. of John Busher)

—Licensed music videos and television and movie segments distributed via digital video packaging with
the permission of the copyright holder. Id., at 70, ¶ 24 (Decl. of Sean L. Mayers).

The nature of these and other lawfully swapped files is such that it is reasonable to infer quantities of
current lawful use roughly approximate to those at issue in Sony. At least, MGM has offered no evidence
sufficient to survive summary judgment that could plausibly demonstrate a significant quantitative
difference. See ante, at 2771–2772 (opinion of the Court); see also Brief for Motion Picture Studio and
Recording Company Petitioners i (referring to “at least 90% of the total use of the services”); but see
ante, at 2786, n. 3 (GINSBURG, J., concurring). To be sure, in quantitative terms these uses account for
only a small percentage of the total number of uses of Grokster's product. But the same was true in
Sony, which characterized the relatively limited authorized copying market as “substantial.” (The Court
made clear as well in Sony that the amount of material then presently available for lawful copying—if
not actually copied—was significant, see 464 U.S., at 444, 104 S.Ct. 774, and the same is certainly true in
this case.)

Importantly, Sony also used the word “capable,” asking whether the product is “ capable of ” substantial
noninfringing uses. Its language and analysis suggest that a figure like 10%, if fixed for all time, might
well prove insufficient, but that such a figure serves as an adequate foundation where there is a
reasonable prospect of expanded legitimate uses over time. See ibid. (noting a “significant potential for
future authorized copying”). And its language also indicates*954 the appropriateness of looking to
potential future uses of the product to determine its “capability.”

Here the record reveals a significant future market for noninfringing uses of Grokster-type peer-to-peer
software. Such software permits the exchange of any sort of digital file—whether that file does, or does
not, contain copyrighted material. As more and more uncopyrighted information is stored in swappable
form, it seems a likely inference that lawful peer-**2790 to-peer sharing will become increasingly
prevalent. See, e.g., App. 142, ¶ 20 (Decl. of Brewster Kahle) (“[T]he [Internet Archive] welcomes [the]
redistribution [of authorized films] by the Morpheus–Grokster–KaZaa community of users”); id., at 166,
¶ 8 (Decl. of Busher) (sales figures of $1,000 to $10,000 per month through peer-to-peer networks “will
increase in the future as Acoustica's trialware is more widely distributed through these networks”); id.,
at 156–163, ¶¶ 21–40 (Decl. of Sinnreich).

And that is just what is happening. Such legitimate noninfringing uses are coming to include the
swapping of: research information (the initial purpose of many peer-to-peer networks); public domain
films ( e.g., those owned by the Prelinger Archive); historical recordings and digital educational materials
( e.g., those stored on the Internet Archive); digital photos (OurPictures, for example, is starting a P2P
photo-swapping service); “ shareware” and “freeware” ( e.g., Linux and certain Windows software);
secure licensed music and movie files (Intent MediaWorks, for example, protects licensed content sent
across P2P networks); news broadcasts past and present (the BBC Creative Archive lets users “rip, mix
and share the BBC”); user-created audio and video files (including “podcasts” that may be distributed
through P2P software); and all manner of free “open content” works collected by Creative Commons
(one can search for Creative Commons material on StreamCast). See Brief for Distributed Computing
Industry Association as Amicus Curiae 15–26; Merges, *955 A New Dynamism in the Public Domain, 71
U. Chi. L.Rev. 183 (2004). I can find nothing in the record that suggests that this course of events will not
continue to flow naturally as a consequence of the character of the software taken together with the
foreseeable development of the Internet and of information technology. Cf. ante, at 2770–2771
(opinion of the Court) (discussing the significant benefits of peer-to-peer technology).
There may be other now-unforeseen noninfringing uses that develop for peer-to-peer software, just as
the home-video rental industry (unmentioned in Sony) developed for the VCR. But the foreseeable
development of such uses, when taken together with an estimated 10% noninfringing material, is
sufficient to meet Sony's standard. And while Sony considered the record following a trial, there are no
facts asserted by MGM in its summary judgment filings that lead me to believe the outcome after a trial
here could be any different. The lower courts reached the same conclusion.

Of course, Grokster itself may not want to develop these other noninfringing uses. But Sony's standard
seeks to protect not the Groksters of this world (which in any event may well be liable under today's
holding), but the development of technology more generally. And Grokster's desires in this respect are
beside the point.

II

The real question here, I believe, is not whether the record evidence satisfies Sony. As I have interpreted
the standard set forth in that case, it does. And of the Courts of Appeals that have considered the
matter, only one has proposed interpreting Sony more strictly than I would do—in a case where the
product might have failed under any standard. In re Aimster Copyright Litigation, 334 F.3d 643, 653
(C.A.7 2003) (defendant “failed to show that its service is ever used for any purpose other than to
infringe” copyrights (emphasis added)); see *956 Matthew Bender & Co. v. West Pub. Co., 158 F.3d 693,
706–707 (C.A.2 1998) (court did not require that **2791 noninfringing uses be “predominant,” it merely
found that they were predominant, and therefore provided no analysis of Sony's boundaries); but see
ante, at 2784, n. 1 (GINSBURG, J., concurring); see also A&M Records, Inc. v. Napster, Inc., 239 F.3d
1004, 1020 (C.A.9 2001) (discussing Sony ); Cable/Home Communication Corp. v. Network Productions,
Inc., 902 F.2d 829, 842–847 (C.A.11 1990) (same); Vault Corp. v. Quaid Software, Ltd., 847 F.2d 255, 262
(C.A.5 1988) (same); cf. Dynacore Holdings Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1275
(C.A.Fed.2004) (same); see also Doe v. GTE Corp., 347 F.3d 655, 661 (C.A.7 2003) (“A person may be
liable as a contributory infringer if the product or service it sells has no (or only slight) legal use”).

Instead, the real question is whether we should modify the Sony standard, as MGM requests, or
interpret Sony more strictly, as I believe Justice GINSBURG's approach would do in practice. Compare
ante, at 2784–2786 (concurring opinion) (insufficient evidence in this case of both present lawful uses
and of a reasonable prospect that substantial noninfringing uses would develop over time), with Sony,
464 U.S., at 442–447, 104 S.Ct. 774 (basing conclusion as to the likely existence of a substantial market
for authorized copying upon general declarations, some survey data, and common sense).

As I have said, Sony itself sought to “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 unrelated areas of commerce.” Id., at 442, 104 S.Ct. 774. Thus, to
determine whether modification, or a strict interpretation, of Sony is needed, I would ask whether MGM
has shown that Sony incorrectly balanced copyright and new-technology interests. In particular: (1) Has
Sony (as I interpret it) worked to protect new technology? (2) If so, would modification or strict
interpretation significantly weaken that protection? (3) If *957 so, would new or necessary copyright-
related benefits outweigh any such weakening?

The first question is the easiest to answer. Sony's rule, as I interpret it, has provided entrepreneurs with
needed assurance that they will be shielded from copyright liability as they bring valuable new
technologies to market.

Sony's rule is clear. That clarity allows those who develop new products that are capable of substantial
noninfringing uses to know, ex ante, that distribution of their product will not yield massive monetary
liability. At the same time, it helps deter them from distributing products that have no other real
function than—or that are specifically intended for—copyright infringement, deterrence that the Court's
holding today reinforces (by adding a weapon to the copyright holder's legal arsenal).

Sony's rule is strongly technology protecting. The rule deliberately makes it difficult for courts to find
secondary liability where new technology is at issue. It establishes that the law will not impose copyright
liability upon the distributors of dual-use technologies (who do not themselves engage in unauthorized
copying) unless the product in question will be used almost exclusively to infringe copyrights (or unless
they actively induce infringements as we today describe). Sony thereby recognizes that the copyright
laws are not intended to discourage or to control the emergence of new technologies, including
(perhaps especially) those that help disseminate information and ideas more broadly or more efficiently.
Thus Sony's **2792 rule shelters VCRs, typewriters, tape recorders, photocopiers, computers, cassette
players, compact disc burners, digital video recorders, MP3 players, Internet search engines, and peer-
to-peer software. But Sony's rule does not shelter descramblers, even if one could theoretically use a
descrambler in a noninfringing way. *958 464 U.S., at 441–442, 104 S.Ct. 774. Cable/Home
Communication Corp., supra, at 837–850 (developer liable for advertising television signal descrambler),
with Vault Corp., supra, at 262 (primary use infringing but a substantial noninfringing use).

Sony's rule is forward looking. It does not confine its scope to a static snapshot of a product's current
uses (thereby threatening technologies that have undeveloped future markets). Rather, as the VCR
example makes clear, a product's market can evolve dramatically over time. And Sony—by referring to a
capacity for substantial noninfringing uses—recognizes that fact. Sony's word “capable” refers to a
plausible, not simply a theoretical, likelihood that such uses will come to pass, and that fact anchors
Sony in practical reality. Cf. Aimster, 334 F.3d, at 651.
Sony's rule is mindful of the limitations facing judges where matters of technology are concerned.
Judges have no specialized technical ability to answer questions about present or future technological
feasibility or commercial viability where technology professionals, engineers, and venture capitalists
themselves may radically disagree and where answers may differ depending upon whether one focuses
upon the time of product development or the time of distribution. Consider, for example, the question
whether devices can be added to Grokster's software that will filter out infringing files. MGM tells us this
is easy enough to do, as do several amici that produce and sell the filtering technology. See, e.g., Brief
for Motion Picture Studio and Recording Company Petitioners 11; Brief for Audible Magic Corp. et al. as
Amici Curiae 3–10. Grokster says it is not at all easy to do, and not an efficient solution in any event, and
several apparently disinterested computer science professors agree. See Brief for Respondents 31; Brief
for Computer Science Professor Harold Abelson et al. as Amici Curiae 6–10, 14–18. Which account
should a judge credit? Sony says that the judge will not necessarily have to decide.

*959 Given the nature of the Sony rule, it is not surprising that in the last 20 years, there have been
relatively few contributory infringement suits—based on a product distribution theory—brought against
technology providers (a small handful of federal appellate court cases and perhaps fewer than two
dozen District Court cases in the last 20 years). I have found nothing in the briefs or the record that
shows that Sony has failed to achieve its innovation-protecting objective.

The second, more difficult, question is whether a modified Sony rule (or a strict interpretation) would
significantly weaken the law's ability to protect new technology. Justice GINSBURG's approach would
require defendants to produce considerably more concrete evidence—more than was presented here—
to earn Sony's shelter. That heavier evidentiary demand, and especially the more dramatic (case-by-case
balancing) modifications that MGM and the Government seek, would, I believe, undercut the protection
that Sony now offers.

To require defendants to provide, for example, detailed evidence—say, business plans, profitability
estimates, projected technological modifications, and so forth—would doubtless make life easier for
copyright holder plaintiffs. But it would simultaneously increase the legal uncertainty **2793 that
surrounds the creation or development of a new technology capable of being put to infringing uses.
Inventors and entrepreneurs (in the garage, the dorm room, the corporate lab, or the boardroom)
would have to fear (and in many cases endure) costly and extensive trials when they create, produce, or
distribute the sort of information technology that can be used for copyright infringement. They would
often be left guessing as to how a court, upon later review of the product and its uses, would decide
when necessarily rough estimates amounted to sufficient evidence. They would have no way to predict
how courts would weigh the respective*960 values of infringing and noninfringing uses; determine the
efficiency and advisability of technological changes; or assess a product's potential future markets. The
price of a wrong guess—even if it involves a good-faith effort to assess technical and commercial
viability—could be large statutory damages (not less than $750 and up to $30,000 per infringed work ).
17 U.S.C. § 504(c)(1). The additional risk and uncertainty would mean a consequent additional chill of
technological development.

The third question—whether a positive copyright impact would outweigh any technology-related loss—I
find the most difficult of the three. I do not doubt that a more intrusive Sony test would generally
provide greater revenue security for copyright holders. But it is harder to conclude that the gains on the
copyright swings would exceed the losses on the technology roundabouts.

For one thing, the law disfavors equating the two different kinds of gain and loss; rather, it leans in favor
of protecting technology. As Sony itself makes clear, the producer of a technology which permits
unlawful copying does not himself engage in unlawful copying—a fact that makes the attachment of
copyright liability to the creation, production, or distribution of the technology an exceptional thing. See
464 U.S., at 431, 104 S.Ct. 774 (courts “must be circumspect” in construing the copyright laws to
preclude distribution of new technologies). Moreover, Sony has been the law for some time. And that
fact imposes a serious burden upon copyright holders like MGM to show a need for change in the
current rules of the game, including a more strict interpretation of the test. See, e.g., Brief for Motion
Picture Studio and Recording Company Petitioners 31 ( Sony should not protect products when the
“primary or principal” use is infringing).

In any event, the evidence now available does not, in my view, make out a sufficiently strong case for
change. To say *961 this is not to doubt the basic need to protect copyrighted material from
infringement. The Constitution itself stresses the vital role that copyright plays in advancing the “useful
Arts.” Art. I, § 8, cl. 8. No one disputes that “reward to the author or artist serves to induce release to
the public of the products of his creative genius.” United States v. Paramount Pictures, Inc., 334 U.S.
131, 158, 68 S.Ct. 915, 92 L.Ed. 1260 (1948). And deliberate unlawful copying is no less an unlawful
taking of property than garden-variety theft. See, e.g., 18 U.S.C. § 2319 (2000 ed. and Supp. II) (criminal
copyright infringement); § 1961(1)(B) (2000 ed., Supp. II) (copyright infringement can be a predicate act
under the Racketeer Influenced and Corrupt Organizations Act); § 1956(c)(7)(D) (2000 ed., Supp. II)
(money laundering includes the receipt of proceeds from copyright infringement). But these highly
general principles cannot by themselves tell us how to balance the interests at issue in Sony or whether
Sony's standard needs **2794 modification. And at certain key points, information is lacking.

Will an unmodified Sony lead to a significant diminution in the amount or quality of creative work
produced? Since copyright's basic objective is creation and its revenue objectives but a means to that
end, this is the underlying copyright question. See Twentieth Century Music Corp. v. Aiken, 422 U.S. 151,
156, 95 S.Ct. 2040, 45 L.Ed.2d 84 (1975) (“Creative work is to be encouraged and rewarded, but private
motivation must ultimately serve the cause of promoting broad public availability of literature, music,
and the other arts”). And its answer is far from clear.
Unauthorized copying likely diminishes industry revenue, though it is not clear by how much. Compare
S. Liebowitz, Will MP3 Downloads Annihilate the Record Industry? The Evidence So Far 2 (June 2003),
http://www. utdallas. edu/ liebowit/ intprop/ records.pdf (all Internet materials as visited June 24, 2005,
and available in Clerk of Court's case file) *962 file sharing has caused a decline in music sales), and Press
Release, Informa Telecoms & Media, Steady Download Growth Defies P2P (Dec. 6, 2004), http://www.
infor matm.com (citing Informa Media Group Reports, Music on the Internet (5th ed.2004)) (estimating
total lost sales to the music industry in the range of $2 billion annually), with F. Oberholzer & K. Strumpf,
The Effect of File Sharing on Record Sales: An Empirical Analysis 24 (Mar. 2004), www. unc. edu/ cigar/
papers/ File Sharing_ March 2004.pdf (academic study concluding that “file sharing has no statistically
significant effect on purchases of the average album”), and McGuire, Study: File–Sharing No Threat to
Music Sales (Mar. 29, 2004), http://www. washington post. com/ ac2/ wp–dyn/ A34300–2004 Mar29?
language= printer (discussing mixed evidence).

The extent to which related production has actually and resultingly declined remains uncertain, though
there is good reason to believe that the decline, if any, is not substantial. See, e.g., M. Madden, Pew
Internet & American Life Project, Artists, Musicians, and the Internet 21 (Dec. 5, 2004), http://www.
pewinternet. org/ pdfs/ PIP_Art ists.Mu sicians_ Report.pdf (nearly 70% of musicians believe that file
sharing is a minor threat or no threat at all to creative industries); Benkler, Sharing Nicely: On Shareable
Goods and the Emergence of Sharing as a Modality of Economic Production, 114 Yale L. J. 273, 351–352
(2004) (“Much of the actual flow of revenue to artists—from performances and other sources—is stable
even assuming a complete displacement of the CD market by peer-to-peer distribution ....[I]t would be
silly to think that music, a cultural form without which no human society has existed, will cease to be in
our world [because of illegal file swapping]”).

More importantly, copyright holders at least potentially have other tools available to reduce piracy and
to abate whatever threat it poses to creative production. As today's opinion makes clear, a copyright
holder may proceed against *963 a technology provider where a provable specific intent to infringe (of
the kind the Court describes) is present. Ante, at 2782. Services like Grokster may well be liable under an
inducement theory.

In addition, a copyright holder has always had the legal authority to bring a traditional infringement suit
against one who wrongfully copies. Indeed, since September 2003, the Recording Industry Association of
America (RIAA) has filed “thousands of suits against people for sharing copyrighted material.” Walker,
New Movement Hits Universities: Get Legal Music, Washington Post, Mar. 17, 2005, p. E1. These suits
have provided copyright holders with damages; have served as a teaching tool, making clear that much
file sharing, if done without permission, is unlawful;**2795 and apparently have had a real and
significant deterrent effect. See, e.g., L. Rainie, M. Madden, D. Hess, & G. Mudd, Pew Internet Project
and comScore Media Metrix Data Memo: The state of music downloading and file-sharing online 2, 4, 6,
10 (Apr. 2004), http://www. pewinternet. org/ pdfs/ PIP_File sharing _April_04. pdf (number of people
downloading files fell from a peak of roughly 35 million to roughly 23 million in the year following the
first suits; 38% of current downloaders report downloading fewer files because of the suits); M. Madden
& L. Rainie, Pew Internet Project Data Memo: Music and video downloading moves beyond P2P, p. 7
(Mar. 2005), http:// www. pewinternet. org/ pdfs/ PIP_File sharing_ March05.pdf (number of
downloaders has “inched up” but “continues to rest well below the peak level”); Note, Costs and
Benefits of the Recording Industry's Litigation Against Individuals, 20 Berkeley Tech. L. J. 571 (2005); but
see Evangelista, File Sharing; Downloading Music and Movie Files is as Popular as Ever, San Francisco
Chronicle, Mar. 28, 2005, p. E1 (referring to the continuing “tide of rampant copyright infringement,”
while noting that the RIAA says it believes the “campaign of lawsuits and public education has at least
contained the problem”).

*964 Further, copyright holders may develop new technological devices that will help curb unlawful
infringement. Some new technology, called “digital ‘watermarking’ ” and “digital fingerprint[ing],” can
encode within the file information about the author and the copyright scope and date, which
“fingerprints” can help to expose infringers. RIAA Reveals Method to Madness, Wired News (Aug. 28,
2003), http://www. wired. com/ news/ digiwood/ 0, 1412, 60222, 00.html; Besek, Anti–Circumvention
Laws and Copyright: A Report from the Kernochan Center for Law, Media and the Arts, 27 Colum. J. L. &
Arts 385, 391, 451 (2004). Other technology can, through encryption, potentially restrict users' ability to
make a digital copy. See J. Borland, Tripping the Rippers, C/net News.com (Sept. 28, 2001), http://news.
com. com/ Tripping+ the+ rip pers/ 2009-1023_ 3-273619. html; but see Brief for Bridgemar Services,
Ltd. d/b/a iMesh.com as Amicus Curiae 5–8 (arguing that peer-to-peer service providers can more easily
block unlawful swapping).

At the same time, advances in technology have discouraged unlawful copying by making lawful copying (
e.g., downloading music with the copyright holder's permission) cheaper and easier to achieve. Several
services now sell music for less than $1 per song. (Walmart.com, for example, charges $0.88 each.)
Consequently, many consumers initially attracted to the convenience and flexibility of services like
Grokster are now migrating to lawful paid services (services with copying permission) where they can
enjoy at little cost even greater convenience and flexibility without engaging in unlawful swapping. See
Wu, When Code Isn't Law, 89 Va. L.Rev. 679, 731–735 (2003) (noting the prevalence of technological
problems on unpaid swapping sites); K. Dean, P2P Tilts Toward Legitimacy, Wired News (Nov. 24, 2004),
http://www. wired. com/ news/ digiwood/0, 1412, 65836, 00.html; Madden & Rainie, March 2005 Data
Memo, supra, at 6–8 (percentage of current downloaders who have used paid services rose from 24% to
43% in a year; number using free services fell from 58% to 41%).

*965 Thus, lawful music downloading services—those that charge the customer for downloading music
and pay royalties to the copyright holder—have continued to grow and to produce substantial revenue.
See Brief for Internet Law Faculty as Amicus Curiae 5–20; Bruno, Digital Entertainment: Piracy Fight
Shows Encouraging **2796 Signs (Mar. 5, 2005), available at LEXIS, News Library, Billboard File (in 2004,
consumers worldwide purchased more than 10 times the number of digital tracks purchased in 2003;
global digital music market of $330 million in 2004 expected to double in 2005); Press Release, Informa
Telecoms & Media, Steady Download Growth Defies P2P (global digital revenues will likely exceed $3
billion in 2010); Ashton, [International Federation of the Phonographic Industry] Predicts Downloads
Will Hit the Mainstream, Music Week, Jan. 29, 2005, p. 6 (legal music sites and portable MP3 players
“are helping to transform the digital music market” into “an everyday consumer experience”). And more
advanced types of non-music-oriented peer-to-peer networks have also started to develop, drawing in
part on the lessons of Grokster.

Finally, as Sony recognized, the legislative option remains available. Courts are less well suited than
Congress to the task of “accommodat[ing] fully the varied permutations of competing interests that are
inevitably implicated by such new technology.” Sony, 464 U.S., at 431, 104 S.Ct. 774; see, e.g., Audio
Home Recording Act of 1992, 106 Stat. 4237 (adding 17 U.S.C., ch. 10); Protecting Innovation and Art
While Preventing Piracy: Hearing before the Senate Committee on the Judiciary, 108th Cong., 2d Sess.
(2004).

I do not know whether these developments and similar alternatives will prove sufficient, but I am
reasonably certain that, given their existence, a strong demonstrated need for modifying Sony (or for
interpreting Sony's standard more strictly) has not yet been shown. That fact, along with the added risks
that modification (or strict interpretation) would impose upon technological innovation, leads me to the
conclusion that we should maintain Sony, reading its standard as I *966 have read it. As so read, it
requires affirmance of the Ninth Circuit's determination of the relevant aspects of the Sony question.

***

For these reasons, I disagree with Justice GINSBURG, but I agree with the Court and join its opinion.

545 U.S. 913, 125 S.Ct. 2764, 162 L.Ed.2d 781, 73 USLW 4675, 2005 Copr.L.Dec. P 29,007, 75 U.S.P.Q.2d
1001, 33 Media L. Rep. 1865, 05 Cal. Daily Op. Serv. 5620, 05 Daily Journal D.A.R. 7666, 18 Fla. L. Weekly
Fed. S 547
United States Court of Appeals,

District of Columbia Circuit.

RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC., Appellee,


v.
VERIZON INTERNET SERVICES, INC., Appellant.

Nos. 03-7015 & 03–7053.

Argued Sept. 16, 2003.


Decided Dec. 19, 2003.

Record industry trade association served Internet service provider (ISP) with subpoena pursuant to the
subpoena provision of the Digital Millennium Copyright Act (DMCA), seeking to identify an ISP subscriber
whom it believed was infringing its members' copyrights by trading large numbers of digital .mp3 files of
copyrighted music via “peer-to-peer” (P2P) file sharing programs, and, when ISP refused to disclose
subscriber's name, association filed motion to compel production. The United States District Court for
the District of Columbia, John D. Bates, J., 240 F.Supp.2d 24, granted motion to compel and, after
association obtained a second DMCA subpoena directed at ISP, the court denied ISP's motion to quash
and ordered ISP to disclose the identity of that subscriber as well, 257 F.Supp.2d 244. ISP appealed both
orders. Consolidating the cases, the Court of Appeals, Ginsburg, Chief Judge, held that under the DMCA,
a subpoena may be issued only to an ISP engaged in storing on its servers material that is infringing or
the subject of infringing activity, not to an ISP acting only as a conduit for data transferred between two
Internet users, and so a subpoena may not be issued to an ISP acting as a conduit for P2P file sharing,
which does not involve the storage of infringing material on the ISP's server.

Orders reversed and matter remanded with instructions.

West Headnotes

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Under the Digital Millennium Copyright Act (DMCA), a subpoena may be issued only to an Internet
service provider (ISP) engaged in storing on its servers material that is infringing or the subject of
infringing activity, not to an ISP acting only as a conduit for data transferred between two Internet users,
and so a subpoena may not be issued to an ISP acting as a conduit for “peer-to-peer” (P2P) file sharing,
which does not involve the storage of infringing material on the ISP's server. 17 U.S.C.A. § 512(a),
(c)(3)(A)(iii), (h), (h)(2)(A).

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*1230 Appeals from the United States District Court for the District of Columbia (No. 02ms00323) (No.
03ms00040).
Andrew G. McBride argued the cause for appellant. With him on the briefs were John Thorne, Bruce G.
Joseph, Dineen P. Wasylik, and Kathryn L. Comerford.

Megan E. Gray, Lawrence S. Robbins, Alan Untereiner, Christopher A. Hansen, Arthur B. Spitzer, and
Cindy Cohn were on the brief for amici curiae Alliance for Public Technology, et al., in support of
appellant.

Donald B. Verrilli, Jr. argued the cause for appellee Recording Industry Association of America, Inc. With
him on the brief were Thomas J. Perrelli and Matthew J. Oppenheim. Deanne E. Maynard entered an
appearance.

Scott R. McIntosh, Attorney, U.S. Department of Justice, argued the cause for intervenor-appellee
United States. With him on the brief were Roscoe C. Howard, Jr., U.S. Attorney, and Douglas N. Letter,
Attorney, U.S. Department of Justice.

Paul B. Gaffney, Thomas G. Hentoff, Eric H. Smith, Patricia Polach, *1231 Ann Chaitovitz, Allan R. Adler,
Joseph J. DiMona, Robert S. Giolito, and Chun T. Wright were on the brief for amici curiae Motion
Picture Association of America, et al., in support of appellee Recording Industry Association of America.
David E. Kendall entered an appearance.

Paul Alan Levy, Alan B. Morrison, and Allison M. Zieve were on the brief for amicus curiae Public Citizen.

Before: GINSBURG, Chief Judge,and ROBERTS, Circuit Judge, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge:

**87 This case concerns the Recording Industry Association of America's use of the subpoena provision
of the Digital Millennium Copyright Act, 17 U.S.C. § 512(h), to identify internet users the RIAA believes
are infringing the copyrights of its members. The RIAA served two subpoenas upon Verizon Internet
Services in order to discover the names of two Verizon subscribers who appeared to be trading large
numbers of .mp3 files of copyrighted music via “peer-to-peer” (P2P) file sharing programs, such as
KaZaA. Verizon refused to comply with the subpoenas on various legal grounds.

The district court rejected Verizon's statutory and constitutional challenges to § 512(h) and ordered the
internet service provider (ISP) to disclose to the RIAA the names of the two subscribers. On appeal
Verizon presents three alternative arguments for reversing the orders of the district court: (1) § 512(h)
does not authorize the issuance of a subpoena to an ISP acting solely as a conduit for communications
the content of which is determined by others; if the statute does authorize such a subpoena, then the
statute is unconstitutional because (2) the district court lacked Article III jurisdiction to issue a subpoena
with no underlying “case or controversy” pending before the court; and (3) § 512(h) violates the First
Amendment because it lacks sufficient safeguards to protect an internet user's ability to speak and to
associate anonymously. Because we agree with Verizon's interpretation of the statute, we reverse the
orders of the district court enforcing the subpoenas and do not reach either of Verizon's constitutional
arguments.FN*

FN* The district court's jurisdiction to issue the orders here under review is not drawn into question by
Verizon's Article III argument. See Interstate Commerce Comm'n v. Brimson, 154 U.S. 447, 476–78, 14
S.Ct. 1125, 1132–34, 38 L.Ed. 1047 (1894) (application of ICC to enforce subpoena issued by agency in
furtherance of investigation presents “case or controversy” subject to judicial resolution).

I. Background

Individuals with a personal computer and access to the internet began to offer digital copies of
recordings for download by other users, an activity known as file sharing, in the late 1990's using a
program called Napster. Although recording companies and music publishers successfully obtained an
injunction against Napster's facilitating the sharing of files containing copyrighted recordings, see A&M
Records, Inc. v. Napster, Inc., 284 F.3d 1091 (9th Cir.2002); A&M Records, Inc. v. Napster, Inc., 239 F.3d
1004 (9th Cir.2001), millions of people in the United States and around the world continue to share
digital .mp3 files of copyrighted recordings using P2P computer programs such as KaZaA, Morpheus,
Grokster, and eDonkey. See John Borland, File Swapping Shifts Up a Gear (May 27, 2003), available at
http:// news.com.com/2100–1026–1009742.html,**88 *1232 (last visited December 2, 2003). Unlike
Napster, which relied upon a centralized communication architecture to identify the .mp3 files available
for download, the current generation of P2P file sharing programs allow an internet user to search
directly the .mp3 file libraries of other users; no web site is involved. See Douglas Lichtman & William
Landes, Indirect Liability for Copyright Infringement: An Economic Perspective, 16 Harv. J. LawW & Tech.
395, 403, 408–09 (2003). To date, owners of copyrights have not been able to stop the use of these
decentralized programs. See Metro–Goldwyn–Mayer Studios, Inc. v. Grokster, Ltd., 259 F.Supp.2d 1029
(C.D.Cal.2003) (holding Grokster not contributorily liable for copyright infringement by users of its P2P
file sharing program).

The RIAA now has begun to direct its anti-infringement efforts against individual users of P2P file sharing
programs. In order to pursue apparent infringers the RIAA needs to be able to identify the individuals
who are sharing and trading files using P2P programs. The RIAA can readily obtain the screen name of an
individual user, and using the Internet Protocol (IP) address associated with that screen name, can trace
the user to his ISP. Only the ISP, however, can link the IP address used to access a P2P program with the
name and address of a person – the ISP's customer – who can then be contacted or, if need be, sued by
the RIAA.

The RIAA has used the subpoena provisions of § 512(h) of the Digital Millennium Copyright Act (DMCA)
to compel ISPs to disclose the names of subscribers whom the RIAA has reason to believe are infringing
its members' copyrights. See 17 U.S.C. § 512(h)(1) (copyright owner may “request the clerk of any
United States district court to issue a subpoena to [an ISP] for identification of an alleged infringer”).
Some ISPs have complied with the RIAA's § 512(h) subpoenas and identified the names of the
subscribers sought by the RIAA. The RIAA has sent letters to and filed lawsuits against several hundred
such individuals, each of whom allegedly made available for download by other users hundreds or in
some cases even thousands of .mp3 files of copyrighted recordings. Verizon refused to comply with and
instead has challenged the validity of the two § 512(h) subpoenas it has received.

A copyright owner (or its agent, such as the RIAA) must file three items along with its request that the
Clerk of a district court issue a subpoena: (1) a “notification of claimed infringement” identifying the
copyrighted work(s) claimed to have been infringed and the infringing material or activity, and providing
information reasonably sufficient for the ISP to locate the material, all as further specified in §
512(c)(3)(A); (2) the proposed subpoena directed to the ISP; and (3) a sworn declaration that the
purpose of the subpoena is “to obtain the identity of an alleged infringer and that such information will
only be used for the purpose of protecting” rights under the copyright laws of the United States. 17
U.S.C. §§ 512(h)(2)(A)-(C). If the copyright owner's request contains all three items, then the Clerk “shall
expeditiously issue and sign the proposed subpoena and return it to the requester for delivery to the
[ISP].” 17 U.S.C. § 512(h)(4). Upon receipt of the subpoena the ISP is “authorize[d] and order[ed]” to
disclose to the copyright owner the identity of the alleged infringer. See 17 U.S.C. §§ 512(h)(3), (5).

On July 24, 2002 the RIAA served Verizon with a subpoena issued pursuant to § 512(h), seeking the
identity of a subscriber whom the RIAA believed to be **89 *1233 engaged in infringing activity. The
subpoena was for “ information sufficient to identify the alleged infringer of the sound recordings
described in the attached notification.” The “notification of claimed infringement” identified the IP
address of the subscriber and about 800 sound files he offered for trading; expressed the RIAA's “good
faith belief” the file sharing activity of Verizon's subscriber constituted infringement of its members'
copyrights; and asked for Verizon's “immediate assistance in stopping this unauthorized activity.”
“Specifically, we request that you remove or disable access to the infringing sound files via your system.”

When Verizon refused to disclose the name of its subscriber, the RIAA filed a motion to compel
production pursuant to Federal Rule of Civil Procedure 45(c)(2)(B) and § 512(h)(6) of the Act. In
opposition to that motion, Verizon argued § 512(h) does not apply to an ISP acting merely as a conduit
for an individual using a P2P file sharing program to exchange files. The district court rejected Verizon's
argument based upon “the language and structure of the statute, as confirmed by the purpose and
history of the legislation,” and ordered Verizon to disclose to the RIAA the name of its subscriber. In re
Verizon Internet Servs., Inc., 240 F.Supp.2d 24, 45 (D.D.C.2003) ( Verizon I).

The RIAA then obtained another § 512(h) subpoena directed to Verizon. This time Verizon moved to
quash the subpoena, arguing that the district court, acting through the Clerk, lacked jurisdiction under
Article III to issue the subpoena and in the alternative that § 512(h) violates the First Amendment. The
district court rejected Verizon's constitutional arguments, denied the motion to quash, and again
ordered Verizon to disclose the identity of its subscriber. In re Verizon Internet Servs., Inc., 257
F.Supp.2d 244, 247, 275 (D.D.C.2003) ( Verizon II).

Verizon appealed both orders to this Court and we consolidated the two cases. As it did before the
district court, the RIAA defends both the applicability of § 512(h) to an ISP acting as a conduit for P2P file
sharing and the constitutionality of § 512(h). The United States has intervened solely to defend the
constitutionality of the statute.

II. Analysis

[1] [2] The court ordinarily reviews a district court's grant of a motion to compel or denial of a
motion to quash for abuse of discretion. See, e.g., In re Sealed Case, 121 F.3d 729, 740 (D.C.Cir.1997).
Here, however, Verizon contends the orders of the district court were based upon errors of law,
specifically errors regarding the meaning of § 512(h). Our review is therefore plenary. See In re
Subpoena Served Upon the Comptroller of the Currency, 967 F.2d 630, 633 (D.C.Cir.1992).

[3] The issue is whether § 512(h) applies to an ISP acting only as a conduit for data transferred
between two internet users, such as persons sending and receiving e-mail or, as in this case, sharing P2P
files. Verizon contends § 512(h) does not authorize the issuance of a subpoena to an ISP that transmits
infringing material but does not store any such material on its servers. The RIAA argues § 512(h) on its
face authorizes the issuance of a subpoena to an “[internet] service provider” without regard to
whether the ISP is acting as a conduit for user-directed communications. We conclude from both the
terms of § 512(h) and the overall structure of § 512 that, as Verizon contends, a subpoena may be
issued only to an ISP engaged in storing on its servers material that is infringing or the subject of
infringing activity.

**90 *1234 A. Subsection 512(h) by its Terms

[4] We begin our analysis, as always, with the text of the statute. See Barnhart v. Sigmon Coal Co.,
534 U.S. 438, 450, 122 S.Ct. 941, 950, 151 L.Ed.2d 908 (2002). Verizon's statutory arguments address the
meaning of and interaction between §§ 512(h) and 512(a)-(d). Having already discussed the general
requirements of § 512(h), we now introduce §§ 512(a)-(d).

Section 512 creates four safe harbors, each of which immunizes ISPs from liability for copyright
infringement under certain highly specified conditions. Subsection 512(a), entitled “Transitory digital
network communications,” provides a safe harbor “for infringement of copyright by reason of the [ISP's]
transmitting, routing, or providing connections for” infringing material, subject to certain conditions,
including that the transmission is initiated and directed by an internet user. See 17 U.S.C. §§ 512(a)(1)-
(5). Subsection 512(b), “System caching,” provides immunity from liability “for infringement of copyright
by reason of the intermediate and temporary storage of material on a system or network controlled or
operated by or for the [ISP],” § 512(b)(1), as long as certain conditions regarding the transmission and
retrieval of the material created by the ISP are met. See 17 U.S.C. §§ 512(b)(2)(A)-(E). Subsection 512(c),
“Information residing on systems or networks at the direction of users,” creates a safe harbor from
liability “for infringement of copyright by reason of the storage at the direction of a user of material that
resides on a system or network controlled or operated by or for the service provider,” as long as the ISP
meets certain conditions regarding its lack of knowledge concerning, financial benefit from, and
expeditious efforts to remove or deny access to, material that is infringing or that is claimed to be the
subject of infringing activity. See 17 U.S.C. §§ 512(c)(1)(A)-(C). Finally, § 512(d), “Information location
tools,” provides a safe harbor from liability “for infringement of copyright by reason of the provider
referring or linking users to an online location containing infringing material or infringing activity, by
using information location tools” such as “a directory, index, reference, pointer, or hypertext link,”
subject to the same conditions as in §§ 512(c)(1)(A)-(C). See 17 U.S.C. §§ 512(d)(1)-(3).
Notably present in §§ 512(b)-(d), and notably absent from § 512(a), is the so-called notice and take-
down provision. It makes a condition of the ISP's protection from liability for copyright infringement that
“upon notification of claimed infringement as described in [§ 512](c)(3),” the ISP “responds
expeditiously to remove, or disable access to, the material that is claimed to be infringing.” See 17 U.S.C.
§§ 512(b)(2)(E), 512(c)(1)(C), and 512(d)(3).

Verizon argues that § 512(h) by its terms precludes the Clerk of Court from issuing a subpoena to an ISP
acting as a conduit for P2P communications because a § 512(h) subpoena request cannot meet the
requirement in § 512(h)(2)(A) that a proposed subpoena contain “a copy of a notification [of claimed
infringement, as] described in [§ 512](c)(3)(A).” FN* In particular**91 *1235 Verizon maintains the two
subpoenas obtained by the RIAA fail to meet the requirements of § 512(c)(3)(A)(iii) in that they do not –
because Verizon is not storing the infringing material on its server – and can not, identify material “to be
removed or access to which is to be disabled” by Verizon. Here Verizon points out that § 512(h)(4)
makes satisfaction of the notification requirement of § 512(c)(3)(A) a condition precedent to issuance of
a subpoena: “If the notification filed satisfies the provisions of [ § 512](c)(3)(A)” and the other content
requirements of § 512(h)(2) are met, then “the clerk shall expeditiously issue and sign the proposed
subpoena ... for delivery” to the ISP.

FN* Subsection 512(c)(3)(A) provides that “[t]o be effective under this subsection, a notification of
claimed infringement must be a written communication ... that includes substantially the following”:

(i) A physical or electronic signature of a person authorized to act on behalf of the owner of an exclusive
right that is allegedly infringed.

(ii) Identification of the copyrighted work claimed to have been infringed, or, if multiple copyrighted
works at a single online site are covered by a single notification, a representative list of such works at
that site.

(iii) Identification of the material that is claimed to be infringing or to be the subject of infringing activity
and that is to be removed or access to which is to be disabled, and information reasonably sufficient to
permit the service provider to locate the material.

(iv) Information reasonably sufficient to permit the service provider to contact the complaining party,
such as an address, telephone number, and, if available, an electronic mail address at which the
complaining party may be contacted.
(v) A statement that the complaining party has a good faith belief that use of the material in the manner
complained of is not authorized by the copyright owner, its agent, or the law.

(vi) A statement that the information in the notification is accurate, and under penalty of perjury, that
the complaining party is authorized to act on behalf of the owner of an exclusive right that is allegedly
infringed.

17 U.S.C. § 512(c)(3)(A).

Infringing material obtained or distributed via P2P file sharing is located in the computer (or in an off-
line storage device, such as a compact disc) of an individual user. No matter what information the
copyright owner may provide, the ISP can neither “remove” nor “disable access to” the infringing
material because that material is not stored on the ISP's servers. Verizon can not remove or disable one
user's access to infringing material resident on another user's computer because Verizon does not
control the content on its subscribers' computers.

[5] The RIAA contends an ISP can indeed “disable access” to infringing material by terminating the
offending subscriber's internet account. This argument is undone by the terms of the Act, however. As
Verizon notes, the Congress considered disabling an individual's access to infringing material and
disabling access to the internet to be different remedies for the protection of copyright owners, the
former blocking access to the infringing material on the offender's computer and the latter more
broadly blocking the offender's access to the internet (at least via his chosen ISP). Compare 17 U.S.C. §
512(j)(1)(A)(i) (authorizing injunction restraining ISP “from providing access to infringing material”) with
17 U.S.C. § 512(j)(1)(A)(ii) (authorizing injunction restraining ISP “from providing access to a subscriber
or account holder ... who is engaging in infringing activity ... by terminating the accounts of the
subscriber or account holder”). “[W]here different terms are used in a single piece of legislation, the
court must presume that Congress intended the terms have different meanings.” Transbrasil S.A. Linhas
Aereas v. Dep't of Transp., 791 F.2d 202, 205 (D.C.Cir.1986). These distinct statutory remedies establish
that terminating a subscriber's account is not the same as removing or disabling access by others to the
infringing material resident on the subscriber's computer.

The RIAA points out that even if, with respect to an ISP functioning as a conduit for user-directed
communications, a copyright owner cannot satisfy the requirement of § 512(c)(3)(A)(iii) by identifying
material**92 *1236 to be removed by the ISP, a notification is effective under § 512(c)(3)(A) if it
“includes substantially” the required information; that standard is satisfied, the RIAA maintains, because
the ISP can identify the infringer based upon the information provided by the copyright owner pursuant
to §§ 512(c) (3)(A)(i)-(ii) and (iv)-(vi). According to the RIAA, the purpose of § 512(h) being to identify
infringers, a notice should be deemed sufficient so long as the ISP can identify the infringer from the IP
address in the subpoena.

Nothing in the Act itself says how we should determine whether a notification “includes substantially”
all the required information; both the Senate and House Reports, however, state the term means only
that “technical errors ... such as misspelling a name” or “supplying an outdated area code” will not
render ineffective an otherwise complete § 512(c)(3)(A) notification. S.Rep. No. 105–190, at 47 (1998);
H.R.Rep. No. 105–551 (II), at 56 (1998). Clearly, however, the defect in the RIAA's notification is not a
mere technical error; nor could it be thought “insubstantial” even under a more forgiving standard. The
RIAA's notification identifies absolutely no material Verizon could remove or access to which it could
disable, which indicates to us that § 512(c)(3)(A) concerns means of infringement other than P2P file
sharing.

Finally, the RIAA argues the definition of “[internet] service provider” in § 512(k)(1)(B) makes § 512(h)
applicable to an ISP regardless what function it performs with respect to infringing material –
transmitting it per § 512(a), caching it per § 512(b), hosting it per § 512(c), or locating it per § 512(d).

This argument borders upon the silly. The details of this argument need not burden the Federal
Reporter, for the specific provisions of § 512(h), which we have just rehearsed, make clear that however
broadly “[internet] service provider” is defined in § 512(k)(1)(B), a subpoena may issue to an ISP only
under the prescribed conditions regarding notification. Define all the world as an ISP if you like, the
validity of a § 512(h) subpoena still depends upon the copyright holder having given the ISP, however
defined, a notification effective under § 512(c)(3)(A). And as we have seen, any notice to an ISP
concerning its activity as a mere conduit does not satisfy the condition of § 512(c)(3)(A)(iii) and is
therefore ineffective.

In sum, we agree with Verizon that § 512(h) does not by its terms authorize the subpoenas issued here.
A § 512(h) subpoena simply cannot meet the notice requirement of § 512(c)(3)(A)(iii).

B. Structure

Verizon also argues the subpoena provision, § 512(h), relates uniquely to the safe harbor in § 512(c) for
ISPs engaged in storing copyrighted material and does not apply to the transmitting function addressed
by the safe harbor in § 512(a). Verizon's claim is based upon the “three separate cross-references” in §
512(h) to the notification described in § 512(c)(3)(A). First, as we have seen, § 512(h)(2)(A) requires the
copyright owner to file, along with its request for a subpoena, the notification described in §
512(c)(3)(A). Second, and again as we have seen, § 512(h)(4) requires that the notification satisfy “the
provisions of [§ 512](c)(3)(A)” as a condition precedent to the Clerk's issuing the requested subpoena.
Third, § 512(h)(5) conditions the ISP's obligation to identify the alleged infringer upon “receipt of a
notification described in [§ 512](c)(3)(A).” We agree that the presence in § 512(h) of three separate
references to § 512(c) and the absence of any reference to § 512(a) suggests the subpoena**93 *1237
power of § 512(h) applies only to ISPs engaged in storing copyrighted material and not to those engaged
solely in transmitting it on behalf of others.

As the RIAA points out in response, however, because §§ 512(b) and (d) also require a copyright owner
to provide a “notification ... as described in [§ 512](c)(3),” the cross-references to § 512(c)(3)(A) in §
512(h) can not confine the operation of § 512(h) solely to the functions described in § 512(c), but must
also include, at a minimum, the functions described in §§ 512(b) and (d). Therefore, according to the
RIAA, because Verizon is mistaken in stating that “the take-down notice described in [§ 512] (c)(3)(A) ...
applies exclusively to the particular functions described in [§ 512](c) of the statute,” the subpoena
power in § 512(h) is not linked exclusively to § 512(c) but rather applies to all the ISP functions,
wherever they may be described in §§ 512(a)-(d).

Although the RIAA's conclusion is a non-sequitur with respect to § 512(a), we agree with the RIAA that
Verizon overreaches by claiming the notification described in § 512(c)(3)(A) applies only to the functions
identified in § 512(c). As Verizon correctly notes, however, the ISP activities described in §§ 512(b) and
(d) are storage functions. As such, they are, like the ISP activities described in § 512(c) and unlike the
transmission functions listed in § 512(a), susceptible to the notice and take down regime of §§ 512(b)-
(d), of which the subpoena power of § 512(h) is an integral part. We think it clear, therefore, that the
cross-references to § 512(c)(3) in §§ 512(b)-(d) demonstrate that § 512(h) applies to an ISP storing
infringing material on its servers in any capacity –whether as a temporary cache of a web page created
by the ISP per § 512(b), as a web site stored on the ISP's server per § 512(c), or as an information
locating tool hosted by the ISP per § 512(d) – and does not apply to an ISP routing infringing material to
or from a personal computer owned and used by a subscriber.

The storage activities described in the safe harbors of §§ 512(b)-(d) are subject to § 512(c)(3), including
the notification described in § 512(c)(3)(A). By contrast, as we have already seen, an ISP performing a
function described in § 512(a), such as transmitting e-mails, instant messages, or files sent by an internet
user from his computer to that of another internet user, cannot be sent an effective § 512(c)(3)(A)
notification. Therefore, the references to § 512(c)(3) in §§ 512(b) and (d) lead inexorably to the
conclusion that § 512(h) is structurally linked to the storage functions of an ISP and not to its
transmission functions, such as those listed in § 512(a).

C. Legislative History

In support of its claim that § 512(h) can – and should – be read to reach P2P technology, the RIAA points
to congressional testimony and news articles available to the Congress prior to passage of the DMCA.
These sources document the threat to copyright owners posed by bulletin board services (BBSs) and file
transfer protocol (FTP) sites, which the RIAA says were precursors to P2P programs.

[6] We need not, however, resort to investigating what the 105th Congress may have known because
the text of § 512(h) and the overall structure of § 512 clearly establish, as we have seen, that § 512(h)
does not authorize the issuance of a subpoena to an ISP acting as a mere conduit for the transmission of
information sent by others. Legislative history can serve to inform the court's reading of an otherwise
ambiguous text; it cannot lead the court to contradict the legislation itself. See **94 *1238 Ratzlaf v.
United States, 510 U.S. 135, 147–48, 114 S.Ct. 655, 662–63, 126 L.Ed.2d 615 (1994) ( “[W]e do not resort
to legislative history to cloud a statutory text that is clear”).

In any event, not only is the statute clear (albeit complex), the legislative history of the DMCA betrays no
awareness whatsoever that internet users might be able directly to exchange files containing
copyrighted works. That is not surprising; P2P software was “not even a glimmer in anyone's eye when
the DMCA was enacted.” In re Verizon I, 240 F.Supp.2d at 38. Furthermore, such testimony as was
available to the Congress prior to passage of the DMCA concerned “hackers” who established
unauthorized FTP or BBS sites on the servers of ISPs, see Balance of Responsibilities on the Internet and
the Online Copyright Liability Limitation Act: Hearing on H.R. 2180 Before the House Subcomm. on
Courts and Intellectual Property, Comm. on the Judiciary, 105th Cong. (1997) (statement of Ken Wasch,
President, Software Publishers Ass'n); rogue ISPs that posted FTP sites on their servers, thereby making
files of copyrighted musical works available for download, see Complaint, Geffen Records, Inc. v. Arizona
Bizness Network, No. CIV. 98–0794, at ¶ 1 (D. Ariz. May 5, 1998) available at http://
www.riaa.com/news/newsletter/pdf/geffencomplaint.pdf, (last visited December 2, 2003); and BBS
subscribers using dial-up technology to connect to a BBS hosted by an ISP. The Congress had no reason
to foresee the application of § 512(h) to P2P file sharing, nor did they draft the DMCA broadly enough to
reach the new technology when it came along. Had the Congress been aware of P2P technology, or
anticipated its development, § 512(h) might have been drafted more generally. Be that as it may,
contrary to the RIAA's claim, nothing in the legislative history supports the issuance of a § 512(h)
subpoena to an ISP acting as a conduit for P2P file sharing.

D. Purpose of the DMCA

Finally, the RIAA argues Verizon's interpretation of the statute “would defeat the core objectives” of the
Act. More specifically, according to the RIAA there is no policy justification for limiting the reach of §
512(h) to situations in which the ISP stores infringing material on its system, considering that many more
acts of copyright infringement are committed in the P2P realm, in which the ISP merely transmits the
material for others, and that the burden upon an ISP required to identify an infringing subscriber is
minimal.
We are not unsympathetic either to the RIAA's concern regarding the widespread infringement of its
members' copyrights, or to the need for legal tools to protect those rights. It is not the province of the
courts, however, to rewrite the DMCA in order to make it fit a new and unforeseen internet
architecture, no matter how damaging that development has been to the music industry or threatens
being to the motion picture and software industries. The plight of copyright holders must be addressed
in the first instance by the Congress; only the “Congress has the constitutional authority and the
institutional ability to accommodate fully the varied permutations of competing interests that are
inevitably implicated by such new technology.” See Sony Corp. v. Universal City Studios, Inc., 464 U.S.
417, 431, 104 S.Ct. 774, 783, 78 L.Ed.2d 574 (1984).

The stakes are large for the music, motion picture, and software industries and their role in fostering
technological innovation and our popular culture. It is not surprising, therefore, that even as this case
was being argued, committees of the Congress were considering how best to **95 *1239 deal with the
threat to copyrights posed by P2P file sharing schemes. See, e.g., Privacy & Piracy: The Paradox of Illegal
File Sharing on Peer-to-Peer Networks and the Impact of Technology on the Entertainment Industry:
Hearing Before the Senate Comm. On Governmental Affairs, 108th Congress (Sept. 30, 2003);
Pornography, Technology, and Process: Problems and Solutions on Peer-to-Peer Networks: Hearing
Before the Senate Comm. on the Judiciary, 108th Congress (Sept. 9, 2003).

III. Conclusion

For the foregoing reasons, we remand this case to the district court to vacate its order enforcing the July
24 subpoena and to grant Verizon's motion to quash the February 4 subpoena.

So ordered.

C.A.D.C.,2003.
Recording Industry Ass'n of America, Inc. v. Verizon Internet Services, Inc.
351 F.3d 1229, 359 U.S.App.D.C. 85, 2004 Copr.L.Dec. P 28,734, 69 U.S.P.Q.2d 1075, 31 Communications
Reg. (P&F) 438

Briefs and Other Related Documents (Back to top)


United States Court of Appeals,

Ninth Circuit.

PERFECT 10, INC., Plaintiff–Appellant,


v.
VISA INTERNATIONAL SERVICE, ASSOCIATION; First Data Corporation; Cardservice International, Inc.;
Humboldt Bank; Mastercard International, Inc., Defendants–Appellees.

No. 05–15170.

Argued and Submitted Dec. 4, 2006.


Filed July 3, 2007.

Background: Internet website publisher brought action against credit card companies and several
affiliated banks and data processing services alleging secondary liability under federal copyright and
trademark law and liability under California statutory and common law for processing credit card
payments to Internet websites that infringed publisher's intellectual property rights after being notified
by publisher of infringement by those websites. The United States District Court for the Northern District
of California, James Ware, J., 2004 WL 3217732, dismissed action. Publisher appealed.

Holdings: The Court of Appeals, Milan D. Smith, Jr., Circuit Judge, held that:

(1) payment processing by credit card companies did not constitute material contribution to
infringement by competing Internet websites that stemmed from failure to obtain license to distribute;

(2) payment processing by credit card companies did not induce competing Internet websites to infringe
copyrights;

(3) credit card companies had not vicariously infringed copyrights by processing payments;

(4) payment processing for infringing Internet websites did not constitute secondary trademark
infringement;

(5) payment processing did not induce competing Internet websites to infringe trademarks;

(6) credit card companies did not have symbiotic relationship with infringing Internet websites or joint
ownership or control over content by processing payments;

(7) credit card companies were not secondarily liable under California unfair competition and false
advertising laws for images stolen by infringing Internet websites; and

(8) mere availability of bank-card payment system did not make credit card company liable, as aider and
abettor under California unfair competition and false advertising laws, for images stolen by infringing
Internet websites.

Affirmed.
Kozinski, Circuit Judge, filed dissenting opinion.

West Headnotes

[1] KeyCite Citing References for this Headnote

170B Federal Courts


170BXVII Courts of Appeals
170BXVII(K) Scope and Extent of Review
170BXVII(K)1 In General
170Bk3548 Theory and Grounds of Decision of Lower Court
170Bk3552 k. Grounds for sustaining decision not relied upon or considered. Most Cited Cases
(Formerly 170Bk762)

The Court of Appeals may affirm on any ground supported by the record, even if the district court did
not consider the issue.

[2] KeyCite Citing References for this Headnote

170B Federal Courts


170BXVII Courts of Appeals
170BXVII(K) Scope and Extent of Review
170BXVII(K)2 Standard of Review
170Bk3566 Questions of Law in General
170Bk3568 k. State or local law in general. Most Cited Cases
(Formerly 170Bk781, 170Bk776)

De novo review applies to a district court's interpretation of state law.

[3] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases
Contributory copyright infringement is a form of secondary liability with roots in the tort-law concepts
of enterprise liability and imputed intent. 17 U.S.C.A. § 101 et seq.

[4] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

One contributorily infringes a copyright when he: (1) has knowledge of another's infringement, and (2)
either (a) materially contributes to or (b) induces that infringement. 17 U.S.C.A. § 101 et seq.

[5] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Payment processing by credit card companies did not constitute material contribution to infringement
by competing Internet websites that stemmed from failure to obtain license to distribute, for purpose of
contributory copyright infringement claim of Internet website owner, since companies did not have
direct connection to infringement and infringement could have occurred without using payment system;
although payment systems made it easier for infringement to be profitable and had effect of increasing
infringement, services provided by companies did not help locate and were not used to distribute
infringing images. 17 U.S.C.A. § 101 et seq.

[6] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Payment processing by credit card companies did not induce competing Internet websites to infringe
copyrights by not obtaining license to distribute, for purpose of infringement claim of Internet website
owner, since companies did not take affirmative steps to foster infringement and companies did not
promote their payment system as means to infringe; although companies marketed their credit cards as
means to pay for goods and services, companies had not affirmatively promoted each product that their
cards were used to purchase. 17 U.S.C.A. § 101 et seq.

[7] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Whereas contributory copyright infringement is based on tort-law principles of enterprise liability and
imputed intent, vicarious infringement's roots lie in the agency principles of respondeat superior. 17
U.S.C.A. § 101 et seq.

[8] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

To state a claim for vicarious copyright infringement, a plaintiff must allege that the defendant has (1)
the right and ability to supervise the infringing conduct and (2) a direct financial interest in the infringing
activity. 17 U.S.C.A. § 101 et seq.

[9] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Credit card companies did not have right or ability to supervise and control content of infringing Internet
websites, for purpose of vicarious copyright infringement claim of Internet website owner, although
companies could have refused to process credit card payments to websites which likely would have had
indirect effect of reducing infringing activity on Internet at large; infringing images did not reside on or
pass through companies' systems or any systems over which companies exercised direct control and
companies did not have ability to actually remove infringing material from Internet or directly block its
distribution. 17 U.S.C.A. § 101 et seq.

[10] KeyCite Citing References for this Headnote

99 Copyrights and Intellectual Property


99I Copyrights
99I(J) Infringement
99I(J)2 Remedies
99k72 Actions for Infringement
99k77 k. Persons liable. Most Cited Cases

Credit card companies did not have right and ability to supervise and control content of infringing
Internet websites by their contractual right to refuse to process credit card payments to offending
merchant within their payment network or by threatening to do so if merchant did not comply with
request to alter content, for purpose of vicarious copyright infringement claim of Internet website
owner, since enforcing their own rules and regulations would have only reduced number of sales, which
would have been result of indirect economic pressure rather than affirmative exercise of contractual
rights. 17 U.S.C.A. § 101 et seq.

[11] KeyCite Citing References for this Headnote

382T Trademarks
382TIX Actions and Proceedings
382TIX(A) In General
382Tk1564 Persons Liable
382Tk1565 k. In general. Most Cited Cases

Payment processing for infringing Internet websites by credit card companies did not constitute
secondary trademark infringement in violation of Lanham Act, for purpose of infringement claim of
Internet website owner, since companies did not take affirmative steps to foster infringement,
companies did not promote their payment system as means to infringe, and infringement could have
occurred without using payment system. Lanham Act, § 32(1)(a), 15 U.S.C.A. § 1114(1)(a).

[12] KeyCite Citing References for this Headnote

382T Trademarks
382TIX Actions and Proceedings
382TIX(A) In General
382Tk1564 Persons Liable
382Tk1566 k. Contributory liability. Most Cited Cases
To be liable for contributory trademark infringement under Lanham Act, a defendant must have (1)
intentionally induced the primary infringer to infringe, or (2) continued to supply an infringing product
to an infringer with knowledge that the infringer is mislabeling the particular product supplied. Lanham
Act, § 32(1)(a), 15 U.S.C.A. § 1114(1)(a).

[13] KeyCite Citing References for this Headnote

382T Trademarks
382TIX Actions and Proceedings
382TIX(A) In General
382Tk1564 Persons Liable
382Tk1566 k. Contributory liability. Most Cited Cases

On a claim of contributory trademark infringement under Lanham Act, when the alleged direct infringer
supplies a service rather than a product, the court must consider the extent of control exercised by the
defendant over the third party's means of infringement; for liability to attach, there must be direct
control and monitoring of the instrumentality used by a third party to infringe the plaintiff's mark.
Lanham Act, § 32(1)(a), 15 U.S.C.A. § 1114(1)(a).

[14] KeyCite Citing References for this Headnote

382T Trademarks
382TIX Actions and Proceedings
382TIX(A) In General
382Tk1564 Persons Liable
382Tk1566 k. Contributory liability. Most Cited Cases

Payment processing by credit card companies did not induce competing Internet websites to infringe
trademarks in violation of Lanham Act, for purpose of contributory infringement claim of Internet
website owner, since companies did not take affirmative steps to foster infringement and companies did
not promote their payment system as means to infringe; although companies marketed their credit
cards as means to pay for goods and services, companies had not affirmatively promoted each product
that their cards were used to purchase. Lanham Act, § 32(1)(a), 15 U.S.C.A. § 1114(1)(a).

[15] KeyCite Citing References for this Headnote

382T Trademarks
382TIX Actions and Proceedings
382TIX(A) In General
382Tk1564 Persons Liable
382Tk1566 k. Contributory liability. Most Cited Cases
Credit card companies did not have right or ability to directly control or monitor content of infringing
Internet websites, for purpose of contributory trademark infringement claim of Internet website owner
under Lanham Act, although companies could have refused to process credit card payments to websites
which likely would have had indirect effect of reducing infringing activity on Internet at large; infringing
images did not reside on or pass through companies' systems or any systems over which companies
exercised direct control and companies did not have ability to actually remove infringing material from
Internet or directly block its distribution. Lanham Act, § 32(1)(a), 15 U.S.C.A. § 1114(1)(a).

[16] KeyCite Citing References for this Headnote

382T Trademarks
382TIX Actions and Proceedings
382TIX(A) In General
382Tk1564 Persons Liable
382Tk1565 k. In general. Most Cited Cases

Vicarious liability for trademark infringement under the Lanham Act requires a finding that the
defendant and the infringer have an apparent or actual partnership, have authority to bind one another
in transactions with third parties or exercise joint ownership or control over the infringing product.
Lanham Act, § 32(1)(a), 15 U.S.C.A. § 1114(1)(a).

[17] KeyCite Citing References for this Headnote

382T Trademarks
382TIX Actions and Proceedings
382TIX(A) In General
382Tk1564 Persons Liable
382Tk1565 k. In general. Most Cited Cases

Credit card companies did not have symbiotic relationship with infringing Internet websites or joint
ownership or control over content by processing payments of infringing websites, for purpose of
vicarious trademark infringement claim of Internet website owner under Lanham Act; although
companies could have refused to process credit card payments to websites which likely would have had
indirect effect of reducing infringing activity on Internet at large, infringing images did not reside on or
pass through companies' systems or any systems over which companies exercised direct control and
companies did not have ability to actually remove infringing material from Internet or directly block its
distribution. Lanham Act, § 32(1)(a), 15 U.S.C.A. § 1114(1)(a).

[18] KeyCite Citing References for this Headnote

29T Antitrust and Trade Regulation


29TIII Statutory Unfair Trade Practices and Consumer Protection
29TIII(E) Enforcement and Remedies
29TIII(E)1 In General
29Tk291 k. Persons liable. Most Cited Cases

Credit card companies were not secondarily liable under California unfair competition and false
advertising laws for images stolen by infringing Internet websites simply because those websites
accepted payment through payment system. West's Ann.Cal.Bus. & Prof.Code § 17200 et seq.

[19] KeyCite Citing References for this Headnote

29T Antitrust and Trade Regulation


29TIII Statutory Unfair Trade Practices and Consumer Protection
29TIII(E) Enforcement and Remedies
29TIII(E)1 In General
29Tk291 k. Persons liable. Most Cited Cases

Mere availability of bank-card payment system did not make credit card company liable, as aider and
abettor under California unfair competition and false advertising laws, for images stolen by infringing
Internet websites that accepted payment through system. West's Ann.Cal.Bus. & Prof.Code § 17200 et
seq.

[20] KeyCite Citing References for this Headnote

379 Torts
379IV Privacy and Publicity
379IV(C) Use of Name, Voice or Likeness; Right to Publicity
379k397 k. Persons liable. Most Cited Cases

Even if California law authorized claim for aiding and abetting violation of right of publicity, credit card
companies which processed payments to Internet websites lacked sufficient control over, or personal
involvement in, such websites' alleged violations of another website's rights of publicity to be liable on
such aiding and abetting claim. West's Ann.Cal.Civ.Code § 3344.

[21] KeyCite Citing References for this Headnote

241 Limitation of Actions


241II Computation of Period of Limitation
241II(A) Accrual of Right of Action or Defense
241k55 Torts
241k55(1) k. In general. Most Cited Cases

241 Limitation of Actions KeyCite Citing References for this Headnote


241II Computation of Period of Limitation
241II(A) Accrual of Right of Action or Defense
241k55 Torts
241k55(5) k. Injuries to property in general. Most Cited Cases

Limitations period for internet website's claims of libel and intentional interference with prospective
economic advantage under California law began to run when it was placed on industry “black list.”
West's Ann.Cal.C.C.P. §§ 339, 340(c).

KeyCite Citing References for this Headnote

382T Trademarks
382TXI Trademarks and Trade Names Adjudicated
382Tk1800 k. Alphabetical listing. Most Cited Cases

PERFECT 10.

*792 Howard E. King (argued) and Stephen D. Rothschild, King, Holmes, Paterno & Berliner, LLP, Los
Angeles, California, for the plaintiff-appellant.

Jeffrey N. Mausner, Berman, Mausner & Resser, Los Angeles, California, for the plaintiff–appellant.

Daniel J. Cooper, Los Angeles, California, for the plaintiff–appellant.

Andrew P. Bridges (argued), John C. Nishi, Winston & Strawn LLP, San Francisco, California, for
defendant-appellee Mastercard International Incorporated.

Mark T. Jansen, Nancy L. Tompkins, Anthony J. Malutta, Townsend and Townsend and Crew LLP, San
Francisco, California, for defendant-appellee Visa International Service Association.

Robert A. Van Nest, Michael H. Page, R. James Slaughter, Keker & Van Nest, LLP, San Francisco,
California, for defendants-appellees First Data Corp., Cardservice International, Inc., and Humboldt Bank.

Appeal from the United States District Court for the Northern District of California; James Ware, District
Judge, Presiding. D.C. No. CV–04–00371–JW.

Before: STEPHEN REINHARDT, ALEX KOZINSKI, and MILAN D. SMITH, JR., Circuit Judges.

Opinion by Judge MILAN D. SMITH, JR.; Dissent by Judge KOZINSKI.

MILAN D. SMITH, JR., Circuit Judge:


Perfect 10, Inc. (Perfect 10) sued Visa International Service Association, MasterCard International Inc.,
and several affiliated banks and data processing services (collectively, the Defendants), alleging
secondary liability under federal copyright and trademark law and liability under California statutory and
common law. It sued because Defendants continue to process credit card payments to websites that
infringe Perfect 10's intellectual property rights after being notified by Perfect 10 of infringement by
those websites. The district court dismissed all causes of action under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim upon *793 which relief can be granted. We affirm the decision of the
district court.

FACTS AND PRIOR PROCEEDINGS

Perfect 10 publishes the magazine “PERFECT10” and operates the subscription website www. perfect
10. com., both of which “feature tasteful copyrighted images of the world's most beautiful natural
models.” Appellant's Opening Brief at 1. Perfect 10 claims copyrights in the photographs published in its
magazine and on its website, federal registration of the “PERFECT 10” trademark and blanket publicity
rights for many of the models appearing in the photographs. Perfect 10 alleges that numerous websites
based in several countries have stolen its proprietary images, altered them, and illegally offered them
for sale online.

Instead of suing the direct infringers in this case, Perfect 10 sued Defendants, financial institutions that
process certain credit card payments to the allegedly infringing websites. The Visa and MasterCard
entities are associations of member banks that issue credit cards to consumers, automatically process
payments to merchants authorized to accept their cards, and provide information to the interested
parties necessary to settle the resulting debits and credits. Defendants collect fees for their services in
these transactions. Perfect 10 alleges that it sent Defendants repeated notices specifically identifying
infringing websites and informing Defendants that some of their consumers use their payment cards to
purchase infringing images. Defendants admit receiving some of these notices, but they took no action
in response to the notices after receiving them.

Perfect 10 separately alleges that it formerly had a merchant account with defendant First Data
Corporation (FDC) but that in the Spring of 2001 FDC terminated the account. FDC's stated reason for
the termination is that the percentage of Perfect 10's customers who later disputed the charges
attributed to them (the chargeback rate) exceeded contractual limits. Perfect 10 claims these
chargeback rates were temporarily and substantially inflated because Perfect 10 was the “victim of
hackers who were subsequently investigated by the Secret Service.” Appellant's Opening Brief at 13.
Perfect 10 claims that FDC was aware of this and was also aware that Perfect 10's chargeback rate
dropped to within association limits once the hacking ceased, but that FDC nevertheless placed Perfect
10 on an industry-wide “black list” of terminated accounts.
Perfect 10 filed suit against Defendants on January 28, 2004 alleging contributory and vicarious
copyright and trademark infringement as well as violations of California laws proscribing unfair
competition and false advertising, violation of the statutory and common law right of publicity, libel, and
intentional interference with prospective economic advantage. Defendants moved to dismiss the initial
complaint under FRCP 12(b)(6). The district court granted the motion, dismissing the libel and
intentional interference claims with prejudice but granting leave to amend the remaining claims. In its
first amended complaint, Perfect 10 essentially repeated the allegations in its original complaint
concerning the surviving causes of action and Defendants again moved to dismiss under FRCP 12(b)(6).
The district court granted the Defendants' second motion in full, dismissing all remaining causes of
action with prejudice. Perfect 10 appealed to this court.

JURISDICTION

The district court had original jurisdiction over the copyright and trademark claims pursuant to 28 U.S.C.
§§ 1331 and *794 1338 and supplemental jurisdiction over the related state law claims pursuant to 28
U.S.C. § 1367. This court has appellate jurisdiction pursuant to 28 U.S.C. § 1291.

STANDARDS OF REVIEW

We review de novo the district court's dismissal for failure to state a claim upon which relief can be
granted pursuant to FRCP 12(b)(6). Rodriguez v. Panayiotou, 314 F.3d 979, 983 (9th Cir.2002). On
appeal, “we take all of the allegations of material fact stated in the complaint as true and construe them
in the light most favorable to the nonmoving party. A complaint should not be dismissed unless it
appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle
him to relief.” Id. (internal citations omitted).

[1] Although a plaintiff's allegations are generally taken as true, the court need not accept conclusory
allegations of law or unwarranted inferences, and dismissal is required if the facts are insufficient to
support a cognizable claim. City of Arcadia v. U.S. Envtl. Prot. Agency, 411 F.3d 1103, 1106 n. 3 (9th
Cir.2005); see also Pena v. Gardner, 976 F.2d 469, 471–72 (9th Cir.1992). The court may also affirm on
any ground supported by the record even if the district court did not consider the issue. Fields v. Legacy
Health Sys., 413 F.3d 943, 958 n. 13 (9th Cir.2005); ARC Ecology v. United States Dep't of the Air Force,
411 F.3d 1092, 1096 (9th Cir.2005).

[2] We review de novo the district court's interpretation of state law. Rodriguez, 314 F.3d at 983.

DISCUSSION

SECONDARY LIABILITY UNDER FEDERAL COPYRIGHT AND TRADEMARK LAW


A. Secondary Liability for Copyright Infringement

Perfect 10 alleges that numerous websites based in several countries—and their paying customers—
have directly infringed its rights under the Copyright Act, 17 U.S.C. § 101, et seq.FN1 In the present suit,
however, Perfect 10 has sued Defendants, not the direct infringers, claiming contributory and vicarious
copyright infringement because Defendants process credit card charges incurred by customers to
acquire the infringing images.

FN1. While Perfect 10's complaint does not clearly specify which of Perfect 10's rights are being
infringed, it appears that at least four such rights are potentially at issue: reproduction (17 U.S.C. §
106(1)); derivative works (17 U.S.C. § 106(2)); distribution of copies (17 U.S.C. § 106(3)); and public
display (17 U.S.C. § 106(5)).

We evaluate Perfect 10's claims with an awareness that credit cards serve as the primary engine of
electronic commerce and that Congress has determined it to be the “policy of the United States—(1) to
promote the continued development of the Internet and other interactive computer services and other
interactive media [and] (2) to preserve the vibrant and competitive free market that presently exists for
the Internet and other interactive computer services, unfettered by Federal or State regulation.” 47
U.S.C. §§ 230(b)(1), (2).FN2

FN2. Congress expressed similar sentiments when it enacted the Digital Millennium Copyright Act
(DMCA), 17 U.S.C. § 512, one of the stated purposes of which was to “facilitate the robust development
and worldwide expansion of electronic commerce, communications, research, development, and
education in the digital age.” S. Rep. 105–190, at 1–2 (1998).

1. Contributory Copyright Infringement

[3] Contributory copyright infringement is a form of secondary liability with *795 roots in the tort-law
concepts of enterprise liability and imputed intent. See Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d
259, 264 (9th Cir.1996); Perfect 10, Inc. v. Amazon.com, Inc. et al., 487 F.3d 701 (9th Cir.2007). This
court and the United States Supreme Court (Supreme Court) have announced various formulations of
the same basic test for such liability. We have found that a defendant is a contributory infringer if it (1)
has knowledge of a third party's infringing activity, and (2) “induces, causes, or materially contributes to
the infringing conduct.” Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir.2004) (citing Gershwin Publ'g
Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir.1971)). In an Internet context, we
have found contributory liability when the defendant “engages in personal conduct that encourages or
assists the infringement.” A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1019 (9th Cir.2001)
(internal citations omitted). In Metro–Goldwyn–Mayer Studios, Inc. v. Grokster, Ltd., the Supreme Court
adopted from patent law the concept of “inducement” and found that “[o]ne infringes contributorily by
intentionally inducing or encouraging direct infringement.” 545 U.S. 913, 930, 125 S.Ct. 2764, 162
L.Ed.2d 781 (2005).FN3 Most recently, in a case also brought by Perfect 10, we found that “an actor may
be contributorily liable [under Grokster ] for intentionally encouraging direct infringement if the actor
knowingly takes steps that are substantially certain to result in such direct infringement.” Amazon.com,
487 F.3d at 727.

FN3. In her concurring opinion in Grokster, Justice Ginsburg identified another strand of contributory
liability in the Supreme Court's jurisprudence, i.e., liability based on “distributing a product distributees
use to infringe copyrights, if the product is not capable of ‘substantial’ or ‘commercially significant’
noninfringing uses.” Grokster, 545 U.S. at 942, 125 S.Ct. 2764 (citing Sony Corp. of America v. Universal
City Studios, Inc., 464 U.S. 417, 442, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984)). Even assuming Defendants
offer a “product” for these purposes, Perfect 10 does not claim that the “product” of credit card services
is incapable of substantial and commercially significant noninfringing uses.

[4] We understand these several criteria to be non-contradictory variations on the same basic test,
i.e., that one contributorily infringes when he (1) has knowledge of another's infringement and (2) either
(a) materially contributes to or (b) induces that infringement. Viewed in isolation, the language of the
tests described is quite broad, but when one reviews the details of the actual “cases and controversies”
before the relevant court in each of the test-defining cases and the actual holdings in those cases, it is
clear that the factual circumstances in this case are not analogous. To find that Defendants' activities fall
within the scope of such tests would require a radical and inappropriate expansion of existing principles
of secondary liability and would violate the public policy of the United States.

a. Knowledge of the Infringing Activity

Because we find that Perfect 10 has not pled facts sufficient to establish that Defendants induce or
materially contribute to the infringing activity, Perfect 10's contributory copyright infringement claim
fails and we need not address the Defendants' knowledge of the infringing activity.FN4

FN4. We note that an anomaly exists regarding the concept of notice in secondary copyright
infringement cases outside a FRCP 12(b)(6) context. Congress addressed the issue of notice in the
DMCA, which grants a safe harbor against liability to certain Internet service providers, even those with
actual knowledge of infringement, if they have not received statutorily-compliant notice. See Perfect 10
v. CCBill LLC, 481 F.3d 751 (9th Cir.2007), amended and superceded, 488 F.3d 1102 (9th Cir.2007); 17
U.S.C. § 512(c)(3). Because Defendants are not “service providers” within the scope of the DMCA, they
are not eligible for these safe harbors. The result, under Perfect 10's theories, would therefore be that a
service provider with actual knowledge of infringement and the actual ability to remove the infringing
material, but which has not received a statutorily compliant notice, is entitled to a safe harbor from
liability, while credit card companies with actual knowledge but without the actual ability to remove
infringing material, would benefit from no safe harbor. We recognize that the DMCA was not intended
to displace the development of secondary liability in the courts; rather, we simply take note of the
anomalous result Perfect 10 seeks.

*796 b. Material Contribution, Inducement, or Causation

To state a claim of contributory infringement, Perfect 10 must allege facts showing that Defendants
induce, cause, or materially contribute to the infringing conduct. See, e.g., Ellison, 357 F.3d at 1076.
Three key cases found defendants contributorily liable under this standard: Fonovisa, 76 F.3d 259;
Napster, 239 F.3d 1004; and Grokster, 545 U.S. 913, 125 S.Ct. 2764, 162 L.Ed.2d 781. In Fonovisa, we
held a swap meet operator contributorily liable for the sale of pirated works at the swap meet. In
Napster, we held the operator of an electronic file sharing system liable when users of that system
employed it to exchange massive quantities of copyrighted music. In Grokster, the Supreme Court found
liability for the substantially similar act of distributing software that enabled exchange of copyrighted
music on a peer-to-peer, rather than a centralized basis.FN5 Perfect 10 argues that by continuing to
process credit card payments to the infringing websites despite having knowledge of ongoing
infringement, Defendants induce, enable and contribute to the infringing activity in the same way the
defendants did in Fonovisa, Napster and Grokster. We disagree.

FN5. Because the Grokster court focused primarily on an “inducement” theory rather than a “material
contribution” theory, our primary discussion of Grokster is located below in the “inducement” section of
this opinion.

1. Material Contribution

[5] The credit card companies cannot be said to materially contribute to the infringement in this case
because they have no direct connection to that infringement. Here, the infringement rests on the
reproduction, alteration, display and distribution of Perfect 10's images over the Internet. Perfect 10 has
not alleged that any infringing material passes over Defendants' payment networks or through their
payment processing systems, or that Defendants' systems are used to alter or display the infringing
images. In Fonovisa, the infringing material was physically located in and traded at the defendant's
market. Here, it is not. Nor are Defendants' systems used to locate the infringing images. The search
engines in Amazon.com provided links to specific infringing images, and the services in Napster and
Grokster allowed users to locate and obtain infringing material. Here, in contrast, the services provided
by the credit card companies do not help locate and are not used to distribute the infringing images.
While Perfect 10 has alleged that Defendants make it easier for websites to profit from this infringing
activity, the issue here is reproduction, alteration, display and distribution, which can occur without
payment. Even if infringing images were not paid for, there would still be infringement. See Napster, 239
F.3d at 1014 (Napster users infringed the distribution right by uploading file names to the search index
for others to copy, despite the fact that *797 no money changed hands in the transaction).

Our analysis is fully consistent with this court's recent decision in Perfect 10 v. Amazon.com, where we
found that “Google could be held contributorily liable if it had knowledge that infringing Perfect 10
images were available using its search engine, could take simple measures to prevent further damage to
Perfect 10's copyrighted works, and failed to take such steps.” 487 F.3d at 729. The dissent claims this
statement applies squarely to Defendants if we just substitute “payment systems” for “search engine.”
Dissent at 811. But this is only true if search engines and payment systems are equivalents for these
purposes, and they are not. The salient distinction is that Google's search engine itself assists in the
distribution of infringing content to Internet users, while Defendants' payment systems do not. The
Amazon.com court noted that “Google substantially assists websites to distribute their infringing copies
to a worldwide market and assists a worldwide audience of users to access infringing materials.” Id.
Defendants do not provide such a service. They in no way assist or enable Internet users to locate
infringing material, and they do not distribute it. They do, as alleged, make infringement more
profitable, and people are generally more inclined to engage in an activity when it is financially
profitable. However, there is an additional step in the causal chain: Google may materially contribute to
infringement by making it fast and easy for third parties to locate and distribute infringing material,
whereas Defendants make it easier for infringement to be profitable, which tends to increase financial
incentives to infringe, which in turn tends to increase infringement.FN6

FN6. As discussed in note 11, infra, the dissent's claims that payment processing is “an essential step in
the infringement process,” dissent at 812, and that “Defendants are directly involved in every infringing
transaction where payment is made by credit card,” dissent at 815, suggests that the dissent believes
that the Defendants are directly infringing when they process these payments.

The dissent disagrees with our reading of Amazon.com and charges us with wishful thinking, dissent at
811, and with “draw[ing] a series of ephemeral distinctions,” dissent at 825. We respectfully disagree
and assert that our construction of the relevant statutes and case law is completely consistent with
existing federal law, is firmly grounded in both commercial and technical reality and conforms to the
public policy of the United States. Helping users to locate an image might substantially assist users to
download infringing images, but processing payments does not. If users couldn't pay for images with
credit cards, infringement could continue on a large scale because other viable funding mechanisms are
available. For example, a website might decide to allow users to download some images for free and to
make its profits from advertising, or it might develop other payment mechanisms that do not depend on
the credit card companies.FN7 In either case, the unlicensed use of Perfect 10's copyrighted images
would still be infringement.FN8 We acknowledge that Defendants' *798 payment systems make it easier
for such an infringement to be profitable, and that they therefore have the effect of increasing such
infringement, but because infringement of Perfect 10's copyrights can occur without using Defendants'
payment system, we hold that payment processing by the Defendants as alleged in Perfect 10's First
Amended Complaint does not constitute a “material contribution” under the test for contributory
infringement of copyrights.FN9

FN7. As discussed more fully in the vicarious infringement section, infra, Perfect 10's factual allegations
are not to the contrary.
FN8. We recognize that Google is not the only search engine available to Internet users, and that users
do not necessarily need Google to locate infringing images. The distinction we draw, however, is not
specific to Google; it is between location services and payment services. Because location services lead
Internet users directly to infringing images and often display them on the website of the service itself,
we find that location services are more important and more essential—indeed, more “material”—to
infringement than payment services are.

FN9. Our dissenting colleague assures us that we would not jeopardize Internet commerce by finding
Defendants liable because he has “every confidence” that this court will simply find that other providers
of essential services may contribute to infringement, but not materially so. Dissent at 816. We take little
comfort in his assurances because the predicate of our colleague's optimistic view of future judicial
refinement of his new world of secondary liability is a large number of expensive and drawn-out pieces
of litigation that may, or may not, ever be filed. Meanwhile, what would stop a competitor of a web-site
from sending bogus notices to a credit card company claiming infringement by its competitor in the
hope of putting a competitor out of business, or, at least, requiring it to spend a great deal of money to
clear its name? Threatened with significant potential secondary liability on a variety of fronts under the
dissent's proposed expansion of existing secondary liability law, perhaps the credit card companies
would soon decline to finance purchases that are more legally risky. They, after all, are as moved by
Adam Smith's “invisible hand” as the next set of merchants. If that happened, would First Amendment
rights of consumers be trampled? Would Perfect 10 itself be adversely impacted because no credit card
company would want to take a chance on becoming secondarily liable?

We similarly take little comfort in the dissent's resurrection of the “dance-hall-owner/absentee-


landlord” cases as a source of any principled distinction in this area. Dissent at 815–16. Those tests were
developed for a brick-and-mortar world, and, as the Napster and Grokster courts implicitly recognized
by paying little attention to them, they do not lend themselves well to application in an electronic
commerce context. In deciding this case, we are well-advised to follow the lead of the Supreme Court's
and our own court's cases confronting online commerce issues.

Our holding is also fully consistent with and supported by this court's previous holdings in Fonovisa and
Napster. While there are some limited similarities between the factual scenarios in Fonovisa and
Napster and the facts in this case, the differences in those scenarios are substantial, and, in our view,
dispositive. In Fonovisa, we held a flea market proprietor liable as a contributory infringer when it
provided the facilities for and benefitted from the sale of pirated works. 76 F.3d 259. The court found
that the primary infringers and the swap meet were engaged in a mutual enterprise of infringement and
observed that “it would be difficult for the infringing activity to take place in the massive quantities
alleged without the support services provided by the swap meet. These services include, among other
things, the provision of space, utilities, parking, advertising, plumbing, and customers.” 76 F.3d at 264.
But the swap meet owner did more to encourage the enterprise. In 1991, the Fresno County Sheriff
raided the swap meet and seized 38,000 counterfeit recordings. Id. at 261. The Sheriff sent a letter to
the swap meet operator the following year notifying it that counterfeit sales continued and reminding it
that it had agreed to provide the Sheriff with identifying information from each vendor, but had failed to
do so. Id. The Fonovisa court found liability because the swap meet operator knowingly provided the
“site and facilities” for the infringing activity. Id. at 264.
In Napster, this court found the designer and distributor of a software program liable for contributory
infringement. 239 F.3d 1004. Napster was a file-sharing *799 program which, while capable of non-
infringing use, was expressly engineered to enable the easy exchange of pirated music and was widely
so used. See Napster, 239 F.3d at 1020 n. 5 (quoting document authored by Napster co-founder which
mentioned “the need to remain ignorant of users' real names and IP addresses ‘since they are
exchanging pirated music’ ”). Citing the Fonovisa standard, the Napster court found that Napster
materially contributes to the users' direct infringement by knowingly providing the “site and facilities”
for that infringement. 239 F.3d at 1022.

Seeking to draw an analogy to Fonovisa and, by extension, Napster, Perfect 10 pleads that Defendants
materially contribute to the infringement by offering services that allow it to happen on a larger scale
than would otherwise be possible. Specifically, because the swap meet in Fonovisa created a
commercial environment which allowed the frequency of that infringement to increase, and the Napster
program increased the frequency of infringement by making it easy, Perfect 10 argues that the
Defendants have made available a payment system that allows third-party infringement to be profitable,
and, consequently, more widespread than it otherwise might be. This analogy fails.

The swap meet operator in Fonovisa and the administrators of the Napster and Grokster programs
increased the level of infringement by providing a centralized place, whether physical or virtual, where
infringing works could be collected, sorted, found, and bought, sold, or exchanged.FN10 The provision of
parking lots, plumbing and other accoutrements in Fonovisa was significant only because this was part
of providing the environment and market for counterfeit recording sales to thrive.

FN10. In fact, as virtually every interested college student knew—and as the program's creator expressly
admitted-the sole purpose of the Napster program was to provide a forum for easy copyright
infringement. See Napster, 239 F.3d at 1020 n. 5. Perfect 10 does not contend that Defendants'
payment systems were engineered for infringement in this way, and we decline to radically expand
Napster's cursory treatment of “material contribution” to cover a credit card payment system that was
not so designed.

Defendants, in contrast, do no such thing. While Perfect 10 has alleged that it is easy to locate images
that infringe its copyrights, the Defendants' payment systems do not cause this. Perfect 10's images are
easy to locate because of the very nature of the Internet—the website format, software allowing for the
easy alteration of images, high-speed connections allowing for the rapid transfer of high-resolution
image files, and perhaps most importantly, powerful search engines that can aggregate and display
those images in a useful and efficient manner, without charge, and with astounding speed. Defendants
play no role in any of these functions.
Perfect 10 asserts otherwise by arguing for an extremely broad conception of the term “site and
facilities” that bears no relationship to the holdings in the actual “cases and controversies” decided in
Fonovisa and Napster. Taken literally, Perfect 10's theory appears to include any tangible or intangible
component related to any transaction in which infringing material is bought and sold. But Fonovisa and
Napster do not require or lend themselves to such a construction. The actual display, location, and
distribution of infringing images in this case occurs on websites that organize, display, and transmit
information over the wires and wireless instruments that make up the Internet. The websites are the
“site” of the infringement, not Defendants' payment networks. Defendants do not create, operate,*800
advertise, or otherwise promote these websites. They do not operate the servers on which they reside.
Unlike the Napster (and Grokster ) defendants, they do not provide users the tools to locate infringing
material, nor does any infringing material ever reside on or pass through any network or computer
Defendants operate.FN11 Defendants merely provide a method of payment, not a “site” or “facility” of
infringement. Any conception of “site and facilities” that encompasses Defendants would also include a
number of peripherally-involved third parties, such as computer display companies, storage device
companies, and software companies that make the software necessary to alter and view the pictures
and even utility companies that provide electricity to the Internet.

FN11. Moreover, if the processing of payment for an infringing transaction were as central to the
infringement as the dissent believes it to be— see, e.g., dissent at 811 (payment processing is “an
essential step in the infringement process”), dissent at 815 (“Defendants are directly involved in every
infringing transaction where payment is made by credit card”)—it is difficult to see why Defendants
would be not be direct infringers of the distribution right. Not even Perfect 10 has gone so far as to
allege that theory here—Perfect 10 would undoubtedly be quite surprised to learn, after years of
litigation attempting to expand the scope of secondary liability, that Defendants are direct infringers
after all.

Perfect 10 seeks to side-step this reality by alleging that Defendants are still contributory infringers
because they could refuse to process payments to the infringing websites and thereby undermine their
commercial viability. FN12 Even though we must take this factual allegation as true, that Defendants
have the power to undermine the commercial viability of infringement does not demonstrate that the
Defendants materially contribute to that infringement. As previously noted, the direct infringement here
is the reproduction, alteration, display and distribution of Perfect 10's images over the Internet. Perfect
10 has not alleged that any infringing material passes over Defendants' payment networks or through
their payment processing systems, or that Defendants designed or promoted their payment systems as
a means to infringe. While Perfect 10 has alleged that Defendants make it easier for websites to profit
from this infringing activity, the infringement stems from the failure to obtain a license to distribute, not
the processing of payments.

FN12. This allegation is considered below under vicarious infringement, but we also address it here in
terms of contributory infringement.
2. Inducement

[6] In Grokster, the Supreme Court applied the patent law concept of “inducement” to a claim of
contributory infringement against a file-sharing program. 545 U.S. 913, 125 S.Ct. 2764, 162 L.Ed.2d 781.
The court found that “one who distributes a device with the object of promoting its use to infringe
copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable
for the resulting acts of infringement by third parties.” Id. at 936–37, 125 S.Ct. 2764. Perfect 10 claims
that Grokster is analogous because Defendants induce customers to use their cards to purchase goods
and services, and are therefore guilty of specifically inducing infringement if the cards are used to
purchase images from sites that have content stolen from Perfect 10. This is mistaken. Because Perfect
10 alleges no “affirmative steps taken to foster infringement” and no facts suggesting that Defendants
promoted their payment system as a means to infringe, its claim is premised on a fundamental
misreading of *801 Grokster that would render the concept of “inducement” virtually meaningless.

The Grokster court announced that the standard for inducement liability is providing a service “with the
object of promoting its use to infringe copyright.” Id. “[M]ere knowledge of infringing potential or actual
infringing uses would not be enough here to subject [a defendant] to liability.” Id. at 937, 125 S.Ct. 2764.
Instead, inducement “premises liability on purposeful, culpable expression and conduct, and thus does
nothing to compromise legitimate commerce or discourage innovation having a lawful promise.” Id.
Moreover, to establish inducement liability, it is crucial to establish that the distributors “communicated
an inducing message to their ... users,” the classic example of which is an “advertisement or solicitation
that broadcasts a message designed to stimulate others to commit violations.” Id. The Grokster court
summarized the “inducement” rule as follows:

In sum, where an article is good for nothing else but infringement, there is no legitimate public interest
in its unlicensed availability, and there is no injustice in presuming or imputing an intent to infringe.
Conversely, the doctrine absolves the equivocal conduct of selling an item with substantial lawful as well
as unlawful uses, and limits liability to instances of more acute fault than the mere understanding that
some of one's products will be misused. It leaves breathing room for innovation and a vigorous
commerce.

545 U.S. at 932–33, 125 S.Ct. 2764 (internal citations and quotation marks omitted).

Perfect 10 has not alleged that any of these standards are met or that any of these considerations are
present here. Defendants do, of course, market their credit cards as a means to pay for goods and
services, online and elsewhere. But it does not follow that Defendants affirmatively promote each
product that their cards are used to purchase. The software systems in Napster and Grokster were
engineered, disseminated, and promoted explicitly for the purpose of facilitating piracy of copyrighted
music and reducing legitimate sales of such music to that extent. Most Napster and Grokster users
understood this and primarily used those systems to purloin copyrighted music. Further, the Grokster
operators explicitly targeted then-current users of the Napster program by sending them ads for its
OpenNap program. Id. at 925–26, 125 S.Ct. 2764. In contrast, Perfect 10 does not allege that Defendants
created or promote their payment systems as a means to break laws. Perfect 10 simply alleges that
Defendants generally promote their cards and payment systems but points to no “clear expression” or
“affirmative acts” with any specific intent to foster infringement.

The Amazon.com court recognized this distinction and applied it in a matter fully consistent with our
analysis in this case. While the Amazon.com court did not bifurcate its analysis of contributory liability
into “material contribution” liability and “inducement” liability, it did recognize that contributory liability
“may be predicated on actively encouraging (or inducing) infringement through specific acts.”
Amazon.com, 487 F.3d at 726 (quoting Grokster, 545 U.S. at 942, 125 S.Ct. 2764 (Ginsburg, J.,
concurring)). It also found that Google could be held contributorily liable if it has “actual knowledge that
specific infringing material is available using its system, and can take simple measures to prevent further
damage,” but does not. Id. at 728 (internal citations and quotation marks omitted). While this test is
read more naturally as a test for “material contribution” than as a test for “inducement,” *802 under an
“inducement” analysis Defendants are not within its scope. As discussed above, Perfect 10 has not
alleged any “specific acts” intended to encourage or induce infringement. And moreover, Defendants
are distinguishable under the Amazon.com test because, unlike Google, infringing material is not
“available using [their] system” of payment processing. Id. That system does not “facilitate access to
websites,” id.; infringers do not use it to copy, alter, distribute or display infringing material; and
consumers do not use it to locate, view or download the infringing images. Rather, all parties involved
simply use Defendants' system to process payments for that infringing material.

Finally, we must take as true the allegations that Defendants lend their names and logos to the
offending websites and continue to allow their cards to be used to purchase infringing images despite
actual knowledge of the infringement—and perhaps even bending their association rules to do so. But
we do not and need not, on this factual basis, take as true that Defendants “induce” consumers to buy
pirated content with their cards. “Inducement” is a legal determination, and dismissal may not be
avoided by characterizing a legal determination as a factual one. We must determine whether the facts
as pled constitute a “clear expression” of a specific intent to foster infringement, and, for the reasons
above noted, we hold that they do not.

2. Vicarious Copyright Infringement

[7] [8] Vicarious infringement is a concept related to, but distinct from, contributory infringement.
Whereas contributory infringement is based on tort-law principles of enterprise liability and imputed
intent, vicarious infringement's roots lie in the agency principles of respondeat superior. See Fonovisa,
76 F.3d at 261–62. To state a claim for vicarious copyright infringement, a plaintiff must allege that the
defendant has (1) the right and ability to supervise FN13 the infringing conduct and (2) a direct financial
interest in the infringing activity. Ellison, 357 F.3d at 1078; Napster, 239 F.3d at 1022 (citations omitted).
The Supreme Court has recently offered (in dictum) an alternate formulation of the test: “One ...
infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or
limit it.” Grokster, 545 U.S. at 930, 125 S.Ct. 2764 (internal citations omitted). Perfect 10 alleges that
Defendants have the right and ability to control the content of the infringing websites by refusing to
process credit card payments to the websites, enforcing their own rules and regulations, or both. We
hold that Defendants' conduct alleged in Perfect 10's first amended complaint fails to state a claim for
vicarious copyright infringement.

FN13. Fonovisa essentially viewed “supervision” in this context in terms of the swap meet operator's
ability to control the activities of the vendors, 76 F.3d at 262, and Napster essentially viewed it in terms
of Napster's ability to police activities of its users, 239 F.3d at 1023.

a. Right and Ability to Supervise the Infringing Activity

[9] In order to join a Defendant's payment network, merchants and member banks must agree to
follow that Defendant's rules and regulations. These rules, among other things, prohibit member banks
from providing services to merchants engaging in certain illegal activities and require the members and
member banks to investigate merchants suspected of engaging in such illegal activity and to terminate
their participation in the payment network if certain illegal activity is *803 found. Perfect 10 has alleged
that certain websites are infringing Perfect 10's copyrights and that Perfect 10 sent notices of this
alleged infringement to Defendants. Accordingly, Perfect 10 has adequately pled that (1) infringement of
Perfect 10's copyrights was occurring, (2) Defendants were aware of the infringement, and (3) on this
basis, Defendants could have stopped processing credit card payments to the infringing websites. These
allegations are not, however, sufficient to establish vicarious liability because even with all reasonable
inferences drawn in Perfect 10's favor, Perfect 10's allegations of fact cannot support a finding that
Defendants have the right and ability to control the infringing activity.

In reasoning closely analogous to the present case, the Amazon.com court held that Google was not
vicariously liable for third-party infringement that its search engine facilitates. In so holding, the court
found that Google's ability to control its own index, search results, and webpages does not give Google
the right to control the infringing acts of third parties even though that ability would allow Google to
affect those infringing acts to some degree. Amazon.com, 487 F.3d at 730–32. Moreover, and even
more importantly, the Amazon.com court rejected a vicarious liability claim based on Google's policies
with sponsored advertisers, which state that it reserves “the right to monitor and terminate
partnerships with entities that violate others' copyright[s].” Id. at 730 (alteration in original). The court
found that

Google's right to terminate an AdSense partnership does not give Google the right to stop direct
infringement by third-party websites. An infringing third-party website can continue to reproduce,
display, and distribute its infringing copies of Perfect 10 images after its participation in the AdSense
program has ended.

Id. This reasoning is equally applicable to the Defendants in this case. Just like Google, Defendants could
likely take certain steps that may have the indirect effect of reducing infringing activity on the Internet
at large. However, neither Google nor Defendants has any ability to directly control that activity, and the
mere ability to withdraw a financial “carrot” does not create the “stick” of “right and ability to control”
that vicarious infringement requires. A finding of vicarious liability here, under the theories advocated
by the dissent, would also require a finding that Google is vicariously liable for infringement—a conflict
we need not create, and radical step we do not take.

Perfect 10 argues that this court's decision in Napster compels a contrary result. The Napster court
found a likelihood of vicarious liability because Napster “had the right and ability to police its system and
failed to exercise that right to prevent the exchange of copyrighted material.” 239 F.3d at 1023. The
Napster program created a forum for the exchange of digital music files and the program administrators
had the ability to block certain users from accessing that forum to upload or download such files. As
pled by Perfect 10, Defendants also provide a system that allows the business of infringement for profit
to operate on a larger scale than it otherwise might, and Defendants have the ability to deny users
access to that payment system.

This argument fails. The Napster program's involvement with—and hence its “policing” power over—the
infringement was much more intimate and directly intertwined with it than Defendants' payment
systems are. Napster provided users with the tools to enable the easy reproduction and distribution of
the actual infringing content and to readily search *804 out and identify infringing material. Defendants'
payment systems do not. Napster also had the right and ability to block user access to its program and
thereby deprive particular users of access to their forum and use of their location and distribution tools.
Defendants can block access to their payment system, but they cannot themselves block access to the
Internet, to any particular websites, or to search engines enabling the location of such websites.
Defendants are involved with the payment resulting from violations of the distribution right, but have
no direct role in the actual reproduction, alteration, or distribution of the infringing images.FN14 They
cannot take away the tools the offending websites use to reproduce, alter, and distribute the infringing
images over the Internet. They can only take away the means the websites currently use to sell
them.FN15

FN14. The same analysis of Defendants' role in any violation of the distribution right under 17 U.S.C. §
106(3), discussed in note 11, supra, is equally applicable here. While the Napster program allowed its
operators to block users from violation of the distribution right, Defendants' “policing” power is limited
to refusing to process payments resulting from such violations and does not extend to directly stopping
the violations themselves.

FN15. The conclusion that the Defendants operate outside the scope of the Napster rule is further
bolstered by consideration—though as persuasive authority only—of this court's opinion in Metro–
Goldwyn–Mayer Studios, Inc. v. Grokster Ltd., 380 F.3d 1154 (9th Cir.2004), which the Supreme Court
vacated on other grounds, 545 U.S. 913, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005). In Grokster, we found
the defendants not vicariously liable in part because they could not block individual users or remove
copyrighted material from the network. Id. at 1165. Similarly, because none of the infringing images
resides on or passes through present Defendants' own systems or any systems over which Defendants
exercise direct control, Defendants have no ability to actually remove infringing material from the
Internet or directly block its distribution. This distinguishes credit card companies from Napster, which
could block access to the tools needed for the easy reproduction and distribution of the actual infringing
content.

[10] Perfect 10 offers two counter-arguments. Perfect 10 first claims that Defendants' rules and
regulations permit them to require member merchants to cease illegal activity—presumably including
copyright infringement—as a condition to their continuing right to receive credit card payments from
the relevant Defendant entities. Perfect 10 argues that these contractual terms effectively give
Defendants contractual control over the content of their merchants' websites, and that contractual
control over content is sufficient to establish the “right and ability” to control that content for purposes
of vicarious liability. In the sense that economic considerations can influence behavior, these contractual
rules and regulations do give Defendants some measure of control over the offending websites since it is
reasonable to believe that fear of losing access to credit card payment processing services would be a
sufficient incentive for at least some website operators to comply with a content-based suggestion from
Defendants. But the ability to exert financial pressure does not give Defendants the right or ability to
control the actual infringing activity at issue in this case. Defendants have no absolute right FN16 to stop
that activity—they cannot stop websites *805 from reproducing, altering, or distributing infringing
images. Rather, the credit card companies are analogous to Google, which we held was not liable for
vicarious copyright infringement even though search engines could effectively cause a website to
disappear by removing it from their search results, and reserve the right to do so. Like Google, the credit
card companies “cannot stop any of the third-party websites from reproducing, displaying, and
distributing unauthorized copies of Perfect 10's images because that infringing conduct takes place on
the third-party websites.” Amazon.com, 487 F.3d at 731. Defendants can only refuse to process credit
card payments to the offending merchant within their payment network, or they can threaten to do so if
the merchant does not comply with a request to alter content. While either option would likely have
some indirect effect on the infringing activity, as we discuss at greater length in our analysis of the
Grokster “stop or limit” standard below, so might any number of actions by any number of actors. For
vicarious liability to attach, however, the defendant must have the right and ability to supervise and
control the infringement, not just affect it, and Defendants do not have this right or ability.

FN16. We do not, as the dissent suggests, hold that an absolute right to stop the infringement is a
prerequisite for vicarious liability. Dissent at 818–19. Rather, we consider the Defendants' inability to
directly control the actual infringing activities of third-party websites—reproduction, alteration, display,
and distribution over the Internet, not over Defendants' payment systems—as evidence that they, much
like Google, lack the right and ability to control those activities.

Perfect 10 relies heavily on the reasoning of Fonovisa and Napster to support this argument, but that
reliance is misplaced. The swap meet operator in Fonovisa and the software operator in Napster both
had the right to remove individual infringers from the very place the infringement was happening.
Defendants, like the defendants in Amazon.com, have no such right. As already discussed, Defendants
cannot take away the software the offending websites use to copy, alter, and distribute the infringing
images, cannot remove those websites from the Internet, and cannot themselves block the distribution
of those images over the Internet. Defendants can refuse to process credit card payments for those
images, but while this refusal would reduce the number of those sales, that reduction is the result of
indirect economic pressure rather than an affirmative exercise of contractual rights. FN17

FN17. We do not hold, as the dissent suggests, that the ability to exert financial pressure is categorically
insufficient to establish sufficient control for vicarious liability. We recognize that financial pressure is
often very powerful, but it is precisely for this reason that we hesitate to expand the law of vicarious
liability to encompass the sort of financial pressure Defendants may exert. The dissent believes that the
gravamen of “right and ability to control” is the “practical ability” to limit infringement. Dissent at 818–
19. But if this were true, despite the dissent's protestations to the contrary, there are many providers of
essential services who could limit infringement by refusing to offer those services. If “practical ability” is
the test, it does not matter if software operators, network technicians, or even utility companies do not
have a contractual right to affect the websites' content. It is an article of faith of the free market that,
subject to certain limited exceptions, one can refuse to deal with anyone for any reason, and by refusing
to deal with the offending websites, these providers could limit infringement.

Perfect 10 also argues that were infringing websites barred from accepting the Defendants' credit cards,
it would be impossible for an online website selling adult images to compete and operate at a
profit.FN18 While we must take this allegation as *806 true, it still fails to state a claim because it
conflates the power to stop profiteering with the right and ability to control infringement. Perfect 10's
allegations do not establish that Defendants have the authority to prevent theft or alteration of the
copyrighted images, remove infringing material from these websites or prevent its distribution over the
Internet. Rather, they merely state that this infringing activity could not be profitable without access to
Defendants' credit card payment systems. The alleged infringement does not turn on the payment; it
turns on the reproduction, alteration and distribution of the images, which Defendants do not do, and
which occurs over networks Defendants do not control.

FN18. Specifically, Perfect 10 defines “Stolen Content Websites” as “websites ... that routinely offer for
sale to the public stolen [images],” First Am. Compl. at 2, ¶ 6 (emphasis added), and alleges that “Stolen
Content Websites cannot exist without the knowledge and direct participation of the financial
institutions that process the credit card transactions for such unlawful material,” id. at 2, ¶ 7. We do
acknowledge that at this procedural stage, Perfect 10 is entitled to all reasonable inferences, but we
understand this to be a factual allegation that the “Stolen Content Websites” could not continue to exist
as websites offering images for sale online should defendants withdraw their services, not an allegation
that the websites would completely vanish or that infringement by these sites in all its forms would
necessarily cease.

The Supreme Court's recent decision in Grokster does not undermine the validity of this distinction. As
we held in Amazon.com, 487 F.3d at 728–31, Grokster does not stand for the proposition that just
because the services provided by a company help an infringing enterprise generate revenue, that
company is necessarily vicariously liable for that infringement. Numerous services are required for the
third party infringers referred to by Perfect 10 to operate. In addition to the necessity of creating and
maintaining a website, numerous hardware manufacturers must produce the computer on which the
website physically sits; a software engineer must create the program that copies and alters the stolen
images; technical support companies must fix any hardware and software problems; utility companies
must provide the electricity that makes all these different related operations run, etc. All these services
are essential to make the businesses described viable, they all profit to some degree from those
businesses, and by withholding their services, they could impair—perhaps even destroy—the
commercial viability of those business. But that does not mean, and Grokster by no means holds, that
they are all potentially liable as vicarious infringers. Even though they have the “right” to refuse their
services, and hence the literal power to “stop or limit” the infringement, they, like Defendants, do not
exercise sufficient control over the actual infringing activity for vicarious liability to attach.

b. Obvious and Direct Financial Interest in the Infringing Activity

Because Perfect 10 has failed to show that Defendants have the right and ability to control the alleged
infringing conduct, it has not pled a viable claim of vicarious liability. Accordingly, we need not reach the
issue of direct financial interest.

B. Secondary Liability for Trademark Infringement

[11] The tests for secondary trademark infringement are even more difficult to satisfy than those
required to find secondary copyright infringement. See Sony Corp. v. Universal City Studios, 464 U.S.
417, 439 n. 19, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984); Fonovisa, 76 F.3d at 265 (noting that “trademark
infringement liability is more narrowly circumscribed than copyright infringement”). While the tests for
such infringement are somewhat different in the trademark context, Perfect 10's factual allegations in
support of these claims are essentially identical to those alleged in Perfect 10's copyright claims, and
they fail to state a claim for similar reasons.

*807 1. Contributory Trademark Infringement

[12] [13] To be liable for contributory trademark infringement, a defendant must have (1)
“intentionally induced” the primary infringer to infringe, or (2) continued to supply an infringing product
to an infringer with knowledge that the infringer is mislabeling the particular product supplied. Inwood
Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 855, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982). When the alleged
direct infringer supplies a service rather than a product, under the second prong of this test, the court
must “consider the extent of control exercised by the defendant over the third party's means of
infringement.” Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984 (9th Cir.1999). For
liability to attach, there must be “[d]irect control and monitoring of the instrumentality used by a third
party to infringe the plaintiff's mark.” Id.
[14] Perfect 10 has failed to plead a viable claim under either prong of Inwood Labs—and, by
extension, Lockheed Martin. First, it has not pled facts showing that Defendants “intentionally induced”
infringement of Perfect 10's mark. Perfect 10 has alleged that Defendants are providing critical support
to websites that are using the PERFECT 10 mark in a manner that is likely to cause the public to believe
that they are authorized by Perfect 10. Its factual allegations in support of this claim are identical to
those it made in support of its copyright claims. These allegations, however, cite no affirmative acts by
Defendants suggesting that third parties infringe Perfect 10's mark, much less induce them to do so.

[15] Second, Perfect 10 has failed to allege facts sufficient to show “[d]irect control and monitoring of
the instrumentality used by a third party to infringe the plaintiff's mark.” Lockheed Martin, 194 F.3d at
984. Perfect 10 claims that the “product” or “instrumentality” at issue here is the credit card payment
network through which Defendants process payments for infringing material. Appellant's Opening Brief
at 39. As discussed at length above, this network is not the instrument used to infringe Perfect 10's
trademarks; that infringement occurs without any involvement of Defendants and their payment
systems. Perfect 10 has not alleged that Defendants have the power to remove infringing material from
these websites or directly stop their distribution over the Internet. At most, Perfect 10 alleges that
Defendants can choose to stop processing payments to these websites, and that this refusal might have
the practical effect of stopping or reducing the infringing activity. This, without more, does not
constitute “direct control.” See Lockheed Martin, 194 F.3d at 985 (“While the landlord of a flea market
might reasonably be expected to monitor the merchandise sold on his premises, [defendant] NSI cannot
reasonably be expected to monitor the Internet.”) (citation omitted).

2. Vicarious Trademark Infringement

[16] Vicarious liability for trademark infringement requires “a finding that the defendant and the
infringer have an apparent or actual partnership, have authority to bind one another in transactions
with third parties or exercise joint ownership or control over the infringing product.” Hard Rock Café
Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1150 (7th Cir.1992) (internal quotations
omitted), followed by Symantec Corp. v. CD Micro, Inc., 286 F.Supp.2d 1265, 1275 (D.Or.2003).

[17] Perfect 10 argues that Defendants are liable as follows: “Defendants and the *808 Stolen
Content Websites are in a symbiotic financial partnership pursuant to which the websites operate their
businesses according to defendants' rules and regulations and defendants share the profits, transaction
by transaction.” Appellant's Opening Brief at 40. For the same reasons that this relationship does not
establish “right and ability to control” for copyright purposes, neither does it establish such a
“symbiotic” relationship or “joint ownership or control” for trademark purposes. Defendants process
payments to these websites and collect their usual processing fees, nothing more.
Perfect 10 further argues that “Defendants' acceptance of a charge binds the Stolen Content Website to
provide the infringing images to third parties.” Appellant's Opening Brief at 40. Even if legally relevant,
Perfect 10's allegation is legally incorrect. It is the websites' contracts with the consumers that bind the
websites to provide the infringing images, not the websites' relationship with Defendants.FN19 The
websites' contracts with Defendants are merely a means of settling the resulting debits and credits
among the websites and the relevant consumers. We hold that Perfect 10 fails to state a claim for
vicarious trademark infringement.

FN19. The dissent claims that no contractual relationship arises between the infringers and consumers
until Defendants process a payment. Dissent at 822–23. Even if true as a factual and legal matter—and
given the absence of any citation, it is difficult to know whether this is true—this results from a decision
of the websites to delay formation of the relationship, not from any requirement Defendants impose on
the transaction.

CALIFORNIA STATUTORY AND COMMON LAW CLAIMS

In addition to its federal copyright and trademark claims, Perfect 10 pled causes of action for unfair
competition, false advertising, violation of the right of publicity, libel, and intentional interference with
economic relations. We hold that the district court properly dismissed all these claims with prejudice.

A. California State Law Claims of Unfair Competition hand False Advertising

[18] Defendants do not dispute Perfect 10's claims that the websites themselves are potentially
violating California state and common law prohibiting unfair competition and false advertising. See Cal.
Bus. & Prof.Code §§ 17200, et seq. , and 17500, et seq. Defendants do, however, argue that Emery v.
Visa International Service Association, 95 Cal.App.4th 952, 116 Cal.Rptr.2d 25 (2002), precludes liability
for Defendants in this case, both under secondary liability and aiding and abetting theories. Defendants
are correct on both counts.

In Emery, a California appellate court affirmed a grant of summary judgment in favor of Visa, finding
that Visa did not exercise the requisite control over merchants marketing foreign lottery tickets to
impose secondary liability under the state's unfair competition or false advertising laws. Id. at 959–964,
116 Cal.Rptr.2d 25. Emery found that an “unfair practices claim under section 17200 cannot be
predicated on vicarious liability.... A defendant's liability must be based on his personal participation in
the unlawful practices and unbridled control over the practices that are found to violate section 17200
or 17500.” Id. at 960, 116 Cal.Rptr.2d 25 (internal citations omitted). Because “Visa itself played no part
in preparing or sending any ‘statement’ that might be construed as untrue or misleading under the
unfair business practices *809 statutes,” it could not be liable for unfair competition. Id. at 964, 116
Cal.Rptr.2d 25. The false advertising claim also necessarily failed because “even if Visa allowed the
merchants to use its logo, trade name, or trademark, it would not be liable for false advertising. There is
no duty to investigate the truth of statements made by others.” Id. (citations omitted). Emery is
dispositive of Perfect 10's claims that the Defendants are secondarily liable under California unfair
competition and false advertising laws and the district court properly dismissed them. FN20

FN20. The dissent argues that Emery does not preclude Perfect 10's claims because the only defendant
in Emery was Visa International Service Association, whereas Perfect 10 has also sued the member
merchant banks who issue cards and process payments from merchants. Dissent at 822–23. This
distinction is only relevant if the activities of the member banks constitute personal participation in the
infringing activity, and for all the reasons discussed above, those banks are not personally involved in
the reproduction, alteration, or distribution of the infringing images. Rather, they merely process
payments related to those activities.

[19] In an attempt to avoid the impact of Emery, Perfect 10 argues on appeal that it alleged aiding
and abetting theories of liability in its complaints, and further, that the district court improperly
dismissed these civil claims under a criminal standard of aiding and abetting. Perfect 10 fails to establish
a viable claim on these theories as well. The only authority offered by Perfect 10 in support of such
liability is an opinion which is now uncitable in California: Schulz v. Neovi Data Corporation, 28
Cal.Rptr.3d 46 (Cal.App.4th Dist.2005), superceded by 32 Cal.Rptr.3d 758, 117 P.3d 475 (Cal.2005), cause
transferred by 56 Cal.Rptr.3d 471, 154 P.3d 998 (Cal.2007), transferred to, 152 Cal.App.4th 86, 60
Cal.Rptr.3d 810 (4th Dist. Jun 15, 2007).

Furthermore, even under the standards announced in the superceding Schulz opinion, Defendants
would not be liable. The Schulz court found a credit card company potentially liable for its role in
facilitating an illegal online lottery because that company “went far beyond merely processing credit
cards.” 152 Cal.App.4th at 95, 60 Cal.Rptr.3d 810. In support, the court cited specific statements from a
company representative in which he “personally assured” an agent of the website that the defendant
company “did not have any problem with the operation of the [illegal] lottery site” and had a “stronger
stomach” than other payment processors. Id. Perfect 10 alleges no similar conduct here—Defendants
merely process credit card payments.

B. Aiding and Abetting the Websites' Violations of Perfect 10's Right of Publicity

[20] Perfect 10 alleges that Defendants aided and abetted the websites' violations of Perfect 10's
rights of publicity, acquired by assignment from its models, in violation of Cal. Civil Code § 3344 and the
common law right of publicity. This aiding and abetting claim fails for the same reasons as the aiding and
abetting claims under unfair competition and false advertising. Even if such liability is possible under
California law—a proposition for which Perfect 10 has provided no clear authority—Defendants lack
sufficient control or personal involvement in the infringing activities to be so liable. See Schulz, 152
Cal.App.4th at 93–94, 60 Cal.Rptr.3d 810; Emery, 95 Cal.App.4th at 962–63, 116 Cal.Rptr.2d 25.
C. Libel and Intentional Interference with Prospective Economic Advantage

[21] The district court dismissed Perfect 10's claims of libel and intentional *810 interference with
prospective economic advantage with prejudice on multiple grounds. We affirm on the ground that both
are time-barred. Under California law, a libel claim must be filed within one year of publication of the
allegedly libelous statement, Cal. Civ. Proc. § 340(c), and an intentional interference claim must be filed
within two years of the underlying harmful act, Cal. Civ. Proc. § 339. Perfect 10 claims the same
underlying wrongful act as the basis for both claims: its placement on the industry “black list” in the
Spring of 2001. However, Perfect 10 failed to file suit until January 2004—well beyond the statute of
limitations applicable to each claim—and has failed to show any possible exception under either statute.
Those claims are time-barred.

CONCLUSION

We decline to create any of the radical new theories of liability advocated by Perfect 10 and the dissent
and we affirm the district court's dismissal with prejudice of all causes of action in Perfect 10's complaint
for failure to state a claim upon which relief can be granted.

AFFIRMED.

KOZINSKI, Circuit Judge, dissenting for the most part: FN1

FN1. I join part C of the “California Statutory and Common Law Claims” section of the opinion, dealing
with plaintiff's libel and prospective economic advantage claims.

Federal law gives copyright owners the exclusive right to “distribute copies [of their works] ... to the
public by sale.” 17 U.S.C. § 106(3). Plaintiff alleges that certain third parties it refers to as the “Stolen
Content Websites” unlawfully copy its protected images and sell them to the public, using defendants'
payment systems as financial intermediaries. According to plaintiff, the Stolen Content Websites
“maintain no physical presence in the United States in order to evade criminal and civil liability for their
illegal conduct.” First Am. Compl. at 8 ¶ 26. Plaintiff also claims that “Defendants do not enforce their
own rules against [the] Stolen Content Websites because Defendants do not want to lose the substantial
revenues and profits they receive from the websites.” Id. at 10 ¶ 35. Plaintiff has repeatedly notified
defendants that they are abetting the sale of stolen merchandise by “knowingly providing crucial
transactional support services for the sale of millions of stolen photos and film clips worth billions of
dollars,” id. at 1 ¶ 5, but to no avail. Frustrated in its effort to protect the rights Congress has given it,
plaintiff turns to the federal courts for redress. We should not slam the courthouse door in its face.

Accepting the truth of plaintiff's allegations, as we must on a motion to dismiss, the credit cards FN2 are
easily liable for indirect copyright infringement: They knowingly provide a financial bridge between
buyers and sellers of pirated works, enabling them to consummate infringing *811 transactions, while
making a profit on every sale. If such active participation in infringing conduct does not amount to
indirect infringement, it's hard to imagine what would.FN3 By straining to absolve defendants of liability,
the majority leaves our law in disarray.

FN2. Throughout this dissent, I refer to defendants collectively as credit card companies or credit cards.
In so doing, I am adopting the same simplifying assumptions as the majority. I am aware that Visa and
MasterCard don't deal directly with merchants; rather, merchants obtain credit card accounts from
banks, which are in turn authorized by Visa or MasterCard to use their respective payment systems.
Some of the other defendants are involved in clearing these transactions. For a description of how the
system works, see Emery v. Visa Int'l Serv. Ass'n, 95 Cal.App.4th 952, 956, 116 Cal.Rptr.2d 25 (2002). It
may well be that some of the defendants will be absolved of liability because they have no direct
contact with merchants or consumers, but that is a matter to be sorted out after discovery.

FN3. As the majority points out, maj. op. at 797 n. 6, 800 n. 11, plaintiff's allegations might also support
a theory of direct infringement. See First Am. Compl. at 8 ¶ 30 (“Defendants, jointly with the Stolen
Content Websites, are engaged in ... the willful and systematic infringement of the intellectual property
rights of” plaintiff and others). Because plaintiff has not argued this theory on appeal, we have no
occasion to address it. But the fact that defendants may also be committing direct infringement does
not diminish their responsibility as indirect infringers for providing essential services to buyers and
sellers of stolen merchandise. A defendant can be liable for both direct and indirect infringement based
on the same conduct. See, e.g., Alcatel USA, Inc. v. DGI Technologies, Inc., 166 F.3d 772, 791 (5th
Cir.1999).

Contributory Infringement

We have long held that a defendant is liable for contributory infringement if it “materially contributes to
the infringing conduct.” A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1019 (9th Cir.2001) (internal
quotations omitted) (citing Gershwin Publ'g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162
(2d Cir.1971)). Our recent opinion in Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701 (9th Cir.2007),
canvasses the caselaw in this area and concludes that Google “could be held contributorily liable if it had
knowledge that infringing Perfect 10 images were available using its search engine, could take simple
measures to prevent further damage to Perfect 10's copyrighted works, and failed to take such steps.”
Amazon, 487 F.3d at 729. Substitute “payment systems” for “search engine” in this sentence, and it
describes defendants here: If a consumer wishes to buy an infringing image from one of the Stolen
Content Websites, he can do so by using Visa or MasterCard, just as he can use Google to find the
infringing images in the first place. My colleagues engage in wishful thinking when they claim that
“Google's search engine itself assists in the distribution of infringing content to Internet users, while
Defendants' payment systems do not” and that “[h]elping users to locate an image might substantially
assist users to download infringing images, but processing payments does not.” Maj. op. at 797, 797.FN4

FN4. Neither Google nor the credit cards here were designed for infringement. The majority tries to
distinguish this case from Napster and Metro–Goldwyn–Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S.
913, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005), where defendants' services were designed for no other
purpose. Maj. op. at 799 n. 10, 801. But Napster and Grokster are not the endpoint of this court's
caselaw: Even though Google has many legitimate, noninfringing uses, Amazon held that it would be
guilty of contributory infringement if it could modify its service to avoid helping infringers.

The majority struggles to distinguish Amazon by positing an “additional step in the causal chain”
between defendants' activities and the infringing conduct. Id. at 797. According to the majority, “Google
may materially contribute to infringement by making it fast and easy for third parties to locate and
distribute infringing material, whereas Defendants make it easier for infringement to be profitable,
which tends to increase financial incentives to infringe, which in turn tends to increase infringement.” Id.
The majority is mistaken; there is no “additional step.” Defendants participate in every credit card sale
of pirated images; the images are delivered to the buyer only after defendants approve the transaction
and process the payment. *812 This is not just an economic incentive for infringement; it's an essential
step in the infringement process.

In any event, I don't see why it matters whether there is an “additional step.” Materiality turns on how
significantly the activity helps infringement, not on whether it's characterized as one step or two steps
removed from it. The majority recognizes that “Defendants make it easier for websites to profit from
this infringing activity,” maj. op. at 796; that defendants' conduct “tends to increase infringement,” id. at
797; that defendants “have the effect of increasing ... infringement,” id. at 798; that “Defendants have
the power to undermine the commercial viability of” the Stolen Content Websites and that they “make
it easier for websites to profit from this infringing activity,” id. at 800; that “Defendants could likely take
certain steps that may have the indirect effect of reducing infringing activity on the Internet,” id. at 803;
and that defendants could “reduce the number of those [infringing] sales,” id. at 805. Taking the
majority at its word, it sounds like defendants are providing very significant help to the direct infringers.

My colleagues recognize, as they must, that helping consumers locate infringing content can constitute
contributory infringement,FN5 but they consign the means of payment to secondary status. Maj. op. at
800 (“Defendants merely provide a method of payment ....”); id. at 802 (“[A]ll parties involved simply
use Defendants' system to process payments for that infringing material.”); id. at 804 (“They can only
take away the means the websites currently use to sell [the infringing images].”); id. at 805 (“Defendants
can only refuse to process credit card payments to the offending merchant within their payment
network....”). But why is locating infringing images more central to infringement than paying for them? If
infringing images can't be found, there can be no infringement; but if infringing images can't be paid for,
there can be no infringement either. Location services and payment services are equally central to
infringement; the majority's contrary assertion is supported largely by disparaging use of “merely,”
“simply” and “only.” See also id. at 803 (“[M]ere ability to withdraw a financial ‘carrot’ does not create
the ‘stick’ of ‘right and ability to control’....”). FN6

FN5. Amazon, as well as Napster and Grokster, hold as much.


FN6. The majority argues that “[b]ecause location services lead Internet users directly to infringing
images, and often display them on the website of the service itself, we find that location services are
more important and more essential—indeed, more ‘material’—to infringement than payment services
are.” Maj. op. at 797–98 n. 8. Skipping lightly over the fact that we lack the power to “find” anything, the
majority admits that payment services are important, essential and material. That location services
may—or may not—be more so, is of no consequence; this is not a race where there can be only one
winner.

The majority dismisses the significance of credit cards by arguing that “infringement could continue on a
large scale [without them] because other viable funding mechanisms are available.” Maj. op. at 797.FN7
Of course, the same could be said *813 about Google. As the majority admits, if Google were unwilling
or unable to serve up infringing images, consumers could use Yahoo!, Ask.com, Microsoft Live Search,
A9.com or AltaVista instead. Id. at 797–98 n. 8. Even if none of these were available, consumers could
still locate websites with infringing images through e-mails from friends, messages on discussion forums,
tips via online chat, “typo-squatting,” peer-to-peer networking using BitTorrent or eDonkey, offline and
online advertisements ( see p. 820 infra ), disreputable search engines hosted on servers in far-off
jurisdictions or even old-fashioned word of mouth. The majority's claim that search engines “could
effectively cause a website to disappear by removing it from their search results,” maj. op. at 805, is
quite a stretch.

FN7. The majority's claim that “Perfect 10's factual allegations are not to the contrary,” maj. op. at 797
n. 7, is simply not accurate. Indeed, elsewhere in the opinion, the majority concedes that plaintiff has
made “a factual allegation” that the Stolen Content Websites “could not continue to exist as websites
offering images for sale online.” Id. at 805–06 n. 18. How then can the majority hold here, apparently as
a matter of law, that defendants are absolved of liability because “other viable funding mechanisms are
available”? Maj. op. at 797. If we accept as true, as the majority says it does, that the Stolen Content
Websites will no longer be able to sell their images, how can we hold that they could still do so by
developing other (unknown and unsuspected) ways to get paid?

If the test for contributory infringement really were whether “infringement could continue on a large
scale[without the aid of the defendant] because other viable ... mechanisms are available,” Amazon
should have absolved Google of liability because of the availability of such obvious alternatives. But
Amazon held that Google could be liable for contributory infringement because it “substantially assists”
users in finding infringing materials; the existence of other means of infringement was not even
considered because no case has suggested this to be a relevant consideration. The majority's “other
viable ... mechanisms” test conflicts with Amazon, Napster, Grokster and every other material assistance
case that I know of.

The majority does even worse when it tries to describe the “other viable funding mechanisms” that
could serve as alternatives to credit cards: According to the majority, the Stolen Content Websites “
might ... make [their] profits from advertising” or “ might develop other payment mechanisms that do
not depend on the credit card companies.” Maj. op. at 797 (emphasis added). This shows that my
colleagues have a healthy imagination but contravenes our responsibilities, the most fundamental of
which is that we must work with the facts the parties presented below, not invent new facts on appeal.
Defendants have presented no evidence that the pirates could survive without credit cards, nor could
they, as the case is still at the motion to dismiss stage. Even if speculation as to what the Stolen Content
Websites “might” do were admissible evidence, which I seriously doubt, we must still wait for one of the
parties to present it, not conjure it up ourselves.FN8 At the pleadings stage, we must accept plaintiff's
allegations that credit cards are indispensable to the operation of the Stolen Content Websites, and that
these websites would be forced out of business without them. See First Am. Compl. at 2 ¶ 7 (“Stolen
Content Websites cannot exist without the knowledge and direct participation of [defendants].”); id. at
10 ¶ 35 (“[T]he Stolen Content Websites would be eradicated.”). If my colleagues can't justify their
result without contradicting plaintiff's allegations, this is a pretty good hint that they're *814 wrong. See
also p. 812–13 n. 7 supra; pp. 818 n. 15, 819–20 infra.

FN8. I note in passing that, even if we were to accept the majority's speculations, they would be
insufficient. That the Stolen Content Websites “might” change the way they do business or develop
alternative payment mechanisms hardly proves that “other viable funding mechanisms are available.”
Maj. op. at 797 (emphasis added). The majority's prognostication as to what “might” happen in the
future leaves open the likelihood that it will not happen, and positively admits that there are no viable
alternative payment mechanisms today.

The majority's attempt to distinguish location services from payment services by trying to show that
there are viable alternatives for the latter but not the former cuts entirely against them. As plaintiff
alleges, and experience tells us, there are numerous ways of locating infringing images on the Internet,
but there are no adequate substitutes for credit cards when it comes to paying for them. A few
consumers might use checks or money orders to pay for infringing images, but this would be far more
cumbersome, time-consuming and risky than using credit cards. See pp. 817–18 & n. 14 infra. If it
mattered whether search engines or credit cards are more important to peddling infringing content on
the Internet, the cards would win hands down.

But it doesn't matter. Material assistance turns on whether the activity in question “substantially
assists” infringement. Amazon, 487 F.3d at 729. It makes no difference whether the primary infringers
might do without it by finding a workaround, which is why the majority can cite no case supporting its
analysis. We presume that primary infringers have good reasons for selecting a particular means to
infringe, and that other ways to do so will be more costly, more cumbersome and less efficient.
Moreover, infringement can always be carried out by other means; if the existence of alternatives were
a defense to contributory infringement then there could never be a case of contributory infringement
based on material assistance. The majority makes some very new—and very bad—law here.

The majority also makes a slightly different argument: “While Perfect 10 has alleged that Defendants
make it easier for websites to profit from this infringing activity, the issue here is reproduction,
alteration, display and distribution, which can occur without payment. Even if infringing images were
not paid for, there would still be infringement.” Maj. op. at 796. What the majority seems to be arguing
here is that helping an infringer get paid cannot materially assist infringement because the actual
process of infringement—“reproduction, alteration, display and distribution”—does not include
payment. There are two problems with this argument. The first is that the Stolen Content Websites are
alleged to infringe plaintiff's right of distribution “by sale.” 17 U.S.C. § 106(3). It's not possible to
distribute by sale without receiving compensation, so payment is in fact part of the infringement
process. Second, this argument runs head-on into Amazon, where we held that helping to find infringing
images materially assists infringement, even though locating infringing images also isn't “reproduction,
alteration, display [or] distribution.” To be sure, locating images, like paying for them, makes it a lot
easier to infringe, but neither is intrinsic to the infringement process, as the majority conceives it.

Nor can today's opinion be squared with Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th
Cir.1996). In Fonovisa, defendant allowed known infringers to sell pirated works from stalls at its swap
meet. We found material assistance based on the fact that “it would [have been] difficult for the
infringing activity to take place in the massive quantities alleged without the support services provided
by the swap meet.” 76 F.3d at 264. The pivotal role played by the swap meet in Fonovisa is played by the
credit cards in cyberspace, in that they make “massive quantities” of infringement possible that would
otherwise be impossible. Indeed, the assistance provided here is far more material than in Fonovisa. A
pirate kicked out of a swap meet could still peddle his illicit wares through newspaper *815 ads or by
word of mouth, but you can't do business at all on the Internet without credit cards. Plaintiff thus
plausibly alleges that the “Stolen Content Websites would be eradicated” if defendants withdrew their
support. First Am. Compl. at 10 ¶ 35.

The majority rejects Fonovisa by pointing out that the swap meet there provided a “centralized place”
for the infringement to take place, maj. op. at 799, whereas defendants here “have no direct connection
to [the] infringement,” id. at 796.FN9 But material assistance does not depend on physical contact with
the infringing activity. If you lend money to a drug dealer knowing he will use it to finance a drug deal,
you materially assist the transaction, even if you never see the drugs. Or, if you knowingly drive a
principal to the scene of the crime, you provide material assistance, even if nothing happens during the
ride. See United States v. Lopez, 482 F.3d 1067, 1076–79 (9th Cir.2007). Material assistance turns on
whether the conduct assists infringement in a significant way, not on pedantic factual distinctions
unrelated to how much the activity facilitates infringement.

FN9. The majority seeks to distinguish Napster and Grokster on similar grounds by arguing that the
defendants do not provide the “tools to locate infringing material,” id. at 800, and that the infringing
material “[n]ever reside[s] on or pass[es] through any network or computer Defendants operate,” id.

Sure, a marketplace for pirated works (as in Fonovisa ) or an index for such works (as in Napster and
Grokster ) is important to infringement, but so is a means of getting paid. Defendants are directly
involved in every infringing transaction where payment is made by credit card, which (according to
plaintiff) amounts to virtually every sale of pirated works. First Am. Compl. at 9 ¶ 35. Credit cards don't
provide some tangential service that marginally affects sales; they are the financial lifeblood of the
Stolen Content Websites.

The majority's concern that imposing liability on defendants here would implicate vast numbers of other
actors who provide incidental services to infringers, maj. op. at 800, is unfounded. Line-drawing is
always a bit tricky, but courts have shown themselves adept at dealing with it from time out of mind, in
resolving such issues as proximate causation and reasonable suspicion. Contributory infringement
requires material assistance to the infringing activity, and those the majority worries about would
doubtless be absolved of liability because their contribution to the infringing activity is insufficiently
material.

Courts have, in fact, had no difficulty in distinguishing those who are materially involved in copyright
infringement from those who are not. As Fonovisa explains, two lines of cases developed in the first part
of the last century: the absentee landlord cases and the dance hall cases. The first line involved
landlords who “lacked knowledge of the infringing acts of [their] tenant[s] and who exercised no control
over the leased premises.” Fonovisa, 76 F.3d at 262. These were held not liable for the infringement
committed by tenants on the premises. See, e.g., Deutsch v. Arnold, 98 F.2d 686, 688 (2d Cir.1938). In
the second line of cases, “the operator of an entertainment venue was held liable for infringing
performances when the operator (1) could control the premises and (2) obtained a direct financial
benefit from the audience, who paid to enjoy the infringing performance.” 76 F.3d at 262 (citing *816
Buck v. Jewell–LaSalle Realty Co., 283 U.S. 191, 51 S.Ct. 410, 75 L.Ed. 971 (1931), and Dreamland Ball
Room, Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354 (7th Cir.1929)).FN10

FN10. The majority consigns the dance hall/absentee landlord cases to oblivion by holding that they
have no relevance to the Internet. Maj. op. at 798 n. 9. It is true that these cases were developed in a
brick and mortar world, but the distinction they draw between those who materially assist infringement
(and are therefore liable) and those who are more remotely involved (and are therefore not liable) is
equally important—perhaps even more important—in cyberspace than in real space. That Napster and
Grokster did not consider these cases is hardly significant. The defendants there were centrally involved
in the infringing transactions—indeed, as the majority reminds us, their systems were created solely to
promote infringement, maj. op. at 799 n. 10, 801—and thus there could be no argument that their
involvement in the infringing transactions was too peripheral to give rise to a claim of secondary
infringement. The Seventh Circuit managed to apply the dance hall cases to the Internet, see In re
Aimster Copyright Litig., 334 F.3d 643, 654 (7th Cir.2003), and I'm confident that federal judges west of
the Rockies could have figured out how to do the same.

These cases show that courts are able to forestall the majority's parade of horribles. But our case does
not present a close or difficult question: Defendants here are alleged to provide an essential service to
infringers, a service that enables infringement on a massive scale. Defendants know about the
infringements; they profit from them; they are intimately and causally involved in a vast number of
infringing transactions that could not be consummated if they refused to process the payments; they
have ready means to stop the infringements. Were we to rule for plaintiff, as we should, I have every
confidence that future courts would be able to distinguish this case when and if they are confronted
with lawsuits against utility companies, software vendors and others who provide incidental services to
infringers.

Vicarious Infringement

A party “infringes vicariously by profiting from direct infringement while declining to exercise a right to
stop or limit it.” Amazon, 487 F.3d at 729 (quoting Grokster, 545 U.S. at 930, 125 S.Ct. 2764) (internal
quotation marks omitted).FN11 There is no doubt that defendants profit from the infringing activity of
the Stolen Content Websites; after all, they take a cut of virtually every sale of pirated material. First
Am. Compl. at 4 ¶ 13, 7 ¶ 25. The majority does not dispute this point so I need not belabor it. Maj. op.
at 806.

FN11. Amazon interprets the “stop or limit” language as requiring “a legal right to stop or limit the
allegedly infringing conduct, as well as the practical ability to do so.” Amazon, 487 F.3d at 730.

Defendants here also have a right to stop or limit the infringing activity, a right they have refused to
exercise. As the majority recognizes, “Perfect 10 ... claims that Defendants' rules and regulations permit
them to require member merchants to cease illegal activity—presumably including copyright
infringement—as a condition to their continuing right to receive credit card payments from the relevant
Defendant entities.” Maj. op. at 804.FN12 Assuming*817 the truth of this allegation,FN13 the cards have
the authority, given to them by contract, to force the Stolen Content Websites to remove infringing
images from their inventory as a condition for using defendants' payment systems. If the merchants
comply, their websites stop peddling stolen content and so infringement is stopped or limited. If they
don't comply, defendants have the right—and under copyright law the duty—to kick the pirates off their
payment networks, forcing them to find other means of getting paid or go out of business. In that case,
too, infringement is stopped or limited. The swap meet in Fonovisa was held vicariously liable precisely
because it did not force the pirates to stop infringing or leave; there is no reason to treat defendants
here differently.

FN12. Plaintiff's allegation on this point, as on many others, is very specific:

When MasterCard or Visa learns of a merchant engaged in illegal, fraudulent, or otherwise improper
business practices, their own regulations require them to cause member banks to investigate and,
depending on the nature of the misconduct, terminate the merchants from the Visa and MasterCard
systems. The rules of both associations strictly prohibit members from servicing illegal businesses.

First Am. Compl. at 6 ¶ 20.

FN13. In fact, there can be no doubt that it's true. For example, the MasterCard Merchant Rules Manual
provides that “[a] Payment Transaction may not be effected for any of the following reasons: ... to
transfer gambling winnings or funds related to chips, currency, or other value usable for gambling that
were purchased in connection with gambling; for any illegal purpose or any other purpose deemed by
MasterCard to be impermissible.” MasterCard International, Merchant Rules Manual § 2.1.11.3(6)
(2006) (emphasis added), available at http:// www. mastercard. com/ us/ wce/ PDF/ 12999—MERC-
Entire—Manual. pdf.

That the pirates might find some other way of doing business is of no consequence; our cases make this
perfectly clear. It didn't matter in Fonovisa that the infringers there could have continued their illegal
sales by mail order or by hawking their unlawful merchandise on street corners. Nor did it matter in
Napster or Grokster that the direct infringers might find some other means of illegally sharing their
protected content with others. Indeed, there is no case involving secondary infringement, going back to
the dance hall cases of the last century, where the secondary infringer's refusal to do business with the
direct infringer could have stopped infringement altogether and forever. Yet, courts have presumed that
removing the particular means of infringement challenged in each case would make direct infringement
more difficult and thereby diminish the scale of infringing activity.

Here, the Stolen Content Websites have chosen credit cards as a form of payment, and for good reason.
Credit cards are ubiquitous and permit the transfer of funds electronically in a matter of seconds.
Consumers need not wait days or weeks for a check to reach its destination and clear before gaining
access to the salacious pictures they crave. Consumers also know that, if goods bought by credit card are
not delivered, the cards will likely reverse the transaction.FN14 Credit cards thus act as informal escrow
agents, effectively guaranteeing that their merchants will deliver the goods. Blocking the ability to
accept credit cards would be a heavy blow to the Stolen Content Websites because cards are
“overwhelmingly the primary way by which customers pay to view Stolen Content Websites.” First Am.
Compl. at 9 ¶ 35. Even if the pirates could find an alternative way of plying their illegal trade, being
denied their preferred means of doing business *818 would sharply curtail their unlawful activities.

FN14. Visa's website, for example, explains that “Visa and its card issuers and acquirers have in place an
efficient dispute resolution process.” Visa USA, Chargebacks & Dispute Resolution, http:// www. usa.
visa. com/ merchants/ operations/ chargebacks —dispute— resolution/ index. html (last visited March
24, 2007). It also notes that “[c]hargebacks arise for many reasons, primary among which are customer
disputes, fraud, processing errors, authorization issues, and non-fulfillment of copy requests.” Id.
(emphasis added).

The majority toils to resist this obvious conclusion but its arguments are not persuasive. For example, it
makes no difference that defendants control only the means of payment, not the mechanics of
transferring the material. Maj. op. at 802, 805, 806. In a commercial environment, distribution and
payment are (to use a quaint anachronism) like love and marriage—you can't have one without the
other. If cards don't process payment, pirates don't deliver booty. The credit cards, in fact, control
distribution of the infringing material.

The majority also disparages defendants' ability to control the Stolen Content Websites as just “financial
pressure” which doesn't give them an “absolute right to stop [the infringing] activity—they cannot stop
websites from reproducing, altering, or distributing infringing images.” Id. at 804–05 (footnote
omitted).FN15 But we have never required an “absolute right to stop [the infringing] activity” as a
predicate for vicarious liability; it's enough if defendants have the “practical ability” to do so. Amazon,
487 F.3d at 729, 731. While proclaiming its fidelity to Amazon, maj. op. at 796, 803, the majority
jettisons Amazon's “practical ability” standard and substitutes its own “absolute right to stop” standard.
Id. at 804. FN16

FN15. The majority tries to take back in a footnote what it says in text by claiming that an “absolute right
to stop” is not “a prerequisite” to vicarious liability, but that its absence is “evidence that[defendants],
much like Google, lack the right and ability to control those [infringing] activities.” Maj. op. at 804 n. 16.
Alas, it won't work. If not having an “absolute right to stop” is merely “evidence” that defendants lack
sufficient control for vicarious infringement, then this can be offset by other evidence that they do have
such control. Conflicts in the evidence must be resolved after discovery and trial, not on a motion to
dismiss.

“Practical ability,” the standard announced in Amazon, is a capacious concept, far broader than
“absolute right to stop.” Even if the majority were right that defendants lack the “absolute right to stop”
the infringements, plaintiff would be entitled to show that defendants have the “practical ability” to do
so. If the majority means what it says in its footnote, then what it says in text is beside the point. In fact,
there can be no doubt that the majority means what it says in text, because it upholds dismissal of the
complaint on the ground that defendants lack the “absolute right to stop” the infringers; the footnote is
merely an unpersuasive attempt to sweep the conflict with Amazon under the rug.

FN16. The conflict with Amazon is clearly drawn in footnote 17, where the majority explicitly disavows
“practical ability” as the standard for vicarious infringement. Maj. op. at 805 n. 17. The majority is free
to disagree with the standard adopted by our caselaw, but it is not free to reject it.

It's perfectly clear that the cards do have the “practical ability” to force websites that display their logos
and use their payment systems to remove unlawful merchandise. As the majority admits, “Defendants
can ... refuse to process credit card payments to the offending merchant within their payment network,
or they can threaten to do so if the merchant does not comply with a request to alter content.” Maj. op.
at 805 (disparaging “only” omitted). Commercial websites are dependent on credit cards as a form of
payment, and the Stolen Content Websites are uniquely so, as virtually all of their illicit sales are paid for
by card. First Am. Compl. at 9 ¶ 35. A threat by credit card companies to withdraw use of their payment
systems couldn't be ignored. After all, how many consumers would be willing to send a check or money
order to a far-off jurisdiction in the hope that days or weeks later they will be allowed to download
some saucy pictures? If the Stolen Content Websites cannot get paid for their unlawful*819 products, or
if payment is made more difficult or cumbersome, this will dramatically affect their operations. Some
may lose customers who are unwilling to use alternative forms of payment; FN17 others may go out of
business; still others may remove the infringing content from their websites. Even the majority admits
that “fear of losing access to credit card payment processing services would be a sufficient incentive for
at least some website operators to comply with a content-based suggestion from Defendants.” Maj. op.
at 804.FN18 As a consequence, infringing activity would be “stop[ped] or limit[ed].” See Amazon, 487
F.3d at 729.
FN17. Those customers may take their patronage to plaintiff's website.

FN18. The majority disparages this as mere “financial pressure,” but I am aware of no prior case holding
that the legal right to exercise “financial pressure” over infringing activity is insufficient to support a
finding of vicarious infringement. This is a dangerous precedent. We live in a commercial world and
economic incentives are often the strongest possible motivators—far stronger than the often empty
threat of litigation. As this case demonstrates, litigation can be costly and protracted, and its results
uncertain. By contrast, the threat of stopping an essential service can be implemented at once, without
hiring an army of lawyers or persuading judges and juries of the rightness of one's cause. In an economy
marked by competition, financial pressure which raises costs or diminishes patronage can be a powerful
weapon. By holding that the legal right to exercise financial pressure is an insufficient basis for
establishing vicarious infringement, my colleagues take a hasty and unwise step in the development of
the law.

The majority also reads the complaint for less than it's worth by “understand[ing]” plaintiff to allege
“that the ‘Stolen Content Websites' could not continue to exist as websites offering images for sale
online should defendants withdraw their services, not [to allege] that the websites would completely
vanish or that infringement by these sites in all its forms would necessarily cease.” Maj. op. at 805–06 n.
18. But plaintiff expressly alleges what the majority “understand[s]” it not to allege, namely that the
sites “cannot exist” without defendants, First Am. Compl. at 2 ¶ 7, and that “the Stolen Content
Websites would be eradicated” if they could not use credit cards, id. at 9–10 ¶ 35. It is hornbook law
that we must construe complaints liberally on a motion to dismiss. See Glus v. Brooklyn Eastern Dist.
Terminal, 359 U.S. 231, 235, 79 S.Ct. 760, 3 L.Ed.2d 770 (1959); Conley v. Gibson, 355 U.S. 41, 47–48, 78
S.Ct. 99, 2 L.Ed.2d 80 (1957). A liberal construction means reading ambiguous provisions in a way that
would save the complaint from dismissal, and sometimes even reading between the lines to give
plaintiff the benefit of every reasonable inference. I have never heard of reading a complaint liberally by
ignoring allegations that are clearly present.

But let's say the majority “understand[s]” plaintiff's allegations correctly: So what? To sustain a vicarious
infringement claim, plaintiff need not allege that the Stolen Content Websites “would completely vanish
or that infringement by these sites in all its forms would necessarily cease.” Maj. op. at 805–06 n. 18.
The standard is “stop or limit” the infringing conduct. Amazon, 487 F.3d at 725 (emphasis added)
(quoting Grokster, 545 U.S. at 930, 125 S.Ct. 2764). And my colleagues admit that plaintiff has alleged
that “at least some website operators [would] comply with a content-based suggestion from
Defendants.” Maj. op. at 804. Q.E.D.

To resolve this case, however, we need not adopt a rule holding all credit cards responsible for all
infringing Internet sales because plaintiff has alleged far more than the ordinary credit card/merchant
relationship.*820 According to plaintiff, defendants have adopted special rules and practices that apply
only to the Stolen Content Websites, and that are designed to make it easier for these websites to ply
their illegal trade. First Am. Compl. at 9–11 ¶¶ 33–37. Plaintiff claims that the credit cards have singled
out the Stolen Content Websites for preferential treatment because of the unusual and substantial
profits they make on such transactions. Read fully and fairly, the complaint alleges that defendants are
not merely passive providers of services available on equal terms to legal and illegal businesses alike;
they are actually in cahoots with the pirates to prop up their illegal businesses and share their ill-gotten
gains. If this is not vicarious infringement, nothing is.

The majority claims that Amazon employs “reasoning closely analogous” to its own, maj. op. at 803, but
it is mistaken. Amazon addressed two questions of vicarious infringement, one involving third-party
websites whose images are picked up by Google's search engine, the other involving websites that
participate in its AdSense program. As to the first, Google could not be vicariously liable because
“Perfect 10 ha[d] not shown that Google has contracts with third-party websites that empower Google
to stop or limit them from reproducing, displaying, and distributing infringing copies of Perfect 10's
images on the Internet.” 487 F.3d at 730.FN19 In the absence of such a contractual relationship, there
could be no vicarious infringement, because Google lacked “the legal right to stop or limit the direct
infringement of third-party websites.” Id. at 730. Why the majority believes this is in any way analogous,
or even remotely instructive, to our situation, where the credit cards do have contracts giving them a
right to control what merchants sell on their websites, is a mystery.

FN19. Amazon also relied on the district court's finding that Google “lacks the practical ability to police
the third-party websites' infringing conduct” because the technical means for doing so suggested by
plaintiff “were not workable.” Id. at 731 (citing district court's opinion, Perfect 10 v. Google, Inc., 416
F.Supp.2d 828, 857–58 & n. 25 (C.D.Cal.2006)). There is not, and cannot be, such a finding here as the
case is presented on a 12(b)(6) motion.

Google's relationship with websites that participate in its AdSense program presents a somewhat closer
analogy because Google did have contracts that would have allowed it to kick websites out of AdSense
for displaying infringing images. But that's as far as the similarity goes: AdSense is an advertising
program; Google pays participating merchants to host third-party ads on their websites. This is the
cyberspace analogue of renting out space on your land for a billboard. The ads have no effect on the
operation of the host websites; users can download infringing content whether or not ads are present.
Being excluded from AdSense would thus mean some loss of revenue, but would have no effect on the
operation of the business itself. It is therefore far from certain that merchants would be induced to
modify their businesses to avoid being excluded from AdSense.FN20

FN20. Anecdotal evidence suggests that the AdSense program produces vastly less revenue for most
program members than what they earn through their businesses. One poll found that 45% of AdSense
members surveyed earned less than $30 per month from the program, and only a small percentage
earned a substantial amount. Darren Rowse, AdSense Earnings for November–Poll Results, Problogger
(Dec. 19, 2005), http:// www. problogger. net/ archives/ 2005/12/19/adsense-earnings-for-november-
poll-results/.
Because plaintiff had not presented proof that any third-party websites would stop infringing if they
were threatened *821 with exclusion from AdSense, Amazon concluded that plaintiff there had not met
its burden for a preliminary injunction. Our case is presented on a motion to dismiss and plaintiff here
need only make allegations. And plaintiff alleges that the infringing websites could not continue doing
business at all without the use of credit cards. Amazon's reasoning on this point gives the majority no
help.

The majority's attempt to distinguish Napster is equally thin. My colleagues argue that “[t]he Napster
program's involvement with ... the infringement was much more intimate and directly intertwined with
it than Defendants' payment systems are.” Maj. op. at 803. But I don't see how much more “directly
intertwined” you can get in a purchase transaction than carrying the payment from buyer to seller. If
this were a drug deal, for example, we would never say that the guy entrusted with delivery of the
purchase money is less involved in the transaction than the guy who helps find the seller. Both would be
held equally culpable.

Thus, the majority's insistence that defendants “cannot themselves block access to the Internet, to any
particular websites, or to search engines enabling the location of such websites,” maj. op. at 804, is
beside the point. Physical control over the infringing activity is one way to stop infringers, but it's
certainly not the only way. Withdrawing crucial services, such as financial support, can be just as
effective, and sometimes more effective, than technical measures that can often be circumvented.FN21

FN21. Providing financial support has long been held to be a basis for vicarious infringement, where that
financial support carries with it the contractual right to approve the infringing activity. See Davis v. E.I.
DuPont de Nemours & Co., 240 F.Supp. 612 (S.D.N.Y.1965). In Davis, DuPont sponsored a dramatization
of “Ethan Frome,” which was alleged to infringe several copyrights. DuPont was held vicariously liable,
even though it did not own the studio or the broadcast facilities, and could not have prevented airing of
the show with another sponsor.

Finally, the majority dismisses the Supreme Court's opinion in Grokster by suggesting that the Court
could not have meant what it said because the standard it announced (and which we adopted in
Amazon ) would sweep in too many goods and services that contribute to infringing activity. See maj.
op. at 806 (listing hardware manufacturers, software engineers, technical support companies and
utilities). The majority misreads the Court's opinion. Providing a crucial service to an infringer may give
someone the practical ability to stop infringement, but that's only half of what it takes to be a vicarious
infringer. The other half is a right, found in contract, to control the infringer's actions. See Amazon, 487
F.3d at 730 (requiring “contracts with [direct infringers] that empower [defendant] to stop or limit them
from reproducing, displaying, and distributing infringing copies”). Those third parties the majority
worries about could not be held vicariously liable because they lack the legal right to stop the
infringement. So far as I know, utilities are provided by public franchise, not by contract, and a utility has
no right to stop providing electricity or phone service because it learns that its electrons are being put to
illegal use.FN22 Computer manufacturers don't usually*822 retain the right to reclaim computers they
have sold because they are being used unlawfully. Ditto for software producers and repairmen. Having
no contract that authorizes them to stop providing services on account of illegality, these actors do not
meet the first prong of the test for vicarious infringement. See p. 816 n. 10 supra.FN23

FN22. See, e.g., Rules and General Orders of the Vermont Public Service Board § 3.302, available at
http:// www. state. vt. us/ psb/ rules/ Official Adopted Rules/ Rules Complete. pdf (last visited May 14,
2007) (“[N]o utility shall disconnect residential service of gas, electric, or water unless payment of a valid
bill or charge is delinquent.”); State of New Hampshire, Consumer Rights and Responsibilities, at 5
(1996), available at http:// services. unitil. com/ content/info/consumer—rights.html.

FN23. The majority is also mistaken when it suggests that parties would be held vicariously liable for
infringement simply because, in a market economy, they are free not to deal with one another. Maj. op.
at 805 n. 17. Our cases have been very clear that more is required for vicarious infringement; defendant
must have a formal contractual or principal-agent relationship with the infringer. It is that contract or
relationship that forms the predicate for vicarious liability, and plaintiff must point to some term in the
contract or formal relationship that gives defendant a right to stop the infringing activity. See, e.g.,
Aimster, 334 F.3d at 654; Fonovisa, 76 F.3d at 262; Amazon, 487 F.3d at 729–31. Responding to a service
call, in the absence of a contract which provides that the service may be discontinued in the event of
illegal conduct, cannot form the basis of vicarious liability and thus the fact that the technician is free to
leave can't render him vicariously liable. The requirement that plaintiffs point to a relationship explicitly
spelled out in a contract or other legal arrangement is an important limitation on who may be held to
answer for vicarious infringement. It should not be casually discarded.

Trademark Infringement

For precisely the same reasons, I disagree with the majority when it claims that defendants do not
contributorily infringe on Perfect 10's trademark because they lack “[d]irect control and monitoring of
the instrumentality used by a third party to infringe the plaintiff's mark.” Maj. op. at 807 (internal
quotation marks omitted). The Lanham Act forbids “use in commerce ... of a registered mark in
connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in
connection with which such use is likely to cause confusion.” 15 U.S.C. § 1114(1)(a). Plaintiff alleges that
the Stolen Content Websites sell images marked with Perfect 10's trademark. First Am. Compl. at 17 ¶
65. Without defendants' payment systems, the infringers would find it much harder to peddle their
infringing goods. Plaintiff thus pled facts sufficient to state a claim for contributory trademark
infringement.

The cases on which the majority relies are not to the contrary. Inwood Laboratories, Inc. v. Ives
Laboratories, Inc., 456 U.S. 844, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982), involved a manufacturer and says
nothing of consequence bearing on our situation. Lockheed Martin Corp. v. Network Solutions, Inc., 194
F.3d 980, 984 (9th Cir.1999), turned on the fact that the defendant there, a registrar of Internet domain
names, lacked sufficient control “over the third party's means of infringement,” because it lacked
“control and monitoring of the instrumentality used by a third party to infringe the plaintiff's marks.” Id.
By contrast, credit cards are directly involved in every infringing transaction; not only do they process
the payment for virtually every sale of pirated images by the Stolen Content Websites, they control
whether such transactions will go forward. This is more than enough to establish the “control and
monitoring” that Lockheed Martin requires for contributory trademark infringement.

As to vicarious trademark infringement, the majority claims that there is neither a symbiotic partnership
between the direct infringers and defendants, nor authority to bind one another in transactions with
third parties. Maj. op. at 807 (citing Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc., 955 F.2d
1143 (7th Cir.1992)). But plaintiff alleges that the Stolen Content *823 Websites cannot operate without
the use of credit cards, First Am. Compl. at 2 ¶ 7, while defendants make huge profits by processing
these illegal transactions. See also p. 820 supra. If this is not symbiosis, what is? Likewise, while “the
websites' contracts with the consumers ... bind the websites to provide the infringing images,” maj. op.
at 808 (emphasis removed), it is defendants' actions that bind the websites to that contract. Only after
the credit cards approve and process the payment does the obligation to deliver the stolen content
come into existence. The majority thus errs in absolving defendants of vicarious trademark
infringement.

State Law Claims

The majority disposes of the state law claims on the same theory as the copyright claims, namely, that
defendants are not directly involved in the infringing activity. Maj. op. at 808–09. But defendants are
involved, because they provide the means to pay for the infringing content and thus make “massive
quantities” of infringement possible. First Am. Compl. at 18 ¶ 73.

The case on which the majority relies, Emery v. Visa International Service Association, 95 Cal.App.4th
952, 116 Cal.Rptr.2d 25 (2002), is not on point because, in that case, plaintiff sued only Visa, not the
merchant banks that had a direct relationship with the alleged wrongdoer or the consumers. Id. at 956,
962, 116 Cal.Rptr.2d 25. Plaintiff there also based his theory of liability on advertising letters bearing the
credit card logo. Emery held that plaintiff hadn't proven Visa could police the use of its logo in letters
peddling an illegal lottery sent by merchants directly to consumers. By contrast, plaintiff here alleges
that defendants are knowing participants in thousands of transactions that amount to unfair trade
practices and infringe on the right of publicity of the women depicted in the stolen images. I see nothing
in Emery that would preclude plaintiff's state law claims, as alleged in the complaint.

***

It would certainly be much easier for us if plaintiff were suing the Stolen Content Websites rather than
the credit cards. No doubt, they would if they could.FN24 But direct infringers are sometimes too
ubiquitous, too small or too difficult to find. That's why we have cases such as Fonovisa, Napster,
Aimster, Grokster and Amazon. Here, plaintiff alleges that many direct infringers have no physical
presence in the United States. They operate from far-off jurisdictions, where lawsuits are difficult to
bring and remedies impossible to enforce because the infringers can easily move their operations to
servers in other remote jurisdictions.

FN24. In fact, Perfect 10 has brought suit against some direct infringers. See Perfect 10, Inc. v. CCBill,
LLC, 481 F.3d 751 (9th Cir.2007) (reversing summary judgment on direct infringement claim); Perfect 10,
Inc. v. Talisman Commc'ns Inc., No. CV99–10450, 2000 WL 364813 (C.D.Cal. Mar. 27, 2000).

The weak link in the pirates' nefarious scheme is their need to get paid; for this they must use the
services of legitimate financial institutions. If plaintiff's allegations are to be believed, the financial
institutions (defendants here) collect billions for sellers of stolen merchandise; in a very real sense, they
profit from making piracy possible. I can see no reason they should not be held responsible.

The majority's refrain that imposing liability on defendants here would violate “the public policy of the
United States,” maj. op. at 795, 797, is equally off base. While the majority correctly identifies that *824
policy as facilitating the development of electronic commerce, id. at 794 n. 2, that solicitude does not
extend to commerce in illegal merchandise. I am aware of no policy of the United States to encourage
electronic commerce in stolen goods, illegal drugs or child pornography. When it comes to traffic in
material that violates the Copyright Act, the policy of the United States is embedded in the FBI warning
we see at the start of every lawfully purchased or rented video: Infringers are to be stopped and
prosecuted. Preventing financial intermediaries from servicing such shady transactions is entirely
consistent with that policy. If Congress believes that this places too heavy a burden on credit cards, it
can grant the cards immunity (along with corresponding responsibilities), as it did for ISPs in passing the
DMCA. FN25

FN25. The majority finds it “anomalous” to hold credit cards liable without DMCA-compliant notice,
while ISPs are immune unless they receive such a notice. Maj. op. at 795–96 n. 4. But there is no
anomaly in treating parties that are covered by the statute differently from those that are not. Plaintiff
here did give ample notice to the credit cards, see p. 824 infra, and should not have its claim dismissed
for failing to allege compliance with a statute that does not apply to them.

The majority's solicitude for “credit cards ... as the primary engine of electronic commerce,” and for
preserving “the vibrant and competitive free market that presently exists for the Internet,” maj. op. at
794, is understandable but misguided. It does not serve the interests of a free market, or a free society,
to abet marauders who pilfer the property of law-abiding, tax-paying rights holders, and who turn
consumers into recipients of stolen property. Requiring defendants to abide by their own rules, which
“strictly prohibit members from servicing illegal businesses,” First Am. Compl. at 6 ¶ 20, will hardly
impair the operation of a “vibrant and competitive free market,” any more than did the recent law
prohibiting the use of credit cards for Internet gambling. See 31 U.S.C. § 5364.

Nor does plaintiff seek to hold the credit cards responsible for illegal activities of which they are
unaware. Plaintiff claims that it has repeatedly written to defendants, “putting them on notice of more
than 240 specifically identified Celebrity Porn Websites with obvious stolen content that they were
supporting.” First Am. Compl. at 19 ¶ 75. Plaintiff has also sent defendants “[d]eclarations from
celebrities [such as Britney Spears, Christina Aguilera, Anna Kournikova and Yasmine Bleeth] stating that
they have not authorized the use of their name, likeness, or identity on pornographic websites and that
they do not want their images and names so used....” Id. at 19 ¶ 77. Credit cards already have the tools
to police the activities of their merchants, which is why we don't see credit card sales of illegal drugs or
child pornography. According to plaintiff, “defendants inspect websites and business premises, and
obtain and review merchants' bank statements, tax returns, credit reports, and a merchant's other
financial information....” Id. at 7 ¶ 26. Plaintiff is not asking for a huge change in the way credit cards do
business; they ask only that defendants abide by their own rules and stop doing business with crooks.
Granting plaintiff the relief it seeks would not, I am confident, be the end of Capitalism as we know it.

This is an easy case, squarely controlled by our precedent in all material respects. Fairly applying our
cases to the facts alleged by Perfect 10, we should reverse the district court and give plaintiff an
opportunity to prove its case through discovery and trial. In straining to escape the strictures*825 of our
caselaw, the majority draws a series of ephemeral distinctions that are neither required nor permitted;
the opinion will prove to be no end of trouble.

494 F.3d 788, 2007 Copr.L.Dec. P 29,404, 83 U.S.P.Q.2d 1144, 07 Cal. Daily Op. Serv. 7904, 2007 Daily
Journal D.A.R. 10,586
United States District Court,

S.D. New York.

UNIVERSAL CITY STUDIOS, INC., et al., Plaintiffs,


v.
Shawn C. REIMERDES, et al., Defendants.

No. 00 Civ. 0277 (LAK).

Aug. 17, 2000.


As Amended Sept. 6, 2000.

Motion picture studios brought action under Digital Millennium Copyright Act (DMCA) to enjoin Internet
web-site owners from posting for downloading computer software that decrypted digitally encrypted
movies on digital versatile disks (DVDs) and from including hyperlinks to other web-sites that made
decryption software available. The District Court, Kaplan, J., held that: (1) posting decryption software
violated DMCA provision prohibiting trafficking in technology that circumvented measures controlling
access to copyrighted works; (2) posting hyperlinks to other web-sites offering decryption software
violated DMCA; (3) DMCA anti-trafficking provision was content-neutral as applied to computer
program; (4) DMCA did not violate First Amendment as applied to defendants and decryption software;
(5) defendants failed to establish anti-trafficking provision was overly broad on grounds that it
prevented noninfringing fair use of movies; (6) application of anti-trafficking provision to enjoin
defendants from hyper-linking to other web-sites offering decryption software did not violate First
Amendment; and (7) plaintiffs were entitled to injunction enjoining defendants from posting decryption
software or hyperlinking to other web-sites that made software available.

So ordered.

West Headnotes

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Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in any “technology” designed
for purpose of circumventing technological measure controlling access to copyrighted work applied to
computer code for software that decrypted movies on digital versatile disks (DVDs), and was not limited
to “black box” devices. 17 U.S.C.A. § 1201(a)(2).
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Decryption, by means of computer software, of encrypted movies on digital versatile disks (DVDs)
constituted “circumvention” for purposes of Digital Millennium Copyright Act (DMCA) provision
prohibiting trafficking in any technology designed to circumvent technological measure controlling
access to copyrighted work. 17 U.S.C.A. § 1201(a)(2).

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For purposes of Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in any
technology designed to circumvent technological measure effectively controlling access to copyrighted
work, encryption system used for movies on digital versatile disks (DVDs) constituted measure that
“effectively controlled access” to copyrighted work, regardless of whether 40-bit encryption key on
which encryption was based was weak cipher or strong encryption; technological measure would be
deemed to effectively control access to protected work so long as its function was to control access. 17
U.S.C.A. § 1201(a)(2)(A).

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Facts that developer of computer software program that decrypted movies on digital versatile disks
(DVDs) allegedly wrote program to further development of DVD player that would run under open
source computer operating system (OS) and that defendants who posted software on their Internet
web-site for downloading allegedly did not intend to permit or encourage infringement of copyrighted
material were irrelevant to Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in
any technology designed to circumvent technological measure controlling access to copyrighted work,
since sole purpose of software was to circumvent DVD encryption that protected copyrighted movies.
17 U.S.C.A. § 1201(a)(2).

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Reverse engineering exception to Digital Millennium Copyright Act (DMCA) provision prohibiting
trafficking in technology designed to circumvent technological measure controlling access to
copyrighted work did not apply to Internet web-site owners who posted computer software program
that decrypted movies on digital versatile disks (DVDs), even though developer wrote program by
reverse engineering DVD encryption system, allegedly to allow development of DVD player that would
run on open source computer operating system (OS); reverse engineering exception allowed only
person who actually acquired information through reverse engineering to share information with
others, exception applied only to dissemination intended to achieve interoperability as defined in
statute and did not apply to public dissemination of a means of circumvention, and developer of
software and defendants knew that decryption software would run under other OS and could therefore
be used to decrypt video files copy them onto computer hard-drive like any other computer file. 17
U.S.C.A. § 1201(f).

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Encryption research exception to Digital Millennium Copyright Act (DMCA) provision prohibiting
trafficking in any technology designed to circumvent technological measure controlling access to
copyrighted work did not apply to Internet web-site owners who posted computer software program
that decrypted movies on digital versatile disks (DVDs), where software was disseminated in manner
designed to facilitate copyright infringement rather than to advance state of knowledge of encryption
technology, and there was no evidence that defendants made any effort to provide results of their
“research” to copyright holders. 17 U.S.C.A. § 1201(g).

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The “fair use” doctrine limits the exclusive rights of a copyright holder by permitting others to make
limited use of portions of the copyrighted work, for appropriate purposes, free of liability for copyright
infringement. 17 U.S.C.A. § 107.

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Possibility that decryption computer software for encrypted movies on digital versatile disks (DVDs)
posted by Internet web-site owners for downloading could be used for non-infringing fair use of
copyrighted material was not defense to Digital Millennium Copyright Act (DMCA) provision prohibiting
trafficking in any technology designed for purpose of circumventing technological measure that
effectively controls access to copyrighted work; nothing in DMCA suggested that fair use defense was
available, and it was matter for Congress to elect to leave technologically unsophisticated person
without means to make fair use of digitally encrypted material. 17 U.S.C.A. §§ 107, 1201.

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A given device or piece of technology might have a substantial noninfringing use, such as allowing fair
use of digitally encrypted copyrighted material, but nonetheless be subject to suppression under the
Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in any technology designed for
the purpose of circumventing a technological measure that effectively controls access to copyrighted
work. 17 U.S.C.A. §§ 107, 1201(a).

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Digital Millennium Copyright Act (DMCA) provision prohibiting “offering to the public, providing, or
otherwise trafficking in” any technology designed to circumvent a technological measure that controls
access to a copyrighted work is implicated when one presents, holds out, or makes available a
circumvention technology or device, knowing its nature, for the purpose of allowing others to acquire it.
17 U.S.C.A. § 1201(a)(2).

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For purposes of Digital Millennium Copyright Act (DMCA), inclusion of hyperlinks on defendants' web-
site that linked to pages at other web-sites that automatically downloaded computer software that
enabled decryption of digitally encrypted movies on digital versatile disks (DVDs), contained code for
decryption software, or offered user choice of downloading decryption software constituted “offering,
providing, or otherwise trafficking in” technology designed to circumvent technological measure
controlling access to copyrighted work. 17 U.S.C.A. § 1201(a)(2).

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Mere inclusion of hyperlink on Internet web-site that links to another web-site containing circumventing
technology, along with other content, does not necessarily violate, regardless of purpose or manner in
wich link is described and thereby offered, Digital Millennium Copyright Act (DMCA) provision
prohibiting providing or otherwise trafficking in technology designed to circumvent technological
measure that controls access to copyrighted work. 17 U.S.C.A. § 1201(a)(2).

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Website owners, who included hyperlinks to web-sites created by others that contained computer
software that decrypted digitally encrypted copyrighted movies on digital versatile disks (DVDs), violated
Digital Millennium Copyright Act (DMCA) provision prohibiting offering to public, providing, or otherwise
trafficking in technology designed to circumvent technological measure to control access to copyrighted
work, where defendants, who had been enjoined from offering decryption software at their own site for
downloading, urged others to post decryption software on their sites in attempt to disseminate
software and requested those who posted software to inform them, so that they could include link. 17
U.S.C.A. § 1201(a)(2).

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All modes of expression are covered by the First Amendment in the sense that the constitutionality of
their regulation must be determined by reference to First Amendment doctrine and analysis; however,
regulation of different categories of expression is subject to varying levels of judicial scrutiny, though in
some circumstances, the phrase “protected by the First Amendment” connotes also that the standard
for measurement is the most exacting level available. U.S.C.A. Const.Amend. 1.

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All modes by which ideas may be expressed or, perhaps, emotions evoked, including speech, books,
movies, art, and music, are within the area of First Amendment concern. U.S.C.A. Const.Amend. 1.

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Computer code, whether source code or machine-readable object code, is a means of expressing ideas,
and, thus, the First Amendment must be considered before its dissemination may be prohibited or
regulated. U.S.C.A. Const.Amend. 1.

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Content-based restrictions on speech are permissible under the First Amendment only if they serve
compelling state interests by the least restrictive means available. U.S.C.A. Const.Amend. 1.

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Because content-neutral restrictions on speech are not motivated by a desire to limit the message, they
will be upheld if they serve a substantial governmental interest and restrict First Amendment freedoms
no more than necessary. U.S.C.A. Const.Amend. 1.

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Restrictions on the nonspeech elements of expressive conduct fall into the conduct-neutral category;
since the nonspeech elements may create hazards for society above and beyond the speech elements,
they are subject to regulation in appropriate circumstances because the government has an interest in
dealing with the potential hazards of the nonspeech elements, despite the fact that they are joined with
expressive elements. U.S.C.A. Const.Amend. 1.
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The principal inquiry in determining whether a restriction on speech is content-neutral is whether the
government has adopted the regulation because of agreement or disagreement with the message the
speech conveys. U.S.C.A. Const.Amend. 1.

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Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in any technology designed to
circumvent technological measure controlling access to copyrighted work constituted content-neutral
restriction on speech as applied to computer program that decrypted digitally encrypted movies on
digital versatile disks (DVDs); although computer code expressed programmer's ideas, it had additional,
non-speech aspect in that it contained instructions that caused computer to perform sequence of tasks
that, in the aggregate, circumvented DVD encryption, and Congress' concern in enacting DMCA's anti-
trafficking provision was suppression of copyright piracy and infringement, not to regulate expression of
ideas inherent in decryption computer code. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. § 1201(a)(2).

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A sufficiently important governmental interest in seeing to it that computers are not instructed to
perform particular functions may justify incidental restrictions on the dissemination of the expressive
elements of a computer program; such a regulation will be upheld if it furthers an important or
substantial governmental interest, the governmental interest is unrelated to the suppression of free
expression, and the incidental restriction on alleged First Amendment freedoms is no greater than is
essential to the furtherance of that interest. U.S.C.A. Const.Amend. 1.

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To satisfy the requirement that the incidental restriction on First Amendment freedoms is no greater
than is essential to further the substantial governmental interest, a content-neutral regulation need not
be the least speech-restrictive means of advancing the governmental interest; rather, the requirement
of narrow tailoring is satisfied so long as the regulation promotes a substantial government interest that
would be achieved less effectively absent the regulation. U.S.C.A. Const.Amend. 1.

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Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in any technology designed to
circumvent technological measure controlling access to copyrighted work did not violate First
Amendment as applied to owners of Internet web-site that made available for downloading computer
software enabling decryption of digitally encrypted movies on digital versatile disks (DVDs) and
contained hyperlinks to other web-sites that made decryption software available; DMCA provision was
content-neutral, it furthered important governmental interest of protected copyrighted works stored on
digital media, and incidental restraint on expression and non-infringing fair use of encrypted material
was no broader than necessary to accomplish goals of preventing infringement and promoting
availability of content in digital form. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. § 1201(a)(2).

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The functionality of a computer program that decrypted digital encrypted movies on digital versatile
disks (DVDs) could be used as a proxy for the consequences of software's use in determining the
constitutionally under the First Amendment of the Digital Millennium Copyright Act (DMCA) provision
prohibiting trafficking in technology designed to circumvent technology controlling access to
copyrighted works, since dissemination of the program via the Internet carried a very substantial risk of
producing virtually unstoppable infringement of copyright; the causal link between the dissemination of
the software and its improper use was more than sufficiently close to warrant use of functionality as a
proxy, since controlling the availability of the means of infringement was critical due to the lack of any
practical means of controlling infringement at the point at which it occurred once the software was
broadly disseminated. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. § 1201(a)(2).
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Even if Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in any technology
designed to circumvent technological measure controlling access to copyrighted work were deemed to
be content-based because it regulated computer code that expressed programmer's ideas for
decrypting digital encryption of movies on digital versatile disks (DVDs), it did not violate First
Amendment as applied to decryption software that was available for downloading via Internet; value of
free expression of decryption ideas was outweighed by government's interest in preventing
infringement and promoting availability of content in digital form, and there was imminent threat of
danger flowing from dissemination of software that far outweighed need for unfettered communication
of that software. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. § 1201(a)(2).

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Prior restraint doctrine did not require denial, after trial on merits, of injunction enjoining Internet web-
site owners from making computer software program that decrypted digitally encrypted movies on
digital versatile disks (DVDs) available for downloading, and providing hyperlinks to other web-sites that
made software available, in violation of Digital Millennium Copyright Act (DMCA) provision prohibiting
trafficking in technology designed to circumvent technological measure controlling access to
copyrighted work; First Amendment interests served by dissemination of software were minimal
because software was predominantly functional in nature, protection of monopoly granted to copyright
owners was of constitutional dimension, broad dissemination of decryption software threatened
ultimately to injure or destroy copyright holders' ability to distribute their works in digital format,
potential damages were probably incalculable, and defendants would be in no position to compensate
copyright holders. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. § 1201(a)(2).

[28] KeyCite Citing References for this Headnote

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92VI Enforcement of Constitutional Provisions
92VI(A) Persons Entitled to Raise Constitutional Questions; Standing
92VI(A)9 Freedom of Speech, Expression, and Press
92k855 k. In general. Most Cited Cases
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The overbreadth doctrine enables litigants to challenge a statute not merely because their own First
Amendment rights are violated, but because the statute may cause others to abstain from
constitutionally protected expression. U.S.C.A. Const.Amend. 1.

[29] KeyCite Citing References for this Headnote

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92VI Enforcement of Constitutional Provisions
92VI(A) Persons Entitled to Raise Constitutional Questions; Standing
92VI(A)1 In General
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92VI(A)9 Freedom of Speech, Expression, and Press
92k855 k. In general. Most Cited Cases
(Formerly 92k42.2(1))

Generally, a person to whom a statute constitutionally may be applied may not challenge that statute on
the ground that it conceivably may be applied unconstitutionally to others in situations not before the
court; however, when statutes regulate speech, the transcendent value to all society of constitutionally
protected expression is deemed to justify attacks on overly broad statutes, with no requirement that the
person making the attack demonstrate that his own conduct could not be regulated by a statute drawn
with the requisite narrow specificity. U.S.C.A. Const.Amend. 1.

[30] KeyCite Citing References for this Headnote

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92X First Amendment in General
92X(A) In General
92k1162 Overbreadth in General
92k1163 k. In general. Most Cited Cases
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92 Constitutional Law KeyCite Citing References for this Headnote


92X First Amendment in General
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92k1162 Overbreadth in General
92k1165 k. Use as last resort; sparing use. Most Cited Cases
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92 Constitutional Law KeyCite Citing References for this Headnote


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92XVIII(H) Law Enforcement; Criminal Conduct
92k1800 k. In general. Most Cited Cases
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The overbreadth doctrine is to be employed only as a last resort because it conflicts with the personal
nature of constitutional rights and the prudential limitations on constitutional adjudication, including
the importance of focusing carefully on the facts in deciding constitutional questions; moreover, the
limited function of the overbreadth doctrine attenuates as the otherwise unprotected behavior that it
forbids the state to sanction moves from pure speech toward conduct that, even if expressive, falls
within the scope of otherwise valid criminal laws. U.S.C.A. Const.Amend. 1.
[31] KeyCite Citing References for this Headnote

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92XVIII Freedom of Speech, Expression, and Press
92XVIII(W) Telecommunications and Computers
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92 Constitutional Law KeyCite Citing References for this Headnote


92XVIII Freedom of Speech, Expression, and Press
92XVIII(W) Telecommunications and Computers
92k2148 Internet
92k2151 k. Website content. Most Cited Cases
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99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
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Owners of Internet web-site that made available computer software that enabled decryption of digitally
encrypted movies on digital versatile disks (DVDs) failed to establish that Digital Millennium Copyright
Act (DMCA) provision prohibiting trafficking in technology designed to circumvent technological
measure controlling access to copyrighted work was overly broad, in violation of First Amendment, even
though anti-trafficking provision might prevent technologically unsophisticated persons from copying
portions of DVD movie for noninfringing, fair use; question of whether anti-trafficking provision affected
rights of “fair use” community could not be decided without evidence regarding circumstances of each
member of community or similarly situated groups of members, there was no reason to assume that
prospective fair users would be deterred from asserting their rights by fear of sanctions imposed by
DMCA, and issue concerned technology that was principally functional in nature rather than pure
speech. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. § 1201(a)(2).

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Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in technology designed to
circumvent technological measure controlling access to copyrighted work was not unconstitutionally
vague as applied to Internet web-site owners who posted for downloading computer software that
enabled decryption of digitally encrypted movies on digital versatile disks (DVDs); web-site owners
engaged in conduct clearly proscribed by DMCA and would not be heard to complain of any vagueness
as applied to others. 17 U.S.C.A. § 1201(a)(2).

[33] KeyCite Citing References for this Headnote

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92 Constitutional Law KeyCite Citing References for this Headnote


92XVIII Freedom of Speech, Expression, and Press
92XVIII(W) Telecommunications and Computers
92k2148 Internet
92k2151 k. Website content. Most Cited Cases
(Formerly 92k90.1(9))

Like computer code, hyperlinks on Internet web-pages, which link users to other web-pages with mere
click of mouse, have both expressive and functional elements, and regulation restricting use of links
would survive First Amendment challenge if it was unrelated to suppression of free expression, it served
substantial governmental interest, and promotion of interest would be achieved less effectively absent
regulation. U.S.C.A. Const.Amend. 1.

[34] KeyCite Citing References for this Headnote

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Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in technology designed to
circumvent technological measure controlling access to copyrighted work could be applied to allow
motion picture copyright holders to bring legal action against Internet web-site owners who posted
hyperlinks to other web-sites that offered computer software that enabled decryption of digitally
encrypted movies on digital versatile disks (DVDs); since copyright holders could not bring DMCA actions
against linked-to sites owned by those outside United States, allowing actions under DMCA against
those linking to other sites would achieve government's interest in protecting copyrights more
effectively than allowing only actions against web-site owners who posted circumventing technology.
U.S.C.A. Const.Amend. 1; 17 U.S.C.A. § 1201(a)(2).

[35] KeyCite Citing References for this Headnote

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92XVIII(W) Telecommunications and Computers
92k2148 Internet
92k2151 k. Website content. Most Cited Cases
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99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
99I Copyrights
99I(A) Nature and Subject Matter
99k2 k. Constitutional and statutory provisions. Most Cited Cases

Under the First Amendment, there may be no injunction against, nor liability for, hyper-linking an
Internet web-page to another web site containing technology designed to circumvent a technological
measure controlling access to a copyrighted work, the offering of which is unlawful under the Digital
Millennium Copyright Act (DMCA), absent clear and convincing evidence that those responsible for the
link: (1) knew at the relevant time that the offending material was on the linked-to site; (2) knew that it
was circumvention technology that could not lawfully be offered; and (3) created or maintained the link
for the purpose of disseminating the offending technology. U.S.C.A. Const.Amend. 1; 17 U.S.C.A. §
1201(a)(2).

[36] KeyCite Citing References for this Headnote

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92XVIII Freedom of Speech, Expression, and Press
92XVIII(W) Telecommunications and Computers
92k2148 Internet
92k2151 k. Website content. Most Cited Cases
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99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
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99k2 k. Constitutional and statutory provisions. Most Cited Cases

99 Copyrights and Intellectual Property KeyCite Citing References for this Headnote
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99k72 Actions for Infringement
99k86 k. Permanent relief. Most Cited Cases

Internet web-site owners could be enjoined, for violating Digital Millennium Copyright Act (DMCA)
provision prohibiting trafficking in technology designed to circumvent technological measure controlling
access to copyrighted work, from providing hyperlinks to other web-sites containing computer software
that enable decryption of digitally encrypted movies on digital versatile disks (DVDs); DMCA did not
violate First Amendment as applied to defendants, since they knew that encryption software was posted
at linked-to sites, learned in action brought against them by movie copyright holders that posting
software violated DMCA, and stated on their site that they maintained links in order to promote
dissemination of decryption software in effort to defeat effective judicial relief. U.S.C.A. Const.Amend. 1;
17 U.S.C.A. § 1201(a)(2).

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Motion picture copyright holders established sufficient threat of harm to bring action for injunction
under Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in technology designed
to circumvent technological measure controlling access to copyrighted work against Internet web-site
owners who posted and hyper-linked to computer software that enabled decryption of digitally
encrypted movies on digital versatile disks (DVDs), where plaintiffs found web-site that listed 650 movie
files available for downloading, plaintiffs' investigator downloaded between five and ten copied movie
files, plaintiffs' expert obtained pirated, compressed copy of movie from Internet chat-room, and listings
of copied movies made sudden appearance on Internet promptly after decryption software became
available. 17 U.S.C.A. § 1201(a)(2).

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Even if there were other computer software programs available that produced results comparable to
software made available on defendants' Internet web-site, which decrypted digitally encrypted movies
on digital versatile disks (DVDs), evidence was sufficient to show that defendants violated Digital
Millennium Copyright Act (DMCA) provision prohibiting trafficking in technology designed to circumvent
technological measure controlling access to copyrighted work, even though copyright holders did not
prove that decrypted, compressed copies of movies available on Internet were decrypted with software
that defendants made available; software defendants made available was faster, easier to use, and
worked on broader range of DVDs than other decryption software, web-site promoting compression
software used for copies of movies recommended use of decryption software made available at
defendants' site, and availability of pirated movies on Internet dramatically increased after software
available at defendants' site was introduced. 17 U.S.C.A. § 1201(a)(2).

[39] KeyCite Citing References for this Headnote

272 Negligence
272XVIII Actions
272XVIII(C) Evidence
272XVIII(C)1 Burden of Proof
272k1568 k. Proximate cause. Most Cited Cases

379 Torts KeyCite Citing References for this Headnote


379I In General
379k142 Evidence
379k145 k. Burden of proof. Most Cited Cases
(Formerly 379k27)

Where two or more persons take substantially identical wrongful actions, one and only one of which had
to be the source of the plaintiffs' injury, and it is equally likely that one inflicted the injury as the other,
the burden of proof on causation shifts to the defendants, each of which is liable absent proof that its
action did not cause the injury.

[40] KeyCite Citing References for this Headnote

212 Injunction
212IV Particular Subjects of Relief
212IV(E) Governments, Laws, and Regulations in General
212k1250 k. Injunctions to enforce laws and regulations in general. Most Cited Cases
(Formerly 212k85(1))

Where statutes in substance so provide, injunctive relief is appropriate if there is a reasonable likelihood
of future violations absent such relief, and, in cases brought by private plaintiffs, if the plaintiff lacks an
adequate remedy at law.

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Motion picture copyright holders were entitled to injunction enjoining Internet web-site owners from
posting computer software that enabled decryption of digitally encrypted movies on digital versatile
disks (DVDs) or including hyperlinks to other web-sites that made decryption software available in
violation of Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in technology
designed to circumvent technological measure controlling access to copyrighted work; defendants
would likely continue to violate DMCA in absence of injunction since they were in business of
disseminating information to assist “hackers” in “cracking” various types of technological security
systems and, after preliminary injunction enjoined them from posting decryption software, they linked
their web-site to other web-sites that had posted same software, and copyright holders were unlikely to
have adequate remedy at law since actual damages would be difficult if not impossible to prove. 17
U.S.C.A. § 1201(a)(2).

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Fact that computer software that decrypted digitally encrypted movies on digital versatile disks (DVDs)
had been widely disseminated on Internet and was available from other sites did not preclude finding
that copyright holders would be irreparably harmed in absence of injunction enjoining defendant web-
site owners from posting decryption software or hyperlinking to other sites that posted software in
violation of Digital Millennium Copyright Act (DMCA) provision prohibiting trafficking in technology
designed to circumvent technological measure controlling access to copyrighted work. 17 U.S.C.A. §
1201(a)(2).
[43] KeyCite Citing References for this Headnote

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99k90 Costs
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99k90 Costs
99k90(2) k. Attorney fees. Most Cited Cases

Since their action was test case raising important issues, court would not exercise its discretion to award
attorney fees to motion picture copyright holders who obtained injunction enjoining Internet web-site
owners from posting computer software that enabled decryption of digitally encrypted movies on digital
versatile disks (DVDs) or hyperlinking to other sites that made decryption software in violation of Digital
Millennium Copyright Act (DMCA) provision prohibiting trafficking in technology designed to circumvent
technological measure controlling access to copyrighted work; however, plaintiffs were entitled to costs,
particularly those related to excessive discovery demands made by defendants. 17 U.S.C.A. §§
1201(a)(2), 1203(b)(4, 5).

*302 Leon P. Gold, Jon A. Baumgarten, Charles S. Sims, Scott P. Cooper, William M. Hart, Michael M.
Mervis, Carla M. Miller, Proskauer Rose LLP, New York City, for Plaintiffs.

Martin Garbus, George E. Singleton, David Y. Atlas, Edward Hernstadt, Frankfurt, Garbus, Klein & Selz,
P.C., New York City, for Defendants.

OPINION

KAPLAN, District Judge.

Contents

I. The Genesis of the Controversy 305


A. The Vocabulary of this Case 305

1. Computers and Operating Systems 305

2. Computer Code 305

3. The Internet and the World Wide Web 306

4. Portable Storage Media 307

5. The Technology Here at Issue 308

B. Parties 308

C. The Development of DVD and CSS 309

D. The Appearance of DeCSS 311

E. The Distribution of DeCSS 311

F. The Preliminary Injunction and Defendants' Response 312

G. Effects on Plaintiffs 313

II. The Digital Millennium Copyright Act 315

A. Background and Structure of the Statute 315

B. Posting of DeCSS 316

1. Violation of Anti–Trafficking Provision 316

a. Section 1201(a)(2)(A) 317

(1) CSS Effectively Controls Access to Copyrighted Works 317

(2) DeCSS Was Designed Primarily to Circumvent CSS 318


b. Section 1201(a)(2)(B) 319

c. The Linux Argument 319

2. Statutory Exceptions 319

a. Reverse engineering 319

b. Encryption research 320

c. Security testing 321

d. Fair use 321

C. Linking to Sites Offering DeCSS 324

III. The First Amendment 325

A. Computer Code and the First Amendment 326

B. The Constitutionality of the DMCA's Anti–Trafficking Provision 327

1. Defendants' Alleged Right to Disseminate DeCSS 327

2. Prior Restraint 333

3. Overbreadth 336

4. Vagueness 339

C. Linking 339

IV. Relief 341

A. Injury to Plaintiffs 341


B. Permanent Injunction and Declaratory Relief 342

V. Miscellaneous Contentions 345

VI. Conclusion 345

*303 Plaintiffs, eight major United States motion picture studios, distribute many of their copyrighted
motion pictures for home use on digital versatile disks (“DVDs”), which contain copies of the motion
pictures in digital form. They protect those motion pictures from copying by using an encryption system
called CSS. CSS-protected motion pictures on DVDs may be viewed only on players and computer drives
equipped with licensed technology that permits the devices to decrypt and play—but not to copy—the
films.

Late last year, computer hackers devised a computer program called DeCSS that circumvents the CSS
protection system and allows CSS-protected motion pictures to be copied and played on devices that
lack the licensed decryption technology. Defendants quickly posted DeCSS on their Internet web site,
thus making it readily available to much of the world. Plaintiffs promptly brought this action under the
Digital Millennium Copyright Act (the “DMCA”) FN1 to enjoin defendants from posting DeCSS and to
prevent them from electronically “linking” their site to others that post DeCSS. Defendants responded
with what they termed “electronic civil disobedience”—increasing their efforts to link their web site to a
large number of *304 others that continue to make DeCSS available.

FN1. 17 U.S.C. § 1201 et seq.

Defendants contend that their actions do not violate the DMCA and, in any case, that the DMCA, as
applied to computer programs, or code, violates the First Amendment.FN2 This is the Court's decision
after trial, and the decision may be summarized in a nutshell.

FN2. Shortly after the commencement of the action, the Court granted plaintiffs' motion for a
preliminary injunction barring defendants from posting DeCSS. Universal City Studios, Inc. v. Reimerdes,
82 F.Supp.2d 211 (S.D.N.Y.2000). Subsequent motions to expand the preliminary injunction to linking
and to vacate it were consolidated with the trial on the merits. This opinion reflects the Court's findings
of fact, conclusions of law and decision on the merits.

The Court notes the receipt of a number of amicus submissions. Although many were filed by
defendants' counsel on behalf of certain amici, and therefore were of debatable objectivity, the amicus
submissions considered as a group were helpful.
Defendants argue first that the DMCA should not be construed to reach their conduct, principally
because the DMCA, so applied, could prevent those who wish to gain access to technologically
protected copyrighted works in order to make fair—that is, non-infringing—use of them from doing so.
They argue that those who would make fair use of technologically protected copyrighted works need
means, such as DeCSS, of circumventing access control measures not for piracy, but to make lawful use
of those works.

Technological access control measures have the capacity to prevent fair uses of copyrighted works as
well as foul. Hence, there is a potential tension between the use of such access control measures and
fair use. Defendants are not the first to recognize that possibility. As the DMCA made its way through
the legislative process, Congress was preoccupied with precisely this issue. Proponents of strong
restrictions on circumvention of access control measures argued that they were essential if copyright
holders were to make their works available in digital form because digital works otherwise could be
pirated too easily. Opponents contended that strong anti-circumvention measures would extend the
copyright monopoly inappropriately and prevent many fair uses of copyrighted material.

Congress struck a balance. The compromise it reached, depending upon future technological and
commercial developments, may or may not prove ideal. FN3 But the solution it enacted is clear. The
potential tension to which defendants point does not absolve them of liability under the statute. There
is no serious question that defendants' posting of DeCSS violates the DMCA.

FN3. David Nimmer, A Riff on Fair Use in the Digital Millennium Copyright Act, 148 u.Pa.L.Rev. 673, 739–
41 (2000) (hereinafter A Riff on Fair Use ).

Defendants' constitutional argument ultimately rests on two propositions—that computer code,


regardless of its function, is “speech” entitled to maximum constitutional protection and that computer
code therefore essentially is exempt from regulation by government. But their argument is baseless.

Computer code is expressive. To that extent, it is a matter of First Amendment concern. But computer
code is not purely expressive any more than the assassination of a political figure is purely a political
statement. Code causes computers to perform desired functions. Its expressive element no more
immunizes its functional aspects from regulation than the expressive motives of an assassin immunize
the assassin's action.

In an era in which the transmission of computer viruses—which, like DeCSS, are simply computer code
and thus to some degree expressive—can disable systems upon which the nation depends and in which
other computer code also is capable of inflicting other harm, society must be able to regulate the use
and dissemination *305 of code in appropriate circumstances. The Constitution, after all, is a framework
for building a just and democratic society. It is not a suicide pact.

I. The Genesis of the Controversy

As this case involves computers and technology with which many are unfamiliar, it is useful to begin by
defining some of the vocabulary.

A. The Vocabulary of this Case

1. Computers and Operating Systems

A computer is “a digital information processing device .... consist[ing] of central processing components
... and mass data storage .... certain peripheral input/output devices ..., and an operating system.”
Personal computers (“PCs”) are computers designed for use by one person at a time. “[M]ore powerful,
more expensive computer systems known as ‘servers' ... are designed to provide data, services, and
functionality through a digital network to multiple users.” FN4

FN4. United States v. Microsoft Corp., 84 F.Supp.2d 9, 13 (D.D.C.1999). The quotations are from a finding
of fact in the Microsoft case of which the Court, after notice to and without objection by the parties,
takes judicial notice. Tr. at 1121. Subsequent references to Microsoft findings reflect similar instances of
judicial notice without objection.

An operating system is “a software program that controls the allocation and use of computer resources
(such as central processing unit time, main memory space, disk space, and input/output channels). The
operating system also supports the functions of software programs, called ‘applications,’ that perform
specific user-oriented tasks.... Because it supports applications while interacting more closely with the
PC system's hardware, the operating system is said to serve as a ‘platform.’ ” FN5

FN5. United States v. Microsoft Corp., 84 F.Supp.2d at 13.

Microsoft Windows (“Windows”) is an operating system released by Microsoft Corp. It is the most
widely used operating system for PCs in the United States, and its versions include Windows 95,
Windows 98, Windows NT and Windows 2000.

Linux, which was and continues to be developed through the open source model of software
development,FN6 also is an operating system.FN7 It can be run on a PC as an alternative to Windows,
although the extent to which it is so used is limited.FN8 Linux is more widely used on servers.FN9
FN6. Open source is a software development model by which the source code to a computer program is
made available publicly under a license that gives users the right to modify and redistribute the
program. The program develops through this process of modification and redistribution and through a
process by which users download sections of code from a web site, modify that code, upload it to the
same web site, and merge the modified sections into the original code. Trial transcript (“Tr.”) (Craig) at
1008.

FN7. Tr. (Pavlovich) at 936.

FN8. Tr. (DiBona) at 994–95.

FN9. Id.

2. Computer Code

“[C]omputers come down to one basic premise: They operate with a series of on and off switches, using
two digits in the binary (base 2) number system—0 (for off) and 1 (for on).” FN10 All data and
instructions input to or contained in computers therefore must be reduced the numerals 1 and 0. FN11

FN10. the New York Public Library, Science Desk Reference 496 (1995) (hereinafter science Desk
Reference); see also Tr. (Felten) at 758–59; Hon. Shira A. Scheindlin & Jeffrey Rabkin, Electronic
Discovery in Federal Civil Litigation: Is Rule 34 Up to the Task? 34 b.C.L.Rev. 327, 333–35 (2000).

FN11. Tr. (Felten) at 759; Scheindlin & Rabkin, 34 b.C.L.Rev. at 333–35.

“The smallest unit of memory in a computer,” a bit, “is a switch with a value of *306 0(off) or 1(on).”
FN12 A group of eight bits is called a byte and represents a character—a letter or an integer.FN13 A
kilobyte (“K”) is 1024 bytes, a megabyte (“MB”) 1024 kilobytes, and a gigabyte (“GB”) 1024
megabytes.FN14

FN12. science Desk Reference, at 501.

FN13. Id.

FN14. Id.
Some highly skilled human beings can reduce data and instructions to strings of 1's and 0's and thus
program computers to perform complex tasks by inputting commands and data in that form.FN15 But it
would be inconvenient, inefficient and, for most people, probably impossible to do so. In consequence,
computer science has developed programming languages. These languages, like other written
languages, employ symbols and syntax to convey meaning. The text of programs written in these
languages is referred to as source code.FN16 And whether directly or through the medium of another
program,FN17 the sets of instructions written in programming languages—the source code—ultimately
are translated into machine “readable” strings of 1's and 0's, known in the computer world as object
code, which typically are executable by the computer.FN18

FN15. See Tr. (Felten) at 759–60.

FN16. The Court's findings with respect to the definitions of source code and object code are taken from
the trial testimony of Robert Schumann, Tr. at 258, and Drs. Edward Felten, Tr. at 738–39, 757–63, David
S. Touretzky, Tr. at 1065–91, and Andrew Appel, Tr. at 1096, and the deposition testimony of Dr. Harold
Abelson, Ex. AZO at 34–37, 45–49. See also Ex. BBE.

FN17. Frequently, programs written in such languages must be transformed or translated into machine
readable form by other programs known as compilers.

FN18. This to some degree is an oversimplification. Object code often is directly executable by the
computer into which it is entered. It sometimes contains instructions, however, that are readable only
by computers containing a particular processor, such as a Pentium processor, or a specific operating
system such as Microsoft Windows. In such instances, a computer lacking the specific processor or
operating system can execute the object code only if it has an emulator program that simulates the
necessary processor or operating system or if the code first is run through a translator program that
converts it into object code readable by that computer. Ex. BBE.

The distinction between source and object code is not as crystal clear as first appears. Depending upon
the programming language, source code may contain many 1's and 0's and look a lot like object code or
may contain many instructions derived from spoken human language. Programming languages the
source code for which approaches object code are referred to as low level source code while those that
are more similar to spoken language are referred to as high level source code.

All code is human readable. As source code is closer to human language than is object code, it tends to
be comprehended more easily by humans than object code.

3. The Internet and the World Wide Web


The Internet is “a global electronic network, consisting of smaller, interconnected networks, which
allows millions of computers to exchange information over telephone wires, dedicated data cables, and
wireless links. The Internet links PCs by means of servers, which run specialized operating systems and
applications designed for servicing a network environment.” FN19

FN19. United States v. Microsoft Corp., 84 F.Supp.2d at 13.

Internet Relay Chat (“IRC”) is a system that enables individuals connected to the Internet to participate
in live typed discussions.FN20 Participation in an IRC discussion requires an IRC software program, which
sends messages via the Internet to the IRC server, which in turn broadcasts the messages to all
participants. The IRC *307 system is capable of supporting many separate discussions at once.

FN20. Tr. (Shamos) at 67–68.

The World Wide Web (the “Web”) is “a massive collection of digital information resources stored on
servers throughout the Internet. These resources are typically provided in the form of hypertext
documents, commonly referred to as ‘Web pages,’ that may incorporate any combination of text,
graphics, audio and video content, software programs, and other data. A user of a computer connected
to the Internet can publish a page on the Web simply by copying it into a specially designated, publicly
accessible directory on a Web server. Some Web resources are in the form of applications that provide
functionality through a user's PC system but actually execute on a server.” FN21

FN21. United States v. Microsoft Corp., 84 F.Supp.2d at 13.

A web site is “a collection of Web pages [published on the Web by an individual or organization] ....
Most Web pages are in the form of ‘hypertext’; that is, they contain annotated references, or
‘hyperlinks,’ to other Web pages. Hyperlinks can be used as cross-references within a single document,
between documents on the same site, or between documents on different sites.” FN22

FN22. Id. at 14.

A home page is “one page on each Web site ... [that typically serves as] the first access point to the site.
The home page is usually a hypertext document that presents an overview of the site and hyperlinks to
the other pages comprising the site.” FN23

FN23. Id.
A Web client is “software that, when running on a computer connected to the Internet, sends
information to and receives information from Web servers throughout the Internet. Web clients and
servers transfer data using a standard known as the Hypertext Transfer Protocol (‘HTTP’). A ‘Web
browser’ is a type of Web client that enables a user to select, retrieve, and perceive resources on the
Web. In particular, Web browsers provide a way for a user to view hypertext documents and follow the
hyperlinks that connect them, typically by moving the cursor over a link and depressing the mouse
button.” FN24

FN24. Id.

4. Portable Storage Media

Digital files may be stored on several different kinds of storage media, some of which are readily
transportable. Perhaps the most familiar of these are so called floppy disks or “floppies,” which now are
3 1/2 inch magnetic disks upon which digital files may be recorded.FN25 For present purposes, however,
we are concerned principally with two more recent developments, CD–ROMs and digital versatile disks,
or DVDs.

FN25. Not too many years ago, the most common transportable storage media were 5 1/4 inch flexible
magnetic disks. Their flexibility led to their being referred to as “floppies.” They have been replaced
almost entirely with today's 3 1/2 inch disks, which are enclosed in hard plastic housings and which
therefore are not flexible or “floppy.” The earlier name, however, has stuck.

A CD–ROM is a five-inch wide optical disk capable of storing approximately 650 MB of data. To read the
data on a CD–ROM, a computer must have a CD–ROM drive.

DVDs are five-inch wide disks capable of storing more than 4.7 GB of data. In the application relevant
here, they are used to hold full-length motion pictures in digital form. They are the latest technology for
private home viewing of recorded motion pictures and result in drastically improved audio and visual
clarity and quality of motion pictures shown on televisions or computer screens.FN26

FN26. Tr. (King) at 403–04.

*308 5. The Technology Here at Issue

CSS, or Content Scramble System, is an access control and copy prevention system for DVDs developed
by the motion picture companies, including plaintiffs.FN27 It is an encryption-based system that
requires the use of appropriately configured hardware such as a DVD player or a computer DVD drive to
decrypt, unscramble and play back, but not copy, motion pictures on DVDs.FN28 The technology
necessary to configure DVD players and drives to play CSS-protected DVDs FN29 has been licensed to
hundreds of manufacturers in the United States and around the world.

FN27. Tr. (Shamos) at 24.

FN28. Id. at 24–25.

FN29. Such devices are referred to subsequently as compliant.

DeCSS is a software utility, or computer program, that enables users to break the CSS copy protection
system and hence to view DVDs on unlicensed players and make digital copies of DVD movies.FN30 The
quality of motion pictures decrypted by DeCSS is virtually identical to that of encrypted movies on DVD.
FN31

FN30. Tr. (Shamos) at 25.

FN31. Tr. (Schumann) at 273.

DivX is a compression program available for download over the Internet. FN32 It compresses video files
in order to minimize required storage space, often to facilitate transfer over The Internet or other
networks. FN33

FN32. Tr. (Ramadge) at 911.

FN33. Id. at 911–12.

B. Parties

Plaintiffs are eight major motion picture studios. Each is in the business of producing and distributing
copyrighted material including motion pictures. Each distributes, either directly or through affiliates,
copyrighted motion pictures on DVDs.FN34 Plaintiffs produce and distribute a large majority of the
motion pictures on DVDs on the market today.FN35

FN34. Ex. 2.1–2.34; 3.1–3.34.


FN35. Tr. (King) at 404.

Defendant Eric Corley is viewed as a leader of the computer hacker community and goes by the name
Emmanuel Goldstein, after the leader of the underground in George Orwell's classic, 1984.FN36 He and
his company, defendant 2600 Enterprises, Inc., together publish a magazine called 2600: The Hacker
Quarterly, which Corley founded in 1984,FN37 and which is something of a bible to the hacker
community.FN38 The name “2600” was derived from the fact that hackers in the 1960's found that the
transmission of a 2600 hertz tone over a long distance trunk connection gained access to “operator
mode” and allowed the user to explore aspects of the telephone system that were not otherwise
accessible.FN39 Mr. Corley chose the name because he regarded it as a “mystical thing,” FN40
commemorating something that he evidently admired. Not surprisingly, 2600: The Hacker Quarterly has
included articles on such topics as how to steal an Internet domain name,FN41 access other people's e-
mail,FN42 intercept cellular phone calls,FN43 and break into the computer systems*309 at Costco
stores FN44 and Federal Express.FN45 One issue contains a guide to the federal criminal justice system
for readers charged with computer hacking.FN46 In addition, defendants operate a web site located at
<http://www.2600.com> (“2600.com”), which is managed primarily by Mr. Corley and has been in
existence since 1995. FN47

FN36. Tr. (Corley) at 787, 827.

FN37. Tr. (Corley) at 777, 790, 795; Ex. 1.1, 1.2, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.11, 1.12, 1.13, 1.14, 1.15,
1.16; 79 (Corley Dec.) ¶ 1.

FN38. See Tr. (Corley) at 781.

FN39. Tr. (Corley) 786–87.

FN40. Id. at 787.

FN41. Ex. 1.2 (Redomega Crim, How Domains Are Stolen, 2600: the Hacker Quarterly, Summer 2000, at
43).

FN42. Ex. 1.16 (Schlork, Snooping via MS–Mail, 2600: the Hacker Quarterly, Winter 1996–97, at 28).

FN43. Ex. 1.14 (Thomas Icom, Cellular Interception Techniques, 2600: the Hacker Quarterly, Spring 1995,
at 23).
FN44. Ex. 1.12 (nux, Fun at Costco, 2600: the Hacker Quarterly, Summer 1999, at 12).

FN45. Ex. 1.19 (PhranSys Drak3, Hacking FedEx, 2600: the Hacker Quarterly, Autumn 1997, at 14).

FN46. Ex. 1.19 (Agent Steal, Busted! A Complete Guide to Getting Caught, 2600: the Hacker Quarterly,
Autumn 1997, at 6).

FN47. Tr. (Corley) at 790; Ex. 52–54, 64, 79 (Corley Dec.) ¶ 20; 97.

Interestingly, defendants' copyright both their magazine and the material on their web site to prevent
others from copying their works. Tr. (Corley) at 832; Ex. 96 (Corley Dep.) at 23–24.

Prior to January 2000, when this action was commenced, defendants posted the source and object code
for DeCSS on the 2600.com web site, from which they could be downloaded easily.FN48 At that time,
2600.com contained also a list of links to other web sites purporting to post DeCSS.FN49

FN48. Tr. (Corley) at 791; Ex. 28.

FN49. Tr. (Corley) at 791, 829, 848; Ex. 28.

C. The Development of DVD and CSS

The major motion picture studios typically distribute films in a sequence of so-called windows, each
window referring to a separate channel of distribution and thus to a separate source of revenue. The
first window generally is theatrical release, distribution, and exhibition. Subsequently, films are
distributed to airlines and hotels, then to the home market, then to pay television, cable and,
eventually, free television broadcast. The home market is important to plaintiffs, as it represents a
significant source of revenue. FN50

FN50. Tr. (King) at 402.

Motion pictures first were, and still are, distributed to the home market in the form of video cassette
tapes. In the early 1990's, however, the major movie studios began to explore distribution to the home
market in digital format, which offered substantially higher audio and visual quality and greater
longevity than video cassette tapes.FN51 This technology, which in 1995 became what is known today
as DVD,FN52 brought with it a new problem—increased risk of piracy by virtue of the fact that digital
files, unlike the material on video cassettes, can be copied without degradation from generation to
generation.FN53 In consequence, the movie studios became concerned as the product neared market
with the threat of DVD piracy.FN54

FN51. Id. at 404, 468.

FN52. Id. at 408, 468, 470.

FN53. Id. at 404–05.

FN54. Id. at 404–05, 468–70.

Discussions among the studios with the goal of organizing a unified response to the piracy threat began
in earnest in late 1995 or early 1996. FN55 They eventually came to include representatives of the
consumer electronics and computer industries, as well as interested members of the public,FN56 and
focused on both legislative proposals and technological solutions.FN57 In 1996, Matsushita Electric
Industrial Co. (“MEI”) and Toshiba Corp., presented—and the studios adopted—CSS.FN58

FN55. Id. at 406.

FN56. Id. at 405–06, 471, 476–78.

FN57. Id. at 405, 470–71, 479.

FN58. Id. at 406–07, 502–04.

CSS involves encrypting, according to an encryption algorithm,FN59 the digital *310 sound and graphics
files on a DVD that together constitute a motion picture. A CSS-protected DVD can be decrypted by an
appropriate decryption algorithm that employs a series of keys stored on the DVD and the DVD player.
In consequence, only players and drives containing the appropriate keys are able to decrypt DVD files
and thereby play movies stored on DVDs.

FN59. An algorithm is a recipe that contains instructions for completing a task. It can be expressed in any
language, from natural spoken language to computer programming language. Ex. AZO (Abelson Dep.) at
9–10.
As the motion picture companies did not themselves develop CSS and, in any case, are not in the
business of making DVD players and drives, the technology for making compliant devices, i.e., devices
with CSS keys, had to be licensed to consumer electronics manufacturers.FN60 In order to ensure that
the decryption technology did not become generally available and that compliant devices could not be
used to copy as well as merely to play CSS-protected movies, the technology is licensed subject to strict
security requirements. FN61 Moreover, manufacturers may not, consistent with their licenses, make
equipment that would supply digital output that could be used in copying protected DVDs.FN62 Licenses
to manufacture compliant devices are granted on a royalty-free basis subject only to an administrative
fee.FN63 At the time of trial, licenses had been issued to numerous hardware and software
manufacturers, including two companies that plan to release DVD players for computers running the
Linux operating system.FN64

FN60. The licensing function initially was performed by MEI and Toshiba. Subsequently, MEI and Toshiba
granted a royalty free license to the DVD Copy Control Association (“DVD CCA”), which now handles the
licensing function. Tr. (King) at 485–86, 510; Ex. XXY (Attaway Dep.) at 31. The motion picture companies
themselves license CSS from the DVD CCA. Ex. XYY (Attaway Dep.) at 31–32.

FN61. See, e.g., Ex. AHV §§ 5, 6.2.

FN62. Tr. (King) at 450–51, 492–93; Ex. XXY (Attaway Dep.) at 61–62; Ex. AHV.

FN63. The administrative fee is one million yen, now about $9,200, for each “membership category”
selected by the licensee. Twelve membership categories are available, and one or more are selected by
a licensee depending on the use which the licensee intends to make of the licensed technology. The
membership categories are: content provider, authoring studio, DVD disc replicator, DVD player
manufacturer, DVD–ROM drive manufacturer, DVD decoder manufacturer, descramble module
manufacturer, authentication chip manufacturer for DVD–ROM drive, authenticator manufacturer for
DVD decoder, integrated product manufacturer, and reseller. Ex. AJB, AIZ, AOV, AOU, AOQ.

FN64. Tr. (King) at 437–38; see also Tr. (Pavolvich) at 961; Ex. BD.

With CSS in place, the studios introduced DVDs on the consumer market in early 1997.FN65 All or most
of the motion pictures released on DVD were, and continue to be, encrypted with CSS technology.FN66
Over 4,000 motion pictures now have been released in DVD format in the United States, and movies are
being issued on DVD at the rate of over 40 new titles per month in addition to re-releases of classic
films. Currently, more than five million households in the United States own DVD players,FN67 and
players are projected to be in ten percent of United States homes by the end of 2000.FN68
FN65. Tr. (King) at 408–09.

FN66. Id. at 409.

FN67. Id. at 417–18.

FN68. Id. at 442.

DVDs have proven not only popular, but lucrative for the studios. Revenue from their sale and rental
currently accounts for a substantial percentage of the movie studios' revenue from the home video
market.FN69 Revenue from the home market, in *311 turn, makes up a large percentage of the studios'
total distribution revenue.FN70

FN69. Revenue from the distribution of DVDs makes up approximately 35 percent of Warner Brothers'
total worldwide revenue from movie distribution in the home video market. Id. at 403.

FN70. Distribution in the home video market accounts for approximately 40 percent of Warner Brothers'
total income from movie distribution. Id.

D. The Appearance of DeCSS

In late September 1999, Jon Johansen, a Norwegian subject then fifteen years of age, and two
individuals he “met” under pseudonyms over the Internet, reverse engineered a licensed DVD player
and discovered the CSS encryption algorithm and keys.FN71 They used this information to create DeCSS,
a program capable of decrypting or “ripping” encrypted DVDs, thereby allowing playback on non-
compliant computers as well as the copying of decrypted files to computer hard drives.FN72 Mr.
Johansen then posted the executable code on his personal Internet web site and informed members of
an Internet mailing list that he had done so.FN73 Neither Mr. Johansen nor his collaborators obtained a
license from the DVD CCA.FN74

FN71. Tr. (Johansen) at 619–22, 633, 639.

FN72. Id. at 619–21, 634; (Schumann) at 246–48. Mr. Johansen testified that the “De” in DeCSS stands
for “decrypt.” Tr. (Johansen) at 628.

FN73. Tr. (Johansen) at 622–23, 638; Ex. 9 at SCH–000846. Mr. Johansen did not post the source code on
his Web site. Tr. (Johansen) at 635.
FN74. Tr. (Johansen) at 620.

Although Mr. Johansen testified at trial that he created DeCSS in order to make a DVD player that would
operate on a computer running the Linux operating system,FN75 DeCSS is a Windows executable file;
that is, it can be executed only on computers running the Windows operating system. FN76 Mr.
Johansen explained the fact that he created a Windows rather than a Linux program by asserting that
Linux, at the time he created DeCSS, did not support the file system used on DVDs.FN77 Hence, it was
necessary, he said, to decrypt the DVD on a Windows computer in order subsequently to play the
decrypted files on a Linux machine.FN78 Assuming that to be true, FN79 however, the fact remains that
Mr. Johansen created DeCSS in the full knowledge that it could be used on computers running Windows
rather than Linux. Moreover, he was well aware that the files, once decrypted, could be copied like any
other computer files.

FN75. Id. at 620.

FN76. Id. at 621–22.

FN77. Id. at 621–22, 624; (Stevenson) at 214.

FN78. Tr. (Johansen) at 623.

FN79. Substantial questions have been raised both at trial and elsewhere as to the veracity of Mr.
Johansen's claim. See Ex. CS, at S10006 (“Our analysis indicates that the primary technical
breakthroughs were developed outside of the Linux development groups.”).

In January 1999, Norwegian prosecutors filed charges against Mr. Johansen stemming from the
development of DeCSS.FN80 The disposition of the Norwegian case does not appear of record.

FN80. Tr. (Johansen) at 626–27.

E. The Distribution of DeCSS

In the months following its initial appearance on Mr. Johansen's web site, DeCSS has become widely
available on the Internet, where hundreds of sites now purport to offer the software for download.FN81
A few other applications said to decrypt CSS-encrypted DVDs also have appeared on the Internet. FN82

FN81. Ex. 97, 107, 126.


FN82. Tr. (Stevenson) at 217–18, 226–29; (Schumann) at 290, 338–41; (Johansen) at 641; (Reider) at
681–85. One, DOD (Drink or Die) Speed Ripper, does not work with all DVDs that DeCSS will decrypt. Id.;
Ex.CS, at S10011; Ex. 9. Some of these programs perform only a portion of what DeCSS does and must
be used in conjunction with others in order to decrypt the contents of a DVD. Tr. (Schuman) at 290, 338–
39. Some of defendants' claims about these other means proved baseless at trial. See Tr. (Pavlovich) at
965–68.

*312 In November 1999, defendants' web site began to offer DeCSS for download.FN83 It established
also a list of links to several web sites that purportedly “mirrored” or offered DeCSS for download.FN84
The links on defendants' mirror list fall into one of three categories. By clicking the mouse on one of
these links, the user may be brought to a page on the linked-to site on which there appears a further link
to the DeCSS software.FN85 If the user then clicks on the DeCSS link, download of the software begins.
This page may or may not contain content other than the DeCSS link.FN86 Alternatively, the user may be
brought to a page on the linked-to site that does not itself purport to link to DeCSS, but that links, either
directly or via a series of other pages on the site, to another page on the site on which there appears a
link to the DeCSS software.FN87 Finally, the user may be brought directly to the DeCSS link on the
linked-to site such that download of DeCSS begins immediately without further user intervention.FN88

FN83. Tr. (Corley) at 791; Ex. 28.

FN84. Tr. (Corley) at 791, 829, 848; Ex. 28.

FN85. Tr. (Corley) at 829–30, 845.

FN86. Id. at 831, 845.

FN87. Id. at 829–30, 845.

FN88. Id. at 830; (Shamos) at 38. As Mr. Corley testified, the download process generally begins with the
appearance of a dialog box, or small window, prompting the user to confirm the location on the user's
computer hard drive where the downloaded software will be stored. The actual download does not
begin until the user provides the computer with this information. Tr. (Corley) at 830. It is possible also to
create a link that commences the download immediately upon being clicked. See Tr. (Touretzky) at
1082–83.

F. The Preliminary Injunction and Defendants' Response

The movie studios, through the Internet investigations division of the Motion Picture Association of
America (“MPAA”), became aware of the availability of DeCSS on the Internet in October 1999.FN89 The
industry responded by sending out a number of cease and desist letters to web site operators who
posted the software, some of which removed it from their sites.FN90 In January 2000, the studios filed
this lawsuit against defendant Eric Corley and two others.FN91

FN89. Tr. (Reider) at 652.

FN90. Tr. (King) at 435, 548; (Reider) at 653; Ex. 55.

FN91. The other two defendants entered into consent decrees with plaintiffs. Plaintiffs subsequently
amended the complaint to add 2600 Enterprises, Inc. as a defendant.

After a hearing at which defendants presented no affidavits or evidentiary material, the Court granted
plaintiffs' motion for a preliminary injunction barring defendants from posting DeCSS.FN92 At the
conclusion of the hearing, plaintiffs sought also to enjoin defendants from linking to other sites that
posted DeCSS, but the Court declined to entertain the application at that time in view of plaintiffs'
failure to raise the issue in their motion papers.FN93

FN92. Preliminary Injunction, Jan. 20, 2000 (DI 6); Universal City Studios, Inc., 82 F.Supp.2d 211.

FN93. Tr., Jan. 20, 2000 (DI 17) at 85.

Following the issuance of the preliminary injunction, defendants removed DeCSS from the 2600.com
web site.FN94 In what they termed an act of “electronic civil disobedience,” FN95 however, they
continued to support links to other web sites purporting to offer DeCSS for download, a list which had
grown to nearly five hundred by July 2000.FN96 Indeed, they carried a banner *313 saying “Stop the
MPAA” and, in a reference to this lawsuit, proclaimed:

FN94. Tr. (Corley) at 791; Ex. 51.

FN95. Tr. (Corley) at 834; Ex. 96 (Corley Dep.) at 151–53.

FN96. Tr. (Corley) at. 791; Ex. 79 (Corley Dec.) ¶ 21; 126.

“We have to face the possibility that we could be forced into submission. For that reason it's especially
important that as many of you as possible, all throughout the world, take a stand and mirror these files.”
FN97
FN97. Ex. 106.

Thus, defendants obviously hoped to frustrate plaintiffs' recourse to the judicial system by making
effective relief difficult or impossible.

At least some of the links currently on defendants' mirror list lead the user to copies of DeCSS that,
when downloaded and executed, successfully decrypt a motion picture on a CSS-encrypted DVD.FN98

FN98. Tr. (Shamos) at 36–42; (Schumann) at 272–73; 265–66 (defendants' stipulation that their web site
links to other sites containing executable copies of DeCSS).

G. Effects on Plaintiffs

The effect on plaintiffs of defendants' posting of DeCSS depends upon the ease with which DeCSS
decrypts plaintiffs' copyrighted motion pictures, the quality of the resulting product, and the
convenience with which decrypted copies may be transferred or transmitted.

As noted, DeCSS was available for download from defendants' web site and remains available from web
sites on defendants' mirror list.FN99 Downloading is simple and quick—plaintiffs' expert did it in
seconds. FN100 The program in fact decrypts at least some DVDs.FN101 Although the process is
computationally intensive, plaintiffs' expert decrypted a store-bought copy of Sleepless in Seattle in 20
to 45 minutes.FN102 The copy is stored on the hard drive of the computer. The quality of the decrypted
film is virtually identical to that of encrypted films on DVD. FN103 The decrypted file can be copied like
any other.FN104

FN99. Tr. (Shamos) at 36–42; (Schumann) at 272–73.

FN100. Tr. (Shamos) at 39–40; see also Ex. AYZ (Hunt Dep.) at 18.

FN101. Tr. (Shamos) at 41–42; (Schumann) at 272–73.

FN102. Tr. (Shamos) at 41–42, 156.

FN103. Tr. (Schumann) at 273; Ex. AYZ (Hunt Dep.) at 26.

FN104. Tr. (Johansen) at 628; see also Ex. AZN (Simons Dep.) at 48.
The decryption of a CSS-protected DVD is only the beginning of the tale, as the decrypted file is very
large—approximately 4.3 to 6 GB or more depending on the length of the film FN105—and thus
extremely cumbersome to transfer or to store on portable storage media. One solution to this problem,
however, is DivX, a compression utility available on the Internet that is promoted as a means of
compressing decrypted motion picture files to manageable size.FN106

FN105. Tr. (Shamos) at 42; (Ramadge) at 900.

FN106. See Tr. (Shamos) at 54–56; Ex. 112–13.

DivX is capable of compressing decrypted files constituting a feature length motion picture to
approximately 650 MB at a compression ratio that involves little loss of quality.FN107 While the
compressed sound and graphic files then must be synchronized, a tedious process that took plaintiffs'
expert between 10 and 20 hours,FN108 the task is entirely feasible. Indeed, having compared a store-
bought DVD with portions of a copy compressed and synchronized with DivX (which often are referred
to as “DivX'd” motion pictures), the Court finds that the loss of quality, at least *314 in some cases, is
imperceptible or so nearly imperceptible as to be of no importance to ordinary consumers.FN109

FN107. DivX effects what is known as “lossy” compression—it achieves its reduction in file size by
eliminating some of the data in the file being compressed. The trick, however, is that it seeks to do so by
eliminating data that is imperceptible, or nearly so, to the human observer. Tr. (Shamos) at 43–44;
(Ramadge) at 882–98.

FN108. Tr. (Shamos) at 51.

FN109. Defendants produced an expert whose DivX of a DeCSS decrypted file was of noticeably lower
quality than that of plaintiffs' expert's DivX'd film. The reasons for the difference are not clear. The Court
is satisfied, however, that it is possible to make high quality 650 MB DivX'd copies of many films.

The fact that DeCSS-decrypted DVDs can be compressed satisfactorily to 650 MB is very important. A
writeable CD–ROM can hold 650 MB.FN110 Hence, it is entirely feasible to decrypt a DVD with DeCSS,
compress and synchronize it with DivX, and then make as many copies as one wishes by burning the
resulting files onto writeable CD–ROMs, which are sold blank for about one dollar apiece.FN111 Indeed,
even if one wished to use a lower compression ratio to improve quality, a film easily could be
compressed to about 1.3 GB and burned onto two CD–ROMs. But the creation of pirated copies of
copyrighted movies on writeable CD–ROMs, although significant, is not the principal focus of plaintiffs'
concern, which is transmission of pirated copies over the Internet or other networks.
FN110. Tr. (Ramadge) at 930.

FN111. Tr. (Shamos) at 56–57.

The copies do not require resynchronization of the sound and graphics.

Network transmission of decrypted motion pictures raises somewhat more difficult issues because even
650 MB is a very large file that, depending upon the circumstances, may take a good deal of time to
transmit. But there is tremendous variation in transmission times. Many home computers today have
modems with a rated capacity of 56 kilobits per second. DSL lines, which increasingly are available to
home and business users, offer transfer rates of 7 megabits per second.FN112 Cable modems also offer
increased bandwidth. Student rooms in many universities are equipped with network connections rated
at 10 megabits per second.FN113 Large institutions such as universities and major companies often have
networks with backbones rated at 100 megabits per second.FN114 While effective transmission times
generally are much lower than rated maximum capacities in consequence of traffic volume and other
considerations, there are many environments in which very high transmission rates may be
achieved.FN115 Hence, transmission times ranging from three FN116 totwenty minutes FN117 to six
hours FN118 or more for a feature length film are readily achievable, depending upon the users' precise
circumstances.FN119

FN112. Tr. (Shamos) at 95.

FN113. Tr. (Shamos) at 89–90, 98; (Peterson) at 865; (Pavlovich) at 943.

FN114. Tr. (Shamos) at 90; (Felten) at 772; (Peterson) at 879.

FN115. See, e.g., Tr. (Peterson) at 861, 875–76.

FN116. Id. (Shamos) at 87–88.

FN117. Id.

FN118. Id. at 77.

FN119. It should be noted here that the transmission time achieved by plaintiff's expert, Dr. Shamos,
almost certainly was somewhat skewed because the work was done late at night on a university system
after the close of the regular school year, conditions favorable to high effective transmission rates due
to low traffic on the system.

At trial, defendants repeated, as if it were a mantra, the refrain that plaintiffs, as they stipulated,FN120
have no direct evidence of a specific occasion on which any person decrypted a copyrighted motion
picture with DeCSS and transmitted it over the Internet. But that is unpersuasive. Plaintiffs' expert
expended very little effort to find someone in an IRC chat room who exchanged a compressed,
decrypted copy of The Matrix, one of plaintiffs' copyrighted motion pictures, for a *315 copy of
Sleepless in Seattle.FN121 While the simultaneous electronic exchange of the two movies took
approximately six hours,FN122 the computers required little operator attention during the interim. An
MPAA investigator downloaded between five and ten DVD-sourced movies over the Internet after
December 1999. FN123 At least one web site contains a list of 650 motion pictures, said to have been
decrypted and compressed with DivX, that purportedly are available for sale, trade or free
download.FN124 And although the Court does not accept the list, which is hearsay, as proof of the truth
of the matters asserted therein, it does note that advertisements for decrypted versions of copyrighted
movies first appeared on the Internet in substantial numbers in late 1999, following the posting of
DeCSS.FN125

FN120. Tr. (Schumann) at 334–36.

FN121. Tr. (Shamos) at 68–76.

FN122. Id. at 76–77.

FN123. Ex. AYY (Reider Dep.) at 98–101; see also id. at 121–23.

FN124. Ex. 116B.

FN125. Tr. (Reider) at 661.

The net of all this is reasonably plain. DeCSS is a free, effective and fast means of decrypting plaintiffs'
DVDs and copying them to computer hard drives. DivX, which is available over the Internet for nothing,
with the investment of some time and effort, permits compression of the decrypted files to sizes that
readily fit on a writeable CD–ROM. Copies of such CD–ROMs can be produced very cheaply and
distributed as easily as other pirated intellectual property. While not everyone with Internet access now
will find it convenient to send or receive DivX'd copies of pirated motion pictures over the Internet, the
availability of high speed network connections in many businesses and institutions, and their growing
availability in homes, make Internet and other network traffic in pirated copies a growing threat.
These circumstances have two major implications for plaintiffs. First, the availability of DeCSS on the
Internet effectively has compromised plaintiffs' system of copyright protection for DVDs, requiring them
either to tolerate increased piracy or to expend resources to develop and implement a replacement
system unless the availability of DeCSS is terminated.FN126 It is analogous to the publication of a bank
vault combination in a national newspaper. Even if no one uses the combination to open the vault, its
mere publication has the effect of defeating the bank's security system, forcing the bank to reprogram
the lock. Development and implementation of a new DVD copy protection system, however, is far more
difficult and costly than reprogramming a combination lock and may carry with it the added problem of
rendering the existing installed base of compliant DVD players obsolete.

FN126. Tr. (King) at 418.

Second, the application of DeCSS to copy and distribute motion pictures on DVD, both on CD–ROMs and
via the Internet, threatens to reduce the studios' revenue from the sale and rental of DVDs. It threatens
also to impede new, potentially lucrative initiatives for the distribution of motion pictures in digital
form, such as video-on-demand via the Internet.FN127

FN127. Id. at 420.

In consequence, plaintiffs already have been gravely injured. As the pressure for and competition to
supply more and more users with faster and faster network connections grows, the injury will multiply.

II. The Digital Millennium Copyright Act

A. Background and Structure of the Statute

In December 1996, the World Intellectual Property Organization (“WIPO”), held a diplomatic conference
in Geneva that led to the adoption of two treaties. Article 11 of the relevant treaty, the WIPO
Copyright*316 Treaty, provides in relevant part that contracting states “shall provide adequate legal
protection and effective legal remedies against the circumvention of effective technological measures
that are used by authors in connection with the exercise of their rights under this Treaty or the Berne
Convention and that restrict acts, in respect of their works, which are not authorized by the authors
concerned or permitted by law.” FN128

FN128. WIPO Copyright Treaty, Apr. 12, 1997, Art. 11, S. Treaty Doc. No. 105–17 (1997), available at
1997 WL 447232.

The adoption of the WIPO Copyright Treaty spurred continued Congressional attention to the
adaptation of the law of copyright to the digital age. Lengthy hearings involving a broad range of
interested parties both preceded and succeeded the Copyright Treaty. As noted above, a critical focus of
Congressional consideration of the legislation was the conflict between those who opposed anti-
circumvention measures as inappropriate extensions of copyright and impediments to fair use and those
who supported them as essential to proper protection of copyrighted materials in the digital age.FN129
The DMCA was enacted in October 1998 as the culmination of this process.FN130

FN129. There is an excellent account of the legislative history of the statute. Nimmer, A Riff on Fair Use,
148 u.Pa.L.Rev. at 702–38.

FN130. See generally s.Rep. No. 105–190, 105th Cong., 2d Sess. (“senate Rep.”), at 2–8 (1998).

The DMCA contains two principal anticircumvention provisions. The first, Section 1201(a)(1), governs
“[t]he act of circumventing a technological protection measure put in place by a copyright owner to
control access to a copyrighted work,” an act described by Congress as “the electronic equivalent of
breaking into a locked room in order to obtain a copy of a book.” FN131 The second, Section 1201(a)(2),
which is the focus of this case, “supplements the prohibition against the act of circumvention in
paragraph (a)(1) with prohibitions on creating and making available certain technologies ... developed or
advertised to defeat technological protections against unauthorized access to a work.” FN132 As
defendants are accused here only of posting and linking to other sites posting DeCSS, and not of using it
themselves to bypass plaintiffs' access controls, it is principally the second of the anticircumvention
provisions that is at issue in this case. FN133

FN131. h.R.Rep. No. 105–551(I), 105th Cong., 2d Sess. (“judiciary Comm.Rep. ”), at 17 (1998).

FN132. Id. at 18.

FN133. Plaintiffs rely also on Section 1201(b), which is very similar to Section 1201(a)(2) except that the
former applies to trafficking in means of circumventing protection offered by a technological measure
that effectively protects “a right of a copyright owner in a work or a portion thereof” whereas the latter
applies to trafficking in means of circumventing measures controlling access to a work. See generally 1
melville B. Nimmer & David Nimmer, Nimmer on Copyright (“Nimmer”) § 12A.03 [C] (1999). In addition,
as noted below, certain of the statutory exceptions upon which defendants have relied apply only to
Section 1201(a)(2).

B. Posting of DeCSS

1. Violation of Anti–Trafficking Provision

Section 1201(a)(2) of the Copyright Act, part of the DMCA, provides that:
“No person shall ... offer to the public, provide or otherwise traffic in any technology ... that—

“(A) is primarily designed or produced for the purpose of circumventing a technological measure that
effectively controls access to a work protected under [the Copyright Act];

“(B) has only limited commercially significant purpose or use other than to circumvent a technological
measure that effectively controls access to a work protected under [the Copyright Act]; or

*317 “(C) is marketed by that person or another acting in concert with that person with that person's
knowledge for use in circumventing a technological measure that effectively controls access to a work
protected under [the Copyright Act].” FN134

FN134. 17 U.S.C. § 1201(a)(2). See also 1 nimmer § 12A.03[1] [ a ], at 12A–16.

[1] [2] In this case, defendants concededly offered and provided and, absent a court order, would
continue to offer and provide DeCSS to the public by making it available for download on the 2600.com
web site. DeCSS, a computer program, unquestionably is “technology” within the meaning of the
statute.FN135 “[C]ircumvent a technological measure” is defined to mean descrambling a scrambled
work, decrypting an encrypted work, or “otherwise to avoid, bypass, remove, deactivate, or impair a
technological measure, without the authority of the copyright owner,” FN136 so DeCSS clearly is a
means of circumventing a technological access control measure.FN137 In consequence, if CSS otherwise
falls within paragraphs (A), (B) or (C) of Section 1201(a)(2), and if none of the statutory exceptions
applies to their actions, defendants have violated and, unless enjoined, will continue to violate the
DMCA by posting DeCSS.

FN135. In their Post–Trial Brief, defendants argue that “at least some of the members of Congress”
understood § 1201 to be limited to conventional devices, specifically ‘black boxes,’ as opposed to
computer code. Def. Post–Trial Mem. at 21. However, the statute is clear that it prohibits “ any
technology,” not simply black boxes. 17 U.S.C. § 1201(a)(2) (emphasis added).

FN136. 17 U.S.C. § 1201(a)(3)(A).

FN137. Decryption or avoidance of an access control measure is not “circumvention” within the
meaning of the statute unless it occurs “without the authority of the copyright owner.” 17 U.S.C. §
1201(a)(3)(A). Defendants posit that purchasers of a DVD acquire the right “to perform all acts with it
that are not exclusively granted to the copyright holder.” Based on this premise, they argue that DeCSS
does not circumvent CSS within the meaning of the statute because the Copyright Act does not grant the
copyright holder the right to prohibit purchasers from decrypting. As the copyright holder has no
statutory right to prohibit decryption, the argument goes, decryption cannot be understood as unlawful
circumvention. Def. Post–Trial Mem. 10–13. The argument is pure sophistry. The DMCA proscribes
trafficking in technology that decrypts or avoids an access control measure without the copyright holder
consenting to the decryption or avoidance. See judiciary Comm.Rep. at 17–18 (fair use applies “where
the access is authorized”). Defendants' argument seems to be a corruption of the first sale doctrine,
which holds that the copyright holder, notwithstanding the exclusive distribution right conferred by
Section 106(3) of the Copyright Act, 17 U.S.C. § 106(3), is deemed by its “first sale” of a copy of the
copyrighted work to have consented to subsequent sale of the copy. See generally 2 nimmer §§ 8.11–
8.12.

a. Section 1201(a)(2)(A)

(1) CSS Effectively Controls Access to Copyrighted Works

[3] During pretrial proceedings and at trial, defendants attacked plaintiffs' Section 1201(a)(2)(A)
claim, arguing that CSS, which is based on a 40–bit encryption key, is a weak cipher that does not
“effectively control” access to plaintiffs' copyrighted works. They reasoned from this premise that CSS is
not protected under this branch of the statute at all. Their post-trial memorandum appears to have
abandoned this argument. In any case, however, the contention is indefensible as a matter of law.

First, the statute expressly provides that “a technological measure ‘effectively controls access to a work’
if the measure, in the ordinary course of its operation, requires the application of information or a
process or a treatment, with the authority of the copyright owner, to gain access to a work.” FN138 One
cannot gain access to a CSS-protected work on a DVD without application of the three keys that are
required by the software. One cannot lawfully gain access to the keys except by entering into a license
with the DVD CCA *318 under authority granted by the copyright owners or by purchasing a DVD player
or drive containing the keys pursuant to such a license. In consequence, under the express terms of the
statute, CSS “effectively controls access” to copyrighted DVD movies. It does so, within the meaning of
the statute, whether or not it is a strong means of protection. FN139

FN138. Id. § 1201(a)(3)(B).

FN139. RealNetworks, Inc. v. Streambox, Inc., No. 2:99CV02070, 2000 WL 127311, *9 (W.D.Wash.
Jan.18, 2000).

This view is confirmed by the legislative history, which deals with precisely this point. The House
Judiciary Committee section-by-section analysis of the House bill, which in this respect was enacted into
law, makes clear that a technological measure “effectively controls access” to a copyrighted work if its
function is to control access:
“The bill does define the functions of the technological measures that are covered—that is, what it
means for a technological measure to ‘effectively control access to a work’ ... and to ‘effectively protect
a right of a copyright owner under this title’ .... The practical, common-sense approach taken by
H.R.2281 is that if, in the ordinary course of its operation, a technology actually works in the defined
ways to control access to a work ... then the ‘effectiveness' test is met, and the prohibitions of the
statute are applicable. This test, which focuses on the function performed by the technology, provides a
sufficient basis for clear interpretation.” FN140

FN140. house Comm. on Judiciary, Section–by–Section Analysis of H.R.2281 as Passed by the United
States House of Representatives on August 4, 1998 (“Section–by–Section Analysis”), at 10 (Comm.Print
1998) (emphasis in original).

Further, the House Commerce Committee made clear that measures based on encryption or scrambling
“effectively control” access to copyrighted works, FN141 although it is well known that what may be
encrypted or scrambled often may be decrypted or unscrambled. As CSS, in the ordinary course of its
operation—that is, when DeCSS or some other decryption program is not employed—“actually works”
to prevent access to the protected work, it “effectively controls access” within the contemplation of the
statute.

FN141. h.R.Rep. No. 105–551(II), 105th Cong., 2d Sess. (“commerce Comm.Rep. ”), at 39 (1998).

Finally, the interpretation of the phrase “effectively controls access” offered by defendants at trial—viz.,
that the use of the word “effectively” means that the statute protects only successful or efficacious
technological means of controlling access—would gut the statute if it were adopted. If a technological
means of access control is circumvented, it is, in common parlance, ineffective. Yet defendants'
construction, if adopted, would limit the application of the statute to access control measures that
thwart circumvention, but withhold protection for those measures that can be circumvented. In other
words, defendants would have the Court construe the statute to offer protection where none is needed
but to withhold protection precisely where protection is essential. The Court declines to do so.
Accordingly, the Court holds that CSS effectively controls access to plaintiffs' copyrighted works.FN142

FN142. Defendants, in a reprise of their argument that DeCSS is not a circumvention device, argue also
that CSS does not effectively control access to copyrighted works within the meaning of the statute
because plaintiffs authorize avoidance of CSS by selling their DVDs. Def. Post–Trial Mem. 10–13. The
argument is specious in this context as well. See supra note 137.

(2) DeCSS Was Designed Primarily to Circumvent CSS

As CSS effectively controls access to plaintiffs' copyrighted works, the only remaining question under
Section 1201(a)(2)(A) is whether DeCSS was designed primarily to circumvent CSS. The *319 answer is
perfectly obvious. By the admission of both Jon Johansen, the programmer who principally wrote DeCSS,
and defendant Corley, DeCSS was created solely for the purpose of decrypting CSS—that is all it
does.FN143 Hence, absent satisfaction of a statutory exception, defendants clearly violated Section
1201(a)(2)(A) by posting DeCSS to their web site.

FN143. Tr. (Johansen) at 619; (Corley) 833–34.

b. Section 1201(a)(2)(B)

As the only purpose or use of DeCSS is to circumvent CSS, the foregoing is sufficient to establish a prima
facie violation of Section 1201(a)(2)(B) as well.

c. The Linux Argument

[4] Perhaps the centerpiece of defendants' statutory position is the contention that DeCSS was not
created for the purpose of pirating copyrighted motion pictures. Rather, they argue, it was written to
further the development of a DVD player that would run under the Linux operating system, as there
allegedly were no Linux compatible players on the market at the time. FN144 The argument plays itself
out in various ways as different elements of the DMCA come into focus. But it perhaps is useful to
address the point at its most general level in order to place the preceding discussion in its fullest
context.

FN144. Def. Post–Trial Mem. at 2.

As noted, Section 1201(a) of the DMCA contains two distinct prohibitions. Section 1201(a)(1), the so-
called basic provision, “aims against those who engage in unauthorized circumvention of technological
measures.... [It] focuses directly on wrongful conduct, rather than on those who facilitate wrongful
conduct....” FN145 Section 1201(a)(2), the anti-trafficking provision at issue in this case, on the other
hand, separately bans offering or providing technology that may be used to circumvent technological
means of controlling access to copyrighted works.FN146 If the means in question meets any of the three
prongs of the standard set out in Section 1201(a)(2)(A), (B), or (C), it may not be offered or
disseminated.

FN145. 1 nimmer § 12A.03[A], at 12A–15 (1999 Supp.).

FN146. See id. § 12A.03[B], at 12A–25 to 12A–26.


As the earlier discussion demonstrates, the question whether the development of a Linux DVD player
motivated those who wrote DeCSS is immaterial to the question whether the defendants now before
the Court violated the anti-trafficking provision of the DMCA. The inescapable facts are that (1) CSS is a
technological means that effectively controls access to plaintiffs' copyrighted works, (2) the one and
only function of DeCSS is to circumvent CSS, and (3) defendants offered and provided DeCSS by posting
it on their web site. Whether defendants did so in order to infringe, or to permit or encourage others to
infringe, copyrighted works in violation of other provisions of the Copyright Act simply does not matter
for purposes of Section 1201(a)(2). The offering or provision of the program is the prohibited conduct—
and it is prohibited irrespective of why the program was written, except to whatever extent motive may
be germane to determining whether their conduct falls within one of the statutory exceptions.

2. Statutory Exceptions

Earlier in the litigation, defendants contended that their activities came within several exceptions
contained in the DMCA and the Copyright Act and constitute fair use under the Copyright Act. Their
post-trial memorandum appears to confine their argument to the reverse engineering exception. FN147
In any case, all of their assertions are entirely without merit.

FN147. See Def. Post–Trial Mem. at 13.

a. Reverse engineering

[5] Defendants claim to fall under Section 1201(f) of the statute, which provides *320 in substance
that one may circumvent, or develop and employ technological means to circumvent, access control
measures in order to achieve interoperability with another computer program provided that doing so
does not infringe another's copyright FN148 and, in addition, that one may make information acquired
through such efforts “available to others, if the person [in question] ... provides such information solely
for the purpose of enabling interoperability of an independently created computer program with other
programs, and to the extent that doing so does not constitute infringement....” FN149 They contend
that DeCSS is necessary to achieve interoperability between computers running the Linux operating
system and DVDs and that this exception therefore is satisfied.FN150 This contention fails.

FN148. 17 U.S.C. §§ 1201(f)(1), (2).

FN149. Id. § 1201(f)(3).

FN150. Def. Post–Trial Mem. at 13–15.


First, Section 1201(f)(3) permits information acquired through reverse engineering to be made available
to others only by the person who acquired the information. But these defendants did not do any reverse
engineering. They simply took DeCSS off someone else's web site and posted it on their own.

Defendants would be in no stronger position even if they had authored DeCSS. The right to make the
information available extends only to dissemination “solely for the purpose” of achieving
interoperability as defined in the statute. It does not apply to public dissemination of means of
circumvention, as the legislative history confirms.FN151 These defendants, however, did not post DeCSS
“solely” to achieve interoperability with Linux or anything else.

FN151. commerce Comm.Rep. at 43.

Finally, it is important to recognize that even the creators of DeCSS cannot credibly maintain that the
“sole” purpose of DeCSS was to create a Linux DVD player. DeCSS concededly was developed on and
runs under Windows—a far more widely used operating system. The developers of DeCSS therefore
knew that DeCSS could be used to decrypt and play DVD movies on Windows as well as Linux machines.
They knew also that the decrypted files could be copied like any other unprotected computer file.
Moreover, the Court does not credit Mr. Johansen's testimony that he created DeCSS solely for the
purpose of building a Linux player. Mr. Johansen is a very talented young man and a member of a well
known hacker group who viewed “cracking” CSS as an end it itself and a means of demonstrating his
talent and who fully expected that the use of DeCSS would not be confined to Linux machines. Hence,
the Court finds that Mr. Johansen and the others who actually did develop DeCSS did not do so solely for
the purpose of making a Linux DVD player if, indeed, developing a Linux-based DVD player was among
their purposes.

Accordingly, the reverse engineering exception to the DMCA has no application here.

b. Encryption research

Section 1201(g)(4) provides in relevant part that:

“Notwithstanding the provisions of subsection (a)(2), it is not a violation of that subsection for a person
to—

“(A) develop and employ technological means to circumvent a technological measure for the sole
purpose of that person performing the acts of good faith encryption research described in paragraph
(2); and
“(B) provide the technological means to another person with whom he or she is working collaboratively
for the purpose of conducting the acts of good faith encryption research described in paragraph (2) or
for the purpose of having that other person verify his or her acts *321 of good faith encryption research
described in paragraph (2).” FN152

FN152. 17 U.S.C. § 1201(g)(4).

Paragraph (2) in relevant part permits circumvention of technological measures in the course of good
faith encryption research if:

“(A) the person lawfully obtained the encrypted copy, phonorecord, performance, or display of the
published work;

“(B) such act is necessary to conduct such encryption research;

“(C) the person made a good faith effort to obtain authorization before the circumvention; and

“(D) such act does not constitute infringement under this title....” FN151

FN151. Id. § 1201(g)(2).

In determining whether one is engaged in good faith encryption research, the Court is instructed to
consider factors including whether the results of the putative encryption research are disseminated in a
manner designed to advance the state of knowledge of encryption technology versus facilitation of
copyright infringement, whether the person in question is engaged in legitimate study of or work in
encryption, and whether the results of the research are communicated in a timely fashion to the
copyright owner.FN152

FN152. Id. § 1201(g)(3).

[6] Neither of the defendants remaining in this case was or is involved in good faith encryption
research.FN153 They posted DeCSS for all the world to see. There is no evidence that they made any
effort to provide the results of the DeCSS effort to the copyright owners. Surely there is no suggestion
that either of them made a good faith effort to obtain authorization from the copyright owners.
Accordingly, defendants are not protected by Section 1201(g).FN154
FN153. Ex. 96 (Corley Dep.) at 33.

FN154. In any case, Section 1201(g), where its requirements are met, is a defense only to claims under
Section 1201(a)(2), not those under Section 1201(b).

c. Security testing

Defendants contended earlier that their actions should be considered exempt security testing under
Section 1201(j) of the statute.FN155 This exception, however, is limited to “assessing a computer,
computer system, or computer network, solely for the purpose of good faith testing, investigating, or
correcting [of a] security flaw or vulnerability, with the authorization of the owner or operator of such
computer system or computer network.” FN156

FN155. Def.Mem. in Opp. to Prelim.Inj. (DI 11) at 11–12.

FN156. Id. § 1201(j)(1).

The record does not indicate that DeCSS has anything to do with testing computers, computer systems,
or computer networks. Certainly defendants sought, and plaintiffs' granted, no authorization for
defendants' activities. This exception therefore has no bearing in this case.FN157

FN157. Like Section 1201(g), moreover, Section 1201(j) provides no defense to a Section 1201(b) claim.

d. Fair use

[7] Finally, defendants rely on the doctrine of fair use. Stated in its most general terms, the doctrine,
now codified in Section 107 of the Copyright Act,FN158 limits the exclusive rights of a copyright holder
by permitting others to make limited use of portions of the copyrighted work, for appropriate purposes,
free of liability for copyright infringement. For example, it is permissible for one other than the copyright
owner to reprint or quote a suitable part of a copyrighted book or article in certain circumstances. The
doctrine traditionally has facilitated literary and artistic criticism, teaching and scholarship, and other
socially useful forms of expression. *322 It has been viewed by courts as a safety valve that
accommodates the exclusive rights conferred by copyright with the freedom of expression guaranteed
by the First Amendment.

FN158. 17 U.S.C. § 107.


The use of technological means of controlling access to a copyrighted work may affect the ability to
make fair uses of the work.FN159 Focusing specifically on the facts of this case, the application of CSS to
encrypt a copyrighted motion picture requires the use of a compliant DVD player to view or listen to the
movie. Perhaps more significantly, it prevents exact copying of either the video or the audio portion of
all or any part of the film. FN160 This latter point means that certain uses that might qualify as “fair” for
purposes of copyright infringement—for example, the preparation by a film studies professor of a single
CD–ROM or tape containing two scenes from different movies in order to illustrate a point in a lecture
on cinematography, as opposed to showing relevant parts of two different DVDs—would be difficult or
impossible absent circumvention of the CSS encryption. Defendants therefore argue that the DMCA
cannot properly be construed to make it difficult or impossible to make any fair use of plaintiffs'
copyrighted works and that the statute therefore does not reach their activities, which are simply a
means to enable users of DeCSS to make such fair uses.

FN159. Indeed, as many have pointed out, technological means of controlling access to works create a
risk, depending upon future technological and commercial developments, of limiting access to works
that are not protected by copyright such as works upon which copyright has expired. See, e.g., Nimmer,
A Riff on Fair Use, 148 u.Pa.L.Rev. at 738–40; Hannibal Travis, Comment, Pirates of the Information
Infrastructure: Blackstonian Copyright and the First Amendment, 15 berkeley Tech.L.J. 777, 861 (2000)
(hereinafter Pirates of the Information Infrastructure ); Yochai Benkler, Free as the Air to Common Use:
First Amendment Constraints on Enclosure of the Public Domain, 74 n.Y.U.L.Rev. 354, 421 (1999);

FN160. Of course, one might quote the verbal portion of the sound track, rerecord both verbal and
nonverbal portions of the sound track, and video tape or otherwise record images produced on a
monitor when the DVD is played on a compliant DVD player.

Defendants have focused on a significant point. Access control measures such as CSS do involve some
risk of preventing lawful as well as unlawful uses of copyrighted material. Congress, however, clearly
faced up to and dealt with this question in enacting the DMCA.

The Court begins its statutory analysis, as it must, with the language of the statute. Section 107 of the
Copyright Act provides in critical part that certain uses of copyrighted works that otherwise would be
wrongful are “not ... infringement[s] of copyright.” FN161 Defendants, however, are not here sued for
copyright infringement. They are sued for offering and providing technology designed to circumvent
technological measures that control access to copyrighted works and otherwise violating Section
1201(a)(2) of the Act. If Congress had meant the fair use defense to apply to such actions, it would have
said so. Indeed, as the legislative history demonstrates, the decision not to make fair use a defense to a
claim under Section 1201(a) was quite deliberate.

FN161. 17 U.S.C. § 107.


Congress was well aware during the consideration of the DMCA of the traditional role of the fair use
defense in accommodating the exclusive rights of copyright owners with the legitimate interests of
noninfringing users of portions of copyrighted works. It recognized the contention, voiced by a range of
constituencies concerned with the legislation, that technological controls on access to copyrighted
works might erode fair use by preventing access even for uses that would be deemed “fair” if only
access might be gained. FN162 And it struck a balance among the competing interests.

FN162. See, e.g., commerce Comm.Rep. 25–26.

*323 The first element of the balance was the careful limitation of Section 1201(a)(1)'s prohibition of the
act of circumvention to the act itself so as not to “apply to subsequent actions of a person once he or
she has obtained authorized access to a copy of a [copyrighted] work....” FN163 By doing so, it left “the
traditional defenses to copyright infringement, including fair use, ... fully applicable” provided “the
access is authorized.” FN164

FN163. judiciary Comm.Rep. 18.

FN164. Id.

Second, Congress delayed the effective date of Section 1201(a)(1)'s prohibition of the act of
circumvention for two years pending further investigation about how best to reconcile Section
1201(a)(1) with fair use concerns. Following that investigation, which is being carried out in the form of
a rule-making by the Register of Copyright, the prohibition will not apply to users of particular classes of
copyrighted works who demonstrate that their ability to make noninfringing uses of those classes of
works would be affected adversely by Section 1201(a)(1).FN165

FN165. 17 U.S.C. §§ 1201(a)(1)(B)–(E).

The rule-making is under way. 65 F.R. 14505–06 (Mar. 17, 2000); see also
<http://www.loc.gov/copyright/1201/anticirc.html> (visited July 28, 2000).

Third, it created a series of exceptions to aspects of Section 1201(a) for certain uses that Congress
thought “fair,” including reverse engineering, security testing, good faith encryption research, and
certain uses by nonprofit libraries, archives and educational institutions.FN166

FN166. 17 U.S.C. §§ 1201(d), (f), (g), (j).


Defendants claim also that the possibility that DeCSS might be used for the purpose of gaining access to
copyrighted works in order to make fair use of those works saves them under Sony Corp. v. Universal
City Studios, Inc. FN167 But they are mistaken. Sony does not apply to the activities with which
defendants here are charged. Even if it did, it would not govern here. Sony involved a construction of
the Copyright Act that has been overruled by the later enactment of the DMCA to the extent of any
inconsistency between Sony and the new statute.

FN167. 464 U.S. 417, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984).

Sony was a suit for contributory infringement brought against manufacturers of video cassette recorders
on the theory that the manufacturers were contributing to infringing home taping of copyrighted
television broadcasts. The Supreme Court held that the manufacturers were not liable in view of the
substantial numbers of copyright holders who either had authorized or did not object to such taping by
viewers.FN168 But Sony has no application here.

FN168. Id. at 443, 446, 104 S.Ct. 774.

[8] [9] When Sony was decided, the only question was whether the manufacturers could be held
liable for infringement by those who purchased equipment from them in circumstances in which there
were many noninfringing uses for their equipment. But that is not the question now before this Court.
The question here is whether the possibility of noninfringing fair use by someone who gains access to a
protected copyrighted work through a circumvention technology distributed by the defendants saves
the defendants from liability under Section 1201. But nothing in Section 1201 so suggests. By prohibiting
the provision of circumvention technology, the DMCA fundamentally altered the landscape. A given
device or piece of technology might have “a substantial noninfringing use, and hence be immune from
attack under Sony 's construction of the Copyright Act—but nonetheless still be subject to suppression
under Section 1201.” FN169 Indeed,*324 Congress explicitly noted that Section 1201 does not
incorporate Sony. FN170

FN169. RealNetworks, Inc., 2000 WL 127311, at *8 (quoting 1 nimmer § 12A.18[B], at 12A–130) (internal
quotation marks omitted).

FN170. section–by–Section Analysis 9 (“The Sony test of ‘capab [ility] of substantial non-infringing uses,’
while still operative in cases claiming contributory infringement of copyright, is not part of this
legislation....”).

The policy concerns raised by defendants were considered by Congress. Having considered them,
Congress crafted a statute that, so far as the applicability of the fair use defense to Section 1201(a)
claims is concerned, is crystal clear. In such circumstances, courts may not undo what Congress so
plainly has done by “construing” the words of a statute to accomplish a result that Congress rejected.
The fact that Congress elected to leave technologically unsophisticated persons who wish to make fair
use of encrypted copyrighted works without the technical means of doing so is a matter for Congress
unless Congress' decision contravenes the Constitution, a matter to which the Court turns below.
Defendants' statutory fair use argument therefore is entirely without merit.

C. Linking to Sites Offering DeCSS

Plaintiffs seek also to enjoin defendants from “linking” their 2600.com web site to other sites that make
DeCSS available to users. Their request obviously stems in no small part from what defendants
themselves have termed their act of “electronic civil disobedience”—their attempt to defeat the
purpose of the preliminary injunction by (a) offering the practical equivalent of making DeCSS available
on their own web site by electronically linking users to other sites still offering DeCSS, and (b)
encouraging other sites that had not been enjoined to offer the program. The dispositive question is
whether linking to another web site containing DeCSS constitutes “offer[ing DeCSS] to the public” or
“provid[ing] or otherwise traffic[king]” in it within the meaning of the DMCA.FN171 Answering this
question requires careful consideration of the nature and types of linking.

FN171. 17 U.S.C. § 1201(a)(2).

Most web pages are written in computer languages, chiefly HTML, which allow the programmer to
prescribe the appearance of the web page on the computer screen and, in addition, to instruct the
computer to perform an operation if the cursor is placed over a particular point on the screen and the
mouse then clicked.FN172 Programming a particular point on a screen to transfer the user to another
web page when the point, referred to as a hyperlink, is clicked is called linking.FN173 Web pages can be
designed to link to other web pages on the same site or to web pages maintained by different sites.
FN174

FN172. Tr. (Schumann) at 275–76.

FN173. Id. at 261–62.

FN174. For example, a web page maintained by a radio station might provide a hyperlink to a weather
report by programming its page to transfer the user to a National Weather Service site if the user clicks
on the “weather” hyperlink.

As noted earlier, the links that defendants established on their web site are of several types. Some
transfer the user to a web page on an outside site that contains a good deal of information of various
types, does not itself contain a link to DeCSS, but that links, either directly or via a series of other pages,
to another page on the same site that posts the software. It then is up to the user to follow the link or
series of links on the linked-to web site in order to arrive at the page with the DeCSS link and commence
the download of the software. Others take the user to a page on an outside web site on which there
appears a direct link to the DeCSS software and which may or may not contain text or links other than
the DeCSS link. The user has only to click on the DeCSS link to commence the download. Still others may
directly transfer the user to a file on the linked-to web site such that the download of DeCSS to the
user's computer automatically*325 commences without further user intervention.

[10] The statute makes it unlawful to offer, provide or otherwise traffic in described
technology.FN175 To “traffic” in something is to engage in dealings in it,FN176 conduct that necessarily
involves awareness of the nature of the subject of the trafficking. To “provide” something, in the sense
used in the statute, is to make it available or furnish it.FN177 To “offer” is to present or hold it out for
consideration. FN178 The phrase “or otherwise traffic in” modifies and gives meaning to the words
“offer” and “provide.” FN179 In consequence, the anti-trafficking provision of the DMCA is implicated
where one presents, holds out or makes a circumvention technology or device available, knowing its
nature, for the purpose of allowing others to acquire it.

FN175. 17 U.S.C. § 1201(a)(2).

FN176. See 2 the Compact Edition of the Oxford English Dictionary 3372 (1971).

FN177. See 2 id. 2340.

FN178. See 1 id. 1979.

FN179. See, e.g., Strom v. Goldman, Sachs & Co., 202 F.3d 138, 146–47 (2d Cir.1999).

[11] To the extent that defendants have linked to sites that automatically commence the process of
downloading DeCSS upon a user being transferred by defendants' hyperlinks, there can be no serious
question. Defendants are engaged in the functional equivalent of transferring the DeCSS code to the
user themselves.

Substantially the same is true of defendants' hyperlinks to web pages that display nothing more than the
DeCSS code or present the user only with the choice of commencing a download of DeCSS and no other
content. The only distinction is that the entity extending to the user the option of downloading the
program is the transferee site rather than defendants, a distinction without a difference.
[12] [13] Potentially more troublesome might be links to pages that offer a good deal of content
other than DeCSS but that offer a hyperlink for downloading, or transferring to a page for downloading,
DeCSS. If one assumed, for the purposes of argument, that the Los Angeles Times web site somewhere
contained the DeCSS code, it would be wrong to say that anyone who linked to the Los Angeles Times
web site, regardless of purpose or the manner in which the link was described, thereby offered,
provided or otherwise trafficked in DeCSS merely because DeCSS happened to be available on a site to
which one linked.FN180 But that is not this case. Defendants urged others to post DeCSS in an effort to
disseminate DeCSS and to inform defendants that they were doing so. Defendants then linked their site
to those “mirror” sites, after first checking to ensure that the mirror sites in fact were posting DeCSS or
something that looked like it, and proclaimed on their own site that DeCSS could be had by clicking on
the hyperlinks on defendants' site. By doing so, they offered, provided or otherwise trafficked in DeCSS,
and they continue to do so to this day.

FN180. See DVD Copy Control Ass'n, Inc. v. McLaughlin, No. CV 786804, 2000 WL 48512, *4 (Cal.Super.
Jan. 21, 2000) (“website owner cannot be held responsible for all of the content of the sites to which it
provides links”); Richard Raysman & Peter Brown, Recent Linking Issues, N.Y.L.J., Feb. 8, 2000, p. 3, col. 1
(same).

III. The First Amendment

Defendants argue that the DMCA, at least as applied to prevent the public dissemination of DeCSS,
violates the First Amendment to the Constitution. They claim that it does so in two ways. First, they
argue that computer code is protected speech and that the DMCA's prohibition of dissemination of
DeCSS therefore violates defendants' First Amendment rights. Second, they contend that the DMCA is
unconstitutionally*326 overbroad, chiefly because its prohibition of the dissemination of decryption
technology prevents third parties from making fair use of plaintiffs' encrypted works, and vague. They
argue also that a prohibition on their linking to sites that make DeCSS available is unconstitutional for
much the same reasons.

A. Computer Code and the First Amendment

The premise of defendants' first position is that computer code, the form in which DeCSS exists, is
speech protected by the First Amendment. Examination of that premise is the logical starting point for
analysis. And it is important in examining that premise first to define terms.

[14] Defendants' assertion that computer code is “protected” by the First Amendment is quite
understandable. Courts often have spoken of certain categories of expression as “not within the area of
constitutionally protected speech,” FN181 so defendants naturally wish to avoid exclusion by an
unfavorable categorization of computer code. But such judicial statements in fact are not literally true.
All modes of expression are covered by the First Amendment in the sense that the constitutionality of
their “regulation must be determined by reference to First Amendment doctrine and analysis.” FN182
Regulation of different categories of expression, however, is subject to varying levels of judicial scrutiny.
Thus, to say that a particular form of expression is “protected” by the First Amendment means that the
constitutionality of any regulation of it must be measured by reference to the First Amendment. In some
circumstances, however, the phrase connotes also that the standard for measurement is the most
exacting level available.

FN181. Roth v. United States, 354 U.S. 476, 483, 77 S.Ct. 1304, 1 L.Ed.2d 1498 (1957) (obscenity). See
also, e.g., Sable Communications of California, Inc. v. F.C.C., 492 U.S. 115, 124, 109 S.Ct. 2829, 106
L.Ed.2d 93 (1989) (obscenity); Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 504, 104 S.Ct.
1949, 80 L.Ed.2d 502 (1984) (libel, obscenity, fighting words, child pornography); Beauharnais v. People
of State of Illinois, 343 U.S. 250, 266, 72 S.Ct. 725, 96 L.Ed. 919 (1952) (defamation); Chaplinsky v. State
of New Hampshire, 315 U.S. 568, 571–72, 62 S.Ct. 766, 86 L.Ed. 1031 (1942) (fighting words).

FN182. Robert Post, Encryption Source Code and the First Amendment, 15 berkeley Tech. L.J. 713, 714
(2000); see R.A.V. v. City of St. Paul, Minnesota, 505 U.S. 377, 382, 112 S.Ct. 2538, 120 L.Ed.2d 305
(1992) (statements that categories of speech are “unprotected” are not literally true; characterization
indicates only that they are subject to content based regulation).

It cannot seriously be argued that any form of computer code may be regulated without reference to
First Amendment doctrine. The path from idea to human language to source code to object code is a
continuum. As one moves from one to the other, the levels of precision and, arguably, abstraction
increase, as does the level of training necessary to discern the idea from the expression. Not everyone
can understand each of these forms. Only English speakers will understand English formulations.
Principally those familiar with the particular programming language will understand the source code
expression. And only a relatively small number of skilled programmers and computer scientists will
understand the machine readable object code. But each form expresses the same idea, albeit in
different ways.FN183

FN183. The Court is indebted to Professor David Touretzky of Carnegie–Mellon University, who testified
on behalf of defendants, for his lucid explication of this point. See Tr. (Touretzky) at 1066–84 & Ex. BBE,
CCO, CCP, CCQ. As will appear, however, the point does not lead the Court to the same conclusion as Dr.
Touretzky.

[15] [16] There perhaps was a time when the First Amendment was viewed only as a limitation on
the ability of government to censor speech in advance. FN184 *327 But we have moved far beyond that.
All modes by which ideas may be expressed or, perhaps, emotions evoked—including speech, books,
movies, art, and music—are within the area of First Amendment concern. FN185 As computer code—
whether source or object—is a means of expressing ideas, the First Amendment must be considered
before its dissemination may be prohibited or regulated. In that sense, computer code is covered or, as
sometimes is said, “protected” by the First Amendment. FN186 But that conclusion still leaves for
determination the level of scrutiny to be applied in determining the constitutionality of regulation of
computer code.

FN184. leonard Levy, Freedom of Speech in Early American History: Legacy of Suppression passim
(1960); see also 4 ronald D. Rotunda & John E. Nowak, Treatise on Constitutional Law § 20.5 (1999); 4
william Blackstone, Commentaries on the Laws of England 151–52 (1769).

FN185. See, e.g., Hurley v. Irish–American Gay, Lesbian and Bisexual Group of Boston, 515 U.S. 557, 569,
115 S.Ct. 2338, 132 L.Ed.2d 487 (1995).

FN186. Junger v. Daley, 209 F.3d 481, 485 (6th Cir.2000); Bernstein v. U.S. Dept. of Justice, 176 F.3d
1132, 1141, reh'g granted and opinion withdrawn, 192 F.3d 1308 (9th Cir.1999); Bernstein v. U.S. Dept.
of State, 922 F.Supp. 1426, 1436 (N.D.Cal.1996) (First Amendment extends to source code); see Karn v.
U.S. Dept. of State, 925 F.Supp. 1, 10 (D.D.C.1996) (assuming First Amendment extends to source code).

B. The Constitutionality of the DMCA's Anti–Trafficking Provision

1. Defendants' Alleged Right to Disseminate DeCSS

Defendants first attack Section 1201(a)(2), the anti-trafficking provision, as applied to them on the
theory that DeCSS is constitutionally protected expression and that the statute improperly prevents
them from communicating it. Their attack presupposes that a characterization of code as
constitutionally protected subjects any regulation of code to the highest level of First Amendment
scrutiny. As we have seen, however, this does not necessarily follow.

Just as computer code cannot be excluded from the area of First Amendment concern because it is
abstract and, in many cases, arcane, the long history of First Amendment jurisprudence makes equally
clear that the fact that words, symbols and even actions convey ideas and evoke emotions does not
inevitably place them beyond the power of government. The Supreme Court has evolved an analytical
framework by which the permissibility of particular restrictions on the expression of ideas must
determined.

Broadly speaking, restrictions on expression fall into two categories. Some are restrictions on the voicing
of particular ideas, which typically are referred to as content based restrictions. Others have nothing to
do with the content of the expression—i.e., they are content neutral—but they have the incidental
effect of limiting expression.
[17] In general, “government has no power to restrict expression because of its message, its ideas, its
subject matter, or its content....” FN187 “[S]ubject only to narrow and well-understood exceptions, [the
First Amendment] does not countenance governmental control over the content of messages expressed
by private individuals.” FN188 In consequence, content based restrictions on speech are permissible
only if they serve compelling state interests by the least restrictive means available.FN189

FN187. Police Dept. of City of Chicago v. Mosley, 408 U.S. 92, 95–96, 92 S.Ct. 2286, 33 L.Ed.2d 212
(1972).

FN188. Turner Broadcasting System, Inc. v. F.C.C., 512 U.S. 622, 641, 114 S.Ct. 2445, 129 L.Ed.2d 497
(1994); accord, R.A.V., 505 U.S. at 382–83, 112 S.Ct. 2538.

FN189. Sable Communications of California, Inc. v. F.C.C., 492 U.S. at 126, 109 S.Ct. 2829.

[18] Content neutral restrictions, in contrast, are measured against a less exacting standard. Because
restrictions of this type are not motivated by a desire to limit the message, they will be upheld if they
serve a substantial governmental interest*328 and restrict First Amendment freedoms no more than
necessary.FN190

FN190. Turner Broadcasting System, Inc., 512 U.S. at 662, 114 S.Ct. 2445 (citing United States v. O'Brien,
391 U.S. 367, 377, 88 S.Ct. 1673, 20 L.Ed.2d 672 (1968)).

[19] Restrictions on the nonspeech elements of expressive conduct fall into the conduct-neutral
category. The Supreme Court long has distinguished for First Amendment purposes between pure
speech, which ordinarily receives the highest level of protection, and expressive conduct.FN191 Even if
conduct contains an expressive element, its nonspeech aspect need not be ignored.FN192 “[W]hen
‘speech’ and ‘nonspeech’ elements are combined in the same course of conduct, a sufficiently important
governmental interest in regulating the nonspeech element can justify incidental limitations on First
Amendment freedoms.” FN193 The critical point is that nonspeech elements may create hazards for
society above and beyond the speech elements. They are subject to regulation in appropriate
circumstances because the government has an interest in dealing with the potential hazards of the
nonspeech elements despite the fact that they are joined with expressive elements.

FN191. See, e.g., United States v. O'Brien, 391 U.S. at 376, 88 S.Ct. 1673.

FN192. During the Vietnam era, many who opposed the war, the draft, or both burned draft cards as
acts of protest. Lower federal courts typically concluded or assumed that the expression inherent in this
act of protest brought the behavior entirely within the scope of the First Amendment. thomas I.
Emerson, The System of Freedom of Expression 82 (1970). In United States v. O'Brien, 391 U.S. at 376,
88 S.Ct. 1673, however, the Supreme Court rejected “the view that an apparently limitless variety of
conduct can be labeled ‘speech’ whenever the person engaged in the conduct intends thereby to
express an idea” and adopted a new approach, discussed below, to the regulation of expressive conduct
as opposed to pure speech. Accord, Spence v. State of Washington, 418 U.S. 405, 410, 94 S.Ct. 2727, 41
L.Ed.2d 842 (1974). The point for present purposes is that the presence of expression in some broader
mosaic does not result in the entire mosaic being treated as “speech.”

FN193. Id. at 376.

Thus, the starting point for analysis is whether the DMCA, as applied to restrict dissemination of DeCSS
and other computer code used to circumvent access control measures, is a content based restriction on
speech or a content neutral regulation. Put another way, the question is the level of review that governs
the DMCA's anti-trafficking provision as applied to DeCSS—the strict scrutiny standard applicable to
content based regulations or the intermediate level applicable to content neutral regulations, including
regulations of the nonspeech elements of expressive conduct.

Given the fact that DeCSS code is expressive, defendants would have the Court leap immediately to the
conclusion that Section 1201(a)(2)'s prohibition on providing DeCSS necessarily is content based
regulation of speech because it suppresses dissemination of a particular kind of expression.FN194 But
this would be a unidimensional approach to a more textured reality and entirely too facile.

FN194. Def. Post–Trial Mem. at 15–16.

[20] The “principal inquiry in determining content neutrality ... is whether the government has
adopted a regulation of speech because of [agreement or] disagreement with the message it conveys.”
FN195 The computer code at issue in this case, however, does more than express the programmers'
concepts. It does more, in other words, than convey a message. DeCSS, like any other computer
program, is a series of instructions that causes a computer to perform a particular sequence *329 of
tasks which, in the aggregate, decrypt CSS-protected files. Thus, it has a distinctly functional, non-speech
aspect in addition to reflecting the thoughts of the programmers. It enables anyone who receives it and
who has a modicum of computer skills to circumvent plaintiffs' access control system.

FN195. Ward v. Rock Against Racism, 491 U.S. 781, 791, 109 S.Ct. 2746, 105 L.Ed.2d 661 (1989); accord,
Hill v. Colorado, 530U.S. 703, ––––, 120 S.Ct. 2480, 2491, 147 L.Ed.2d 597 (2000); Turner Broadcasting
System, Inc., 512 U.S. at 642, 114 S.Ct. 2445; Madsen v. Women's Health Center, Inc., 512 U.S. 753, 763,
114 S.Ct. 2516, 129 L.Ed.2d 593 (1994).
[21] The reason that Congress enacted the anti-trafficking provision of the DMCA had nothing to do
with suppressing particular ideas of computer programmers and everything to do with functionality—
with preventing people from circumventing technological access control measures—just as laws
prohibiting the possession of burglar tools have nothing to do with preventing people from expressing
themselves by accumulating what to them may be attractive assortments of implements and everything
to do with preventing burglaries. Rather, it is focused squarely upon the effect of the distribution of the
functional capability that the code provides. Any impact on the dissemination of programmers' ideas is
purely incidental to the overriding concerns of promoting the distribution of copyrighted works in digital
form while at the same time protecting those works from piracy and other violations of the exclusive
rights of copyright holders.FN196

FN196. See generally Turner Broadcasting System, Inc., 512 U.S. at 646–49, 114 S.Ct. 2445 (holding that
“must-carry” provisions of the Cable Television Consumer Protection and Competition Act of 1992 are
content neutral in view of “overriding congressional purpose ... unrelated to the content of expression”
manifest in detailed legislative history).

These considerations suggest that the DMCA as applied here is content neutral, a view that draws
support also from City of Renton v. Playtime Theatres, Inc. FN197 The Supreme Court there upheld
against a First Amendment challenge a zoning ordinance that prohibited adult movie theaters within
1,000 feet of a residential, church or park zone or within one mile of a school. Recognizing that the
ordinance did “not appear to fit neatly into either the ‘content based or the ‘content-neutral’ category,”
it found dispositive the fact that the ordinance was justified without reference to the content of the
regulated speech in that the concern of the municipality had been with the secondary effects of the
presence of adult theaters, not with the particular content of the speech that takes place in them.FN198
As Congress' concerns in enacting the anti-trafficking provision of the DMCA were to suppress copyright
piracy and infringement and to promote the availability of copyrighted works in digital form, and not to
regulate the expression of ideas that might be inherent in particular anti-circumvention devices or
technology, this provision of the statute properly is viewed as content neutral.FN199

FN197. 475 U.S. 41, 106 S.Ct. 925, 89 L.Ed.2d 29 (1986).

FN198. Id. at 46–49, 106 S.Ct. 925; see also Young v. American Mini Theatres, Inc., 427 U.S. 50, 71 n. 34,
96 S.Ct. 2440, 49 L.Ed.2d 310 (1976).

FN199. See Karn, 925 F.Supp. at 10 (regulations controlling export of computer code content neutral);
Benkler, 74 n.Y.U.L.Rev. at 413 (DMCA “content and viewpoint neutral”).

[22] [23] Congress is not powerless to adopt content neutral regulations that incidentally affect
expression, including the dissemination of the functional capabilities of computer code. A sufficiently
important governmental interest in seeing to it that computers are not instructed to perform particular
functions may justify incidental restrictions on the dissemination of the expressive elements of a
program. Such a regulation will be upheld if:

“it furthers an important or substantial governmental interest; if the governmental interest is unrelated
to the suppression of free expression; and if the incidental restriction on alleged First Amendment
freedoms is no greater than is essential to the furtherance of that *330 interest.” FN200

FN200. Turner Broadcasting System, Inc., 512 U.S. at 662, 114 S.Ct. 2445 (quoting O'Brien, 391 U.S. at
377, 88 S.Ct. 1673 (internal quotation marks omitted)); see also, e.g., United States v. Weslin, 156 F.3d
292, 297 (2d Cir.1998).

Moreover, “[t]o satisfy this standard, a regulation need not be the least speech-restrictive means of
advancing the Government's interests.” FN201 “Rather, the requirement of narrow tailoring is satisfied
‘so long as the ... regulation promotes a substantial government interest that would be achieved less
effectively absent the regulation.’ ” FN202

FN201. Turner Broadcasting System, Inc., 512 U.S. at 662, 114 S.Ct. 2445; see also Hill, 530 U.S. at ––––,
120 S.Ct. at 2494.

FN202. Ward, 491 U.S. at 799, 109 S.Ct. 2746 (quoting United States v. Albertini, 472 U.S. 675, 689, 105
S.Ct. 2897, 86 L.Ed.2d 536 (1985)).

[24] The anti-trafficking provision of the DMCA furthers an important governmental interest—the
protection of copyrighted works stored on digital media from the vastly expanded risk of piracy in this
electronic age. The substantiality of that interest is evident both from the fact that the Constitution
specifically empowers Congress to provide for copyright protection FN203 and from the significance to
our economy of trade in copyrighted materials.FN204 Indeed, the Supreme Court has made clear that
copyright protection itself is “the engine of free expression.” FN205 That substantial interest, moreover,
is unrelated to the suppression of particular views expressed in means of gaining access to protected
copyrighted works. Nor is the incidental restraint on protected expression—the prohibition of trafficking
in means that would circumvent controls limiting access to unprotected materials or to copyrighted
materials for noninfringing purposes—broader than is necessary to accomplish Congress' goals of
preventing infringement and promoting the availability of content in digital form.FN206

FN203. u.S. Const., art. I, § 8 (Copyright Clause).

FN204. commerce Comm.Rep. 94–95; senate Rep. 21–22, 143.


FN205. Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 558, 105 S.Ct. 2218, 85
L.Ed.2d 588 (1985).

FN206. It is conceivable that technology eventually will provide means of limiting access only to
copyrighted materials and only for uses that would infringe the rights of the copyright holder. See, e.g.,
Travis, 15 berkeley Tech.L.J. at 835–36; Mark Gimbel, Note, Some Thoughts on the Implications of
Trusted Systems for Intellectual Property Law, 50 Stan.L.Rev. 1671, 1875–78 (1998); Mark Stefik, Shifting
the Possible: How Trusted Systems and Digital Property Rights Challenge Us to Rethink Digital
Publishing, 12 berkeley Tech.L.J. 137, 138–40 (1997). We have not yet come so far.

This analysis finds substantial support in the principal case relied upon by defendants, Junger v.
Daley.FN207 The plaintiff in that case challenged on First Amendment grounds an Export Administration
regulation that barred the export of computer encryption software, arguing that the software was
expressive and that the regulation therefore was unconstitutional. The Sixth Circuit acknowledged the
expressive nature of computer code, holding that it therefore was within the scope of the First
Amendment. But it recognized also that computer code is functional as well and said that “[t]he
functional capabilities of source code, particularly those of encryption source code, should be
considered when analyzing the governmental interest in regulating the exchange of this form of
speech.” FN208 Indeed, it went on to indicate that the pertinent standard of review was that
established in United States v. O'Brien,FN209 the seminal speech-versus-conduct*331 decision. Thus,
rather than holding the challenged regulation unconstitutional on the theory that the expressive aspect
of source code immunized it from regulation, the court remanded the case to the district court to
determine whether the O'Brien standard was met in view of the functional aspect of code. FN210

FN207. 209 F.3d 481 (6th Cir.2000).

FN208. Id. at 485.

FN209. 391 U.S. at 377, 88 S.Ct. 1673.

FN210. 209 F.3d at 485.

Notwithstanding its adoption by the Sixth Circuit, the focus on functionality in order to determine the
level of scrutiny is not an inevitable consequence of the speech-conduct distinction. Conduct has
immediate effects on the environment. Computer code, on the other hand, no matter how functional,
causes a computer to perform the intended operations only if someone uses the code to do so. Hence,
one commentator, in a thoughtful article, has maintained that functionality is really “a proxy for effects
or harm” and that its adoption as a determinant of the level of scrutiny slides over questions of
causation that intervene between the dissemination of a computer program and any harm caused by its
use.FN211
FN211. See Lee Tien, Publishing Software as a Speech Act, 15 berkeley Tech.L.J. 629, 694–701 (2000).
Professor Tien's analysis itself has been criticized. Robert Post, Encryption Source Code and the First
Amendment, 15 berkeley Tech.L.J. 715 (2000).

The characterization of functionality as a proxy for the consequences of use is accurate. But the
assumption that the chain of causation is too attenuated to justify the use of functionality to determine
the level of scrutiny, at least in this context, is not.

Society increasingly depends upon technological means of controlling access to digital files and systems,
whether they are military computers, bank records, academic records, copyrighted works or something
else entirely. There are far too many who, given any opportunity, will bypass those security measures,
some for the sheer joy of doing it, some for innocuous reasons, and others for more malevolent
purposes. Given the virtually instantaneous and worldwide dissemination widely available via the
Internet, the only rational assumption is that once a computer program capable of bypassing such an
access control system is disseminated, it will be used. And that is not all.

There was a time when copyright infringement could be dealt with quite adequately by focusing on the
infringing act. If someone wished to make and sell high quality but unauthorized copies of a copyrighted
book, for example, the infringer needed a printing press. The copyright holder, once aware of the
appearance of infringing copies, usually was able to trace the copies up the chain of distribution, find
and prosecute the infringer, and shut off the infringement at the source.

In principle, the digital world is very different. Once a decryption program like DeCSS is written, it quickly
can be sent all over the world. Every recipient is capable not only of decrypting and perfectly copying
plaintiffs' copyrighted DVDs, but also of retransmitting perfect copies of DeCSS and thus enabling every
recipient to do the same. They likewise are capable of transmitting perfect copies of the decrypted DVD.
The process potentially is exponential rather than linear. Indeed, the difference is illustrated by
comparison of two epidemiological models describing the spread of different kinds of disease.FN212 In a
common source epidemic, as where members of a population contract a non-contagious disease from a
poisoned well, the disease spreads only by exposure to the common source. If one eliminates the
source, or closes the contaminated well, the epidemic is stopped. In a propagated *332 outbreak
epidemic, on the other hand, the disease spreads from person to person. Hence, finding the initial
source of infection accomplishes little, as the disease continues to spread even if the initial source is
eliminated.FN213 For obvious reasons, then, a propagated outbreak epidemic, all other things being
equal, can be far more difficult to control.

FN212. This perhaps is not as surprising as first might appear. Computer “viruses” are other programs,
an understanding of which is aided by the biological analogy evident in their name. See, e.g., Jeffrey O.
Kephart, Gregory B. Sorkin, David M. Chess and Steve R. White, Fighting Computer Viruses, scientific
American, (visited Aug. 16, 2000) <http:// www.sciam.com/ 1197issue/1197kephart.html>.

FN213. david E. Lilienfeld & Paul D. Stolley, Foundations of Epidemiology 38–41 & Fig. 3–1 (3d ed.1994);
john P. Fox, Carrie E. Hall & Lila R. Elveback, Epidemiology—Man and Disease 246–47 (1970).

This disease metaphor is helpful here. The book infringement hypothetical is analogous to a common
source outbreak epidemic. Shut down the printing press (the poisoned well) and one ends the
infringement (the disease outbreak). The spread of means of circumventing access to copyrighted works
in digital form, however, is analogous to a propagated outbreak epidemic. Finding the original source of
infection (e.g., the author of DeCSS or the first person to misuse it) accomplishes nothing, as the disease
(infringement made possible by DeCSS and the resulting availability of decrypted DVDs) may continue to
spread from one person who gains access to the circumvention program or decrypted DVD to another.
And each is “infected,” i.e., each is as capable of making perfect copies of the digital file containing the
copyrighted work as the author of the program or the first person to use it for improper purposes. The
disease metaphor breaks down principally at the final point. Individuals infected with a real disease
become sick, usually are driven by obvious self-interest to seek medical attention, and are cured of the
disease if medical science is capable of doing so. Individuals infected with the “disease” of capability of
circumventing measures controlling access to copyrighted works in digital form, however, do not suffer
from having that ability. They cannot be relied upon to identify themselves to those seeking to control
the “disease.” And their self-interest will motivate some to misuse the capability, a misuse that; in
practical terms, often will be untraceable. FN214

FN214. Of course, not everyone who obtains DeCSS or some other decryption program necessarily will
use it to engage in copyright infringement, just as not everyone who is exposed to a contagious disease
contracts it. But that is immaterial. The critical point is that the combination of (a) the manner in which
the ability to infringe is spread and (b) the lack of any practical means of controlling infringement at the
point at which it occurs once the capability is broadly disseminated render control of infringement by
controlling availability of the means of infringement far more critical in this context.

[25] These considerations drastically alter consideration of the causal link between dissemination of
computer programs such as this and their illicit use. Causation in the law ultimately involves practical
policy judgments. FN215 Here, dissemination itself carries very substantial risk of imminent harm
because the mechanism is so unusual by which dissemination of means of circumventing access controls
to copyrighted works threatens to produce virtually unstoppable infringement of copyright. In
consequence, the causal link between the dissemination of circumvention computer programs and their
improper use is more than sufficiently close to warrant selection of a level of constitutional scrutiny
based on the programs' functionality.
FN215. See, e.g., Guido Calabresi & Jeffrey O. Cooper, New Directions in Tort Law, 30 val.U.L.Rev. 859,
870–72 (1996).

[26] Accordingly, this Court holds that the anti-trafficking provision of the DMCA as applied to the
posting of computer code that circumvents measures that control access to copyrighted works in digital
form is a valid exercise of Congress' authority. It is a content neutral regulation in furtherance of
important governmental interests that does not unduly restrict expressive activities. In any case, its
particular functional characteristics are such that the Court would apply the same level of scrutiny*333
even if it were viewed as content based.FN216 Yet it is important to emphasize that this is a very narrow
holding. The restriction the Court here upholds, notwithstanding that computer code is within the area
of First Amendment concern, is limited (1) to programs that circumvent access controls to copyrighted
works in digital form in circumstances in which (2) there is no other practical means of preventing
infringement through use of the programs, and (3) the regulation is motivated by a desire to prevent
performance of the function for which the programs exist rather than any message they might convey.
One readily might imagine other circumstances in which a governmental attempt to regulate the
dissemination of computer code would not similarly be justified.FN217

FN216. As has been noted above, some categories of speech, which often have been referred to
inaccurately as “unprotected,” may be regulated on the basis of their content. R.A.V., 505 U.S. at 382–
83, 112 S.Ct. 2538. These have included obscenity and “fighting words,” to name two such categories.
The determination of the types of speech which may be so regulated has been made through a process
termed by one leading commentator as “definitional” balancing—a weighing of the value of free
expression in these areas against its likely consequences and the legitimate interests of government.
Melville B. Nimmer, The Right to Speak from Times to Time: First Amendment Theory Applied to Libel
and Misapplied to Privacy, 56 cal.L.Rev. 935, 942 (1968); see R.A.V., 505 U.S. at 382–83, 112 S.Ct. 2538.
Thus, even if one accepted defendants' argument that the anti-trafficking prohibition of the DMCA is
content based because it regulates only code that “expresses” the programmer's “ideas” for
circumventing access control measures, the question would remain whether such code—code designed
to circumvent measures controlling access to private or legally protected data—nevertheless could be
regulated on the basis of that content. For the reasons set forth in the text, the Court concludes that it
may. Alternatively, even if such a categorical or definitional approach were eschewed, the Court would
uphold the application of the DMCA now before it on the ground that this record establishes an
imminent threat of danger flowing from dissemination of DeCSS that far outweighs the need for
unfettered communication of that program. See Landmark Communications, Inc. v. Commonwealth of
Virginia, 435 U.S. 829, 842–43, 98 S.Ct. 1535, 56 L.Ed.2d 1 (1978).

FN217. For example, one might imagine a computer program the object of which was to teach the user
a particular view of a subject, e.g., evolution or creationism. Such a program, like this one, would be
within the area of First Amendment concern and functional. Yet a regulation barring its use would be
subject to a quite different analysis. Such a ban, for example, might be based on the content of the
message the program caused the computer to deliver to the student-user and thus quite clearly be
content based. Similarly, the function—teaching—would not involve the same likelihood that the
dissemination would bring about a harm that the government has a legitimate right to prevent.

2. Prior Restraint

Defendants argue also that injunctive relief against dissemination of DeCSS is barred by the prior
restraint doctrine. The Court disagrees.

Few phrases are as firmly rooted in our constitutional jurisprudence as the maxim that “[a]ny system of
prior restraints of expression comes to [a] Court bearing a heavy presumption against its constitutional
validity.” FN218 Yet there is a significant gap between the rhetoric and the reality. Courts often have
upheld restrictions on expression that many would describe as prior restraints,FN219 sometimes by
*334 characterizing the expression as unprotected FN220 and on other occasions finding the restraint
justified despite its presumed invalidity.FN221 Moreover, the prior restraint doctrine, which has
expanded far beyond the Blackstonian model FN222 that doubtless informed the understanding of the
Framers of the First Amendment, FN223 has been criticized as filled with “doctrinal ambiguities and
inconsistencies result[ing] from the absence of any detailed judicial analysis of [its] true rationale”
FN224 and, in one case, even as “fundamentally unintelligible.” FN225 Nevertheless, the doctrine has a
well established core: administrative preclearance requirements for and at least preliminary injunctions
against speech as conventionally understood are presumptively unconstitutional. Yet that proposition
does not dispose of this case. FN226

FN218. U.S. v. Washington Post Co., 403 U.S. 713, 714, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971) (per curiam)
(quoting Bantam Books, Inc. v. Sullivan, 372 U.S. 58, 70, 83 S.Ct. 631, 9 L.Ed.2d 584 (1963)).

FN219. See, e.g., Posadas de Puerto Rico Assoc. v. Tourism Co. of Puerto Rico, 478 U.S. 328, 106 S.Ct.
2968, 92 L.Ed.2d 266 (1986) (upholding restrictions on casino gambling advertising); Times Film Corp. v.
Chicago, 365 U.S. 43, 81 S.Ct. 391, 5 L.Ed.2d 403 (1961) (upholding local ordinance requiring review of
films by municipal officials as prerequisite to issuance of permits for public screening); Salinger v.
Random House, Inc., 811 F.2d 90 (2d Cir.) (enjoining biographer's use of subject's unpublished letters as
copyright infringement), cert. denied, 484 U.S. 890, 108 S.Ct. 213, 98 L.Ed.2d 177 (1987); Dallas Cowboys
Cheerleaders v. Pussycat Cinema, Ltd., 604 F.2d 200 (2d Cir.1979) (enjoining distribution of film on
ground that actresses' uniforms infringed plaintiff's trademark). See generally laurence H. Tribe,
American Constitutional Law § 12–36, at 1045–46 (1988) (hereinafter tribe).

FN220. See, e.g., Charles of the Ritz Group, Ltd. v. Quality King Distributors, Inc., 832 F.2d 1317 (2d
Cir.1987) (upholding injunction against commercial slogan on ground that slogan created a likelihood of
confusion and is therefore “beyond the protective reach of the First Amendment”); Vondran v. McLinn,
No. 95–20296, 1995 WL 415153, *6 (N.D.Cal. July 5, 1995) (enjoining defendant's false and disparaging
remarks regarding plaintiff's patented process for making fiber reinforced concrete on the ground that
the remarks are not protected by the First Amendment).
FN221. See, e.g., Times Film Corp. v. City of Chicago, 365 U.S. 43, 81 S.Ct. 391, 5 L.Ed.2d 403 (upholding
local ordinance requiring review by city officials of all films as a prerequisite to grant of permit for public
screening despite concerns of First Amendment violations); Posadas de Puerto Rico Associates, 478 U.S.
328, 106 S.Ct. 2968, 92 L.Ed.2d 266 (upholding restrictions on advertising despite finding that the
advertising fell within ambit of First Amendment); Dallas Cowboys Cheerleaders, Inc., 604 F.2d 200
(enjoining distribution of film for trademark infringement despite claim that injunction violated
distributor's First Amendment rights).

FN222. 4 william Blackstone, Commentaries on the Laws of England 151–52 (1769).

FN223. See Pittsburgh Press Co. v. Pittsburgh Com'n on Human Relations, 413 U.S. 376, 390, 93 S.Ct.
2553, 37 L.Ed.2d 669 (1973).

FN224. Martin H. Redish, The Proper Role of the Prior Restraint Doctrine in First Amendment Theory, 70
va.L.Rev. 53, 54 (1983) (hereinafter “Redish”). See also laurence H. Tribe, American Constitutional Law §
12–34, at 1040–41 (2d ed.1988).

FN225. John Calvin Jeffries, Jr., Rethinking Prior Restraint, 92 yale L.J. 409, 419 (1983).

FN226. Despite the conventional wisdom, it is far from clear that an injunction necessarily is a prior
restraint. Our circuit, for example, has suggested that the prior restraint doctrine does not apply to
content neutral injunctions. See e.g., Dallas Cowboys Cheerleaders, Inc., 604 F.2d at 206. At least one
commentator persuasively has argued that there is little justification for placing injunctions, at least
permanent injunctions issued after trial, in a disfavored constitutional position. Jeffries, 92 yale L.J. at
426–34. Nevertheless, there is no reason to decide that question in this case. The following discussion
therefore assumes that the permanent injunction plaintiff seeks would be a “prior restraint,” although it
concludes that it would not be unconstitutional.

The classic prior restraint cases were dramatically different from this one. Near v. MinnesotaFN227
involved a state procedure for abating scandalous and defamatory newspapers as public nuisances. New
York Times Co. v. United StatesFN228 dealt with an attempt to enjoin a newspaper from publishing an
internal government history of the Vietnam War. Nebraska Press Association v. StuartFN229 concerned
a court order barring the reporting of certain details about a forthcoming murder case. In each case,
therefore, the government sought to suppress speech at the very heart of First Amendment concern—
expression about public issues of the sort *335 that is indispensable to self government. And while the
prior restraint doctrine has been applied well beyond the sphere of political expression, we deal here
with something new altogether—computer code, a fundamentally utilitarian construct, albeit one that
embodies an expressive element. Hence, it would be a mistake simply to permit its expressive element
to drive a characterization of the code as speech no different from the Pentagon Papers, the publication
of a newspaper, or the exhibition of a motion picture and then to apply prior restraint rhetoric without a
more nuanced consideration of the competing concerns.
FN227. 283 U.S. 697, 51 S.Ct. 625, 75 L.Ed. 1357 (1931).

FN228. 403 U.S. 713, 91 S.Ct. 2140, 29 L.Ed.2d 822 (1971).

FN229. 427 U.S. 539, 96 S.Ct. 2791, 49 L.Ed.2d 683 (1976).

[27] In this case, the considerations supporting an injunction are very substantial indeed. Copyright
and, more broadly, intellectual property piracy are endemic, as Congress repeatedly has found.FN230
The interest served by prohibiting means that facilitate such piracy—the protection of the monopoly
granted to copyright owners by the Copyright Act—is of constitutional dimension. There is little room
for doubting that broad dissemination of DeCSS threatens ultimately to injure or destroy plaintiffs'
ability to distribute their copyrighted products on DVDs and, for that matter, undermine their ability to
sell their products to the home video market in other forms. The potential damages probably are
incalculable, and these defendants surely would be in no position to compensate plaintiffs for them if
plaintiffs were remitted only to post hoc damage suits.

FN230. See h.R.Rep. 106–216, 106th Cong., 1st Sess. (1999) ( “Notwithstanding [penalties for copyright
infringement] copyright piracy of intellectual property flourishes, assisted in large part by today's world
of advanced technologies. For example, industry groups estimate that counterfeiting and piracy of
computer software cost the affected copyright holders more than $11 billion last year (others believe
the figure is closer to $20 billion). In some countries, software piracy rates are as high as 97% of all sales.
The U.S. rate is far lower (25%), but the dollar losses ($2.9 billion) are the highest worldwide. The effect
of this volume of theft is substantial: lost U.S. jobs, lost wages, lower tax revenue, and higher prices for
honest purchasers of copyrighted software. Unfortunately, the potential for this problem to worsen is
great.”); s.Rep. 106–140, 106th Cong., 1st Sess. (1999) (“Trademark owners are facing a new form of
piracy on the Internet caused by acts of ‘cybersquatting.’ ”); s.Rep. 105–190, 105th Cong., 2d Sess.
(1998) (“Due to the ease with which digital works can be copied and distributed worldwide virtually
instantaneously, copyright owners will hesitate to make their works readily available on the Internet
without reasonable assurance that they will be protected against massive piracy.”); h.R.Rep. 105–339,
105th Cong., 1st Sess. (1997) ( “[C]opyright piracy flourishes in the software world.”).

On the other side of the coin, the First Amendment interests served by the dissemination of DeCSS on
the merits are minimal. The presence of some expressive content in the code should not obscure the
fact of its predominant functional character—it is first and foremost a means of causing a machine with
which it is used to perform particular tasks. Hence, those of the traditional rationales for the prior
restraint doctrine that relate to inhibiting the transmission and receipt of ideas are of attenuated
relevance here. Indeed, even academic commentators who take the extreme position that most
injunctions in intellectual property cases are unconstitutional prior restraints concede that there is no
First Amendment obstacle to injunctions barring distribution of copyrighted computer object code or
restraining the construction of a new building based on copyrighted architectural drawings because the
functional aspects of these types of information are “sufficiently nonexpressive.” FN231

FN231. Mark A. Lemley & Eugene Volokh, Freedom of Speech and Injunctions in Intellectual Property
Cases, 48 duke L.J. 147, 210 & n. 275 (1998).

To be sure, there is much to be said in most circumstances for the usual procedural rationale for the
prior restraint doctrine: prior restraints carry with them the risk of erroneously suppressing expression
that could not constitutionally be punished *336 after publication.FN232 In this context, however, that
concern is not persuasive, both because the enjoined expressive element is minimal and because a full
trial on the merits has been held.FN233 Accordingly, the Court holds that the prior restraint doctrine
does not require denial of an injunction in this case.

FN232. See, e.g., Pittsburgh Press Co., 413 U.S. at 390, 93 S.Ct. 2553 (“The special vice of a prior restraint
is that communication will be suppressed ... before an adequate determination that it is unprotected by
the First Amendment.”); Lemley & Volokh, 48 duke L.J. at 200–02, 211; see Redish, 70 va.L.Rev. at 75–
83.

FN233. See Lemley & Volokh, 48 duke L.J. at 211–12, 215 (acknowledging that high likelihood of success
diminishes risk of erroneous suppression of protected speech).

3. Overbreadth

[28] Defendants' second focus is the contention that Section 1201(a)(2) is unconstitutional because it
prevents others from making fair use of copyrighted works by depriving them of the means of
circumventing plaintiffs' access control system.FN234 In substance, they contend that the anti-
trafficking provision leaves those who lack sufficient technical expertise to circumvent CSS themselves
without the means of acquiring circumvention technology that they need to make fair use of the
content of plaintiffs' copyrighted DVDs.FN235

FN234. Def. Post–Trial Mem. at 22–24.

FN235. Id. at 22.

Defendants argue also that the DMCA as applied is overbroad in that “it would prohibit defendants from
posting and making programs such as DeCSS available in any form, from English to any level of computer
code.” Id. The overbreadth doctrine, however, enables litigants to challenge a statute not merely
because their own First Amendment rights are violated, but because the statute may cause others to
abstain from constitutionally protected expression. Broadrick v. Oklahoma, 413 U.S. 601, 612, 93 S.Ct.
2908, 37 L.Ed.2d 830 (1973). This aspect of defendants' argument, which in any case is an
overstatement, therefore does not refer to overbreadth in the sense relevant here.

[29] [30] As a general proposition, “a person to whom a statute constitutionally may be applied
may not challenge that statute on the ground that it conceivably may be applied unconstitutionally to
others in situations not before the Court.” FN236 When statutes regulate speech, however, “the
transcendent value to all society of constitutionally protected expression is deemed to justify ‘attacks on
overly broad statutes with no requirement that the person making the attack demonstrate that his own
conduct could not be regulated by a statute drawn with the requisite narrow specificity.’ ” FN237 This is
so because the absent third parties may not exercise their rights for fear of triggering “sanctions
provided by a statute susceptible of application to protected expression.” FN238 But the overbreadth
doctrine “is ‘strong medicine’ .... employed ... with hesitation, and then ‘only as a last resort.’ ” because
it conflicts with “the personal nature of constitutional rights and the prudential limitations on
constitutional adjudication,” including the importance of focusing carefully on the facts in deciding
constitutional questions.FN239 Moreover, the limited function of the overbreadth doctrine “
‘attenuates as the otherwise unprotected behavior that it forbids the State to sanction moves from
‘pure speech’ toward conduct and that conduct—even if expressive—falls within the scope of otherwise
valid criminal*337 laws....' ” FN240 As defendants concede, “where conduct and not merely speech is
involved, ... the overbreadth of a statute must not only be real, but substantial as well, judged in relation
to the statute's plainly legitimate sweep.” FN241

FN236. Broadrick, 413 U.S. at 610, 93 S.Ct. 2908.

FN237. Gooding v. Wilson, 405 U.S. 518, 520–21, 92 S.Ct. 1103, 31 L.Ed.2d 408 (1972) (quoting
Dombrowski v. Pfister, 380 U.S. 479, 486, 85 S.Ct. 1116, 14 L.Ed.2d 22 (1965)).

FN238. Gooding, 405 U.S. at 521, 92 S.Ct. 1103.

FN239. Los Angeles Police Dept. v. United Reporting Pub. Corp., 528 U.S. 32, 120 S.Ct. 483, 489, 145
L.Ed.2d 451 (1999) (quoting New York v. Ferber, 458 U.S. 747, 769, 102 S.Ct. 3348, 73 L.Ed.2d 1113
(1982) (quoting Broadrick, 413 U.S. at 613, 93 S.Ct. 2908)).

FN240. Id. at 489 (quoting Ferber, 458 U.S. at 770, 102 S.Ct. 3348 (quoting Broadrick, 413 U.S. at 615, 93
S.Ct. 2908)).

FN241. Broadrick, 413 U.S. at 612, 93 S.Ct. 2908.


Factors arguing against use of the overbreadth doctrine are present here. To begin with, we do not here
have a complete view of whether the interests of the absent third parties upon whom defendants rely
really are substantial and, in consequence, whether the DMCA as applied here would materially affect
their ability to make fair use of plaintiffs' copyrighted works.

The copyrighted works at issue, of course, are motion pictures. People use copies of them in DVD and
other formats for various purposes, and we confine our consideration to the lawful purposes, which by
definition are noninfringing or fair uses. The principal noninfringing use is to play the DVD for the
purpose of watching the movie—viewing the images and hearing the sounds that are synchronized with
them. Fair uses are much more varied. A movie reviewer might wish to quote a portion of the verbal
script in an article or broadcast review. A television station might want to broadcast part of a particular
scene to illustrate a review, a news story about a performer, or a story about particular trends in motion
pictures. A musicologist perhaps would wish to play a portion of a musical sound track. A film scholar
might desire to create and exhibit to students small segments of several different films to make some
comparative point about the cinematography or some other characteristic. Numerous other examples
doubtless could be imagined. But each necessarily involves one or more of three types of use: (1)
quotation of the words of the script, (2) listening to the recorded sound track, including both verbal and
non-verbal elements, and (3) viewing of the graphic images.

All three of these types of use now are affected by the anti-trafficking provision of the DMCA, but
probably only to a trivial degree. To begin with, all or substantially all motion pictures available on DVD
are available also on videotape.FN242 In consequence, anyone wishing to make lawful use of a
particular movie may buy or rent a videotape, play it, and even copy all or part of it with readily
available equipment. But even if movies were available only on DVD, as someday may be the case, the
impact on lawful use would be limited. Compliant DVD players permit one to view or listen to a DVD
movie without circumventing CSS in any prohibited sense. The technology permitting manufacture of
compliant DVD players is available to anyone on a royalty-free basis and at modest cost, so CSS raises no
technological barrier to their manufacture. Hence, those wishing to make lawful use of copyrighted
movies by viewing or listening to them are not hindered in doing so in any material way by the anti-
trafficking provision of the DMCA.FN243

FN242. Tr. (King) at 441.

FN243. Defendants argue that the right of third parties to view DVD movies on computers running the
Linux operating system will be materially impaired if DeCSS is not available to them. However, the
technology to build a Linux-based DVD player has been licensed by the DVD CCA to at least two
companies, and there is no reason to think that others wishing to develop Linux players could not obtain
licenses if they so chose. Tr. (King) at 437–38. Therefore, enforcement of the DMCA to prohibit the
posting of DeCSS would not materially impair the ability of Linux users to view DVDs on Linux machines.
Further, it is not evident that constitutional protection of free expression extends to the type of device
on which one plays copyrighted material. Therefore, even assuming arguendo that the ability of third
parties to view DVD movies on Linux systems were materially impaired by enforcement of the DMCA in
this case, this impairment would not necessarily implicate the First Amendment rights of these third
parties.

*338 Nor does the DMCA materially affect quotation of language from CSS-protected movies. Anyone
with access to a compliant DVD player may play the movie and write down or otherwise record the
sound for the purpose of quoting it in another medium.

[31] The DMCA does have a notable potential impact on uses that copy portions of a DVD movie
because compliant DVD players are designed so as to prevent copying. In consequence, even though the
fair use doctrine permits limited copying of copyrighted works in appropriate circumstances, the CSS
encryption of DVD movies, coupled with the characteristics of licensed DVD players, limits such uses
absent circumvention of CSS.FN244 Moreover, the anti-trafficking provision of the DMCA may prevent
technologically unsophisticated persons who wish to copy portions of DVD movies for fair use from
obtaining the means of doing so. It is the interests of these individuals upon which defendants rely most
heavily in contending that the DMCA violates the First Amendment because it deprives such persons of
an asserted constitutional right to make fair use of copyrighted materials.FN245

FN244. CSS encryption coupled with the characteristics of compliant DVD players also forecloses copying
of digital sound files. It is not clear, however, that this is a substantial impediment to copying sound
from motion picture DVDs. A DVD can be played on a compliant player and the sound re-recorded.
Whether the sound quality thus obtained would be satisfactory might well depend upon the particular
use to which the copy was put.

FN245. The same point might be made with respect to copying of works upon which copyright has
expired. Once the statutory protection lapses, the works pass into the public domain. The encryption on
a DVD copy of such a work, however, will persist. Moreover, the combination of such a work with a new
preface or introduction might result in a claim to copyright in the entire combination. If the combination
then were released on DVD and encrypted, the encryption would preclude access not only to the
copyrighted new material, but to the public domain work. As the DMCA is not yet two years old, this
does not yet appear to be a problem, although it may emerge as one in the future.

As the foregoing suggests, the interests of persons wishing to circumvent CSS in order to make lawful
use of the copyrighted movies it protects are remarkably varied. Some presumably are technologically
sophisticated and therefore capable of circumventing CSS without access to defendants' or other
purveyors' decryption programs; many presumably are not. Many of the possible fair uses may be made
without circumventing CSS while others, i.e., those requiring copying, may not. Hence, the question
whether Section 1201(a)(2) as applied here substantially affects rights, much less constitutionally
protected rights, of members of the “fair use community” cannot be decided in bloc, without
consideration of the circumstances of each member or similarly situated groups of members. Thus, the
prudential concern with ensuring that constitutional questions be decided only when the facts before
the Court so require counsels against permitting defendants to mount an overbreadth challenge
here.FN246

FN246. Defendants argue that “there is now a full evidentiary record” and that the overbreadth issue
therefore should be decided. Def. Post–Trial Mem. at 22 n. 11. With respect, the evidence as to the
impact of the anti-trafficking provision of the DMCA on prospective fair users is scanty and fails
adequately to address the issues.

This is not to minimize the interests of the amici who have submitted briefs in this case. The Court
simply does not have a sufficient evidentiary record on which to evaluate their claims.

Second, there is no reason to suppose here that prospective fair users will be deterred from asserting
their alleged rights by fear of sanctions imposed by the DMCA or the Copyright Act.

Third, we do not deal here with “pure speech.” Rather, the issue concerns dissemination of technology
that is principally functional in nature. The same consideration that warrants restraint in applying the
overbreadth doctrine to statutes regulating*339 expressive conduct applies here. For reasons previously
expressed, government's interest in regulating the functional capabilities of computer code is no less
weighty than its interest in regulating the nonspeech aspects of expressive conduct.

Finally, there has been no persuasive evidence that the interests of persons who wish access to the CSS
algorithm in order to study its encryption methodology or to evaluate theories regarding decryption
raise serious problems. The statute contains an exception for good faith encryption research.FN247

FN247. 17 U.S.C. § 1201(g).

Accordingly, defendants will not be heard to mount an overbreadth challenge to the DMCA in this
context.

4. Vagueness

[32] Defendants argue also that the DMCA is unconstitutionally vague because the terms it employs
are not understandable to persons of ordinary intelligence and because they are subject to
discriminatory enforcement. FN248
FN248. Def. Post–Trial Mem. at 24.

As the Supreme Court has made clear, one who “engages in some conduct that is clearly proscribed [by
the challenged statute] cannot complain of the vagueness of the law as applied to the conduct of
others.” FN249 There can be no serious doubt that posting a computer program the sole purpose of
which is to defeat an encryption system controlling access to plaintiff's copyrighted movies constituted
an “offer to the public” of “technology [or a] product” that was “primarily designed for the purpose of
circumventing” plaintiffs' access control system.FN250 Defendants thus engaged in conduct clearly
proscribed by the DMCA and will not be heard to complain of any vagueness as applied to others.

FN249. Village of Hoffman Estates v. Flipside, 455 U.S. 489, 495, 102 S.Ct. 1186, 71 L.Ed.2d 362 (1982).

FN250. See 17 U.S.C. § 1201(a)(2)(A).

C. Linking

As indicated above, the DMCA reaches links deliberately created by a web site operator for the purpose
of disseminating technology that enables the user to circumvent access controls on copyrighted works.
The question is whether it may do so consistent with the First Amendment.

[33] Links bear a relationship to the information superhighway comparable to the relationship that
roadway signs bear to roads but they are more functional. Like roadway signs, they point out the
direction. Unlike roadway signs, they take one almost instantaneously to the desired destination with
the mere click of an electronic mouse. Thus, like computer code in general, they have both expressive
and functional elements. Also like computer code, they are within the area of First Amendment concern.
Hence, the constitutionality of the DMCA as applied to defendants' linking is determined by the same
O'Brien standard that governs trafficking in the circumvention technology generally.

There is little question that the application of the DMCA to the linking at issue in this case would serve,
at least to some extent, the same substantial governmental interest as its application to defendants'
posting of the DeCSS code. Defendants' posting and their linking amount to very much the same thing.
Similarly, the regulation of the linking at issue here is “unrelated to the suppression of free expression”
for the same reason as the regulation of the posting. The third prong of the O'Brien test as subsequently
interpreted—whether the “regulation promotes a substantial government interest that would be
achieved less effectively absent the regulation” FN251—is a somewhat closer call.
FN251. Ward, 491 U.S. at 799, 109 S.Ct. 2746 (quoting United States v. Albertini, 472 U.S. 675, 689, 105
S.Ct. 2897, 86 L.Ed.2d 536 (1985)).

*340 [34] Defendants and, by logical extension, others may be enjoined from posting DeCSS.
Plaintiffs may seek legal redress against anyone who persists in posting notwithstanding this decision.
Hence, barring defendants from linking to sites against which plaintiffs readily may take legal action
would advance the statutory purpose of preventing dissemination of circumvention technology, but it
would do so less effectively than would actions by plaintiffs directly against the sites that post. For
precisely this reason, however, the real significance of an anti-linking injunction would not be with U.S.
web sites subject to the DMCA, but with foreign sites that arguably are not subject to it and not subject
to suit here. An anti-linking injunction to that extent would have a significant impact and thus materially
advance a substantial governmental purpose. In consequence, the Court concludes that an injunction
against linking to other sites posting DeCSS satisfies the O'Brien standard. There remains, however, one
further important point.

Links are “what unify the [World Wide] Web into a single body of knowledge, and what makes the Web
unique.” FN252 They “are the mainstay of the Internet and indispensable to its convenient access to the
vast world of information.” FN253 They often are used in ways that do a great deal to promote the free
exchange of ideas and information that is a central value of our nation. Anything that would impose
strict liability on a web site operator for the entire contents of any web site to which the operator linked
therefore would raise grave constitutional concerns, as web site operators would be inhibited from
linking for fear of exposure to liability.FN254 And it is equally clear that exposing those who use links to
liability under the DMCA might chill their use, as some web site operators confronted with claims that
they have posted circumvention technology falling within the statute may be more inclined to remove
the allegedly offending link rather than test the issue in court. Moreover, web sites often contain a great
variety of things, and a ban on linking to a site that contains DeCSS amidst other content threatens to
restrict communication of this information to an excessive degree.

FN252. ACLU v. Reno, 929 F.Supp. 824, 837 (E.D.Pa.1996), aff'd, 521 U.S. 844, 117 S.Ct. 2329, 138
L.Ed.2d 874 (1997).

FN253. Richard Raysman & Peter Brown, Recent Linking Issues, N.Y.L.J., Feb. 8, 2000, p. 3, col. 1.

FN254. Cf. New York Times Co. v. Sullivan, 376 U.S. 254, 271–73, 283–88, 84 S.Ct. 710, 11 L.Ed.2d 686
(1964).

The possible chilling effect of a rule permitting liability for or injunctions against Internet hyperlinks is a
genuine concern. But it is not unique to the issue of linking. The constitutional law of defamation
provides a highly relevant analogy. The threat of defamation suits creates the same risk of self-
censorship, the same chilling effect, for the traditional press as a prohibition of linking to sites containing
circumvention technology poses for web site operators. Just as the potential chilling effect of
defamation suits has not utterly immunized the press from all actions for defamation, however, the
potential chilling effect of DMCA liability cannot utterly immunize web site operators from all actions for
disseminating circumvention technology. And the solution to the problem is the same: the adoption of a
standard of culpability sufficiently high to immunize the activity, whether it is publishing a newspaper or
linking, except in cases in which the conduct in question has little or no redeeming constitutional value.

In the defamation area, this has been accomplished by a two-tiered constitutional standard. There may
be no liability under the First Amendment for defamation of a public official or a public figure unless the
plaintiff proves, by clear and convincing evidence, that the defendant published the offending statement
with knowledge of its *341 falsity or with serious doubt as to its truth.FN255 Liability in private figure
cases, on the other hand, may not be imposed absent proof at least of negligence under Gertz v. Robert
Welch, Inc.FN256 A similar approach would minimize any chilling effect here.

FN255. Id. at 283, 84 S.Ct. 710; Curtis Pub. Co. v. Butts, 388 U.S. 130, 155, 87 S.Ct. 1975, 18 L.Ed.2d 1094
(1967); St. Amant v. Thompson, 390 U.S. 727, 731, 88 S.Ct. 1323, 20 L.Ed.2d 262 (1968); robert D. Sack,
Sack on Defamation § 1.2.4 (3d ed.1999).

FN256. 418 U.S. 323, 347–38, 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974).

The other concern—that a liability based on a link to another site simply because the other site
happened to contain DeCSS or some other circumvention technology in the midst of other perfectly
appropriate content could be overkill—also is readily dealt with. The offense under the DMCA is
offering, providing or otherwise trafficking in circumvention technology. An essential ingredient, as
explained above, is a desire to bring about the dissemination. Hence, a strong requirement of that
forbidden purpose is an essential prerequisite to any liability for linking.

[35] Accordingly, there may be no injunction against, nor liability for, linking to a site containing
circumvention technology, the offering of which is unlawful under the DMCA, absent clear and
convincing evidence that those responsible for the link (a) know at the relevant time that the offending
material is on the linked-to site, (b) know that it is circumvention technology that may not lawfully be
offered, and (c) create or maintain the link for the purpose of disseminating that technology.FN257 Such
a standard will limit the fear of liability on the part of web site operators just as the New York Times
standard gives the press great comfort in publishing all sorts of material that would have been
actionable at common law, even in the face of flat denials by the subjects of their stories. And it will not
subject web site operators to liability for linking to a site containing proscribed technology where the
link exists for purposes other than dissemination of that technology.
FN257. In evaluating purpose, courts will look at all relevant circumstances. Sites that advertise their
links as means of getting DeCSS presumably will be found to have created the links for the purpose of
disseminating the program. Similarly, a site that deep links to a page containing only DeCSS located on a
site that contains a broad range of other content, all other things being equal, would more likely be
found to have linked for the purpose of disseminating DeCSS than if it merely links to the home page of
the linked-to site.

[36] In this case, plaintiffs have established by clear and convincing evidence that these defendants
linked to sites posting DeCSS, knowing that it was a circumvention device. Indeed, they initially touted it
as a way to get free movies,FN258 and they later maintained the links to promote the dissemination of
the program in an effort to defeat effective judicial relief. They now know that dissemination of DeCSS
violates the DMCA. An anti-linking injunction on these facts does no violence to the First Amendment.
Nor should it chill the activities of web site operators dealing with different materials, as they may be
held liable only on a compelling showing of deliberate evasion of the statute.

FN258. Tr. (Corley) at 820.

IV. Relief

A. Injury to Plaintiffs

[37] The DMCA provides that “[a]ny person injured by a violation of section 1201 or 1202 may bring a
civil action in an appropriate United States court for such violation.” FN259 For the reasons set forth
above, plaintiffs obviously have suffered and, absent effective relief, will continue to suffer injury by
virtue of the ready availability of means of circumventing the CSS access control system on their DVDs.
Defendants nevertheless argue that they have *342 not met the injury requirement of the statute. Their
contentions are a farrago of distortions.

FN259. 17 U.S.C. § 1203(a).

They begin with the assertion that plaintiffs have failed to prove that decrypted motion pictures actually
are available.FN260 To be sure, plaintiffs might have done a better job of proving what appears to be
reasonably obvious. They certainly could have followed up on more of the 650 movie titles listed on the
web site described above to establish that the titles in fact were available. But the evidence they did
adduce is not nearly as meager as defendants would have it. Dr. Shamos did pursue and obtain a pirated
copy of a copyrighted, DivX'd motion picture from someone he met in an Internet chat room. An MPAA
investigator downloaded between five and ten such copies. And the sudden appearance of listings of
available motion pictures on the Internet promptly after DeCSS became available is far from lacking in
evidentiary significance. In any case, in order to obtain the relief sought here, plaintiffs need show only a
threat of injury by reason of a violation of the statute.FN261 The Court finds that plaintiffs
overwhelmingly have established a clear threat of injury by reason of defendants' violation of the
statute.

FN260. Def. Post–Trial Mem. at 27–28.

FN261. The statute expressly authorizes injunctions to prevent or restrain violations, 17 U.S.C. §
1203(b)(1), thus demonstrating that the requisite injury need only be threatened.

Defendants next maintain that plaintiffs exaggerate the extent of the threatened injury. They claim that
the studios in fact believe that DeCSS is not a threat.FN262 But the only basis for that contention is a
couple of quotations from statements that the MPAA or one or another studio made (or considered
making but did not in fact issue) to the effect that it was not concerned about DeCSS or that it was
inconvenient to use.FN263 These statements, however, were attempts to