At issue is whether peer-to-peer network operators Grokster and StreamCast Networks, owner of Morpheus, should be held liable for users' copyright infringement. Grokster and Morpheus are file-sharing networks used to exchange videos — adult and mainstream — music and software.
Metro-Goldwyn-Mayer and other media companies claim file-sharing has cost them billions of dollars in lost sales and say the file-sharing companies enable people to trade music and video files of content they own in a way that "assists and facilitates" copyright infringement.
The case is the latest in a long line of legal attacks by the media industry against companies that have built software to create file-sharing networks.
Grokster Ltd. and StreamCast Networks Inc. provide free Internet-based conduits for users to swap computer. The companies make money off advertising on their websites.
The entertainment industry said in its Supreme Court appeal that a "resolution of the question presented here will largely determine the value, indeed the very significance of copyright in the digital era."
Grokster and StreamCast, in a countering legal brief, had urged the Supreme Court to reject the entertainment industry appeal. The two services argued that federal copyright law hasn't had the chance to catch up with new computer technologies such as the peer-to-peer services and that Congress was the right place solve problems arising from those services.
"Congress is itself in the midst of considering the very issue petitioners urge on this court," Grokster and StreamCast said in their brief. "The first of these is an omnibus copyright measure that combines several proposals intended to develop public copyright education programs and enhance penalties for direct infringers."
Grokster and StreamCast urged the Supreme Court to allow their services to continue operating because there are numerous legitimate uses for the file-sharing services that don't violate copyright laws.
The entertainment industry in 2001 sued the two services in a federal district court in California. There, a federal trial judge dismissed the case. The 9th U.S. Circuit Court of handled the case on appeal.
A 9th Circuit panel ruled unanimously that Grokster and StreamCast face no secondary liability under federal law for copyright infringement.
A similar case in the The Netherlands in 2002 came out in favor of Sharman Networks, maker of file-sharing software Kazaa. The court there found that the company was not responsible for the behavior of its users.