The court found that technology providers should be held liable for infringement if they actively promote their wares as infringement tools. In his clearly-written 24-page opinion, Justice David Souter stated, "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." The opinion enumerated a list of steps that it asserts Grokster and Streamcast took to promote themselves as infringing technologies. Future courts will surely hold those steps as yardsticks by which to measure other technology providers accused of marketing their offerings as infringement tools.

The steps listed in Justice Souter's opinion are marketing and distribution tactics that Grokster and Streamcast used to attract users of the original Napster service -- which was shut down in 2001 by the same appeals court that found the two companies innocent -- as well as evidence that the companies' business models were to profit from infringement by attracting advertising revenue.

In effect, this decision gives the media industry the result they hoped to achieve with Sen. Orrin Hatch's (R-UT) so-called Induce Act, which stalled in committee last year when the sides in the debate could not reach agreement on the bill's scope. The decision creates a new theory of secondary infringement liability based on "intent to induce" infringement, which now extends the existing theory of contributory liability (knowingly aiding and abetting infringement). The inducement concept, far from having been created anew for this decision, is derived from an analogous and established theory in patent law.

As a practical matter, the effect of this decision on technology companies is not, as feared, that their technology designers will constantly have to look over their shoulders and have attorneys review everything they do. It is that their business development and marketing executives will have to do so. This will add time and cost to rollouts of digital media-related products and services. Most disturbingly, the ruling implies that technology companies could be held responsible for every marketing message that they put out in the past -- which, of course, is unchangeable. For example, record companies could use Apple's pre-iTunes "Rip, Mix, Burn" ad campaign as a lever against it if they become sufficiently unhappy with the "loose" DRM in iTunes.

However, technology inventors are not liable under this decision, even if they are cognizant of their inventions potential for infringing uses. As the opinion says: "...mere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a [technology] distributor to liability. ... 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." (We wonder what would happen if someone were to put infringing technology out there without comment, only to have an unrelated third party tout its use as an infringement tool; the Court's opinion does not address this.)

The fact is that some form of what we now call P2P technology has been in existence for many years -- dating back at least to Microsoft's Windows for Workgroups over a decade ago -- yet only recently has anyone called attention to its use as a infringement tool. The same could be said about email, which has been in existence much longer; yet we seriously doubt that any vendor of email software has touted its product's use for piracy. (Though we don't doubt that email would easily pass the "substantial noninfringing uses" test of the Betamax case, which The Grokster opinion left untouched, although Justices Ginsburg and Breyer argued about that in their concurring side opinions.)

As for the Supreme Court decision's effect on illegal downloading and legitimate, DRM-enabled online content services, we would expect it to be gradual. The decision refers the case back to the 9th circuit appeals court and clears the way for a trial that could last years, in which the defense will try to prove that Grokster and Streamcast did not "intend to induce" infringement. Given the evidence presented in Justice Souter's opinion, the defense should have a hard time proving its case. It is also possible that the 9th circuit will now render summary judgment in favor of the plaintiffs, thereby effectively shutting Grokster and Morpheus down. But overall, this decision does not mean that it's suddenly lockdown time for online media. Copyright-respecting content services will still have to fight for market share with attractive pricing and consumer-friendly features.

The financial markets also don't seem too excited by the possibility of an immediate migration of users from P2P file-sharing networks to paid online content services. The US publicly traded companies whose business model may most closely reflect the paid online content market are Napster and RealNetworks; of those, Napster enjoyed a spike in trading volume on Monday with a modest 7% share price rise (against a more than 50% decline since January), while RealNetworks traded at average volumes and with little price change, despite the fact that it attempted to capitalize on the decision by placing full-page ads for its Rhapsody music service in the New York Times and other publications.

The Grokster case was one of maintaining the balance between copyright and technology interests in the digital age, and it is the most important such court decision of this era. The Supreme Court had to consider inevitable tradeoffs in making their decision; it's impossible to imagine an outcome that all sides would have found acceptable. Yet we have to say that the "marketing" rationale that the court chose was far from the worst one possible. The decision adds a potent weapon to the media industry's arsenal in their war against piracy, which it can use -- and hopefully not abuse -- against large-scale infringement profiteers. Yet it also will add time and cost to technology companies' marketing budgets as well as risk for managers and technology investors. But it leaves pure technologists intact in their ability to innovate without any (further) legal restraint, which is as it should be.

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