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IP/Entertainment Case Law Updates

Metro-Goldwyn-Mayer Studios, Inc. et al v. Grokster, Ltd. et al, USDC C.D. California

In an exhaustive 83-page opinion, the district court granted, in part, plaintiffs’ motion for a permanent injunction against StreamCast, the distributor of Morpheus peer-to-peer file sharing software. The court made several significant rulings resulting in the issuance of a permanent injunction, but one more narrowly drawn than the one requested by plaintiffs. The court held that the Supreme Court’s four-part test for injunctive relief set forth in eBay Inc. v. MercExchange, LLC, 126 S.Ct. 1837 (2006), governed the injunction at issue, and held that the Ninth Circuit’s former 2-part test (proof of past infringement plus likelihood of future infringement ) is now effectively overruled. It also held that, in light of eBay, a plaintiff must actually demonstrate irreparable harm; there is no longer a presumption of irreparable harm upon a finding of copyright infringement on a permanent injunction application (and possibly not in a preliminary injunction situation either).

In September, 2006, the U.S. District court for the C.D. of California granted plaintiffs’ motion for summary judgment, finding defendant liable for inducing users to infringe the plaintiffs’ copyrights. See Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 454 F. Supp. 2d 966 (C.D. Cal. 2006). Following that decision, the defendant developed its own system for filtering copyrighted material and issued a revised version of the Morpheus software that contained the filter. Evidence showed that only about 30% of Morpheus users adopted the new software with the filter and plaintiffs claimed that the filtering system was not effective. Plaintiffs requested a permanent injunction that would, among other things, prevent defendant from directly or indirectly infringing plaintiffs’ copyright, require defendant to implement a “robust and secure means” to exhaustively stop infringement, and, until such technology were in place, prevent defendant from selling advertising space on any versions of its software.

The court began by discussing the test for determining if a request for a permanent injunction is proper. The court wrote that a recent Supreme Court case - eBay Inc. v. MercExchange, LLC, 126 S.Ct. 1837 (2006) - abandoned the old rule of a presumption of irreparable harm if there is a finding of infringement. Accordingly, the district court applied the four factors established in eBay – irreparable harm, lack of other remedies, balance of hardships and public interest – and found that all four factors weighed in favor of ordering the injunction.

A finding of irreparable harm was based in part of defendant’s inducement of infringement, not just the fact that it made a product available that made infringement possible. Regarding a lack of other remedies, the court said it was not feasible for the plaintiffs to file suits against all direct infringers and that the defendant was not likely to be able to pay a huge statutory damage award that would be justified considering the magnitude of the infringement. When looking at the balance of hardships, the court rejected the defendant’s argument that it would be harmed and would have to close its business if the injunction were issued; the court explained that it would modify the plaintiffs’ proposed injunction so that it would be narrowly drawn. The court also considered that the defendant was likely to continue its infringing actions unless an injunction were issued.

Finally, rather than prohibiting the defendant from distributing its software, the court ordered that the defendant will be required to, among other things, implement effective filtering technology as part of the Morpheus software distributed in the future, and take steps to encourage end-users with old versions of Morpheus to upgrade to the new, filtered software. The court also held that the plaintiffs must provide detailed notice to the defendant with the artist and title of each work along with a certificate of ownership and some evidence that one or more files on the defendant’s network contain the copyrighted work; and that StreamCast’s duty to filter any particular work would commence upon plaintiffs’ provision of notice. Finally, the court appointed a special master to oversee implementation of the injunction and reserved the right to modify its order as filtering technology develops.

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