In the case of Sony Corp. of America v. Universal City Studios Inc. (460 U.S. 417 (1984)), the movie studios were trying to get rid of the VCR, calling it a tool for massive copyright infringement (which made Sony a contributory infringer). The US Supreme Court recognized that the VCR could be used to make illegal copies, but they also felt that the product had "commercially significant lawful uses." Sony had done studies that showed that most of the people who used VCRs used them to tape programs and watch them later, which is a legitimate fair use.
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On the other hand, in the case of Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd. (125 S. Ct. 2764 (2005)), the record industry was going after file-sharing p2p software providers.
The Court also found that Grokster was actively encouraging people to use their service to infringe copyrights. o Internal memos from the company talked about how the company actively marketed itself for copyright infringement purposes.
Although it was technically possible to use the software to download legal songs and files, a study showed that the overwhelming use of the software was to download copyrighted software. There were no commercially significant lawful uses, therefore, Grokster couldn't get away with the same excuse that Sony used in of Sony Corp. of America v. Universal City Studios Inc. with regards to the VCR. However, the US Supreme Court never addressed this issue directly, leaving it open for another case.
Grokster had argued that they had no control over what people did with their software. MGM felt that they were contributorily infringing on copyrights because Grokster required a large volume of illegal downloads for their business model to work. o How does that affect other p2p software programs that don't collect advertising revenue and therefore don't require volume to maintain their business models?
Grokster also argued that ruling against them would stifle creativity and discourage new products. When the movie industry lost the battle against the VCR it opened up the entire industry of selling videotapes and DVDs.