swapping software.^1847 In January of 2003, the court rejected a jurisdictional challenge brought
by Sharman Networks, ruling that Sharman Networks could be sued in California since the
Kazaa software had been downloaded and used by millions of Californians.^1848 Approximately
one week later, Sharman Networks filed antitrust and copyright misuse counterclaims against the
plaintiffs.^1849
The plaintiffs and defendants StreamCast and Grokster filed cross motions for summary
judgment with regard to contributory and vicarious copyright infringement. On April 25, 2003,
the court granted summary judgment in favor of StreamCast and Grokster on both theories. The
court noted that its order applied only to the then current versions of Grokster’s and
StreamCast’s products and services, and did not reach the question of whether either defendant
was liable for damages from prior versions of their software or from other past activities.^1850
With respect to the issue of contributory liability, the court first noted that it was
undisputed that at least some of the individuals using the defendants’ software were engaged in
direct copyright infringement.^1851 The court then turned to an analysis of the two prongs of
contributory liability for such direct infringements, knowledge of the infringing activity and
material contribution thereto.
In one of the most significant aspects of the ruling, the court held that mere constructive
knowledge is not sufficient for contributory liability, but rather the defendant must have actual
knowledge of specific infringing acts at the time the infringement occurs. Citing the Ninth
Circuit’s decision in the Napster case, the court ruled that “defendants are liable for contributory
infringement only if they (1) have specific knowledge of infringement at a time at which they
contribute to the infringement, and (2) fail to act upon that information.”^1852 This requirement of
specific, actual knowledge seems contrary to the courts’ rulings in the Aimster case, discussed in
Section III.C.2(c)(3) above, and in the Ellison and Perfect 10 v. Cybernet Ventures cases,
discussed in Sections III.C.2(e) and (f) below, that constructive knowledge is sufficient for
contributory infringement on the part of a service provider. In addition, the Ninth Circuit’s
ruling in Napster requiring actual knowledge of specific infringing files, invoked by the Ninth
Circuit in its ruling on appeal of the district court’s decision in this case, was repudiated by the
Supreme Court in its Grokster decision, analyzed in detail below in Section III.C.2(c)(5) below.
The plaintiffs argued that the StreamCast and Grokster defendants had knowledge of the
infringing acts because the plaintiffs had sent the defendants thousands of notices regarding
(^1847) John Borland, “Judge OKs Suit Against Kazaa Parent” (July 9, 2002), available as of July 10, 2002 at
http://news.com.com/2102-1023-942533.html.
(^1848) Declan McCullagh, “Judge: Kazaa Can Be Sued in U.S.” (Jan. 10, 2003), available as of Jan. 13, 2003 at
http://news.com.com/2102-1023-980274.html.
(^1849) John Borland, “Kazaa Strikes Back at Hollywood, Labels” (Jan. 27, 2003), available as of Jan. 28, 2003 at
http://news.com.com/2102-1023-982344.html.
(^1850) Grokster, 259 F. Supp. 2d at 1033. The defendant Sharman Networks was not a party to the motions.
(^1851) Id. at 1034.
(^1852) Id. at 1036 (citing A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1021 (9th Cir. 2001)).