The Sony Paradox

Abstract

Senator Orrin Hatch's introduction of the "Induce Act" in the summer of 2004 transformed the ongoing debate over the legality, morality and economics of peer-to-peer file sharing into a debate over Sony v. Universal Studios. Fans of the Sony decision insist that the legal rule announced in the case made the world safe for innovation. Sony's detractors read the decision more narrowly, and insist it has little application to the networked digital environment. The Supreme Court agreed to hear MGM v. Grokster in part to resolve the dispute about the meaning and scope of Sony, and will almost certainly revisit its analysis in the course of deciding Grokster. That has inspired hyperbolic pronouncements from all sides about the importance of the case. If the Supreme Court gets it wrong, we hear, either innovation will be stymied or the copyright law will be eviscerated.

This paper examines the historical materials that have become available in the twenty-one years since the Sony decision, and offers an account of what persuaded the Court to resolve the case the way it did. It then assesses the claim that the rule announced in Sony has served as a "Magna Carta for technological innovation." I conclude that Sony has offered only modest protection to innovators, because aggrieved copyright owners have not hesitated to sue new technologies into bankruptcy. Innovators have run out of money before defenses based on Sony could make it into the courtroom. At the same time, the Court has limited options in devising a workable rule to replace Sony. Twenty-one years after the Sony decision, Congress has failed to address the statutory problems that motivated the Court to adopt the staple article of commerce rule, and none of the litigants in Grokster have offered the Court a useful substitute.

Ultimately Congress is likely to be asked to rewrite whatever standard the Court articulates in Grokster. Motion picture studios and recording companies will likely insist on a rule imposing liability on any business that profits from infringement. High tech companies will likely insist on limiting any expansion of liability to businesses that profit from unlicensed peer-to-peer file trading. Under pressure from those industries, Congress is unlikely to draw a new line of general application that differs significantly from the one drawn in Sony. Drawing a sensible and robust line of general application would require Congress to revisit copyright remedies at a fundamental level. Industry lobbyists, seeking quick fixes to meet their immediate needs, will have little interest in such a project. Congress, therefore, will probably do what it has done before: enact a narrow rule that purports to fix the problem but proves unhelpful within months of enactment because technology has morphed in unanticipated ways.

Keywords: Copyright, Sony, Betamax, History, P2P