Supreme Court Ruling-Part 1/Facts of the case

"The Court has made clear in its decision that services whose clear intent is to foster infringement are liable for the illegal behavior of third parties using their software. As the Court stated, 'The unlawful objective is unmistakable.'
"BMI has been at the forefront of licensing music for digital transmission, and this ruling today will strengthen the environment for legitimate businesses.
On June 27, the US Supreme Court handed down its decision in a precedent setting case concerning peer to peer file sharing. The Court overturned the ruling of the Ninth Circuit Court of Appeals, and held in favor of the plaintiffs in the case of MGM, et al. v. Grokster, Ltd. The Court ruled that services whose clear intent is to foster infringement are liable for the illegal behavior of third parties using their software.
The primary issue was whether Grokster intentionally induced infringement. The unanimous decision (9-0) of the Court was that distributors of peer-to-peer file sharing software may be liable for inducing copyright infringement even if the software is capable of substantial non-infringing uses, which was the test set forth in the Sony Betamax case. The Court stated 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. After explaining that the defendants Grokster and StreamCast Networks, Inc. distribute free software products that allow computer users to share electronic files through peer-to peer networks, the court stated that MGM brought suit, alleging that the defendants should be held responsible for the copyright infringement of their users, because they knowingly enabled the users to infringe.
Grokster and StreamCast conceded the infringement in most downloads, and there was considerable evidence that they advised recipients to download copyrighted works and encouraged infringement. Nevertheless, the District Court held that the distribution of the software didnt give rise to any liability because the use of the software did not provide the defendants with actual knowledge of specific acts of infringement. The Court of Appeals came to the same conclusion, saying that a defendant would be liable as a contributory infringer when it had knowledge of direct infringement and materially contributed to the infringement. Furthermore, they were not liable under the theory of vicarious liability either, because the defendants did not monitor or control the use of the software, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement.
The Court explained that there was clearly a tension between supporting creative pursuits through copyright protection, and promoting innovation. But the court recognized that the argument for imposing indirect liability in this case is, however, a powerful one, given the number of infringing downloads that occur every day using StreamCasts and Groksters software. When a widely shared service or product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, the only practical alternative being to go against the distributor of the copying device for secondary liability on a theory of contributory or vicarious infringement.
http://www.bmi.com/news/entry/234484