US legal controversy

In Sony Corp. v. Universal Studios, 464 U.S. 417 (1984), the Supreme Court found that Sony's new product, the Betamax, did not subject Sony to secondary copyright liability because it was capable of substantial non-infringing uses. Decades later, this case became the jumping-off point for all peer-to-peer copyright infringement litigation.
The first peer-to-peer case was A&M Records v. Napster, 239 F.3d 1004 (9th Cir. 2001). In the Napster case, the 9th Circuit considered whether Napster was liable as a secondary infringer. First, the court considered whether Napster was contributorily liable for copyright infringement. To be found contributorily liable, Napster must have engaged in "personal conduct that encourages or assists the infringement." [2] The court found that Napster was contributorily liable for the copyright infringement of its end-users because it "knowingly encourages and assists the infringement of plaintiffs' copyrights."[3] The court goes on to analyze whether Napster was vicariously liable for copyright infringement. The standard applied by the court is whether Napster "has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities."[4] The court found that Napster did receive a financial benefit, and had the right and ability to supervise the activity, meaning that the plaintiffs demonstrated a likelihood of success on the merits of their claim of vicarious infringement.[5] The court denied all of Napster's defenses, including its claim of fair use.
The next major peer-to-peer case was MGM v. Grokster, 514 U.S. 913 (2005). In this case, the Supreme Court found that even if Grokster was capable of substantial non-infringing uses, which the Sony Court found was enough to relieve one of secondary copyright liability, Grokster was still secondarily liable because it induced its users to infringe. [6]
Around the world in 2006, an estimated five billion songs, equating to 38,000 years in music were swapped on peer-to-peer websites, while 509 million were purchased online [7].