The Ninth Circuit's ruling in MGM v. Grokster today clarified four points of incredible importance to innovators of all stripes, including peer-to-peer developers:

• The Court made clear that, for purposes of the "Betamax defense" announced by the Supreme Court in 1984, the important question is whether a technology is merely capable of a substantial noninfringing use, not the proportion of noninfringing to infringing uses. The opposite rule, urged by the entertainment industry, would kill off new technologies prematurely, as infringing uses tend to be common until the incumbent entertainment industries adjust their business models to take advantage of the new opportunities created by the new technology. (When there were no pre-recorded videocassettes, the VCR was doubtless used for more infringement than it was after there were Blockbusters on every corner.)
• The Court also explained that, in order to trump the Betamax defense, a copyright owner must show that the technology developer had (1) knowledge of specific infringments (2) at a time when it could do something about those infringements. The entertainment industry, in contrast, had argued that it should be enough to simply deliver a pile of "infringement notices" to the technology developer after the fact. Such a rule would have all kinds of companies in peril. (Imagine Xerox receiving a pile of infringement notices about photocopiers that it had sold the year before -- should it be liable for infringing activities at every Kinko's in America?)
• The Court also clarified that copyright law does not require technology developers to design only the technologies that the entertainment industry would approve. The plaintiffs had argued that vicarious liability principles should be interpreted to require that all innovators design their technologies to minimize the possibility of infringing uses. Of course, short of inviting Hollywood lawyers into engineering meetings, such a rule would have left innovators subject to eternal legal harassment for "not doing enough."
• Finally, and perhaps most important, the Court observed that, in the long run, a competive, unfettered market for innovation ends up helping copyright owners (even if it doesn't help today's entertainment industry oligopolists). In fact, today's ruling will likely be remembered as yet another example of the courts rescuing the entertainment industry from its own short-sightedness. In the words of the Court, "Further, as we have observed, we live in a quicksilver technological environment with courts ill-suited to fix the flow of internet innovation. The introduction of new technology is always disruptive to old markets, and particularly to those copyright owners whose works are sold through wellestablished distribution mechanisms. Yet, history has shown that time and market forces often provide equilibrium in balancing interests, whether the new technology be a player piano, a copier, a tape recorder, a video recorder, a personal computer, a karaoke machine, or an MP3 player."

For more on the legal issues discussed here, you may want to check out EFF's white paper, "What P2P Developers Need to Know About Copyright Law."