The tech industry breathed a sigh of relief last month as the Supreme Court unanimously overturned Sony Music Entertainment’s $1 billion copyright judgment against internet service provider Cox Communications. Ironically, Sony’s loss reinforced the Sony standard, named for a 1984 decision limiting a manufacturer’s liability for harm caused by consumer misuse. The Court’s latest ruling clarifies how Sony applies in the digital era and protects innovation by focusing liability on those most responsible for the harm.

As I discussed in greater depth in an earlier post, Sony and several other music labels sued Cox Communications, alleging infringement of more than 10,000 copyrighted works over the company’s broadband network. Although individual Cox customers were the actors directly engaged in piracy, the trial court found Cox contributorily liable because it knew of its customers’ actions and materially contributed by providing the conduit through which infringement occurred. Although the Digital Millennium Copyright Act (DMCA) offers a defense if a broadband provider reasonably implements an anti-piracy program, the court found Cox could not invoke this defense because it rarely followed through on threats to terminate the accounts of repeat offenders. Sony was awarded $1 billion in damages, a judgment affirmed on appeal.

The Supreme Court reversed, holding that contributory liability applies only if the defendant intended its service to be used for infringement. The Court drew on two precedents: its 1984 Sony v Universal decision, which held that a manufacturer is not liable for a product capable of substantial non-infringing uses; and the 2005 Grokster decision, which made an exception to Sony for filesharing companies that actively promoted their services for infringement. Read together, the Court explained, these cases establish that contributory liability attaches only when a company induces infringement or tailors its service for that purpose.

The Court also rejected Sony’s argument that the DMCA safe harbor implicitly assumes that broadband providers could otherwise be held contributorily liable. The statute explicitly states that failure to qualify for this safe harbor “shall not bear adversely upon the consideration of a defense by the service provider that the service provider’s conduct is not infringing.” But even without this explicit language, this argument is unpersuasive. Although direct copyright liability was established by Congress via the Copyright Act, contributory liability is a judge-made doctrine, derived from common law principles. Congress should be permitted to establish a statutory hedge against judicial expansion of liability without being understood as inviting or ratifying that expansion.

The decision should be welcome news to both broadband providers and innovators more generally. In the digital era, many products and services are dual-use technologies, capable of both lawful and unlawful applications. Sony involved the Betamax videocassette recorder, which the manufacturer sold into the stream of commerce with no ongoing relationship between the manufacturer and consumer. Cox clarifies that the same protection covers internet-based products and services even when providers maintain ongoing relationships that could, in theory, allow them to monitor and control consumer misuse.

The implications extend to emerging technologies as well. For example, while the decision likely does not affect current litigation over whether generative AI companies directly infringed copyright law by training on protected works, it provides important guidance for downstream uses of these systems. In particular, the Court’s emphasis on intent suggests that AI developers are unlikely to face contributory liability when users independently employ these tools to generate infringing content, such as derivative stories, or images and videos featuring copyrighted characters absent evidence that the provider designed or marketed the system for that purpose.

As Justice Sotomayor noted in her concurrence, the Cox decision applies specifically to contributory copyright claims and does not create a general intent requirement for all intermediary liability claims. But the broader principle for which it stands is significant. Liability should generally rest with the party directly responsible for the harm, rather than intermediaries whose services were used in unintended ways. That is especially important for dual-use technologies. Expansive intermediary liability risks deterring innovation by exposing companies to massive damages for user misconduct, potentially chilling the development of beneficial technologies.

Intermediary liability has an important role in the law. But society benefits most when the legal framework supports permissionless innovation, placing primary responsibility on end users who violate the law, rather than discouraging the creation of technologies that can be used for multiple purposes because of fear of misuse.