With Hollywood and Silicon Valley, not to mention the electronic frontier community, anxiously watching the oral arguments in MGM vs Grokster yesterday, observers were hard-pressed to predict how the Court would rule in June. "The Court was clearly divided, with several justices expressing frustration over the dearth of factual findings about the magnitude of copyright infringement," the Legal Times' Tony Mauro reported.

"... Any prediction about what the court will actually decide appeared perilous," said the NY Times' Linda Greenhouse. "The justices themselves seemed taken aback."

At issue is whether Grokster and Shoutcast Networks could be held liable for the copyright-infringing actions of their users. Grokster argued that the landmark Sony decision, which protects technologies "capable of substantial noninfringing uses," should protect them from the Hollywood suits. That test was applied by the Ninth Circuit Court of Appeals in deciding for Grokster.

The movie studios are asking for a different standard -- whether or not the "business model" is built on copyright infringement. Legal blogger Tim Armstrong found MGM's thoughts here "a little odd," explaining: "On this view Sony is off the hook, because Sony is not a company that is primarily in the business of copyright infringement; but Grokster should be held accountable because they intentionally founded a business based expressly on encouraging infringement."

On the one hand, Scalia and other justices expressed concern that the studios' rule would allow copyright holders to shut down new technologies "right out of the box." Scalia wondered if there would be a window of time to establish noninfringing uses. Souter asked, "How do we give the developer the confidence to go ahead? On your theory, why isn't it a foregone conclusion from the outset that the iPod inventor is going to lose his shirt?"

Other justices were clearly concerned about allowing wholesale copying of copyrighted materials. "The Court showed some signs of unease with the adequacy in the Internet age" of the Sony precedent, writes Lyle Denniston on SCOTUSblog.

"You want to say that unlawful uses can be used as startup capital," Kennedy challenged Grokster's lawyer. Justices were also concerned that Grokster's vaunted decentralized networks was an endrun around the Napster decision, in which the P2P pioneer was liable because they controlled machines that kept track of where files were located. Decentralized systems like Grokster's let users make the discovery on their own.

MGM's lawyer talked extensively about how Grokster's business was built on promoting infringement, which led Ginsburg and O'Connor to hint that the case might be sent back to the lower courts to decide on a charge of "inducing" customers to break the law, rather than a secondary liability claim. Such a result would leave the Sony decision standing. There are also suggestions that the Court might alter Sony, since both sides were asked for input on how Sony should be changed.

The decision is expected in June.