There is so much excellent Grokster analysis (here and here and here and here and here, for starters), that I have only the briefest comments.
Point One: I think that it’s fair to take the Court at its word (footnote 12) that the product itself can’t disclose culpable intent. Design alone does not lead to indirect liability. Nor do I think that a more stringent rule, or an enhanced design obligation, to borrow Randy Picker’s phrase, should apply to networked products. Should a standalone photocopier be innocent but a networked photocopier be regulated? The cost of networking a standalone device is coming way down, so the distinction between a standalone device and a networked device may be trivial. If a better distinction were between analog devices (little or no design obligation) and digital ones (greater design obligation), again, the cost of conversion seems low. If the expected benefits in both cases are high enough, regulating networked or digital devices might not discourage innovation. But are innovators likely to have good information about expected benefits? Are regulators?
Point Two: So, innocent design + “culpable intent” = liability for indirect infringement. Is this such a bad thing? In the short term, I don’t think that it makes much difference in the dynamics of litigation. In the longer term, I think that courts can handle this, which makes me a little more sanguine than those who think that intent-based standards merely provide a road map for the bad guys. “Culpable intent” may be a proxy for “genuineness” — are you an innovator, or are you building a business based on piracy? — and as I’ve written in the context of fair use, genuineness isn’t an easy concept, but it’s something that courts can deal with. Anyone who’s represented (or prosecuted) a pirate or an innovator (cf. those of us who’ve represented, or prosecuted, real frauds) know that there are more trails for lawyers to look for than the smoking trail of e-mail. (“Culpable intent” isn’t designed for summary judgment, by the way, but neither is fair use — yet summary judgment does happen with fair use arguments, and settlement/licensing happen far more often, and the world hasn’t ended.) In other words, the practical problems with a “culpable intent” standard are hardly insuperable, even if the Court has handed down a rule that seems to condemn companies that end in “-ster.”
That said, an “I’m a genuine innovator” standard is much easier for mainstream technology innovators to live with than it is for cutting edge folk or iconoclasts. My relatively sanguine disposition comes from the observation that the same pattern is observed in the fair use cases, and while that’s hardly a perfectly happy story in itself, judges handle innovation and evolution there better than we often give them credit for.
UPDATE (10:30 p.m.): Point One above was anticipated by Ed Lee, and perhaps by others whose work I haven’t yet encountered. Ed also notes the “safe harbor” language in the opinion, which I think is interesting but not likely to be valuable in practice.