The Grokster End User License Agreement says that any disputes arising therefrom shall be governed by the laws of Nevis. But that didn't stop the U.S. Supreme Court from getting involved and saying the company can be sued for its users' illegal activities.

The decision, available here, was the one I was looking forward to the most. It's the latest in a decade-long debate in technology law about the line between an active provider and a "mere conduit." If you're just a passive conduit along which information travels and activities take place, generally you have less (or no) liability. When you start moving up the spectrum in engagement, encouragement or administration, then you're less passive and more responsible. This decision sensibly (if anticlimactially) says that it all depends on how you encourage or express an intent for people to use your technology.

We had to deal with this problem--with much less legal guidance--at Pipeline, way back in the early days of the Internet frontier, in 1994. We had newsgroups in which users could post commentary and opinions. The issue was whether to remove offensive posts or comments harmful to the company's reputation. (Illegal posts were obviously another matter entirely.) On the basis of that general active/passive paradigm, we figured we would back off any kind of administration. Once you start censoring one post, a failure to censor others becomes a form of approval. So we generally did nothing. That decision seems sensible today, but in 1994, there was almost no legal guidance at all and it was just a good guess.

The one argument I don't buy is that this threatens to stifle innovation. Baloney. Innovation will remain alive and well. And what you do and say should count for something. For starters, you might look a little less suspect if, for disputes arising out of your terms of service, you picked a place other than a sketchy offshore haven.