On Thursday, the Second Circuit Court of Appeals decided Viacom v. YouTube (PDF of decision).

The decision has spurred a range of reactions, with both sides publicly claiming a sort of victory; others have stated the decision “is a bummer for Google and the UGC community“, is “mostly good (for the internet and innovation)“, is a win for Viacom, or is a mixed victory.

Regardless, the opinion is sure to be an important decision in the DMCA pantheon for years to come. The influential Second Circuit has interpreted many DMCA safe harbor provisions that affect both online service providers and copyright holders.

In 2007, Viacom sued YouTube for copyright infringement because of unauthorized public performance, display, and reproduction of their works on the video site. A couple of months later, a number of other plaintiffs, including various film studios, television networks, music publishers, and sports leagues filed suit against YouTube with similar claims. These plaintiffs also sought class action certification.

The District Court combined the two suits as related, and in 2010 ruled entirely in favor of YouTube on combined motions for summary judgment.1 The Second Circuit’s decision is a result of both groups of plaintiffs appealing that decision.

Under the Digital Millennium Copyright Act of 1998 (the DMCA), online service providers are immune from monetary liability for copyright infringment as a result of certain activities — the most notable, and the one at issue in Viacom, is the safe harbor for “Information Residing on Systems or Networks At Direction of Users.”2

The DMCA lays out requirements for service providers to qualify for this safe harbor, several of which are germane here. I’ll look at each of them in turn and how they were affected by Thursday’s decision.

Knowledge

First, to be protected by the DMCA, a service provider must not have “actual knowledge that the material or an activity using the material on the system or network is infringing” or “is not aware of facts or circumstances from which infringing activity is apparent.” On this point, the parties disputed over whether this means “a general awareness that there are infringements” on a service — likely indisputable in this case — or rather “actual or constructive knowledge of specific and identifiable infringements of individual items.” On this point, the District Court adopted the latter interpretation, in favor of YouTube.

On appeal, the Second Circuit agreed with the District Court’s interpretation of the DMCA’s knowledge provision but vacated the summary judgment since there was evidence that YouTube may have had knowledge of specific infringing clips. It also held that the District Court failed to examine whether YouTube had been willfully blind to specific infringing clips.

This is perhaps the key issue in the case, especially since the second knowledge prong — awareness of facts or circumstances from which infringing activity is apparent (commonly referred to as “red flag” knowledge) — has largely been written out by courts.3 I don’t believe, in fact, that any court has yet to find that a service provider isn’t protected by the DMCA because of “red flag” knowledge.4

The Second Circuit was mindful of this but focused on the language of the statute to render the first knowledge prong as incorporating an “subjective” standard while the red flag prong reflects an “objective” standard. “Both provisions do independent work, and both apply only to specific instances of infringement.”5

Though the “red flag” prong seems all but superflous in practice, on remand, Viacom and the putative class plaintiffs should argue that it triggers a duty to investigate further. That is, when a service provider becomes aware of facts or circumstances that make infringing activity apparent, it must take affirmative steps to determine the legality of the activity. The Second Circuit didn’t address this issue, but the Ninth Circuit has held the opposite:

Perfect 10 alleges that CCBill and CWIE were aware of a number of “red flags” that signaled apparent infringement. Because CWIE and CCBill provided services to “illegal.net” and “stolencelebritypics.com,” Perfect 10 argues that they must have been aware of apparent infringing activity. We disagree. When a website traffics in pictures that are titillating by nature, describing photographs as “illegal” or “stolen” may be an attempt to increase their salacious appeal, rather than an admission that the photographs are actually illegal or stolen. We do not place the burden of determining whether photographs are actually illegal on a service provider.

This can’t be correct. In many other situations, the law places a burden on a party to inquire into the actual nature of something when the facts and circumstances make it apparent.6 And this burden-shifting doesn’t contradict the DMCA’s “no monitoring” provision, which only states that safe harbor protection doesn’t require “affirmatively seeking facts indicating infringing activity” (emphasis added) — this duty to investigate would only arise after those facts were known by the service provider.

Willful Blindness

The Second Circuit held that knowledge under the storage safe harbor includes “willful blindness.” Under the common law, consciously avoiding the confirmation of a fact that one is aware is highly probable is a type of knowledge.7 As the court notes, this doctrine is well-established in copyright law in general, but this is the first time the Second Circuit has faced the issue of whether willful blindness is applicable to the DMCA.

It is, though the court limits its application because safe harbor protection in the DMCA cannot be conditioned on affirmative monitoring by a service provider. So on remand, the District Court will need to determine whether YouTube “made a deliberate effort to avoid guilty knowledge”, in addition to the factual questions of whether YouTube has actual or apparent knowledge of infringing clips on its site.

Right and Ability to Control

Second, a service provider is only immune from liability when it “does not receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity.” The Court rejected Viacom’s argument that YouTube doesn’t meet this requirement, stating that this “control” provision, like the knowledge provision above, requires “item-specific” knowledge of any infringing activity because “the provider must know of the particular case before he can control it.”

The Circuit reversed the District Court on its interpretation that the “control” provision of the DMCA requires item-specific knowledge — suggesting only vaguely that this question must be determined on a case-by-case basis — and remanded for further fact-finding on YouTube’s right and ability to control and financial benefit.8

But here’s where the court makes what could become a very important statement about the DMCA in the future, and one that hasn’t gotten a lot of attention in much of the initial analyses of the case I’ve read so far. While explaining what sorts of things could lead to a finding that a service provider has a right and ability to control that negates safe harbor protection, the Second Circuit said that inducement of copyright liability might rise to the level of control the DMCA speaks of.

Since the Supreme Court articulated the inducement theory of copyright liability in MGM v. Grokster, many have wondered whether the DMCA safe harbor shields service providers who induce users to infringe on copyright. Some cases have held that the DMCA safe harbors and inducement liability are “inherently contradictory”. In UMG, the Ninth Circuit, without any discussion about the interplay between the two, held the defendant protected by the DMCA against all liability, including a claim of inducement. Similarly, the District Court here granted summary judgment in favor of YouTube for inducement without any explanation.

As far as I know, this marks the first time a Circuit Court has incorporated inducement of copyright as a bar to DMCA safe harbor protection. Its placement in the “control” prong seems to make logical sense, too.

The Scope of ‘By Reason of Storage’

Finally, and this is more of a definitional requirement, immunity only extends to “infringement of copyright by reason of the storage at the direction of a user.” Viacom had argued that several of YouTube’s activities concerning uploaded videos do not fall within the scope of this definition, but again, the District Court rejected this argument.

While the Circuit affirmed that YouTube’s replication, playback, and related video functions were protected by the user storage safe harbor, it recognized that YouTube’s syndication of videos to third parties might fall outside the scope of the safe harbor but hesitated to make a definitive ruling on the point since the record didn’t reveal whether any of the clips involved in the lawsuit had actually been syndicated.

About a year ago, I wrote on this point, noting that chances were slim that Viacom would succeed on this argument, so it is somewhat notable that the Second Circuit recognized at least the existence of an outer boundary to what service providers can do with material uploaded by users while remaining protected by the DMCA safe harbor. It’s still concerning that the Circuit so easily found the other YouTube functions remained within the scope of the safe harbor, in large part because their functionality is “fully automated” — you can program just about anything to be “fully automated.” This interpretation seems to give service providers a “heads I win, tails you lose” position over content creators: one can make a fully-fledged content platform that relies on user-uploaded content that places no liability for copyright infringement since the only responsibility a provider has is to respond to individual takedown notices (pulling in enormous ad revenues), and then seek mercy because it’s too difficult to effectively address infringement due to the sheer amount of data being uploaded.

What’s Next?

For the parties involved, the Second Circuit’s decision is a mixed result on the law. YouTube won on some of its arguments, Viacom and the putative class plaintiffs one on some of theirs. But if the case continues back at the lower court, YouTube will likely ultimately be the loser.

The cardinal sin of Judge Stanton’s original decision wasn’t that he interpreted the DMCA so much in favor of YouTube, but that even under such a narrow interpretation, there was evidence that YouTube could be held liable.

It’s premature to say whether this case could be appealed to the Supreme Court, though that’s always a possibility — and the timing of this decision with the Ninth Circuit’s UMG decision on many of the same points can only add to the speculation.

On a broader note, as attorney Jacqueline Charlesworth points out in a relevant article, “A basic tenet of our law is that one should not encourage others to break it.”

In the adolescence of the Internet, we are seeing complex business models that may combine Grokster-like purpose with other, ostensibly benign functionalities. Services seeking to capitalize on the draw of infringing goods may exhibit superficial respect for copyright concerns—by implementing a takedown program, for instance—yet rest secure in the knowledge that their users will continue to supply the content on which they depend in limitless quantities.

… Courts must resist the invitation to oversimplify reality by arbitrarily dividing the Internet world into “true pirates” and everyone else. Not every pirate is holed up in a garage, has a name ending in “-ster” or spells “wares” with a “z.” Some dress in expensive clothing and have MBAs. Courts need to sort through the facts without prejudging them, and beware pirates in disguise.

There is plenty of evidence that the DMCA has faltered in its 14 year tenure at discouraging bad behavior — witness Megaupload and Grooveshark as recent examples. It remains to be seen whether the Second Circuit’s decision will alleviate building business models around infringement that are shielded by the DMCA safe harbors — which benefit only the service providers— or reach the balance originally intended by the DMCA — benefitting innovative tech companies, content creators, and the general public.

 

Footnotes

  1. The motion for class action certification was subsequently dismissed as moot. []
  2. 17 USC § 512(c). []
  3. See Perfect 10 v. CCBill, “Because CWIE and CCBill provided services to ‘illegal.net’ and ‘stolencelebritypics.com,’ Perfect 10 argues that they must have been aware of apparent infringing activity. We disagree.” []
  4. Greg Jansen, Whose Burden is it Anyway? Addressing the Needs of Content Owners in DMCA Safe Harbors, 62 Federal Communications Law Journal 153, 163 (2010), “To date, no OSP has failed the stringent red-flag test”. []
  5. I’ll note that Congress wasn’t thinking in these terms. In fact, the House Commerce Committe Report on the DMCA said, “The ‘red flag’ test has both a subjective and an objective element. In determining whether the service provider was aware of a ‘red flag,’ the subjective awareness of the service provider of the facts or circumstances in question must be determined. However, in deciding whether those facts or circumstances constitute a ‘red flag’—in other words, whether infringing activity would have been apparent to a reasonable person operating under the same or similar circumstances— an objective standard should be used.” []
  6. For example, in federal securities law: Dodds v. Cigna Securities, “when the circumstances would suggest to an investor of ordinary intelligence the probability that she has been defrauded, a duty of inquiry arises, and knowledge will be imputed to the investor who does not make such an inquiry”; fraud: Higgins v. Crouse, “[W]here the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him”; apparent agency: Whitney v. Citibank, “[A]bsent awareness of facts indicating that a partner is acting beyond his real or apparent authority, a third party is not obligated to investigate the matter further or search for some limitation on that partner’s authority”; statute of limitations: Kronisch v. US, “[E]ven if plaintiff’s awareness of his injury and its cause … could only be characterized as a mere “hunch” or “suspicion,” plaintiff would still have been under a duty to diligently investigate his claim.” []
  7. Global-Tech Appliances v. SEB, 131 S.Ct. 2060, 68-69 (2011). []
  8. This presents one of the places the Second Circuit diverges from the Ninth Circuit’s holding in the highly similar UMG Recordings v. Shelter Capital Partners. There the court held that the right and ability to control does require “control over specific infringing activity the provider knows about.” []

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7 Comments

  1. “There is plenty of evidence that the DMCA has faltered in its 14 year tenure at discouraging bad behavior — witness Megaupload and Grooveshark as recent examples.”

    Did I miss the trials?
    Have MegaUpload and GrooveShark been convicted of anything, except in your opinion?
    Or is the USA no longer a country of “innocent until proven guilty”?
    And considering the way the government’s case against MegaUpload is going nowhere fast, what with procedural errors and the like…

  2. He said ‘evidence’, Ronnie, and linked to two sources. There’s nothing unreasonable in that sentence; evidence must necessarily precede convictions.

    • His use of “bad behavior” rather than “criminal or civil copyright infringement” makes it pretty clear that he’s dealing in opinion rather than making a false claim about liability.

      If you don’t think those services are guilty of bad behavior, quit with the straw men and argue about that, rather than the very different question whether current law exposes them to liability.

  3. Great article. Especially the concluding paragraphs.

    The DMCA, far from “killing the internet” as Cory Doctorow had warned, has proven to be a financial godsend for web 2.0 companies whose entire business model relies on willful blindness. “I’m shocked, shocked to find that (piracy) is going on in here!” they exclaim with Cheshire grins, counting their money all the while…it’s an absolute farce, and an absolute travesty of justice.

    On the other hand, I really do wish some other company had brought the suit. Viacom was quite possibly the WORST candidate to do so, given their misguided guerrilla marketing campaign that entailed uploading much of the same content they would later file suit over. The fact that they couldn’t even distinguish what had been uploaded by them and what had been uploaded by uninvolved 3rd parties is just embarrassing. Such incompetence rightfully damns them in the court of public opinion (if nothing else), and serves only to muddy the waters of discourse.

  4. Immediately, even the 2nd Circuit’s opinion OMITS part of the definition for 17 USC § 512(k)(1)(B) to grant YouTube a “service provider’ status. They write at Page 10 at 10, “First, the party must in fact be a “service provider,” defined, in pertinent part, as “a provider of online services or network access, or the operator of facilities therefor.” 17 U.S.C. § 512(k)(1)(B).”

    Oh wait “defined in pertinent part”. That is NOT what is written in the provision of the law. WHY did they add a “period”, rather than a comma, in the defintion and omit “and includes an entity as described in subparagraph(A)”? Are they screwed up in the head to NOT protect exclusive rights in copyright law and the US Constitution? Worse, why does Viacom NOT argue the provision as it was meant to be in 1998, to include Internet Access for the protection of EXCLUSIVE RIGHTS! Google and YouTube are not service providers, neither provide Internet Access. And the US media are now tied by executives to NOT expose fraud because copyrights, in fact all copyrights are infringed by YouTube, Google, etc. They know it and so does everyone here, no matter how opininated one may think to argue in opposition.

    To somehow come across as if God granted YouTube, Google, Facebook, etc. with a “realm of reality” that no one else can have as a comptitor where the content never has to be licenced to create that “realm” for monetization is a sad step for the democracy of the United States and the rest of the world.

    On top of that Mozilla grants downloading of every file and still does today with 120,000,000 user and growing—they even hid the numbers after boasting about it. No one wants to state these facts as loud as Google can through their cash-stash from theft, but Viacom knows it. Bloomberg knows it. CNBC knows it. CBS knows it. FOX knows it. Everyone knows it. Upload on YouTube, download on YouTube. Done. Greed by a creation to maintain high unemployment for all to abuse.

    See the book “HR-2281: And then the DMCA Didn’t Apply on the Earth (Viacom vs. Google)”.

  5. Well…..now that it is back to the district court, do we see:

    1) More depositions?
    2) More ***new*** evidence submitted?
    3) Another 3 years to go to the appellete courts again?
    4) Continued silence of another arguable opinion for 17 USC § 512(k)(1)(B)?

    And this lawsuit will go while Viacom and YouTube do business with each other. How nice.

    Maybe UMG’s lawyers will go to Singapore and chew gum. We all know what that penalty will be for making copyright case-law worse (see UMG vs Veoh 9th Circuit) by one of the dumbest arguments ever for copyright infringement.

    In the end. It’s all about the money. It certainly is when Google/YouTube lied un Federal Court stating “no[] downloads” (see Page 93 Line 9-12 of their Memoranda of Law), but then Mozilla downloads all files under a YouTube promotion at that exact same moment in time (including today I might add), and Hohengarten #118 evidentiary file of their Terms of Servcie stating all users can download by affirmation, to long as the copyright is shifted to the downloader for “personal use”.

    You see this contradition written above is so clear that to call it blatent would be an insult. Maybe there should be a letter writing campaign for this when the facts are beyond blatent in the evidence…..and then NOT argued for a reason that cannot be devulged during an on-going litigation.

    P.S.: I see the 2nd Circuit user the Perfect 10 vs Cybernet Ventures case. That must have given the Electronic Frontier Foundation an deserved kick in the ass. I hope there’s room so I can give an equal kick in the EFF’s ass after that one.