On Monday, a federal district court held that Escape Media, which operates streaming music service Grooveshark, was liable for copyright infringement, “creating a business model that was based upon the unlicensed sharing of copyright protected material.” According to the court [Opinion], Escape’s Chairman “bet the company on the fact that [it] is easier to ask forgiveness than it is to ask permission” — now he will get the chance to test that claim.

The lawsuit was filed in 2011 by Universal Music Group along with eight other record labels. 1Atlantic Recording Corporation, Zomba Recording, Elektra Entertainment Group, Arista Records, LaFace Records, Warner Bros. Records, Arista Music, and Sony Music Entertainment. Universal had earlier filed a lawsuit against Escape in a New York state court (more on that below). During those proceedings, Universal discovered evidence that Escape employees were personally uploading copyrighted sound recordings to Grooveshark. Universal, joined by the other sound recording plaintiffs, quickly filed suit in federal court following this revelation for copyright infringement against Escape Media and its two co-founders, Samuel Tarantino and Joshua Greenberg.

Universal moved for summary judgment this past February and now the court has released its decision.

Groovin’ on up

As the court explains, Grooveshark began in 2006 as a peer-to-peer network that allowed users to copy and distribute digital music files among other Grooveshark users. Tarantino and Greenberg formed Escape Media with the ultimate goal of creating a business around the network, a business that the company knew “depended upon the use of infringing content.” However, in its early days, “Grooveshark did not have a large user base to leverage as a source for content.” So Escape turned to its employees, instructing them “to create Grooveshark user accounts and to store hundreds of thousands of digital music files on their computers in order to upload or ‘seed’ copies of these files to other Grooveshark users.” 2One message from Greenberg written in 2007 that the court quotes is quite colorful. In it, he instructs employees to “Download as many MP3’s as possible, and add them to the folders you’re sharing on Grooveshark. Some of us are setting up special ‘seed points’ to house tens or even hundreds of thousands of files, but we can’t do this alone… There is no reason why ANYONE in the company should not be able to do this, and I expect everyone to have this done by Monday… IF I DON’T HAVE AN EMAIL FROM YOU IN MY INBOX BY MONDAY, YOU’RE ON MY OFFICIAL SHIT LIST.”

In June 2007, Escape switched from a peer-to-peer model to one using centralized servers. Not only did it update its software to “automatically copy every unique music file from each of its users’ computers and upload them to the storage library,” but it continued to instruct employees to manually add copyrighted content to the servers. In 2008, the company evolved from a file-sharing service to an on-demand music streaming service, its present form. Uploading infringing files remained “a regular part of Escape employees’ job responsibilities up and until the initiation of the present litigation.” In addition, “Escape’s senior officers searched for infringing songs that had [been] removed in response to DMCA takedown notices and re-uploaded infringing copies of those songs to Grooveshark to ensure that the music catalog remained complete.”

Universal specifically alleged that Escape is liable for direct infringement as well as indirect infringement in the form of vicarious liability, inducement, and contributory infringement. Universal also brought claims against Tarantino and Greenberg personally. If ever there was an open and shut case for infringement, this is it, a fact that even Escape seemed to recognize. The court notes:

In support of these claims, plaintiffs have created a substantial and largely uncontroverted record of evidence. Confronted with this body of evidence, defendants have chosen a purposeful litigation strategy. As discussed above, defendants have primarily mounted procedural and evidentiary challenges to plaintiffs’ copyright infringement claims. Defendants devote very little of their summary judgment memorandum to actually engaging with the substance of plaintiffs’ copyright claim.

And indeed, while the court discusses each of these claims, there is never any doubt as to its conclusions.

Though Escape has suggested an appeal is possible, its chances of success seem highly doubtful. The parties are now briefing on the scope of permanent injunctive relief.

Groovesharknado

This isn’t the only lawsuit Escape Media is currently facing. As mentioned above, this lawsuit resulted from a still ongoing New York state action brought by Universal for common law claims pertaining to pre-1972 sound recordings (which are not protected under federal copyright law 3See Federal Copyright Protection for Pre-1972 Sound Recordings, A Report of the Register of Copyrights (2011). ). In April 2013, a New York state appellate court dismissed Grooveshark’s DMCA defense, holding that the federal safe harbors do not protect against state and common law copyright claims.

Last week, Universal moved for summary judgment on its claims that Escape infringed its common law rights of distribution, reproduction, and public performance (UMG is also seeking summary judgment on an unfair competition claim) — infringement alleged to occur independently of Escape employees and officers uploading copyrighted content themselves. Universal argues in its memorandum of law supporting the motion that “At all relevant times, Escape employed a business model for Grooveshark that was based upon the use of infringing content.”

[R]ather than obtaining… licenses, Escape made a calculated business decision to launch Grooveshark, utilizing infringing label content in order to grow faster, reduce costs and attempt to strike more favorable licensing deals… Indeed, Escape’s officers openly discussed the possibility that they would never have to pay for their unauthorized use of copyrighted content. Specifically, they hoped that by illegally growing their user base, they could collect valuable data about Grooveshark users’ listening habits, which they could then sell to the labels for more than Escape would have to pay in licensing fees.

Additionally, a separate federal lawsuit with Capitol Records (d/b/a EMI) as the sole plaintiff was filed against Escape in the Southern District Court of New York in 2012. EMI had previously sued Escape in 2009. The two companies settled and entered into a distribution agreement, “which granted Escape the right to distribute digitally EMI’s content on Grooveshark.” However, Escape repeatedly breached the terms of the license and failed to make payments, leading EMI to terminate the agreement. It sued again for infringement occurring after the termination.

The magistrate judge assigned to that litigation recommended this past May that Escape’s DMCA defense be rejected and summary judgment be “granted in favor of EMI on its claims for direct infringement of the right of performance under federal law, secondary infringement under federal law for both contributory and vicarious infringement, and direct and secondary infringement under New York common law for copyrighted works not covered by the Copyright Act.” Escape subsequently filed objections to that report, meaning a district court judge must review the findings de novo, a review that remains pending.

The recommendation is clear that even if employees didn’t personally upload any files, the service would still be liable for facilitating and profiting off of massive infringement. Most significantly, the magistrate judge found that Escape did not implement a policy for terminating repeat infringers, one of the conditions for safe harbor protection under the DMCA.

Courts have recognized a wide range of procedures and practices for implementing a repeat infringer policy that constitute “implementation” under § 512(i)(1)(A), and they should continue to do so. Thus, there is a high bar for a plaintiff to show that a service provider, as a matter of law, does not “implement” its repeat infringer policy within the meaning of the DMCA. The undisputed facts before the Court, however, point only to that conclusion. Escape does not have a repeat infringer policy or an alternative policy that serves the same purpose; does not keep records of repeat infringement sufficient to enforce an adequate repeat infringer policy; permits an extensive amount of repeat infringement to occur without taking action or making a record; depends upon a small number of repeat and flagrant infringers to supply a substantial amount of the content available on Grooveshark; takes action in response to copyright owners’ DMCA notifications of infringement that fails to actually make the song unavailable or prevent it from reappearing immediately on Grooveshark; prevents copyright owners from collecting the data necessary to issue DMCA notifications in a meaningful way; and, finally, has never terminated a repeat infringer’s account and has no policy or procedure for doing so. For these reasons in combination, the Court finds that Escape does not “implement” a repeat infringer policy under § 512(i)(1)(A) and is thus ineligible for DMCA safe harbor.

Groove is in the Shark

Monday’s decision should be welcomed by everyone. Even the most ardent copyright minimalist would agree that the law should, at the least, provide a remedy for intentional, wide-scale, commercial piracy. The real question is whether the DMCA, as it is currently interpreted, provides too much cover to companies engaged in this type of large scale piracy. Evidence of employee uploads was only uncovered after years of litigation by major record companies (never mind that employee uploads still only made up a minority of songs available through the site). Up til then, Grooveshark was able to operate a largely unlicensed commercial music streaming service in the open, with a plausible claim that the DMCA shielded it from legal liability because of how courts have interpreted the safe harbor.

Grooveshark is not that different from other online services. Escape’s belief that it’s “easier to ask forgiveness than it is to ask permission” is as close to a Silicon Valley mantra as you will find, where “permission” is often considered a dirty word. Throughout its tenure, it has cloaked itself in buzzword-laden innovation talk. Its founders parrot the same “music should be free” talking points heard all too often and claim that the problem in the music industry is outdated business models, not rampant online infringement.

But this court decision reveals that this was all just a smokescreen to obscure the fact that Escape Media was illicitly profiting off the work of others, to the detriment of the public interest.

This illustrates how the DMCA has failed in its goal of providing “strong incentives for service providers and copyright owners to cooperate to detect and deal with copyright infringements that take place in the digital networked environment.” 4H. Rep. 105-796, 105th Congress (1997). Escape Media’s wanton infringement would not have been discovered had it not been possible for record labels to move forward with litigation in state courts because of the distinct treatment of pre-1972 sound recordings under the federal Copyright Act, a quirk unavailable to other types of copyright owners — makers of film and television programs, photographs and works of visual arts, or books, for example.

Earlier this year, US Representatives Judy Chu and Tom Marino wrote that the DMCA is not only ineffective but actually “favors non-compliance.” Grooveshark is the poster child for this effect. Media companies end up having to send millions upon millions of takedown notices and spend years in litigation just to be able to continue to create and distribute the works that consumers want. The situation is worse for small businesses and individual creators; they are faced with choosing between spending time and resources they don’t have going after infringers or giving up entirely, a point vividly make in last week’s Ars Technica article, Bugging Out: How Rampant Online Piracy Squashed One Insect Photographer by (former) professional photographer Alex Wild.

References   [ + ]

1. Atlantic Recording Corporation, Zomba Recording, Elektra Entertainment Group, Arista Records, LaFace Records, Warner Bros. Records, Arista Music, and Sony Music Entertainment.
2. One message from Greenberg written in 2007 that the court quotes is quite colorful. In it, he instructs employees to “Download as many MP3’s as possible, and add them to the folders you’re sharing on Grooveshark. Some of us are setting up special ‘seed points’ to house tens or even hundreds of thousands of files, but we can’t do this alone… There is no reason why ANYONE in the company should not be able to do this, and I expect everyone to have this done by Monday… IF I DON’T HAVE AN EMAIL FROM YOU IN MY INBOX BY MONDAY, YOU’RE ON MY OFFICIAL SHIT LIST.”
3. See Federal Copyright Protection for Pre-1972 Sound Recordings, A Report of the Register of Copyrights (2011).
4. H. Rep. 105-796, 105th Congress (1997).