Distinguishing between cyberlockers and legitimate cloud storage services

By , September 22, 2014.

On Thursday, the Digital Citizens Alliance released a report revealing how profitable copyright infringement can be for cyberlockers. The study by NetNames, Behind the Cyberlocker Door, found that the top fifteen direct download cyberlockers and top fifteen streaming cyberlockers rake in over $96 million a year. This represents absurdly high profit margins—63.4% for direct download and 87.6% for streaming—due in no small part to the exploitation of infringing content. The study estimates that “78.6 percent of files on direct download cyberlockers and 83.7 percent of files on streaming cyberlockers” infringe.

One interesting question that emerges from the report is whether one can draw a distinction between cyberlockers and legitimate online storage providers. The NetNames report provides a useful guide.

Copyright implicates tricky questions when it comes to services that enable copying. Copying is no doubt a useful function: think of photocopiers, VCRs, or even your hard drive, which copies as a matter of function. Yet copying is also one of the exclusive rights of a copyright owner; unchecked copying of copyrighted works can undermine the system of property rights that has resulted in the wealth of cultural prosperity we see today.

Sony Sheep and Grokster Goats

The Supreme Court first broached the question of copyright and copying devices in Sony Corp v Universal City Studios, concerning an infringement case brought against the manufacturer of one of the earliest consumer home video recorders. The district court had found that Sony could not be directly liable for user infringement; it does not “loan or otherwise provide the copyrighted work”, and “The copying occurs not in a store operated and managed by the defendants but rather in a person’s home, a location in which individual privacy is constitutionally protected and over which defendants have no control. Furthermore, defendants’ acts of selling the Betamax and blank tapes to consumers can easily lead to noninfringing uses.” On appeal, the Supreme Court looked at indirect liability. Specifically, it asked when the provision of copying devices gives rise to liability. It answered this question by saying that the mere “sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes.”

A touch over thirty years later, the Court was asked to look at the liability of companies that provided software that allowed peer-to-peer trading of computer files in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd. Unlike the manufacturer defendant in Sony, the defendants in Grokster provided the ongoing infrastructure needed for users of their software to distribute files of all types. In addition, there was clear evidence that defendants “clearly voiced the objective that recipients use [their software] to download copyrighted works, and … took active steps to encourage infringement.”

The Supreme Court was asked to apply the Sony test in Grokster, a rule that “barred secondary liability based on presuming or imputing intent to cause infringement solely from the design or distribution of a product capable of substantial lawful use, which the distributor knows is in fact used for infringement.” However, the Court declined. It said:

Sony‘s rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law.

The Court went on to describe how one could be liable for inducing infringement, holding, “one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.”

After Grokster, it was clear that there was a line between legitimate services that might be capable of infringement and illegitimate services that were intended to facilitate infringement, but it was less clear where that line would fall in every case—a question of increasing relevance given the explosion of online services that come into contact with copyrighted works. Columbia Law professor Jane Ginsburg refers to this inquiry as “separating the Sony sheep from the Grokster goats.”1Jane Ginsburg, Separating the Sony Sheep from the Grokster Goats, 50 Arizona Law Review 577 (2008). She observes that many cloud services are “dual purpose.”

That is, they are not inherently pernicious; they can in fact be put to perfectly lawful and socially desirable uses. If the technology itself is at least in theory neutral, does this pose an insoluble quandary: either enforce copyright at the expense of technological evolution, or promote technology at the cost of copyright? Or can we have it both ways, fostering both authorship and technological innovation? To reach that happy medium, we need to ensure the “neutrality” of the technology as applied in a given business setting. If the entrepreneur is not neutral, and is in fact building its business at the expense of authors and right owners, it should not matter how anodyne in the abstract the technology may be.

Reaching this “happy medium” is particularly challenging when it comes to cloud storage services, since their essential purpose is to serve as repositories of files for third parties. The ability to remotely store and share files is valuable. But it can also allow for a damaging level of copyright infringement—a prospect which, given the profit margins mentioned above, serves as a strong temptation to those willing to risk getting away with it.

Cyberlockers vs Cloud Storage

Prior to the NetNames report, a few observers have discussed ways to distinguish between “legitimate” services—like Dropbox—and services which tend to facilitate infringement—like Megaupload, which was indicted by a grand jury in 2012 for “massive worldwide online piracy.” In Hotfile, Megaupload, and the Future of Copyright on the Internet: What can Cyberlockers Tell Us About DMCA Reform?, Ross Drath highlights four features “that copyright owners (and governments) typically find objectionable” when it comes to remote file storage services: “(1) public (as opposed to password-protected) sharing capability; (2) direct linking; (3) lack of search function; and (4) rewards programs.”212 J. Marshall Rev. Intelli. Prop. L. 205, 212 (2012).

Carrie Bodner describes a taxonomy of cyberlockers in Master Copies, Unique Copies and Volitional Conduct: Cartoon Network’s Implications for the Liability of Cyber Lockers.336 Columbia Journal of Law & the Arts 491, 498-504 (2013). On one end of the spectrum are services like Dropbox, SkyDrive, and Amazon Cloud. These services are marketed “primarily as a backup service, similar to an external hard drive,” and thus such services tend to be employed for productive or business uses rather than entertainment. Some services are more geared toward entertainment uses—for example, Amazon Cloud Player and Google Music, both of which provide storage specifically for music files—but Bodner notes that some have nevertheless “avoided an illicit reputation,” citing close ties to reputable businesses and legitimate online music stores.4Bodner does not mention this in her article, but most of the major services also have explicit agreements with major rightsholders governing features of their cloud storage services that more directly impact copyrighted works. See, e.g., Amazon’s music cloud is licensed by all top labels. On the other end of the spectrum are “one-click file hosts” such as “Rapidshare, Hotfile, Megaupload, MediaFire and 4Shared.” The primary difference is that these services lack any restrictions on who can download files that have been uploaded. Other distinguishing characteristics include the offering of monetary incentives to users who upload content that is downloaded frequently and premium accounts that remove restrictions on download speeds and waiting periods.

The distinction drawn in the NetNames report largely tracks that made by Bodner and Drath. According to the report, cyberlockers (as opposed to “legitimate cloud storage services”) generally place no limits on who can download or stream a file and frequently offer “affiliate programs that reward users when their uploaded content is accessed.” In addition, cyberlockers often delete files that haven’t been accessed after a period of time and don’t offer synchronization with a user’s devices, indicating that their purpose is not personal storage and access. Finally, cyberlockers are lax when it comes to enforcing repeat infringer policies.

In short: for cyberlockers, the client is the downloader. For legitimate cloud storage services, the client is the uploader. Yes, both allow users to store files remotely, but the similarities end there. For cyberlockers, the goal of spreading files as widely as possible permeates every aspect of the service.

That’s not to say that any of the characteristics described above, by itself or taken together, necessarily does or should render any given service liable for copyright infringement. In fact, Behind the Cyberlocker Door calls on credit card processors to take steps to prevent cyberlockers from profiting off the work of others. Outside of the report, voluntary efforts to mitigate piracy from all the various participants in the online ecosystem continue. These efforts are aided by a clear distinction between cyberlockers and legitimate cloud storage services.

References

References
↑1 Jane Ginsburg, Separating the Sony Sheep from the Grokster Goats, 50 Arizona Law Review 577 (2008).
↑2 12 J. Marshall Rev. Intelli. Prop. L. 205, 212 (2012).
↑3 36 Columbia Journal of Law & the Arts 491, 498-504 (2013).
↑4 Bodner does not mention this in her article, but most of the major services also have explicit agreements with major rightsholders governing features of their cloud storage services that more directly impact copyrighted works. See, e.g., Amazon’s music cloud is licensed by all top labels.

Some Examples of DMCA Abuse

By , March 13, 2014.

This morning, the House Judiciary Committee Subcommittee on Courts, Intellectual Property, and the Internet will continue its ongoing review of the Copyright Act, focusing this time on Section 512 of Title 17, the DMCAâ’s notice and takedown provisions.

No doubt, copyright’s skeptics will trot out their usual line of DMCA abuse, so I thought it would be appropriate to offer my own. Here, in no particular order, are my top examples of DMCA notice and takedown abuse: sites and services which had claimed the protection of the law while receiving millions of notices of infringing content and profiting handsomely, to the detriment not just of the large copyright holders who could afford to send takedowns (and litigate if need be) but especially to the detriment of individual creators and small businesses, who effectively have no recourse:

Hotfile

Filelocker Hotfile was founded in 2009. By the time it was sued for copyright infringement by the major motion picture studios in 2011, it had become one of the most popular such sites. In part, this was because the site did such a good job facilitating infringement among its users—evidence showed over 90% of files downloaded through the service were infringing, and the court noted that these efforts “worked a significant financial benefit to Hotfile and its founders.”

Hotfile, of course, argued strenuously that it was operating consistent with the DMCA.

The facts showed a different story. One of the requirements for the DMCA safe harbor is that a site adopts and reasonably implements a “repeat infringer” policy, one that terminates accounts in appropriate circumstances. The court found that Hotfile was doing anything but. When the litigation began, Hotfile had received over 10 million takedown notices for infringing content on its system. But records show that it had only ever terminated a grand total of 43 users—though 33 of those came as a result of a court order from prior litigation. Nearly twenty-five thousand Hotfile users had accumulated over three infringement notices. Over sixty of those users were sitting on at least three hundred notices.

And as proof that Hotfile could have adopted a reasonable repeat infringement policy but didn’t, and that it would make a difference, the service revamped its policy after the litigation began and almost immediately 444 of its 500 highest paid affiliates were terminated for repeated infringement. Hotfile ended up shutting its doors and settling with the motion picture studios for $80 million the day before it was set to face a jury.

It’s difficult enough for creators to detect and deter online infringement, but some bad actors use the DMCA as legal cover, window dressing that places a façade of legitimacy over plain old for-profit exploitation. The law, however, is more than just a notice-and-takedown mechanism, and services have a number of requirements they must meet to enjoy its protection.

Megaupload

In 2012, the US government brought criminal charges against filelocker Megaupload and seven of its officers. Like Hotfile, Megaupload argued that it was merely an innocent cloud storage provider, shielded by the DMCA, but publicly released evidence shows the site used the law as a sword, helping it rake in $150 million and causing around $500 million in damages to copyright holders.

While the government alleges Megaupload failed to meet most of the DMCA’s requirements, one policy in particular stands out as DMCA abuse. According to the Department of Justice:

If there are multiple links to a file, then any attempt by the copyright holder to terminate access to the file using the Abuse Tool or other DMCA takedown request will fail unless all of the URL links to the infringing file are known and submitted, because the file will continue to be available through any undisclosed URL links. The infringing copy of the copyrighted work, therefore, remains on the Mega Conspiracy’s systems as long as a single link remains unknown to the copyright holder. The Mega Conspiracy maintains a record of links that have been generated by the system, but duplicative links to infringing materials are neither disclosed to copyright holders, nor are they automatically disabled or deleted when a copyright holder either uses the Abuse Tool or makes a standard DMCA copyright infringement takedown request. During the course of the conspiracy, the Mega Conspiracy has received many millions of requests to remove infringing copies of copyrighted works, and yet the Mega Conspiracy has, at best, only deleted the particular URL of which the copyright holder complained, and purposefully left the actual infringing copy of the copyrighted work on the Mega Conspiracy-controlled server and any other access links completely intact.

This is a deliberate end-run around the law’s purpose of cooperation between service providers and copyright owners to detect and deter infringement. “Takedown” should mean “takedown” (ideally, it should also mean “stay down”, but that’s another story).

Grooveshark

One of the safe harbors in the DMCA protects against liability for material stored at the direction of users. So why couldn’t you have users store music files on your servers and then provide an on-demand streaming platform with a catalog rivaling licensed music services? That’s the too-clever-by-half strategy employed by Grooveshark (along with allegations that it requires employees to upload music themselves to plug any holes). Grooveshark is currently involved in copyright infringement litigation with a number of record labels, and indie musician Erin McKeown has repeatedly called them out for their practices:

https://twitter.com/erinmckeown/status/423887986150092801

Noted copyright scholar Peter Menell has also written about the service, calling it a case study in DMCA safe harbor abuse. The “DMCA license” that services like Grooveshark believe they are entitled to under the law—where services believe it’s ok to build full-fledged content platforms without licenses so long as they “launder” the content through users—not only allows them to divert money out of the hands of musicians, but it makes it more difficult for legitimate, sustainable online platforms to grow.

IsoHunt

At one point, IsoHunt was one of the world’s most popular BitTorrent search engines, indexing and helping users search and find torrent files—90-96% of which were infringing. As with the services above, IsoHunt claimed DMCA protection. But last year, the Ninth Circuit rejected that claim.

The primary reason was that IsoHunt was actively inducing infringement through its service:

As noted, the record is replete with instances of Fung actively encouraging infringement, by urging his users to both upload and download particular copyrighted works, providing assistance to those seeking to watch copyrighted films, and helping his users burn copyrighted material onto DVDs. The material in question was sufficiently current and wellknown that it would have been objectively obvious to a reasonable person that the material solicited and assisted was both copyrighted and not licensed to random members of the public, and that the induced use was therefore infringing.

It would seem obvious that service provider actively engaged in encouraging infringement (and, as the record showed, profiting from it) could find refuge in a statue designed to protect service providers from incidental and innocent infringement that occurs on their facilities. But that is unfortunately not always the case. The DMCA should not be so broad that it protects against deliberate infringing behavior.

Though these sites have been or are currently the subject of legal action, there are sadly far too many like them continuing to operate, hiding behind the DMCA to profit off the work of others without their permission. This abuse penalizes good faith service providers and stymies the growth of legitimate innovative services. It exploits creators—and worse, chill their ability to create and disseminate new works for the public to enjoy.

As Congress looks at the DMCA, it should look for ways to reduce the ability of bad faith actors to abuse the important protections the law provides. That would better foster the type of sustainable and innovative online creative ecosystem that the public deserves.

Filelocked: Hotfile liable for rampant copyright infringement

By , September 23, 2013.

Hotfile is liable for the “staggering” amount of infringement it financially benefitted from, and it is not protected by the DMCA safe harbor for online service providers.

That is the conclusion of U.S. District Court Judge Kathleen Williams of the Southern District Court of Florida. Williams made the ruling August 28, but the decision had been under seal until this past Friday.

What makes this case notable is that it was brought by the five major motion picture studios (Disney Enterprises, Inc., Twentieth Century Fox Film Corporation, Universal City Studios Productions LLLP, Columbia Pictures lndustries, Inc., and Warner Bros. Entertainment Inc.) against a fairly popular filelocker service (at least at the time the suit was filed). This appears to be the first time an infringement lawsuit from major players in the creative industries had been brought against a filelocker service specifically — previous efforts have aimed at P2P services and the like. Add to that the fact that the suit was filed in Florida, outside the 2nd and 9th Circuits where the bulk of copyright litigation occurs, and you have a situation where the court is interpreting many DMCA provisions on a blank slate.

Oh, and the decision also comes in at just under 100 pages.

I had previously discussed the issues in front of the court and both parties’ arguments. That was over a year ago, which is an unusually long time between hearing and order on a summary judgment motion. Part of that may have been the sheer complexity of the issues; part of that may have been the aggressive litigation posture taken by both sides. The court diplomatically refers to the many “robust pleadings” filed without leave of court and notes, certainly an understatement, that “the parties do not agree on much.”

Whatever the case may be, the issue boils down to a familiar one. Hotfile, an “off-shore technology company” provides online file storage. As is often the case, infringing works are among the files that were stored and shared by Hotfile users. The film studios argued that Hotfile should be held liable for such infringement because it contributes to, encourages, or benefits from such infringement.

As the court explains, Hotfile’s storage locker service allows registered users to upload any file they want from their computer to Hotfile’s servers to be stored. The service automatically generates a link where the file can be accessed. The files or links are not otherwise private; any member of the public can access them so long as they know the link. Hotfile operated an affiliate program which paid users when they directed others to Hotfile file locations, encouraging affiliates to catalog and broadcast Hotfile links. Hotfile also provided premium service, which gave users additional file space and faster download speeds for a monthly fee.

The court begins with a careful, comprehensive discussion of the facts (nearly 35 pages worth). As we’ll see in a moment, the question of whether Hotfile had adopted and reasonably implemented a repeat infringer policy will play a key role in determining whether the service is protected by the DMCA safe harbor, but I do want to highlight the court’s discussion regarding the policy that was in place — some of these numbers are staggering. The evidence reveals that when the studios had filed their complaint, Hotfile had received a total of 10 million takedown notices for infringing content, yet had only terminated 43 users – 33 of those as a result of a court order from prior litigation. At the same time, nearly 25 thousand Hotfile users had accumulated more than three infringement notices; 61 of those users had over 300 notices each. After the litigation began, Hotfile adopted a “revamped” repeat infringement policy, and the results were dramatic: 444 of its 500 highest paid affiliates were terminated for repeated infringement.

The DMCA safe harbor and the repeat infringer policy

Turning to the legal issues, the court begins with the DMCA safe harbor. 117 U.S.C. § 512. As it notes, if Hotfile qualifies for the safe harbor, it is immunized from any liability for infringement. If it doesn’t, the court must then separately consider if Hotfile is liable. The court cites to the relevant legislative history of the DMCA to explain the law’s motivations in striking a balance between protecting creators’ rights and promoting the growth of online services.

The DMCA applies to online service providers, which Hotfile clearly is, and one of the safe harbors covers storage at the direction of the user, which the court says covers the activities at issue here. 2I note that the court glosses over one of the studios’ (admittedly far-reaching) arguments that the infringement in question was not within the scope of the storage safe harbor. The studios had argued that Hotfile’s practice of routinely deleting files that have never been downloaded was the antithesis of “storage” and thus not protected under the safe harbor.

The DMCA safe harbor requires that a service provider

has adopted and reasonably implemented, and informs subscribers and account holders of the service provider’s system or network of, a policy that provides for the termination in appropriate circumstances of subscribers and account holders of the service provider’s system or network who are repeat infringers. 317 U.S.C. § 512(i)(1)(A).

The court here turned to the legislative history and other courts to flesh out the details of this provision, since the terms are not defined in the statute. It determined that a policy is “reasonably implemented” if it terminates users, under appropriate circumstances, who “repeatedly or blatantly infringe copyright.” At a minimum, this means that a policy “must be capable of tracking infringers.” Hotfile, said the court, “effectively did nothing to tie notices to repeat infringers.” This, in addition to the breathtaking scope of infringement that Hotfile essentially ignored took the service provider outside the protection of the DMCA safe harbor. The court concluded:

Here, the scale of activity – the notices of infringement and complaints from copyright holders — indicated to Hotfile that a substantial number of blatant repeat infringers made the system a conduit for infringing activity. Yet Hotfile did not act on receipt of DMCA notices and failed to devise any actual policy of dealing with those offenders, even if it publicly asserted otherwise. It has presented no evidence to show that the small number of removals that did occur were for any reason other than threatened Iitigation or by court order. lndeed, it has been unable to point to a single specific user who was terminated pursuant to its policy of manual review and exercise of ”discretion.” Documents and statistics indicate that there was never any realistic threat of termination to Hotfile’s users, whose activities were protected by the company’s indifference to infringement notices. In sum, regardless of official policies forbidding infringement, Hotfile did not significantly address the problem of repeat infringers. This renders Hotfile’s policy legally insufficient under Section 512(i).

While this, on its own, was enough to kick Hotfile out of the safe harbor, the court continued to provide observations and conclusions on two other DMCA requirements. The first provides that service providers designate an agent to receive infringement notices and register the agent with the U.S. Copyright Office. Hotfile, however, did not register an agent until December 2009 and had not identified the agent on its website as required by the statute until May 2010. Additionally, the court suggested that Hotfile was still not in compliance with this requirement since it “to date, has not provided a proper mailing address for its registered agent insofar as it lists only a post office box,” contrary to Copyright Office regulations.

The second requirement is that a service provider cannot have either actual or “red flag” knowledge of infringement. But, as the court notes, the DMCA places limitations on this requirement. Under the statute, a service provider does not initially have a duty to affirmatively monitor for infringement. Courts have also determined that the statute requires the knowledge be of specific infringing activity rather than a general awareness of infringement, a determination that the court here adopts. At the same time, willful blindness is a form of knowledge, and courts have struggled with incorporating willful blindness into the DMCA consistent with its limitations on the knowledge prong — the court here notes the complexity of this inquiry but doesn’t attempt to clarify it.

Instead, it concludes that whether Hotfile had the requisite knowledge that would disqualify it from the DMCA safe harbor was a question that would need to be decided by a jury. This conclusion is a little odd procedurally, as the court had already granted summary judgment denying Hotfile’s DMCA defense, meaning the question of knowledge would never reach a jury, but perhaps Judge Williams wrote it anticipating an appeal.

Secondary liability for copyright infringement

Next the court turns to the question of infringement itself. As it notes, the DMCA safe harbor and secondary liability are independent inquiries (even though there is plenty of overlap between some of the factors and the evidence that is relevant to each). And while it has been a challenge for courts to apply common law secondary liability principles to new technologies, they still play an important role since copyright protections would be rendered meaningless if creators were limited to going after each individual infringers using such services.

Inducement and contributory infringement are discussed first. The court marches through some of the most relevant precedent here, including, among others, the Supreme Court’s Grokster decision, the recent Lime Group decision, and the Ninth Circuit’s Perfect 10. The court extracts from this precedent its own standard for examining contributory infringement, one that provides three separate avenues for establishing secondary liability:

First, while it may be unclear whether Grokster introduced a new category of Iiability based on inducement or whether it spoke to pre-existing notions of contributory liability, it is evident that a defendant will be liable for actually expressing an intention to foster infringement. If that intent is express or can otherwise be said to be ‘’unmistakable,’’ the Sony/Betamax defense will not apply and the defendant will be liable for aII acts of direct infringement committed using its system, as was the case in Grokster. Similarly, as explained in Amazon.com, where traditional principles permit a court to impute intent – for instance, where the defendant knows of specific infringing content available on its system yet fails to remove it – that defendant may be Iiable, by operation of Iaw, just as if he had actually intended to infringe under Grokster. Finally, contributory infringement may be found based on a material contribution theory in instances where a defendant did not express an intention to foster infringement but provided the means for infringement of distributed a commercial product that was subsequently used to infringe. Under that theory, the Sony/Betamax rule provides a backstop of liability, immunizing a defendant who demonstrates that noninfringing uses of the system are substantial.

Here, the evidence left a number of unresolved questions about whether Hotfile is liable under any one of these avenues, and the court concludes that “while Hotfile may have difficulty explaining its ‘innocence’ to a jury, the genuine issues of material fact must be resolved by a jury at trial.”

Less complex is the vicarious liability inquiry. The standard used by the court here is two pronged: one is vicariously liability if he (1) profits from direct infringement while (2) declining to exercise a right to stop or limit it.

The profit, or financial benefit, from infringement does not, the court observe, need to be a direct one, or even a significant one. It is enough that there is a causal relationship between infringement and benefit to satisfy this prong. And here, the court found that the evidence did establish a connection between infringement on Hotfile and its sales of premium subscriptions, concluding that “it is undeniable that it financially benefitted from [infringement] by attracting some users.”

The second prong was just as easily met. The infringing files were stored on Hotfile’s own servers, and it contractually retained a right to control uploaded files in its terms of service. As a matter of law, then, Hotfile is vicariously liable for copyright infringement.

Two final issues were addressed in the court’s order. First, the court held that Anton Titov, one of the primary corporate officers of Hotfile, is, as a matter of law, personally liable for any infringement along with Hotfile itself. And second, the court found that there was enough evidence to support Hotfile’s counterclaim against one of the studios involved, Warner. The evidence suggested that Warner intentionally sent takedown notices for files that it knew it had no right to remove.

While the decision has been a long time coming, and while it will take a long time to digest — it’s very thorough — this is likely only the beginning. Hotfile has already appealed the decision to the Eleventh Circuit.

References

References
↑1 17 U.S.C. § 512.
↑2 I note that the court glosses over one of the studios’ (admittedly far-reaching) arguments that the infringement in question was not within the scope of the storage safe harbor. The studios had argued that Hotfile’s practice of routinely deleting files that have never been downloaded was the antithesis of “storage” and thus not protected under the safe harbor.
↑3 17 U.S.C. § 512(i)(1)(A).

Friday’s Endnotes – 08/30/13

By , August 30, 2013.

If other professions were paid like artists — “Jeez, people with jobs, why you keep demanding money and stuff?!”

Hugh Hansen’s One Thing After Another Blog — Noted copyright scholar Hansen has recently begun a blog which promises plenty of great thoughts on legal issues, including IP and copyright.

MPAA Fires Back at Piracy Study — A recent study that purports to show that some films were harmed by the shutdown of Megaupload in 2012 is unclear and full of speculation, according to the MPAA.

LGBT Cinema, Diverse Voices Quieted by Piracy’s Punch? — Ellen Seidler looks at a recent study by GLAAD that shows representations of LGBT characters in film has declined. There’s a number of reasons for the decline, but one in particular that Seidler has first-hand experience with: online piracy. Seidler concludes with practical tips for filmmakers to help ensure the release of their film is successful.

Emphasis on “goo” – authors point out the many fallacies of Google’s book scanning defense — John Degen runs us through a memorandum filed by the Author’s Guild in opposition to Google’s fair use defense that it has raised in the ongoing Google Book Search lawsuit. “The Authors Guild (America’s version of The Writers’ Union of Canada), is proving itself, once again, to be the best friend of writers worldwide as it continues its David and Goliath legal fight with all-seeing search giant Google.”

Internet-Television Streaming Sites – Coming to a Circuit Court Near You — With lawsuits currently in four circuits, the dispute between television broadcasters and Aereo and its frienemy Aereokiller (now “FilmOn X”) over whether a commercial service can “design around” the public performance right can be difficult to keep track of. Alexandra Goldstein brings you up to speed on the latest developments in those cases.

Copyright Liability for Filelockers: Disney v Hotfile — Finally, I rarely link to my own posts here, but with news this week that film studios were successful in a copyright infringement suit against notorious cyberlocker Hotfile, and with the actual opinion under seal for the time being, I thought it would be helpful to point out a post I had previously written detailing some of the issues at stake and arguments made.

Friday’s Endnotes – 01/11/13

By , January 11, 2013.

Paying Attention to the Echo Chamber at CES Copyright Panel Discussion — David Newhoff dissects the incredibly one-sided copyright panel held this past week during CES, paying particular attention to EFF co-founder John Perry Barlow’s remark that “The Pirate Bay is speech.”

Guess who’ll grab Facebook Sponsored Stories payout? (Hint: Not the victims) — Andrew Orlowski looks at the latest example of the current trend of tech companies paying out class-action settlement awards to the organizations that they fund anyway. This time, it’s Facebook, in connection with litigation over its “Sponsored Stories”, and the beneficiaries include the usual suspects, as well as, says Orlowski, “WiredSafety.org (whose founder serves on Facebook’s Cybersafety Advisory Board).”

Youtube Allows Pirate “Partners” to Profit From Illegal Movie Uploads — Since YouTube lifted its 20 minute limit on videos that could be uploaded, it has been easier to find full-length films on the site… and, as Ellen Seidler notes here, easier for people without rights to full-length films to upload and monetize them. Seidler floats the suggestion of some sort of verification process for videos over 20 minutes in length.

RapidShare: Traffic and Piracy Dipped After New Business Model Kicked In — Last year, filelocker RapidShare unveiled a set of changes to reduce copyright infringement through its service, along with an “anti-piracy manifesto” calling on similar services to join it. Fastforward to today and, according to Torrentfreak, the service has experienced both a drop in traffic and infringement. I found the following remark from the article particularly interesting: “The flipside in the short-term is that RapidShare could lose a bit more traffic, at least until it manages it balance the loss of traditional file-sharing traffic with its new image as an antipiracy-motivated Dropbox-style cloud-hosting business.” Kudos to Torrentfreak for admitting there is a distinction between legitimate cloud storage providers like Dropbox and those cyberlockers that are set up primarily to profit off infringement.

Levi’s Was First. Now, Several Major Brands Want to Pull Their Pirate Site Advertising… — Digital Music News reports that since the USC Annenberg Innovation Labs released its report on ad-funded piracy, “numerous brands” have contacted the report’s authors seeking advice on preventing their brands from showing up on sites with widescale infringement.

Reading Between The Lines Google Tells The Truth On Ad Supported Piracy, Now Let Markets Do Their Work — Speaking of the USC ad report, the Trichordist does an excellent job dissecting Google’s “elegant non-denial” made in response to the report’s conclusion that Google ads provide a major source of revenue for online piracy.

Hotfile, Megaupload, and the Future of Copyright on the Internet: What can Cyberlockers Tell Us About DMCA Reform? — Finally, have a look at third-year law student Ross Drath’s recent paper on secondary liability and cyberlockers. Drath examines issues that are currently facing courts in two major cyberlocker cases and then offers some recommendations for increasing both certainty and effectiveness in protecting copyrighted works online. Says Drath, “It would be naïve to expect that Internet piracy could somehow be completely eradicated. Like alcohol and drug abuse, these practices will surely continue regardless of the level at which they are regulated. But we can still do better than we are doing right now.”

Copyright Liability for Filelockers: Disney v Hotfile

By , August 20, 2012.

On Friday, the Florida Southern District Court held a hearing on several dispositive motions in litigation between film studios and popular file-locker Hotfile.

Major film studios — including Disney, 20th Century Fox, Universal City, Columbia Pictures, and Warner Bros. — sued Hotfile in February 2011 for copyright infringement and secondary copyright infringement. The studios also brought a claim against Hotfile’s owner and operator, Anton Titov, for personal liability. In July, the court dismissed the claim for direct copyright infringement but allowed the claims for inducement, contributory infringement, and vicarious liability to go forward. Hotfile raised a number of defenses in its answer to the complaint, notably that it is protected by the DMCA safe harbor, and also brought a counterclaim against Warner Bros., alleging the film studio had made material misrepresentations in thousands of DMCA takedown notices it had sent to Hotfile. Both parties moved for summary judgment earlier this year. 1The studios also seek to strike portions of testimony from several of Hotfile’s expert witnesses and defendant Anton Titov.

Though this is not the first infringement suit against file-lockers — Hotfile itself has been sued several times 2Once by Perfect10 and twice by Liberty Media Holdings. — it is notable for being one of the first suits initiated by major film studios against a popular file-locker. If the case progresses, it may prove influential in shaping copyright law online.

The claims of the studios are similar to claims in other copyright cases involving online service providers. It is alleged that Hotfile engaged in massive, commercial infringement by actively facilitating the reproduction and distribution of unauthorized TV shows and movies through its service. The studios point to Hotfile’s “affiliate program” that pays users for uploading popular files with the most downloads. Hotfile also operates a referral program that generates income for third-party sites that link to Hotfile content, the result of which, the studios allege, “is that Hotfile effectively partners, and acts in concert, with a vast array of pirate link sites and other affiliates to advertise and promote the infringing content on Hotfile’s servers.” Finally, like Megaupload, Hotfile is alleged to stymie takedowns of infringing content by making multiple copies of every file uploaded, each with a separate link. As the studios state:

Defendants protest that Hotfile is not like Napster, Grokster, Limewire, and other notorious infringers. But the differences make Hotfile’s infringement more egregious, not less. No earlier pirate services had the temerity actually to pay its users to upload infringing content. Hotfile does. Hotfile’s own economist acknowledges that Hotfile’s practice of paying uploaders (Hotfile’s so-called “Affiliates”) based on how many times their files are downloaded induces the uploading of “popular” (i.e., infringing) content. Additionally, unlike previous adjudicated infringers, which facilitated access to content stored on users’ computers, Hotfile itself physically stores all the infringing content on its own servers, giving it an unprecedented ability to stop the infringement – an ability Hotfile chooses not to exercise. Finally, Hotfile’s business model is indistinguishable from that of the website Megaupload, which recently was indicted criminally for engaging in the very same conduct as Hotfile. Defendants even admit that they formed Hotfile “to compete with” Megaupload.

The motions

On motion for summary judgment, the studios argue that Hotfile is ineligible for safe harbor protection because it failed to reasonably implement a repeat infringer policy, it failed to comply with the DMCA agent designation requirements, it had disqualifying knowledge — including actual knowledge of specific infringing files, “red flag” knowledge, and willful blindness — and it induced infringement.

On the first point, the studios note that Hotfile had the ability to track the number of takedown notices that individual users were responsible for (“strikes”), but it took no steps to terminate repeat infringers — a number of individual uploaders had accumulated over three hundred strikes without being terminated. The studios also note that over half of all downloads on Hotfile come from files uploaded by users with three or more strikes.

The last point, concerning the lack of knowledge requirement for safe harbor protection, has been the subject of recent court decisions in Viacom v. YouTube, from the Second Circuit, and UMG v. Veoh, from the Ninth. 3Note that the 9th Circuit ordered more briefing in Veoh this past June, following the decision in Viacom. Thus, the decision may yet be amended; the court also has a petition for rehearing on the case pending. It appears that this is the first time a court in the Eleventh Circuit has been confronted with interpreting these provisions of the DMCA. This portion of the DMCA states that a service provider is only eligible for safe harbor protection if it “does not have actual knowledge that the material or an activity using the material on the system or network is infringing,” or “in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent.” The above cases focused primarily on the scope of the latter, so-called “red flag” knowledge.

Here, the studios point to several “red flags” that should have made Hotfile aware of infringement: over 90% of downloads were infringing, the operators received a “constant stream of communications” from users who said they were downloading infringing works, thousands of linking sites associated with Hotfile contained terms like “pirate” or “warez” that indicated obvious infringement, and, perhaps most brazenly, Hotfile’s tutorials for using its service used names and titles of copyrighted works as examples.

But the court may not need to dive into the scope of “red flag” awareness just yet; the studios have also provided evidence that Hotfile had actual knowledge of specific infringing works.

Without the safe harbor, the studios argue that Hotfile is liable for contributory copyright infringement, vicarious liability, and inducement. These arguments are fairly straight-forward applications of these doctrines of secondary liability. For contributory infringement, Hotfile provided the “site and facilities” for infringement and had reason to know about such infringement. For vicarious liability, Hotfile financially benefited from infringement through its premium subscriptions while declining its ability to stop or limit infringment.

The inducement claim — “active steps . . . taken to encourage direct infringement” — tracks the Supreme Court’s Grokster opinion and “parallels the pattern of prior adjudicated infringers,” according to the studios. They allege that Hotfile’s unlawful objective is apparent from its Affilliate program, which pays users to upload popular, and predictably copyrighted, files. Hotfile also directly targets a user base of infringers, refuses to terminate repeat infringers, is overwhelmingly used only for infringement, and depends on infringement for its business model. Finally, the defendants have helped users to infringe, have impeded efforts by copyright holders to mitigate infringement, and have refused to even consider technology that could be used to prevent infringement.

Hotfile’s response to the studios’ motion for summary judgment essentially refutes their characterization of the facts — it didn’t induce infringement, it did reasonably implement a repeat infringer policy, etc. 4Hotfile has also moved for partial summary judgment on the claim that it is protected by the DMCA safe harbor for any infringement that occurred after February 11, 2011 — ten days after it was sued by the studios. To be sure, the court must sift through a lot of facts to resolve the issues raised on these motions. To succeed at the summary judgment stage, a party must show that, when all the facts are viewed in the light most favorable to the opposing party, no genuine issue of material facts exist, and the moving party is entitled to judgment as a matter of law on the issues it raises in its motion. With such complex legal issues, and thousands of pages of evidence already in front of it, the court here has its work cut out for it.

Other issues to watch

In the meantime, there are a few other legal issues raised in this litigation that are worth watching.

First, does inducement disqualify a service provider from DMCA safe harbor protection? A number of other courts have taken this position. 5See Viacom v YouTube, 676 F.3d 19, 38 (2nd Cir. 2012) (“inducement of copyright infringement … which ‘premises liability on purposeful, culpable expression and conduct,’ … might also rise to the level of control under § 512(c)(1)(B)”); Columbia Pictures v Fung, cv 06-5578-SVW, Order Granting Plaintiffs’ Motion for Summary Judgment on Liability (CD Cali. 2009) (“inducement liability and the Digital Millennium Copyright Act safe harbors are inherently contradictory”); Arista Records v Usenet.com, 633 F. Supp. 2d 124, 142 SDNY 2009 (if defendants “encouraged or fostered such infringement, they would be ineligible for the DMCA’s safe harbor provisions”). The language and legislative history of the statute certainly seem to suggest that active conduct to encourage infringement is incompatible with a safe harbor for passive conduct, but courts in the Eleventh Circuit have yet to weigh in on the issue, as far as I can tell.

Next, what is the role of willful blindness in the knowledge prong of the DMCA safe harbor? The studios make the claim that Hotfile acted with willful blindness, effectively admitting “that they sought to blind themselves to the infringement all around them as much as possible.” Willful blindness, defined by the Supreme Court as taking “deliberate actions to avoid confirming a high probability of wrongdoing,” has long been considered a form of knowledge. The twist is that the DMCA provides that safe harbor protection does not require “a service provider monitoring its service or affirmatively seeking facts indicating infringing activity, except to the extent consistent with a standard technical measure complying with the provisions of subsection (i).” The Second Circuit in Viacom v. YouTube confronted this question and concluded that the DMCA “limits—but does not abrogate— the doctrine” of willful blindness, and it “may be applied, in appropriate circumstances, to demonstrate knowledge or awareness of specific instances of infringement under the DMCA.”

Finally, on a bit of a side note, the movie studios also argue that Hotfile is ineligible for the 512(c) safe harbor — which limits remedies “for infringement of copyright by reason of the storage at the direction of a user” — because Hotfile’s service was not used primarily for “storage.” They note that a significant portion of registered users on the site only use it to download, not upload, files. More to the point, Hotfile routinely deletes files that have never been downloaded — the “antithesis” of storage, as the studios put it. I don’t recall seeing this argument raised before in another case, so it will be interesting to see how the court approaches it.

A trial is currently scheduled for early November, but it shouldn’t be a surprise if the court’s eventual decision on these motions is appealed to the Eleventh Circuit, delaying trial.

References

References
↑1 The studios also seek to strike portions of testimony from several of Hotfile’s expert witnesses and defendant Anton Titov.
↑2 Once by Perfect10 and twice by Liberty Media Holdings.
↑3 Note that the 9th Circuit ordered more briefing in Veoh this past June, following the decision in Viacom. Thus, the decision may yet be amended; the court also has a petition for rehearing on the case pending.
↑4 Hotfile has also moved for partial summary judgment on the claim that it is protected by the DMCA safe harbor for any infringement that occurred after February 11, 2011 — ten days after it was sued by the studios.
↑5 See Viacom v YouTube, 676 F.3d 19, 38 (2nd Cir. 2012) (“inducement of copyright infringement … which ‘premises liability on purposeful, culpable expression and conduct,’ … might also rise to the level of control under § 512(c)(1)(B)”); Columbia Pictures v Fung, cv 06-5578-SVW, Order Granting Plaintiffs’ Motion for Summary Judgment on Liability (CD Cali. 2009) (“inducement liability and the Digital Millennium Copyright Act safe harbors are inherently contradictory”); Arista Records v Usenet.com, 633 F. Supp. 2d 124, 142 SDNY 2009 (if defendants “encouraged or fostered such infringement, they would be ineligible for the DMCA’s safe harbor provisions”).

Friday’s Endnotes – 07/29/11

By , July 29, 2011.

Son of NewzBin: Another victory for the film-makers — IPKat takes a look at one of the many British copyright decisions to come through this week. In this one, the court ruled in favor of the Motion Picture Association’s action to require a British ISP to block access to a website previously deemed infringing.

Drop It Like It’s Hot[file] — On July 8th, the direct infringement claim against cyberlocker Hotfile was dismissed, leaving only the secondary infringement claims brought by the five major motion picture studios. Christopher Harrison wonders if the court got it right, noting that once a file is uploaded, Hotfile creates five additional copies of the file; this seems to Harrison to be the type of volitional conduct that previous cases weren’t talking about when they found no direct infringement.

Of libraries and writers (and rights) — John Degen notes, with some irony, that when libraries are in trouble, it is authors that come to their aid, while the free-culture movement sits in silence. Good read.

Rogue Site Goes Good — China’s top search engine Baidu, long a concern of rightsholders for its notorious infringement, has recently announced a licensing deal with several major music labels. Steve Tepp calls this a “dramatic step in the right direction.”

Hello Mr. Brightside — Eric Beall gives five reasons to be optimistic about the music industry. “After almost a decade of what has seemed like irreversible decline in the music industry, with each year bringing declining sales, more consolidation, less creative growth, and a growing irrelevance in pop culture, we might finally be turning things around.”

Un-cover-ing — Law Law Land never fails to deliver entertaining and often humorous articles on mostly dry legal topics. Here, Harrison J. Reynolds looks at cover songs of cover songs. That is, sometimes a cover song is so distinctive or different from the original version that it becomes almost like a different song. Are there any legal issues that arise when another artist covers the cover song?

Pittsburgh Transforms into Gotham City — The Steel City is home to the third installment of the new Batman trilogy. The largest film production that Pittsburgh has seen brings with it thousands of jobs and big boosts in revenues for local businesses.

Disruptors disrupted: NLA victory brings common sense back to copyright — Dominic Young cuts through the hype associated with a UK Court of Appeals ruling that a news crawler and its PR clients require a license from newspapers. It is not, as some have characterized the decision, the end of the web as we know it.

The Oddball US Privacy Law That’s Keeping Netflix Away from Facebook — A law that puts limits on publishing a person’s video rental history is making Netflix hesitant to open up its Facebook application in the US. Social networking has really turned the concept of privacy on its head.

Labor is a cost, not a profit — Though geared toward prop-makers, Eric Hart’s (my brother) post is great advice for anyone freelancing in creative fields.

ZapTunes wants deals to sell independent artists’ music — A warning to independent artists. This company was previously in the news for selling what amounted to an mp3 search engine for $25 a month, with the added bonus that some users reported credit card charges after they had cancelled. Not a bad idea to steer clear of this one.

Five Minutes of Fame — Faza at the Cynical Musician looks at fame and the internet. “Musicians have tended to monetise their fame directly: fame meant fans and fans meant sales. Fame can thus be viewed as mind-share, in the marketing sense. If this fame-sales connection is broken – something we seem to be heading towards – then there seems to be little benefit to be had from your short-term fame while it lasts. That is why I say that a non-paying fan is no better than a non-fan. It is best understood when we compare Rebecca Black and Justin Beiber – both are world-famous, but only one of them has a career.”

Lay Judgments of Judicial Decision-Making — The results of a study confirm what many perhaps find obvious. Non-lawyers base their decision of how “good” a judicial opinion is primarily on the result; if they agree with the outcome of the case, they accept the reasoning the court used to get there.