Copyright Liability for Filelockers: Disney v Hotfile

August 20, 2012 · · 1 comment

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.1

Though this is not the first infringement suit against file-lockers — Hotfile itself has been sued several times2 — 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.3 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.4 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.5 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.

Footnotes

  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”). [↩]
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Friday’s Endnotes – 08/17/12

August 17, 2012 · · Comments Off

Understanding the New Google “Pirate Penalty” — Last Friday, in welcome news, the search behemoth announced it would be incorporating legitimate DMCA takedown notices into its search ranking. PlagiarismToday’s Jonathan Bailey has an in-depth look at what the change means, followed up with 10 Questions Answered about Google’s New “Pirate Penalty.” Interestingly, Bailey notes that the change will mostly fall “on the shoulders of various file sharing sites”: the first non-filesharing site on Google’s transparency report is ranked all the way at number 170 in terms of takedown notices received.

Business Matters: Teens Listen to Music Most on YouTube, Pay for Music More Than Other Age Groups, Nielsen Study Says — Billboard notes that a newly released Nielsen study shows that “the average teen has more normal listening and discovery characteristics than one might expect given the hyperbole easily found in today’s media.” Half of all teens surveyed still listen to CDs, compared to 64% who listen on YouTube: a difference, but not as much as one might think.

BMW slams ad machine in reverse, screeches out of pirate den — Andrew Orlowski at The Register reports on BMW’s response to its ads showing up on filesharing sites after it was brought to the company’s attention by the Trichordist blog. “The car maker, which posted revenues of €68bn in 2011 – making it more than twice the size of Google – has promised to review how it promotes itself on the internet after the Trichordist blog noticed the German giant was touting its flash motors on pirate music sites.”

Dear American Express: Stop advertising on sites that illegally exploit my music — And speaking of the Trichordist, this week David Lowery calls attention to the financial services company for the same issue. “This isn’t abstract to me–this page is a link to an illegal download of one of my songs. You should also note some of the other ‘suggested’ searches on this same site are for some pretty nasty stuff.  I don’t like having my brand seen in these places and I’m sure you don’t either.”

Does the DMCA’s Safe Harbor Apply to Pre-1972 Sound Recordings? — Natalie Nichol of the Citizen Media Law Project examines the thorny issue, the subject of two recent court cases. Both courts resolved that it does, though both were lower court decisions. The US Copyright Office disagrees with the reasoning of the decisions (and as a matter of statutory interpretation, I believe the Copyright Office makes the stronger case) and an appeal of one of the decisions is possible, so for now the application of the DMCA to pre-1972 sound recordings remains unresolved.

Collins’ Crypt: How JAWS Spawned TWO Sub-Genres — Finally, I hope everyone enjoyed a blessed and prosperous Shark Week. In honor of the holiday, here is an interesting look at how the 1975 film inspired entire subgenres to follow in its footsteps.

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Megaupload and the DMCA

January 25, 2012 · · 15 comments

Last week’s indictment and arrest of Megaupload and seven of its execs added a strong dose of drama to an already dramatic couple of days in the copyright arena.

The US Department of Justice calls this “among the largest criminal copyright cases ever brought by the United States,” though I wouldn’t be surprised if it is actually the largest such case — I’m not aware of any larger criminal actions.1 No doubt the proceedings will be followed closely by many over the next few months.

Already, the arrest has had a sharp effect online, with other cyberlockers scaling back or shutting down altogether.

While the federal government’s action against Megaupload — which had been in the works since March 2010 (months before ICE even began its Operation In Our Sites) — will obviously have many ramifications for the future of copyright law online, I wanted to focus specifically on one of the legal issues that may be implicated in the case.

Does the DMCA apply to criminal infringement?

Perhaps the most novel legal issue that may arise during the Megaupload proceedings is whether the DMCA safe harbors provide the defendants with any defense.

As an initial matter, it seems to be an open question whether the DMCA safe harbors are available to any criminal defendant. The U.S. appears to adopt the view that they aren’t.2

The indictment notes without further explanation that “Internet providers gain a safe harbor under the DMCA from civil copyright infringement suits in the United States if they meet certain criteria [emphasis added],” although it subsequently offers reasons why the Megaupload defendants wouldn’t qualify for the defense anyway.

The language of the statute plausibly supports this view. Though it references only “infringement of copyright” — which could include both criminal and civil infringement — it merely shields service providers from “liab[ility] for monetary relief, or [in some circumstances] injunctive or other equitable relief.” This is civil lawsuit language — criminal defendants are punished with fines, not liable for monetary relief.

In addition, criminal liability would seem to preclude safe harbor protection solely as a matter of common sense. Criminal copyright infringement requires willful infringement. The DMCA safe harbor only protects service providers from liability for passive infringement. If the evidence shows that a defendant was willfully infringing copyrighted works beyond a reasonable doubt, it doesn’t seem possible that that same defendant could ever meet the requirements for safe harbor protection under the statute.

Deduplication and the DMCA

Regardless, the indictment alleges that even if the DMCA safe harbors are available to criminal defendants, the Megaupload defendants failed to satisfy the conditions for eligibility.

Among other things, Megaupload used deduplication, a common technical process used by online services to reduce the amount of storage needed for data. In Capitol Records v. MP3Tunes, Capitol argued that a similar process made the defendant liable for public performances of sound recordings, but the Southern District Court of New York disagreed, calling it a “standard data compression algorithm that eliminates redundant digital data” that didn’t give rise to liability.

It was a small win for MP3Tunes, however, since the court held that its failure to remove the actual files stored on its service when it received a DMCA takedown notice, rather than just links to the files, disqualified it from safe harbor protection.

The indictment alleges that Megaupload operated much the same way. When a user uploads a file already present on the system, “the system provides a new and unique URL link to the new user that is pointed to the original file already present on the server. If there is more than one URL link 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 because the additional access links will continue to be available.”

If the Eastern District of Virginia follows the same reasoning as the MP3Tunes court, this doesn’t necessarily mean Megaupload is ultimately liable, but it would mean that it wouldn’t be protected by the DMCA.

I don’t know for certain how big a role the DMCA safe harbor will play in the case; only time will tell. But I’ll definitely be keeping a close eye on the legal developments of what promises to be a watershed moment in copyright history.

Footnotes

  1. The closest seems to be Operation Safehaven in 2003. [↩]
  2. The U.S. is not alone in adopting this view. See, for example, Eric Goldman, A Road to No Warez, 82 Or. L. Rev. 369, 425 (2003), “In the DMCA, Congress putatively provided some facilitators a safe harbor from civil liability for user-caused infringement [emphasis added].” [↩]
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Ninth Circuit Rules on UMG v. Veoh

December 21, 2011 · · 21 comments

Yesterday, the Ninth Circuit held that video sharing site Veoh is immune from copyright liability under the DMCA in what will likely become a seminal ruling for copyright and the internet.

Plaintiff Universal Music Group had asked the Circuit Court to reverse the lower court’s holding that Veoh qualified for the DMCA safe harbor on several grounds:

  • “[T]he alleged infringing activities do not fall within the plain meaning of ‘infringement of copyright by reason of the storage [of material] at the direction of a user’”
  • “Veoh had actual knowledge of infringement, or was ‘aware of facts or circumstances from which infringing activity [wa]s apparent’”
  • “Veoh ‘receive[d] a financial benefit directly attributable to . . . infringing activity’ that it had the right and ability to control.”

The Circuit Court rejected all of these arguments. The full opinion is available here. Some preliminary thoughts follow.

Infringement by Reason of Storage

The court’s conclusion that Veoh’s operations fall within the scope of § 512(c) is not a surprise. It interpreted the statute’s “by reason of” language broadly — protecting service providers from any infringing activity that occurs on their site stemming from a user’s upload.

But while this interpretation may be reasonable in light of how the internet has developed, it is no doubt an expansion on the original intent of the language. The court says “if Congress wanted to confine § 512(c) exclusively to web hosts rather than reach a wider range of service providers, we very much doubt it would have done so with the oblique ‘by reason of storage’ language.” But of course, this reasoning begs the question. When Congress passed the DMCA, “user-generated content” had yet to even enter the lexicon — Congress couldn’t have factored a type of service provider that didn’t exist yet into the law.

I’ve talked previously about how sites like Veoh, YouTube, and other Web 2.0/UGC sites are arguably beyond the scope of protection of 512(c). The provision was drafted at a time when storing content at the direction of a user was primarily a collateral or passive function of service providers. For UGC sites, this “storage” is the sine qua non of their business model.

I’m certainly not saying such sites should be strictly liable for infringement by their users, or even required to monitor or prescreen uploads. But I also don’t think the only thing they need do to qualify for the DMCA safe harbor is respond to takedown notices. Unauthorized content unquestionably subsidizes many UGC sites — it’s perfectly reasonable that such sites subsidize copyright enforcement. As unavoidable as the expansion of the scope of this safe harbor might be, it may be the case that the language may need to be revisited at some point down the road.

Actual and Apparent Knowledge

The court’s holding that “general knowledge that [a service provider's] services could be used to post infringing material” is insufficient to eliminate DMCA safe harbor protection is consistent with what other courts have held.1

The court does, however, engage in a bit of curious reasoning to come to this conclusion. It notes:

Further, Congress’ express intention that the DMCA “facilitate making available quickly and conveniently via the Internet . . . movies, music, software, and literary works” — precisely the service Veoh provides — makes us skeptical that UMG’s narrow interpretation of § 512(c) is plausible. S. Rep. No. 105-190, at 8.

This is curious because the quote used by the 9th Circuit used is not referring to the purpose behind the DMCA safe harbors, it is referring to the purpose behind the anti-circumvention and copyright management information provisions of the DMCA.2

By conflating the purpose of stronger digital protections for copyright owners with the purpose for limiting the liability of service providers, it essentially creates a logical absurdity within the Copyright Act: promoting the progress of the arts and sciences through exclusive rights is accomplished when ignoring those exclusive rights is made easier.

The Ninth Circuit leaves us still with little meaningful distinction between actual knowledge and apparent — so-called “red flag” — knowledge. It says “that the burden” for bringing red flags to service provider’s attention “remains with the copyright holder rather than the service provider.” The summary conclusion is that “Veoh’s general knowledge that it hosted copyrightable material and that its services could be used for infringement is insufficient to constitute a red flag.”

But it does mention one way a service provider can have apparent knowledge, at least in theory. The Ninth Circuit notes that if “notification had come from a third party, such as a Veoh user, rather than from a copyright holder, it might meet the red flag test because it specified particular infringing material.”

Right and Ability to Control

The clear discussion of the interplay between safe harbor and common law vicarious liability is to be commended. As court explains, the two are independent: Congress intended the safe harbor to protect against vicarious liability if the statute’s conditions are met, even though the requirement that a service provider doesn’t have the “right and ability to control” infringing activity seems synonymous with the common law articulation of vicarious liability. Yet some courts still get tripped up by this concept.

However, I am a bit troubled by court’s interpretation of “right and ability to control” as being dependent on scope of service:

Where, as here, it is a practical impossibility for Veoh to ensure that no infringing material is ever uploaded to its site, or to remove unauthorized material that has not yet been identified to Veoh as infringing, we do not believe that Veoh can properly be said to possess the “needed powers . . . or needed resources” to be “competen[t] in” exercising the sort of “restraining domination” that § 512(c)(1)(B) requires for denying safe harbor eligibility.

You hear this often from DMCA maximalists: it’s just too hard to control infringement on the internet. But this seems similar to a “too big to fail” argument — eventually, a service provider becomes “too big to be liable for infringement.”

Viewed this way, the interpretation doesn’t seem to comport with real world views on liability. Imagine a factory owner who says he dumps a lot of stuff into the river, and it’s not possible as a practical matter to ensure that none of that stuff is toxic. Or imagine a government that says it arrests a lot of people, and it doesn’t have the needed resources to exercise the type of restraining domination to ensure that none of them were wrongfully arrested.

Yes, there are differences between offline services and online services. But I don’t know if that should mean a complete departure from liability principles — especially since sites like Veoh and YouTube did not sprout online, organically and fully-formed. The fact remains that sites like these were purposely designed to provide content acquired through user uploads, just as services like Hulu and Netflix were purposely designed to provide content acquired through licensing.

As I said earlier, I’m not suggesting in the least that sites like Veoh should be responsible for every upload. Just that “the right and ability to control” shouldn’t necessarily hinge on popularity.

Finally, it is good to see the Ninth Circuit reaffirm the fact that ”willful blindness” can constitute knowledge under this section:

Accordingly, we hold that the ‘right and ability to control’ under § 512(c) requires control over specific infringing activity the provider knows about. A service provider’s general right and ability to remove materials from its services is, alone, insufficient. Of course, a service provider cannot willfully bury its head in the sand to avoid obtaining such specific knowledge.

What’s Next?

The Ninth Circuit affirmed summary judgment on the DMCA safe harbor and dismissal of the claims against the Investor defendants, who had been sued along with Veoh. It remanded to the lower court only for determination of whether Veoh can collect certain costs, excluding attorney’s fees, under FRCP 68.

That means the lawsuit is essentially over, barring an appeal by UMG to the Supreme Court.

The Second Circuit, of course, is currently considering similar issues in Viacom’s lawsuit against YouTube. It isn’t bound to follow the ruling here, but it will most likely have a look at the opinion. That opinion, of course, is still months away.

Footnotes

  1. See, for example, A & M Records v. Napster, 239 F.3d 1004 (9th Cir. 2001); Viacom v. YouTube, 718 F.Supp.2d 514, 523 (SDNY 2010); Corbis Corp. v. Amazon, 351 F.Supp.2d 1090, 1109 (WD Wash 2004). [↩]
  2. The HRCC has a copy of S. Rep. No. 105-190 available on its site. The relevant portion in full reads:

    Due to the ease with which digital works can be copied and distributed worldwide virtually instantaneously, copyright owners will hesitate to make their works readily available on the Internet without reasonable assurance that they will be protected against massive piracy. Legislation implementing the treaties provides this protection and creates the legal platform for launching the global digital on-line marketplace for copyrighted works. It will facilitate making available quickly and conveniently via the Internet the movies, music, software, and literary works that are the fruit of American creative genius. It will also encourage the continued growth of the existing off-line global marketplace for copyrighted works in digital format by setting strong international copyright standards.

    At the same time, without clarification of their liability, service providers may hesitate to make the necessary investment in the expansion of the speed and capacity of the Internet. In the ordinary course of their operations service providers must engage in all kinds of acts that expose them to potential copyright infringement liability. For example, service providers must make innumerable electronic copies by simply transmitting information over the Internet. Certain electronic copies are made to speed up the delivery of information to users. Other electronic copies are made in order to host World Wide Web sites. Many service providers engage in directing users to sites in response to inquiries by users or they volunteer sites that users may find attractive. Some of these sites might contain infringing material. In short, by limiting the liability of service providers, the DMCA ensures that the efficiency of the Internet will continue to improve and that the variety and quality of services on the Internet will continue to expand. [↩]

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UMG Recordings v. Veoh Networks

May 12, 2011 · · Comments Off

In the world of current lawsuits dealing with the future of the DMCA, the Viacom and YouTube appeal in the 2nd Circuit may win a popularity contest, but the UMG and Veoh appeal in the 9th will cross the finish line first.

The similarities between the two cases are striking. Like YouTube, Veoh had operated a site allowing users to upload and share videos. Like Viacom, UMG sued the site for failing to do enough to prevent infringing content from appearing in its system. And like the Southern District Court of New York, the Central District Court of California granted summary judgment in favor of the defendant after determining that the safe harbor provisions of the DMCA immunized the site from liability for its users’ actions.

Because of these similarities, the 9th Circuit’s eventual decision may serve as a precursor to the ultimate outcome of Viacom v. YouTube.

Background and Oral Argument

The original court ruling was released September 11, 2009 and can be found at UMG Recordings v. Veoh Networks, 665 F. Supp. 2d 1099 (CD Cali 2009).)) Ben Sheffner offers his thoughts on the District Court’s holding.

The appellate briefs of both parties are available online: Brief of Appellee Veoh Networks, Brief of Appellant UMG Recordings.

Last Friday, May 6th, oral arguments for the appeal were heard by the 9th Circuit. You can listen to audio of the hearing here. Attorney Michael Barclay attended the hearings in person and offers his observations at IPDuck.

The appeal actually consolidates three separate actions. Besides the DMCA ruling, Veoh is appealing the court’s denial of attorneys’ fees, and UMG is appealing the court’s dismissal of infringement claims against Veoh’s investors. If you’re interested in those aspects of the case, Eric Goldman has analysis of the court’s attorney fees decision, and Ray Dowd offers his response to Goldman’s analysis. Check out “Capital” Punishment: Evaluating an Investor’s Secondary Copyright Infringement Liability After Veoh, by James L. Proctor, Jr.,1 for discussion on the latter.

Barclay estimates that the court’s opinion will likely take 2-6 months to issue; the 9th Circuit’s own website pegs the time frame at 3-12 months.

Scope of the Storage Safe Harbor

In Is YouTube a Service Provider or Content Provider?, I looked at one of the periphery issues raised on appeal by Viacom — whether, as a threshold matter, YouTube’s actions take it outside the scope of the §512(c) safe harbor, which immunizes online service providers from liability for “infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider.” That issue plays a much larger role in UMG’s arguments, however, and took center stage at Friday’s hearing.

Because of this, it is likely that the 9th Circuit will be the first appellate court to consider the scope of what service providers can do with material stored on their systems at the direction of a user and still remain protected by the DMCA’s safe harbor.2

The key statutory language here is the phrase “by reason of.” Does it imply a broad “but for” causal relationship between a user’s act of storing material on a service and the infringing activities that are shielded from liability? Or does it imply a narrow proximate causation?

The former standard means that once a user has uploaded content, it becomes fair game for a service provider to transform and distribute as it pleases, and it is the standard the district court adopted in an earlier ruling. “Common sense and widespread usage establish that ‘by reason of’ means ‘as a result of’ or ‘something that can be attributed to ….’”3 Combine this with the broad readings of the other requirements for safe harbor protection made by the court, and the law is left to state that a service provider can operate a full-fledged, unlicensed content providing service so long as it essentially “launders” the content through its users — and experience shows that users need little encouragement to upload massive amounts of unlicensed and infringing content.

The latter standard is the one UMG argues the 9th Circuit should adopt. It provides legislative history that supports such an interpretation of the language. In addition, it calls upon the notion that when Congress uses specific language in a statute that is similar to language in other statutes, courts should presume that Congress intended for that specific language to be interpreted in the same way that courts have interpreted the similar language in the past.4 In this instance, the Supreme Court has, in the past, interpreted “by reason of” language in other statutes as incorporating a proximate causation standard.5

Judge Berzon prodded Veoh’s attorney on whether its, and the district court’s, interpretation of “by reason of” stood up to scrutiny. At one point, she asked directly, “What’s the stopping point?” While all parties agreed generally that the safe harbor contemplates some form of “access” to the stored material, she wondered if, based on the language and legislative history, there was a distinction between access through normal means — a third-party viewing the stored material through a web browser — and providing access and distribution through a service provider’s own system. If the DMCA was intended primarily to shield passive services that provide infrastructure and “backbone” services, like web hosts, BBS’s, and message boards, that would mean only the first falls within the scope of the §512(c) safe harbor. A broader reading of the statute makes such a distinction irrelevant.

Too Little, Too Late?

UMG admittedly faces an uphill battle with this argument. The district court’s interpretation of the scope of the §512(c) safe harbor is consistent with the interpretation of a number of other district courts, including the court in Viacom v. YouTube. Considering the rapid development of the internet since the DMCA was passed over a decade ago, the 9th Circuit may be hesitant to upend how the law has been interpreted in practice.

I think Wikipedia presents a good example of what I mean by how the law has been interpreted in practice. I think it would be difficult to make a case that Wikipedia is protected by the §512(c) safe harbor — users are only “storing” their contributions to articles in the strictest technical sense.

Yet, most operate under the assumption that Wikipedia is protected under the statute. The Wikimedia Foundation has a registered DMCA agent to respond to takedown notices for infringing material uploaded by users. And, though rare, Wikipedia has received and responded to takedown notices.6 I do want to point out that whether or not Wikipedia actually qualifies under the safe harbor makes much difference — the DMCA only removes liability for certain activities but otherwise plays no role in the ultimate question of whether a specific service provider is liable for copyright infringement directly or indirectly. Wikipedia receives so few notices in part because it has a strong copyright policy that is actively enforced by its users. I find it highly unlikely that any court would hold the site liable even absent safe harbor protection.

Wikipedia is just one example of many that shows how common practice seems to have stretched the meaning of §512(c) beyond what Congress may have initially intended for it. It will be interesting to see how the 9th Circuit approaches the question of the scope of the storage safe harbor.

Footnotes

  1. 6 Washington Journal of Law, Technology & Arts 217 (2011). [↩]
  2. The closest is CoStar Group v. LoopNet, a 2004 case from the 4th Circuit. [↩]
  3. UMG Recordings v. Veoh Networks, 620 F. Supp. 2d 1081, 1089 (CD Cali 2008). [↩]
  4. See Cannon v. Univ. of Chicago, 441 US 677, 696-98 (1979). [↩]
  5. Holmes v. Securities Investor Protection Corp, 503 US 258, 267-68 (1992). [↩]
  6. See here, for example. According to Shun-Ling Chen’s article, Self-Governing Online Communities in Web 2.0: Privacy, Anonymity and Accountability in Wikipedia, the Wikimedia Foundation receives two takedown notices a year. [↩]
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