Copyright Liability for Internet Service Providers

Copyright Liability For Internet Service Providers

ISP “Objective/Intent/Marketing” Key to Analysis

MGM Studios Inc. v. Grokster, Ltd., 125 S. Ct. 2764 (U.S. 2005)

Respondent companies distribute free software that allows computer users to share electronic files through peer-to-peer networks, so called because the computers communicate directly with each other, not through central servers. Although such networks can be used to share any type of digital file, recipients of respondents' software have mostly used them to share copyrighted music and video files without authorization. Seeking damages and an injunction, a group of movie studios and other copyright holders (hereinafter MGM) sued respondents for their users' copyright infringements, alleging that respondents knowingly and intentionallydistributed their software to enable users to infringe copyrighted works in violation of the Copyright Act.

Discovery revealed that billions of files are shared across peer-to-peer networks each month. Respondents are aware that users employ their software primarily to download copyrighted files, although the decentralized networks do not reveal which files are copied, and when. Respondents have sometimes learned about the infringement directly when users have e-mailed questions regarding copyrighted works, and respondents have replied with guidance. Respondents are not merely passive recipients of information about infringement. The record is replete with evidence that when they began to distribute their free software, each of them clearly voiced the objective that recipients use the software to download copyrighted works and took active steps to encourage infringement. After the notorious file-sharing service, Napster, was sued by copyright holders for facilitating copyright infringement, both respondents promoted and marketed themselves as Napster alternatives. They received no revenue from users, but, instead, generated income by selling advertising space, then streaming theadvertising to their users. As the number of users increases, advertising opportunities are worth more. There was no evidence that either respondent made an effort to filter copyrighted material from users' downloads or otherwise to impede the sharing of copyrighted files.

While acknowledging that respondents' users had directly infringed MGM's copyrights, the District Court nonetheless granted respondents summary judgment as to liability arising from distribution of their software. The Ninth Circuit affirmed and read Sony as holding that the distribution of a commercial product capable of substantial noninfringing uses could not give rise to contributory liability for infringement unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge. Because the appeals court found respondents' software to be capable of substantial noninfringing uses and because respondents had no actual knowledge of infringement owing to the software's decentralized architecture, the court held that they were not liable. It also held that they did not materially contribute to their users' infringement because the users themselves searched for, retrieved, and stored the infringing files, with no involvement by respondents beyond providing the software in the first place. Finally, the court held that respondents could not be held liable under a vicarious infringement theory because they did not monitor or control the software's use, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement.

The Supreme Court reversed and made the following holdings:

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, going beyond mere distribution with knowledge of third-party action, is liable for the resulting acts of infringement by third parties using the device, regardless of the device's lawful uses.

The Court began by highlighting the tension between the competing values of supporting creativity through copyright protection and promoting technological innovation by limiting infringement liability is the subject of this case. Despite these offsetting considerations, the found a powerful argument for imposing indirect liability here given the number of infringing downloads that occur daily using respondents' software. When a widely shared product is used to commit infringement, the Court realized it may be impossible to enforce rights in the protected work effectively against all direct infringers, so that the only practical alternative is to go against the device's distributor for secondary liability on a theory of contributory or vicarious infringement. One infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise the right to stop or limit it. The Court is cognizant that "the Copyright Act does not expressly render anyone liable for [another's] infringement,” but found these secondary liability doctrines emerged from common law principles and are well established in the law.

The Supreme Court then expressly addressed the differences between Sony and the instant case. Sony addressed a claim that secondary liability for infringement can arise from the very distribution of a commercial product. In Sony, there was no evidence that Sony had desired to bring about taping in violation of copyright or taken active steps to increase its profits from unlawful taping. On those facts, the only conceivable basis for liability was on a theory of contributory infringement through distribution of a product. Because the VCR was "capable of commercially significant noninfringing uses," the Court held that Sony was not liable. This theory reflected patent law's traditional staple article of commerce doctrine that distribution of a component of a patented device will not violate the patent if it is suitable for use in other ways under 35 U.S. C § 271(c). In this case, the Ninth Circuit misread Sony to mean that when a product is capable of substantial lawful use, the producer cannot be held contributorily liable for third parties' infringing use of it, even when an actual purpose to cause infringing use is shown, unless the distributors had specific knowledge of infringement at a time when they contributed to the infringement and failed to act upon that information. In short, Sony did not displace other secondary liability theories.

The Court went on to state that nothing in Sony requires courts to ignore evidence of intent to promote infringement if such evidence exists. Where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony's staple-article rule will not preclude liability. This preclusion would be in conflict with common law, where a copyright or patent defendant who "not only expected but invoked [infringing use] by advertisement" was liable for infringement. The Court held this liability at common law does nothing to compromise legitimate commerce or discourage innovation having a lawful promise.

When looking at Grokster’s conduct, the Court found its unlawful objective unmistakable as the advertised/solicited that broadcasts a message stimulating users to violate valid copyrights. The Court braced this holding by highlighting three characteristics of Grokster’s business model. First, the Court noted that Grokster overtly catered to former Napster users’ demand for copyright infringement upon the latter’s dissolution. Second, Grokster made no attempt to develop filtering tools or other mechanism that might diminish the infringing abilities of their software. Finally, Grokster’s use of advertising space as a primary source of revenue led the Court to reason that respondent had a strong motive to promote as much activity as possible, without concern for its infringing nature.

The Supreme Court then held that the inducement theory in this case requires evidence of actual infringement by recipients of the P2P software, in addition to the intent and distribution requirements described above. Here, the evidence of infringement on a “gigantic scale” was obvious. The Court concluded that because substantial evidence supported MGM on all element, summary judgment for respondents was in error. The Court remanded, stating that reconsideration of MGM’s summary judgment motion was in order.

Notes:

The Courts decision here was unanimous, indicating the justices desire to make a strong statement on a much-argued legal quandary facing copyright since P2P technology began. The educational value of this decision is only out-matched by its precedential worth as a landmark case.

In re Aimster Copyright Litigation, 334 F.3d 643 (7th Cir. 2003)

As with Grokster, Aimster distributed free software which was downloaded from its Web site. The software allowed the user to register on the Aimster system, which used AOL’s Instant Messenger network (hence the “AIM” in “Aimster”) to swap the files. As in Grokster, Aimster did not control the network on which the file sharing occurred, and the copies of the songs did not reside on Aimster’s computers. Thus, Aimster was not a direct infringer.

The court seemed to find Aimster’s marketing and promotional actions particularly disturbing. The opinion noted that in the Sony case, Sony did not encourage the use of the Betamax tape recording machine to infringe copyrights in its advertising. Aimster, on the other hand, provided in its tutorial examples of downloading copyrighted music, including works which the recording industry notified Aimster were being infringed. The Aimster court noted that “[t]he tutorial is the invitation to infringement that the Supreme Court found missing in Sony.” The court rejected Aimster’s argument that its encryption feature gave the company only constructive knowledge at best, which was arguably deemed insufficient by the Sony court for contributory infringement. Willful blindness is tantamount to knowledge in copyright law, where indeed it may be enough that the defendant should have known of the direct infringement. One who, knowing or strongly suspecting that he is involved in shady dealings, takes steps to make sure that he does not acquire full or exact knowledge of the nature and extent of those dealings is held to have a criminal intent.

In addition, the court looked at what uses generated Aimster’s primary revenue. Aimster did not sell paid advertising on its Web site. Instead, it relied on selling memberships to its Club Aimster, which, for a fee of $4.95 per month, allowed users to receive from other Aimster users with one click the 40 most popular songs downloaded on the Aimster system. The court recognized that these top 40 songs were most probably copyrighted works. Although the evidence submitted did not exclude the possibility of substantial noninfringing uses, the court opined that it was sufficient at a preliminary injunction proceeding to shift the burden of production to Aimster to prove that its services had substantial noninfringing uses. The court then listed five potential non-infringing uses, finding that the probability of any such use was small, which was evidenced from Aimster’s inability to provide any evidence from real-life Aimster users who used the product in any of the noninfringing ways.

The court held that when there are non-infringing uses of an Internet file-sharing service, if the infringing uses are substantial, then to avoid contributory infringement liability, the provider of the service must show that it would have been disproportionately costly for it to eliminate or at least reduce substantially the infringing uses. Since Aimster showed no clear non-infringing use, this cost-benefit analysis was not necessary. The panel then held that plaintiffs had proven a likelihood of success on the merits that Aimster would be held contributorily liable for infringement at trial and affirmed the preliminary injunction.

With respect to the issue of vicarious liability, the court found that the distribution of Aimster’s software was inseparable from revenue generated by Club Aimster, since the more the free software was distributed, the more users would sign up for Club Aimster. The court was not persuaded, however, that Aimster was likely to be held vicariously liable at trial, and thus, vicarious liability was not a basis for the preliminary injunction.

Notes:

This case seems to be a precursor to Grokster.

It seems that its holding on the need for a cost-benefit analysis when determining contributory liability is still good law – which goes further than the Grokster opinion.

Decisions on the DMCA Notice-and-Take-Down Provisions

Subscriber Remedies for wrongful infringement claims under 512’s notice and take down request

Rossi v. Motion Picture Assn’ of America, 67 U.S.P.Q.2d 1047 (D. Haw. 2003)

The MPAA in this case wrongfully claimed that material stored by the subscriber Rossi on an Internet Service Provider’s system was infringing. The ISP disabled access to the material in accordance with its duties under the “notice and take down” provisions of the DMCA. The material stored by Rossi was later found to be non-infringing, and Rossi then brought suite against the MPAA. The court here dismissed the action, reasoning that “a copyright holder does not need to conduct an investigation prior to making a good faith take-down request.”

Notes:

This case has likely increased the volume of infringement claims by copyright holders – once a suit is filed and notice given, the filing seems to act in much the same way as a preliminary injunction (at least to publishing through the notified ISP).

The copyright owner has little to lose by claiming infringement by a subscriber publishing by an ISP – the court only states that a copyright holder must make a “good faith” claim.
The logical follow-up question is what constitutes a “good faith” claim?

Consequences from subscriber perspective:

Under the DMCA, the subscriber in the above situation has no cause of action against the ISP for removing material once a copyright holder gives notice of suit.
With no cause of action against the copyright holder or ISP in a situation such as the one listed above, it would seem that the subscriber has no real remedy even though his non-infringing material is removed prematurely.

When Should Notice Be Given and Who Needs to Monitor

Hendrickson v. Amazon.com, Inc. 298 F. Supp. 2d 914 (C.D. Cal. 2003)

In this case, a film’s copyright holder sent a letter to an ISP, notifying it that all DVD copies of her film infringed her copyright. Nearly ten months later, an infringing copy is sold over the ISP’s service (amazon.com). The copyright holder brought suit, claiming her letter was sufficient notice to make the ISP liable for not subsequently policing potentially infringing sales.

The district court in this case rejected the claim, noting that the DMCA places the burden on the copyright owner to police the Internet for potential infringements and does not require ISPs to monitor their services or affirmatively seek facts indicating infringing activity. Permitting such a notice in advance of infringement would, according to the court, allow a plaintiff to shift the burden to the service provider contrary to the balance crafted by Congress.

Notes:

Interesting case since an advance notice would seem to be a much more efficient and preventative measure from the original copyright owner’s vantage point, and perhaps from a technology/filtering point as well.