Jonathan Pink — Entertainment, Internet and New Media Partner at Lewis Brisbois, LLP Rotating Header Image

One More Comment About UMG Recordings, Inc. v. Shelter Capital Partners

 Yeah, I know a lot has been written about UMG Recordings, Inc. v. Shelter Capital Partners, the Ninth Circuit’s reaffirmation of the “safe harbor” provision found in the Digital Millennium Copyright Act (the “DMCA”). I recognize that I have nothing new to add, but because I had the opportunity to revisited this issue recently, I figure why not post it here. 

 In this case, the plaintiffs sued Veoh Networks, Inc. (“Veoh”), alleging direct, vicarious and contributory copyright infringement (as well as inducement to infringe) because Veoh operates a website that allows users to upload videos, something UMG called “mass infringement.” Veoh’s defense principally based on the DMCA, and indeed it moved for summary judgment arguing it was protected by Section 512(c)’s safe harbor provision. That section provides a service provider is not liable for infringement “by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by the service provider if the service provider”: (1) does not have “actual knowledge” of infringing material; (2) is unaware of “facts or circumstances from which infringing activity is apparent;” or (3) acts expeditiously to remove or disable access to infringing material upon gaining such knowledge or awareness. 17 U.S.C. § 512(c)(1)(A). It also provides, however, that where seeking such protection, if a service provider has the right and ability to control the infringing activity, it cannot receive any financial benefits directly from that activity. Id. at (c)(1)(B). Finally, for the safe harbor to apply, the service provider must promptly remove – or take down – the allegedly infringing material upon notification of a claimed infringement made pursuant to the Act’s “takedown” request procedures. Id. at (c)(1)(C).

 Against this statutory backdrop, the district court granted Veoh’s motion for summary judgment, holding that the website had met all requirements of Section 512(c), and therefore qualified for the safe harbor protection. UMG appealed, arguing that that Veoh did not qualify because: (1) the alleged infringing activities did not fall within the meaning of “infringement of copyright by reason of the storage [of material] at the direction of a user;” (2) genuine issues of fact remained as to whether Veoh had actual knowledge of infringement or was aware of “facts or circumstances from which infringing activity [was] apparent;” and (3) evidence had established that Veoh received a financial benefit from the infringing activity and had the right and ability to control it. The Ninth Circuit affirmed the grant of summary judgment, finding that the DMCA protected Veoh as a service provider under 17 U.S.C. Section 512(c) for content placed on its system (or network) at the direction of its users (as opposed content placed there by Veoh itself).

 This decision makes clear the Ninth Circuit’s position that the DMCA’s “safe harbor” provisions are to be read broadly so as to allow for a free flow of information on the Web. Reviewing the Court’s holding, we learn that:

 • The “by reason of” language contained in Section 512(c)’s statement that the allegedly infringing activity “must constitute infringement 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” (17 U.S.C. § 512(c)(1)) must not be read so narrowly as to mean that the infringing activity must be proximately caused by the mere storage of infringing content before the safe harbor protection will attach. That narrow reading is inconsistent with the language and intent of the statue, which would be rendered superfluous if Section 512(c) did not protect providers who facilitate “access” to the allegedly infringing works.

 • With respect to Section 512(c)(1)(A)’s requirement that a service provider must have neither “actual knowledge” of the infringing material nor a general awareness of “facts or circumstances from which infringing activity is apparent;” and that it act expeditiously to remove or disable access to infringing material upon gaining such knowledge or awareness, merely hosting material that falls within a category of content capable of copyright protection, along with a generalized knowledge that services could be used to share unauthorized copies of copyrighted materials, will be deemed insufficient to impute knowledge. Again, if this were not the case, the safe harbor provision would be rendered meaningless. Therefore, merely hosting a category of copyrightable content with the general knowledge that one’s services could be used to share infringing material will not suffice to meet the actual knowledge requirement under § 512(c)(1)(A)(i) under the holding of this case.

 • With regards to “red flag” awareness under Section 512(c)(1)(A)(ii) (e.g. where the service provider had or should have had constructive knowledge of infringement), the Ninth Circuit said quite clearly that service providers are not responsible for investigating whether material is infringing; the burden of demonstrating infringement rests with the copyright holder. A word of caution, however, the Court did say that a service provider cannot “bury its head in the sand” to avoid obtaining knowledge of infringement. However, where there is no evidence to suggest that the defendant acted in such a way, no assumption to the contrary will be implied.

 • Where notice of such infringement comes from the copyright holder, the latter is required to comply with the notification requirements of Section 512(c)(3).

 Finally, the Shelter Capital case addressed that portion of Section 512(c) which says that, in order to qualify for safe harbor provision, a service provider that has the “right and ability to control” infringing activity must not receive a financial benefit directly attributable to such infringing activity. 17 U.S.C. § 512(c)(1)(B). Relying on that provision, UMG argued that Veoh had the “right and ability to control infringing activity” and therefore did not qualify for the DMCA’s safe harbor. In making this argument, it relied on the Ninth Circuit’s holding in A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001), which held that, for the purpose of finding vicarious liability, a defendant “has the right and ability to supervise” infringing activity where that defendant can locate infringing content and terminate users’ access to the content. However, the Ninth Circuit rejected this argument for several reasons:

 (1) because Section 512(c) does not mention the term “vicarious liability,” thus rendering Napster inapplicable;

 (2) the phrase “right and ability to supervise” (as used in Napster) is different than the phrase “right and ability to control” (as used in Section 512(c) because the word “control” connotes more of an “ability to command” than does the word “supervise”;

 (3) Section 512(c) presupposes that a service provider has the ability to locate infringing content and terminate users’ access as it provides that – in order to qualify for safe harbor protection – it must “remove[] or disable access” to infringing material when it becomes aware of it; and

 (4) because statements Congress has made regarding this Act explicitly state that it intended to protect qualifying service providers who would otherwise be subject to vicarious liability.

 Based on the foregoing, the Court held that, in order to establish a service provider has the right and ability to control infringing material, Section 512(c) requires “something more” than the mere ability to locate infringing material and terminate users’ access. This requires that the service provider must “exert[] substantial influence on the activities of users.” While the Court did not provide a specific definition of what is meant by “substantial influence,” it said such influence may include high level of control over activities of users, or “purposeful conduct” (as was seen in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 912 (2005)).

 The take away from Shelter Capital is that in order to enjoy the inoculation provided by Section 512(c), service providers must take all necessary steps to comply with the dictates of that Act, and diligently removing any infringing material once we receive notice of infringement.

 That’s all for today. Now get back to work!

 

 

Jonathan Pink leads the Entertainment, Internet and Media practice at Bryan Cave, LLP. He can be reached at 310-576-2258 or at

jonathan.pink@bryancave.com

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Jonathan Pink is a business lawyer with a specialty in copyright, patent and trademark litigation. His clients include many of the biggest names in the automotive and motorcycle aftermarket parts industries, and one of world's largest media companies. He has extensive experience in a wide range of intellectual property and commercial disputes including breach of contract, fraud, and the misappropriation of trade secrets. He can be reached at 949.223.7173, or at jonathan.pink@bryancave.com, and his full profile can be viewed at www.bryancave.com.

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