No copyright liability against founder of competing company for overseeing development of infringing website

oversightAfter defendant left plaintiff’s employment to co-found a competing company, plaintiff sued defendant personally for copyright infringement based on the new company’s website’s resemblance to plaintiff’s website. The infringement theory was interesting – plaintiff alleged that defendant did not commit the infringement himself, but that he was secondarily liable for playing a significant role in the direct infringement by the new company’s employees.

Defendant moved to dismiss the copyright infringement claim. The court granted the motion.

There are two types of secondary copyright infringement liability: contributory liability and vicarious liability. A defendant is a contributory infringer if it (1) has knowledge of a third party’s infringing activity, and (2) induces, causes, or materially contributes to the infringing conduct. See Perfect 10, Inc. v. Visa Int’l Service Ass’n, 494 F.3d 788, 795 (9th Cir.2007) (quoting Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir.2004)). In the context of copyright law, vicarious liability extends beyond an employer/employee relationship to cases in which a defendant has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities. A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1022 (9th Cir.2011) (quoting Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 262 (9th Cir.1996)).

In this case, the court held that plaintiff had not alleged enough detail to state a claim of secondary liability against defendant. Instead, the complaint simply recited the elements of contributory and vicarious liability. Specifically, plaintiffs failed to allege:

  • That defendant was uniquely in possession of the original material on plaintiff’s website, but rather plaintiffs alleged that the material was publically available on the website for anyone to read and copy.
  • How defendant, as a non-employee (but founder) of the new company, was personally responsible for the content of the new company’s website. (Interestingly, the court held it was not sufficient to allege that defendant was a founder of the new company. Although plaintiffs alleged some factual details about what was actually copied from plaintiff’s website, they alleged no factual details as to defendant’s personal involvement in the infringement.)
  • Facts that suggested that defendant induced the new company to infringe plaintiff’s website.
  • Facts that suggested that defendant had the right to control and supervise the new company’s employees who were involved in the alleged infringement.

Plaintiff’s attempts to impose secondary liability were (if they had worked) a clever method for accomplishing the same objective as piercing the corporate veil. Granular control by the individual founder could be equated with the “alter ego” aspect of the veil-piercing analysis. The absence of such specific control by the individual defendant, however, left the possibility of liability only with the company.

BioD, LLC v. Amnio Technology, LLC, 2014 WL 268644 (D.Ariz. January 24, 2014)

Court rules against Ripoff Report in copyright case

Xcentric Ventures, LLC v. Mediolex Ltd., 2012 WL 5269403 (D.Ariz. October 24, 2012)

Plaintiff Xcentric Ventures provides the infamous Ripoff Report, a website where consumers can go to defame complain about businesses they have dealt with. Defendant is a similar kind of website.

Ripoff Report’s Terms of Service provide that users grant Ripoff Report an exclusive license in the content they post to the site. Based on this right, Xcentric sued various defendants associated with ComplaintsBoard for “encourag[ing] and permit[ing] consumers to post content that has been exclusively licensed to Xcentric.”

Defendants moved to dismiss the copyright infringement claim, asserting they were protected by the safe harbor provision of the Digital Millennium Copyright Act (“DMCA”). The court granted the motion to dismiss, but not because of the DMCA.

DMCA Analysis

The safe harbor provision of the DMCA states that a “service provider shall not be liable for monetary relief” if all of the following requirements are met:

(1) it does not have actual knowledge that the material on its network is infringing;

(2) it is not aware of facts or circumstances that would make the infringing activity apparent;and

(3) upon obtaining knowledge or awareness of such infringing activity, it acts expeditiously to remove or disable access to the copyrighted material.

In this case, Xcentric alleged that defendants actively “encouraged and permitted” copyright infringement by ComplaintsBoard users. The court held that this allegation, if taken as true, could be sufficient to preclude defendants from taking advantage of the DMCA’s safe harbor provisions.

But the court went on to hold that Xcentric had failed to state a copyright claim on which relief may be granted.

Secondary Liability Insufficiently Pled

Xcentric did not allege that defendants directly infringed copyright. Instead, it alleged that by encouraging and permitting users to copy and republish material, ComplaintsBoard was engaged in secondary infringement — either vicarious or contributory infringement.

To state a claim for contributory copyright infringement, Xcentric had to plead that ComplaintsBoard had knowledge of the infringing activity and induced, caused, or materially contributed to the infringing conduct of its users. The court found that Xcentric had not alleged any facts that would lead to a reasonable inference that defendants knew of their users’ republishing Xcentric’s copyrighted content or that defendants had induced, caused, or materially contributed to such republication.

To successfully plead vicarious infringement, Xcentric had to show that defendants had the right and ability to supervise the infringing activity and also had a direct financial interest in those activities. The court found that Xcentric had not put forward enought facts to show that defendants had the right and ability to supervise the infringing activity.

Communications Decency Act immunizes hosting provider from defamation liability

Johnson v. Arden, — F.3d —, 2010 WL 3023660 (8th Cir. August 4, 2010)

The Johnsons sell exotic cats. They filed a defamation lawsuit after discovering that some other cat-fanciers said mean things about them on Among the defendants was the company that hosted – InMotion Hosting.

Sassy is my parents' cat. She hisses whenever I'm around, though they say she's a nice cat otherwise.

The district court dismissed the case against the hosting company, finding that the Communications Decency Act at 47 U.S.C. §230 (“Section 230”) immunized the hosting provider from liability. The Johnsons sought review with the Eighth Circuit Court of Appeals. On appeal, the court affirmed the dismissal.

Though Section 230 immunity has been around since 1996, this was the first time the Eighth Circuit had been presented with the question.

Section 230 provides, in relevant part, that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” It also says that “[n]o cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.”

The Johnsons argued that Section 230 did not immunize the hosting company. Instead, they argued, it did just what it says – provides that a party in the position of the hosting company should not be treated as a publisher or speaker of information provided by third parties. The Johnsons argued that the host should be liable in this case regardless of Section 230, because under Missouri law, defendants can be jointly liable when they commit a wrong by concert of action and with common intent and purpose.

The court rejected the Johnsons’ argument, holding that Section 230 bars plaintiffs from making providers legally responsible for information that third parties created and developed. Adopting the Fourth Circuit’s holding in Nemet Chevrolet v., the court held that “Congress thus established a general rule that providers of interactive computer services are liable only for speech that is properly attributable to them.”

No evidence in the record showed how the offending posts could be attributed to the hosting provider. It was undisputed that the host did not originate the material that the Johnsons deemed damaging.

Given this failure to show the content originated with the provider, the court found in favor of robust immunity, joining with the majority of other federal circuits that have addressed intermediary liability in the context of Section 230.

YouTube victorious in copyright case brought by Viacom

District court grants summary judgment, finding YouTube protected by DMCA safe harbor.

Viacom v. YouTube, No. 07-2103, (S.D.N.Y. June 23, 2010)

The question of whether and to what extent a website operator should be liable for the copyright infringement occasioned by the content uploaded by the site’s users is one of the central problems of internet law. In talks I’ve given on this topic of “secondary liability,” I’ve often referred it simply as “the YouTube problem”: should YouTube be liable for the infringing content people upload, especially when it knows that there is infringing material.

Charlie Bit My Finger - Harry and his little b...
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Today was a big day in the history of that problem. The district court granted summary judgment in favor of YouTube in the notorious billion dollar copyright lawsuit brought against YouTube by Viacom way back in 2007.

The court held that the safe harbor provisions of the Digital Millennium Copyright Act (“DMCA”) (at 17 USC 512) protected YouTube from Viacom’s direct and secondary copyright claims.

Simply stated, the DMCA protects online service providers from liability for copyright infringement arising from content uploaded by end users if a number of conditions are met. Among those conditions are that the service provider “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 major issue in the case was whether YouTube met these conditions of “non-knowledge” (that’s my term, not the court’s) so that it could be in the DMCA safe harbor. Viacom argued that the infringement was so pervasive on YouTube that the site should have been aware of the infringement and thus not in the safe harbor. YouTube of course argued otherwise.

The court sided with YouTube :

Mere knowledge of prevalence of such activity in general is not enough. . . . To let knowledge of a generalized practice of infringement in the industry, or of a proclivity of users to post infringing materials, impose responsibility on service providers to discover which of their users’ postings infringe a copyright would contravene the structure and operation of the DMCA.

Given the magnitude of the case, there’s little doubt this isn’t the end of the story — we’ll almost certainly see the case appealed to the Second Circuit Court of Appeals. Stay tuned.

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