Tag Archives: secondary liability

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 ComplaintsBoard.com 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 Complaintsboard.com. Among the defendants was the company that hosted Complaintsboard.com – 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. Consumeraffiars.com, 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...
Image via Wikipedia

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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BitTorrent site liable for Grokster style inducement of copyright infringement

Columbia Pictures v. Fung, No. 06-5578 (C.D. Cal. December 21, 2009).

This case came out three weeks ago, but it’s pretty significant and hasn’t gotten the coverage and analysis it deserves. Of course Professor Goldman covered it in a timely manner. But his blogging agility surpasses that of us mere mortals.

Fung and his company Isohunt Web Technolgies ran a number of popular BitTorrent sites where users could find and share torrent files that permitted the downloading of video files. [Here's how BitTorrent works.] Several Hollywood studios sued Fung and his company for copyright infringement over the operation of the sites and the activites of the sites’ users.

Ostriches don't actually put their head in the sand

The plaintiffs moved for summary judgment on the copyright claims. The court granted the motion.

The court based its ruling on a theory of “secondary liability” — that is, Fung and his company were liable for the copyright infringement (i.e., the distribution of copyrighted movies and TV shows) committed by users of the sites. More specifically, the court held that the defendants induced copyright infringement, citing to the 2005 U.S. Supreme Court decision in MGM v. Grokster.

The defendants’ inducement of copyright infringement

Under Grokster, “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.”

In this case, the court found numerous ways that the defendants had induced copyright infringement. Among the defendants’ activities that gave rise to secondary liability were:

  • Providing categories on the sites to assist users in locating and downloading currently-popular movies, and making express statements to third parties to encourage copyright infringement
  • Providing technical support to users who desired to download and view copyrighted materials.
  • Implementing technical features (such as crawling The Pirate Bay) to locate copyrighted material
  • Relying on an advertising based business model that benefitted from high volume traffic drawn by the availability of infringing material

Rejection of the defendants’ DMCA affirmative defense

The court rejected the defendants’ argument that the safe harbors of the Digital Millennium Copyright Act (DMCA) should shield the torrent sites form liability.

A service provider can sail its ship into a DMCA safe harbor if, among other things, it does not have actual knowledge of, or is not willfully blind to, infringing activities being undertaken through its system. Said another way, the limitation of liability afforded by the DMCA is lost if the provider becomes aware of a “red flag” from which infringing activity is apparent.

The court found that the defendants did not qualify for safe harbor protection because of the “overwhelming” evidence that the defendants knew of the infringing activity. The court borrowed from the Aimster case to state that the defendants would not have known of the infringement only if they engaged in an “ostrich-like refusal” to observe what was happening. That willful blindess would not serve as an excuse.

Ostrich photo courtesy of Flickr user Pedronet under this Creative Commons license.

Website drives off with Section 230 win over Chevy dealer

Nemet Chevrolet sued the website Consumeraffairs.com over some posts on that website which Nemet thought were defamatory and interfered with Nemet’s business expectancy. The website moved to dismiss the lawsuit, claiming that the Communications Decency Act at 47 U.S.C. 230 immunized the website from the lawsuit.

But when we're driving in my Malibu, it's easy to get right next to you. . . . "

The court dismissed the action on Section 230 grounds and Nemet sought review of the dismissal with the Fourth Circuit Court of Appeals. The appellate court affirmed the dismissal.

Section 230 precludes tort plaintiffs from holding interactive computer services (like website operators) liable for the publication of information created and developed by others. Most courts (like the Fourth Circuit) consider Section 230′s protection to be a form of immunity for website operators from lawsuits arising over third party content.

But that immunity disappears if the content giving rise to the dispute was actually created or developed by the operator and not by a third party. In those circumstances the operator also becomes an information content provider. And there is no Section 230 immunity for information content providers.

That’s where Nemet steered its argument. It alleged that the website was a non-immune information content provider that created and developed the offending content.

Nemet raised two general points in its argument. It claimed that the website’s structure and design elicited unlawful content, and that the site operator contacted individual posters to assist in revisions to the content. It also claimed that the site operator simply fabricated a number of the offending posts.

Applying the pleading standards on which the Supreme Court recently elaborated in Ashcroft v. Iqbal, the court found Nemet’s claims that the site operator was actually an information content provider to be implausible.

As for the structure and design argument, the court differentiated the present facts from the situation in Fair Housing Council of San Fernando Valley v. Roommates. com. In Roommates.com, the court found that the website was designed to elicit information that would violate the Fair Housing Act. In this case, however, there was nothing unlawful in inviting commentary on goods or services, even if it was for the purposes of drumming up business for plaintiffs’ class action lawyers.

As for the other arguments, the court simply found that the allegations did not nudge the claims “across the line from conceivable to plausible.” The court found the argument that the website fabricated the posts to be particularly not creditable, in that Nemet’s allegations relied mainly on an absence of information in its own records that would connect the post to an actual customer.

On balance, this decision from the Fourth Circuit shows that Section 230 immunity is as alive and well at the end of the “oughts” as it was a dozen years before when the Fourth Circuit became the first federal appellate court to consider the scope of the section’s immunity. That 1997 decision in the case of Zeran v. AOL remains a watershed pronouncement of Section 230′s immunity.

Congratulations to my friend and fellow blogger Jonathan Frieden’s impressive win in this case.

And Happy New Year to all the readers of Internet Cases. Thanks for your continued loyal support.

Chevy Malibu photo courtesy Flickr user bea-t under this Creative Commons license.