Revised UMG v. Veoh Decision Includes Silver Linings for Copyright Plaintiffs

Submitted by Luke Platzer on March 22, 2013

The following post is courtesy of Luke Platzer, of Legal Advisory Board member firm Jenner and Block.

The dispute between Universal Music Group and the video-sharing site Veoh over infringing music videos on Veoh’s website has been closely watched as one of the few recent circuit-level cases to address the scope of, and exceptions to, the safe harbors in the DMCA. The Ninth Circuit’s decision in UMG Recordings, Inc. v. Shelter Capital Partners LLC, 667 F.3d 1022 (9th Cir. 2011) was widely viewed as a major victory for those advocating an expansive view of the DMCA safe harbor. The Ninth Circuit has now replaced that decision with a new superseding opinion, UMG Recordings v. Shelter Capital Partners, No. 09-55902, 2013 WL 1092793, -- F.3d.-- (9th Cir. March 14, 2013) (“Shelter Capital”), which repeats some of the problematic holdings of its predecessor but also includes some silver linings for copyright plaintiffs. By way of background: Veoh operated as one of the many video-sharing websites where users could upload videos, which Veoh would then reformat and then host on its site for viewing by Veoh’s users. Among other things, the site allowed users to tag content with a category for “music videos,” and many of the videos uploaded by users were, in fact, copyrighted videos belonging to UMG and other record labels. (Also somewhat damaging for Veoh, it had bought advertising terms linked to a number of UMG artists and even for specific UMG music videos, strongly suggesting that the site knew perfectly well that it was a destination for watching music videos it did not have the rights to). The district court, however, found that even if Veoh had generalized awareness of infringement on its service, it did not know ofspecific infringing music videos. See UMG Recordings, Inc. v. Veoh Networks, Inc., 665 F. Supp. 2d 1099, 1111 (C.D. Cal. 2009). In its original opinion in the case, the Ninth Circuit treated this supposed lack of item-specific knowledge as fatal to UMG’s claims. It reasoned first that the two knowledge-based exceptions to the DMCA – the “actual knowledge” of infringement exception in Section 512(c)(1)(A)(i) and the “aware[ness] of facts or circumstances from which infringing activity is apparent” exception in Section 512(c)(1)(A)(ii) (also known as the “red flag” exception) – both required knowledge of specific infringements, as opposed to generalized knowledge that infringing activity was taking place. 667 F.3d at 1038-40. Second, the Ninth Circuit’s original holding reasoned that since Veoh lacked item-specific knowledge of the infringing videos, it also could not have had the “right and ability to control” the infringing activity, such that Veoh could not be disqualified from the DMCA under the 512(c)(1)(B) “financial benefit” and “control” exception either. 667 F.3d at 1041-45. If this latter theory regarding “control” sounds familiar, it is because that is the same basis on which the district court had held YouTube to be protected by the DMCA 512(c) safe harbor – and the exact reasoning the Second Circuit reversed as incorrect when it decided in Viacom International, Inc. v. YouTube, Inc., 676 F.3d 19 (2d Cir. 2012) last year. See Viacom, 676 F.3d at 36-38. After the Second Circuit’s Viacom decision, the Ninth Circuit called for additional briefing – leading to its superseding opinion last week. The principal change in the Ninth Circuit’s new Shelter Capital opinion is that it completely abandons its earlier holding that item-specific knowledge is required in order for a service provider to have the requisite “control” over infringing activity to disqualify it from protection under the DMCA (assuming the “financial benefit” prong of the Section 512(c)(1)(B) exception is also met). Instead, the Ninth Circuit resolved its circuit split with the Second Circuit by adopting the Second Circuit’s test wholesale: that a service provider has the requisite “control” for DMCA purposes as long as it has “substantial influence” on the activities of users, irrespective of whether it also has knowledge of the

infringing activity. 2013 WL 1092793 at *19. Echoing the Second Circuit’s decision in Viacom, the Ninth Circuit proposed two ways that this standard can be met: either by having “high levels of control over activities by users,” or by “purposeful conduct, as in [MGM v.] Grokster.” Id. Although the Ninth Circuit still held that Veoh itself lacked the requisite control, this revised articulation of the 512(c)(1)(B) standard, paired with the Second Circuit’s identical holding in Viacom, helps solidify the growing body of law holding that, at a bare minimum, a service provider that intentionally induces infringement by its users will not be able to claim protection under the DMCA.

While the Ninth Circuit’s turnaround on the “control” standard has attracted most of the attention surrounding the opinion, the court also made a subtle yet interesting alteration to its analysis of the “red flag” exception. For the most part, the new opinion’s discussion of the “red flag” disqualification simply repeats the original opinion verbatim, adding in only a brief adoption of the Second Circuit’s observation that the difference between “actual” knowledge of infringement under Section 512(c)(1)(A)(i) and “red flag” awareness of infringement under Section 512(c)(1)(A)(ii) is the difference between “subjective” and “objective” awareness. 2013 WL 1092793 at *15. However, the opinion also includes a subtle, yet potentially critical, caveat: the Ninth Circuit added a new footnote, discussing an informal notification of infringement that Veoh had received from Disney, in which the court expressly noted that it remained an open question whether awareness of infringement of one copyright owner’s works can also disqualify a service provider from DMCA protection for other infringements. See 2013 WL 1092793 at *14 n.14 (“We therefore do not consider whether Veoh’s awareness of apparent infringement of Disney’s copyrights over movies and television shows would affect the availability of the § 512(c) safe harbor with regard to UMG’s claims that Veoh hosted unauthorized UMG music videos”). This footnote raises a very intriguing possibility for copyright plaintiffs. The most recent round of legal battles concerning the 512(c)(1)(A)(ii) “red flag” exception to the DMCA has focused on whether the exception operates like common-law contributory liability for copyright infringement (where general or constructive knowledge is enough to establish liability, except in the Ninth Circuit due to a longstanding circuit split) or whether it actually requires a copyright holder to prove that a service provider knew about specific, identifiable infringements. The dual holdings in Viacom and Shelter Capital suggest that copyright holders are losing that particular battle in the DMCA context. Many in the copyright community have feared that importing such a specificity requirement into 512(c)(1)(A)(ii) will render the provision effectively unworkable as a means of holding service providers responsible in mass infringement cases. Even if a service provider tolerates large amounts of infringing material on its systems, a copyright holder is unlikely to be able to prove the service providers’ awareness of every infringement, especially in cases where such infringements are so numerous as to render item-by-item awareness unlikely or even impossible (in peer-to-peer and cyberlocker infringement cases, for instance, infringements can readily number in the hundreds of thousands if not millions). At most, a copyright holder might be able to use discovery to obtain anecdotal evidence that a service provider tolerated some much smaller number of known infringements. If one assumes that a service provider’s entitlement to the safe harbor is evaluated on an infringement-by-infringement basis, this would render 512(c)(1)(A)(ii) impractical for plaintiffs in cases where the infringements are numerous. But that assumption, in light of the new footnote in Shelter Capital, now looks premature. After all, it is not at all obvious from the text of the DMCA that a service provider found to have tolerated specific, known infringing activity under 512(c)(1)(A)(ii) should get to keep its safe harbor with respect to other infringements: although the “knowledge” exception in 512(c)(1)(A)(i) requires that a service provider not have knowledge of “the material” claimed as infringing, the “red flag” exception in Section 512(c)(1)(A)(ii) contains no parallel requirement – it requires only that the service provider lack awareness of “facts and circumstances from which infringing activity is apparent,” without tying the “infringing activity” of which the provider is aware back to “the material” for which liability is at issue. And there is also a policy argument that a service provider that tolerates known, specific infringements is not the kind of service provider for whom the protections of the DMCA were intended (indeed, such a provider would in many cases also be liable for inducement under Grokster). To be sure, the DMCA is not a model of clarity on whether the exception to the safe harbor sweeps this far. But as Shelter Capital now makes clear, that question remains very much an open one, certain to be tested in future cases.