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Court Rules on Pleading Post Napster Gray.Indd To maintain momentum ›› StayCurrent. July 2004 Court Rules on Sufficiency of Pleading “Vicarious or Contributory” Copyright Infringement Post-Napster By Naomi Jane Gray On July 14, 2004, Chief Judge Marilyn Hall Patel tors responsible for Napster’s infringing activities of the Northern District of California issued a and recover the damages they allegedly suffered as ruling addressing the pleading requirements for a result of the widespread downloading of copy- claims of contributory and vicarious copyright righted music that occurred prior to Napster’s infringement in a series of related cases arising shutdown. The defendants moved to dismiss the out of the aftermath of the Napster litigation. In complaint. these cases, the plaintiffs (comprised of recording studios and music publishers) sued entities with In order to state a prima facie claim of contribu- substantial financial investments in Napster, Inc. tory copyright infringement, a plaintiff must (“Napster”), alleging that the defendants engaged allege: (1) direct copyright infringement by a third in contributory and vicarious copyright infringe- party; (2) knowledge or reason to know by the ment by investing in, and as a result, allegedly defendant that the third party was directly infring- controlling, Napster. ing; and (3) substantial participation by the defen- dant in the infringing activities. A plaintiff states The defendants moved to dismiss, arguing that a prima facie claim of vicarious infringement by the plaintiffs had alleged nothing more than that alleging that the defendant has (1) the right and the defendants were investors in Napster and had ability to supervise activity that directly infringes thus failed to state a claim under Fed. R. Civ. P. a copyright; and (2) a direct financial interest in 12(b)(6). The court denied the motion because such activities. the plaintiffs specifically alleged that the defen- dants assumed control of Napster and deliberately The court characterized the defendants’ argument allowed it to continue operating despite actual as asserting that the plaintiffs had accused them knowledge that Napster users were engaging in only of “aiding and abetting” Napster’s infringe- copyright infringement. ment of copyright by providing Napster with the financial backing that allowed it to continue The original Napster litigation involved Napster’s operating. The court described this type of claim peer-to-peer file sharing system, which allowed as one for “tertiary” copyright infringement its users to (1) make songs stored on individual – “vicarious or contributory assistance to a vicari- computer hard drives available for copying by ous or contributory infringer,” a claim the court others; (2) search for songs stored on other users’ viewed with disfavor. computers; and (3) copy songs stored on others’ computer hard drives over the Internet. A group The court found, however, that the plaintiffs of recording studios sued Napster on the grounds specifically accused the defendants of “assuming that its facilitation of this swapping of copyright- control over Napster’s operations and direct- ed music gave rise to liability for contributory ing the infringing activities that gave rise to the and vicarious infringement. Judge Patel issued a original Napster litigation.” Among other things, preliminary injunction against Napster in 2000 the plaintiffs asserted that one defendant (1) con- because she found that the plaintiffs were likely trolled Napster outright by October 2000 as a to prevail on their claims and the Ninth Circuit result of its position as Napster’s only available affirmed in 2001. source of funding; and (2) deliberately allowed Napster to continue operating despite knowing Napster has since entered bankruptcy protection. of its’ users infringing activities in order to pro- The plaintiff recording studios and music publish- tect the defendant’s financial investment in the ers now seek to hold the company’s major inves- company. Similarly, the plaintiffs alleged that the other defendant controlled and operated the it is important to set forth with specificity the Napster system with the “full knowledge” that defendant’s knowledge of the directly infringing Napster users were engaging in rampant copyright activity; the acts by the defendant that contributed infringement. These allegations were held specific to this activity; any ability the defendant had to enough to state prima facie claims of contributory control the activity and any failure to exert that and vicarious copyright infringement. control; and any financial stake the defendant had in the infringing activity. The absence of any of The court was careful to note that its decision these allegations should be noted in a motion to did not reach the merits of the case, and pointed dismiss. out conflicts in the plaintiffs’ allegations, i.e., that both defendants controlled Napster at approxi- While the court has yet to rule on the merits of mately the same time. Nor did the court decide the plaintiff’s claims, the lawsuit also stands as a whether the mere financial support of a contribut- reminder to entities which invest in or otherwise ing and vicarious infringer, without more direct engage in joint business ventures with partners involvement, would give rise to a claim for con- whose activities involve the use of potentially tributory or vicarious infringement. copyrighted works. Thorough due diligence should be conducted in advance of any such While leaving these questions unanswered, investments or joint ventures, and vigilance should the opinion provides useful guidance for those be exercised throughout the course of the relation- drafting complaints and motions to dismiss ship to protect against exposure to liability for based on contributory and vicarious copyright copyright infringement by third parties. infringement. When drafting such a complaint, Naomi Jane Gray is a member of Paul Hastings’ Litigation Department. If you have any questions regarding this alert or copyright infringement in general, please contact her directly, or any other member of Paul Hast- ings’ Litigation Group listed below: John M. Benassi (858) 720-2850 Naomi Jane Gray (415) 856-7026 [email protected] [email protected] George L. Graff (212) 318-6019 Cole Stuart (858) 720-2820 [email protected] [email protected] Robert L. Sherman (212) 318-6037 [email protected] StayCurrent is published solely for the interests of friends and clients of Paul, Hastings, Janofsky & Walker LLP and should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. Paul Hastings is a limited liability partnership. Momentum. Every business needs momentum. Our business is to apply legal knowledge that lets you maintain yours. Atlanta Brussels London New York City Paris San Francisco Stamford Washington, D.C. www.paulhastings.com Beijing Hong Kong Los Angeles Orange County San Diego Shanghai Tokyo 02.
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