ARCHIVES : June 2010

Where’s the Beef?
YouTube Opinion Lacks Heft

Where's the Beef250x231

In sharp contrast to the voluminous materials submitted by the parties in support of their cross-motions for summary judgment in the Viacom v. YouTube litigation, the court’s opinion granting judgment in favor of YouTube is surprisingly lean.  Indeed, a third of the 30-page opinion is devoted to verbatim quotes of the statute and legislative history.  The opinion represents a resounding victory for YouTube and, by extension, the rest of the user-generated content industry (for the time being, anyway – Viacom, not surprisingly, has indicated that it will appeal the decision).  But – leaving the merits of the dispute aside for a moment – it also represents a lost opportunity for a thoughtful contribution to the jurisprudence in this developing area of law. 

Copyright Act Section 512(c) creates a “safe harbor” for internet service providers who allow users to upload copyrighted content to their services.  The “safe harbor” shields ISPs from liability for copyright infringement “by reason of the storage at the direction of a user” of infringing material if the service provider meets certain criteria.  The ISP must follow prescribed “notice and takedown” procedures to remove materials identified by  copyright owners as infringing.  Moreover, the ISP must neither have “actual knowledge” that material on the system is infringing nor be aware of “facts or circumstances from which infringing activity is apparent.” 

The court’s opinion centers on construing these knowledge provisions.  Specifically, “the critical question is whether the statutory phrases . . . mean a general awareness that there are infringements . . . or rather mean actual or constructive knowledge of specific and identifiable infringements of individual items.”

Actual vs. “red flag” knowledge

In my initial post on this decision, I stated that the court “analyzes the Section 512 safe harbor for ISPs and corresponding legislative history.”  Upon a closer reading of the opinion, this turned out to be something of an overstatement.  Rather, after reciting Sections 512(c) and (m) verbatim, as well as lengthy passages from the legislative history, the court simply concluded, with no discussion whatsoever, “The tenor of the foregoing provisions is that the phrases ‘actual knowledge that the material or an activity’ is infringing, and ‘facts or circumstances’ indicating infringing activity, describe knowledge of specific and identifiable infringements of particular individual items.  Mere knowledge of the prevalence of such activity in general is not enough.”  Given the size of the case (the complaint sought $1 billion in damages), the significance of the legal issues, and the need for a well-developed body of jurisprudence to guide the ongoing development of new business models and to create settled expectations among copyright owners and users of content, it would have been nice to see a little closer parsing of the language in the statute and legislative history.  Clients, in my experience, are never thrilled to be advised on the tenor of the law – they want to know what the law is, so they can act accordingly. 

The one comment that the court made on the actual statutory language was in connection with subsection (m), which “explicit[ly]” states that the DMCA “shall not be construed to condition ‘safe harbor’ protection on ‘a service provider monitoring its service or affirmatively seeking facts indicating infringing activity . . .”  Seizing on that language, the court noted, as a policy matter, that letting “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 fo the DMCA.”

Having thus dispensed with statutory analysis, the court went on to recite the holdings of the Ninth Circuit and two of its district courts in cases where similarly situated defendants were found to be unaware of “facts and circumstances” sufficient to constitute red flags under the DMCA.  As with its discussion of the statute itself, the court engaged in no meaningful analysis of these opinions.  The court also cited favorably the Second Circuit’s opinion in Tiffany v. eBay, Inc., 600 F.3d 93 (2d Cir. 2010), a trademark case.  In eBay, Tiffany sued eBay for contributory trademark infringement because eBay allow sellers of counterfeit goods to continue to operate despite knowing, generally, that counterfeit Tiffany goods were being sold “ubiquitously” on the site.  The Second Circuit ruled for eBay, holding that it could not be liable unless it had knowledge of particular listings of counterfeit goods; the Viacom court concluded, “[a]lthough by a different technique, the DMCA applies the same principle. . . .”

Direct financial benefit where the ISP has the right and ability to control the infringing activity

Section 512(c) also prohibits an ISP from receiving “a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity . . .”  The parties hotly disputed whether YouTube had the right and ability to control the activity of users who uploaded infringing content, with each side devoting several pages of briefing to the issue.  Again, the court’s opinion gave the issue short shrift, holding without citation or elucidation that “[t]he ‘right and ability to control’ the activity requires knowledge of it, which must be item-specific,” and citing back to the sections of the opinion addressing the knowledge requirement. 

I was especially disappointed that the court did not address the question whether YouTube received a direct financial benefit from the allegedly infringing activity, though I recognize that the court did not need to reach the issue given its ruling (however cursory) on the right and ability to control the activity.  But there is a bothersome discrepancy between the traditional common-law doctrine of vicarious liability and the form of it enacted in the DMCA.  Recall that in Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996), a flea-market operator was held vicariously liable for the sale of bootleg recordings because it received a “direct financial benefit” from the infringing activity in the form of booth rental fees, admission fees, parking payments, concession stand revenues, and the like.  Even though these revenues were not directly tied to the sale of infringing goods, they were held to provide a direct financial benefit because the sale of pirated recordings was a “draw” for customers. 

The legislative  history of the DMCA, in part, states that the drafters intended to leave “current law in its evolving state” rather than “embarking on a wholesale clarification” of the doctrines of contributory and vicarious liability – suggesting that it did not intend to modify Fonovisa and its progeny.  Yet elsewhere, the legislative history states that “a service provider conducting a legitimate business would not be considered to receive a ‘financial benefit directly attributable to the infringing activity’ where the infringer makes the same kind of payment as non-infringing users of the provider’s service.”  This statement suggests that the booth rental fees and other revenues not directly tied to bootleg sales in Fonovisa would not constitute a direct financial benefit – setting up a conflict within the legislative history and with Fonovisa. 

“Where does this appeal go?  It goes up.” (bonus points if you can identify the riff)

It can come as no surprise that Viacom intends to appeal, and it will be very interesting to see what the Second Circuit thinks of this opinion.  I will post appeal briefs when they are available. 

For those of you feeling nostalgic for the ’80s after seeing the photograph at the beginning of this post, you can view the clip of the original Wendy’s “Where’s the Beef” commercial here, thanks to one laconic judge in the Southern District of New York.

Judge Louis “Lightning” Stanton Quick on the Draw
Rules in Favor of YouTube in Viacom Suit

Today Judge Louis Stanton granted YouTube’s motion for summary judgment in the Viacom v. YouTube litigation – an incredibly quick decision in almost any case, but especially here, where the parties filed tremendously dense briefs and supporting declarations with hundreds of pages of exhibits.  Viacom v. YouTube, No. 07-2103 (S.D.N.Y. filed June 23, 2010).  The opinion is hot off the presses and I have not yet read it in its entirety, but in a significant holding, it analyzes the Section 512 safe harbor for ISPs and corresponding legislative history, concluding that “the phrases ‘actual knowledge that the material or an activity’ is infringing, and ‘facts or circumstances’ indicating infringing activity, describe knowledge of specific and identifiable infringements of particular individual items.  Mere knowledge of prevalence of such activity in general is not enough.” 

There is more – I will post further thoughts once I’ve had a chance to digest the entire opinion.  Hat tip to my colleague, Raffi Zerounian, for spotting this and bringing it to my immediate attention.

File-sharing: Speak Now or Forever Hold Your Peace

Gavin McGimpsey, an undergraduate at Kenyon College, is conducting research into file-sharing and attitudes about copyright law.  The research is funded by Kenyon College’s John W. Adams Summer Legal Scholars Program in Socio-Legal Studies.  Mr. McGimpsey’s research includes a survey directed at those interested in file-sharing and copyright law.  If you are interested in participating in the survey, you can find it here.  For more information about Mr. McGimpsey and his project, click here. 

An Associate Provost at Kenyon College confirmed by telephone today that Mr. McGimpsey is enrolled there, and that he is undertaking this research project in connection with his studies.

One Award to Rule Them All – Second Circuit Addresses What Constitutes a “Work” For Statutory Damages Purposes

Songs for DogsSongs for Cats

Section 504(c) of the Copyright Act allows a plaintiff to elect statutory damages instead of actual damages and profits “for all infringements involved in the action, with respect to any one work . . .” For purposes of that subsection, “all the parts of a compilation or derivative work constitute one work.” The Copyright Act does not define “work,” though it defines a “compilation” as a “work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship.” In litigation involving a work with multiple components, then, the question arises whether it is a single “work” or multiple “works” for purposes of assessing statutory damages.

A recent Second Circuit opinion illustrates the problem. Bryant v. Media Right Prodns., __ F.3d __ (2d Cir. 2010). In Bryant, two songwriters created and produced two albums – “Songs for Dogs” and “Songs for Cats” – and registered both the albums and, separately, at least some of the individual songs with the Copyright Office. They then authorized defendant Media Right to market the albums. Media Right in turn granted co-defendant Orchard Enterprises the right to distribute the albums “by any and all means and media,” including by digital download. Initially, Orchard only sold physical copies of the albums. In early 2004, however, Orchard began making the albums and the individual songs available for sale through Internet retailers like iTunes. Orchard recognized $578.91 from downloads of digital copies of the albums and the individual songs on the albums. The songwriters sued, alleging that their initial agreement with Media Right did not include the right to make copies of the albums, which Orchard did in order to enable digital sales.

The district court (ruling on competing summary judgments motions which the parties agreed to treat as a case stated, thus allowing the court rather than a jury to determine statutory damages) held that each album was a compilation and constituted a single work for purposes of computing statutory damages. The court found that Orchard’s infringement was innocent and imposed the minimum amount of statutory damages on Orchard, $200 per album for a total of $400. The court found that Media Right’s conduct was neither innocent nor willful, and imposed statutory damages on the company and its president, jointly and severally, for $1000 per album for a total of $2000. The plaintiffs’ entire award thus amounted to $2400. The court denied the plaintiffs’ request for attorney’s fees.

The Second Circuit affirmed, finding that the plain language of the Act established that the albums were compilations since each album is a “collection of preexisting materials – songs – that are selected and arranged by the author in a way that results in an original work of authorship – the album.” It concluded that the fact that certain songs had been registered separately was irrelevant, relying on the Conference Report that accompanied the final Copyright Act, which explains many of its provisions. The Report states that a “compilation” “results from a process of selecting, bringing together, organizing, and arranging previously existing material of all kinds, regardless of whether . . . the individual items in the material have been or ever could have been subject to copyright.”

Bryant represents the third occasion upon which the Second Circuit has construed Section 504’s one-award restriction. In Twin Peaks Prodns., Inc. v Publ’ns, Int’l Ltd., 996 F.2d 1366 (2d Cir. 1993), the court awarded the plaintiff one statutory damages award for each of 8 episodes of a television series. Rather than explaining why each episode constituted a single work, the court stated its conclusion in the converse: “The author of eight scripts for eight television episodes is not limited to one award of statutory damages just because he or she can continue the plot line from one episode to the next and hold the viewers’ interest without furnishing a resolution. . . . [O]urs is the easy case of infringement of eight separate works that warrants eight statutory awards, whether the registrations apply to the teleplays or the televised episodes.” Though the opinion did not explicitly say so, it appeared to turn on the fact that each television episode aired independently. In WB Music Corp. v. TRV Communication Group, Inc., 445 F.3d 538 (2d Cir. 2006), the court awarded thirteen statutory damages awards for thirteen infringed songs because the songs themselves had been released separately and not as part of an album. The Bryant court thus found its opinion in harmony with both Twin Peaks and WB Music because the plaintiffs’ songs were issued as part of CD compilations and not individually, like the Twin Peaks episodes but unlike the songs in WB Music.

The Second Circuit also rejected the “independent economic value” approach adopted by the First, Ninth, Eleventh and D.C. Circuits. This approach looks at whether each element of a work has “independent economic value” and can live its own copyright life. Following this approach, the First Circuit, for example, allowed multiple statutory damages awards for individual television episodes that were released collectively on videotape as part of a complete series. Gamma Audio & Video, Inc. v. Each-Chea, 11 F.3d 1106 (1st Cir. 1993).

Practice tip: statutory damages and the plaintiff’s choice of forum

Now that the Second Circuit has squarely rejected the “independent economic value” approach, plaintiffs have an additional consideration when deciding where to sue for infringement. If a plaintiff issued the components of a multi-part work as part of a collection and not singly, and is considering seeking statutory damages rather than actual damages and profits, it may be better off suing in a circuit that will look at whether those parts have independent economic value rather than in the Second Circuit.

Attorney’s fees and offers of judgment

An interesting side note to the case involves the court’s denial of the plaintiffs’ request for attorney’s fees. Copyright Act Section 505 allows a court, in its discretion, to award a “reasonable attorney’s fee to the prevailing party” in a copyright case. Though some commentators argue that such awards seem virtually guaranteed to prevailing parties, here the court exercised its discretion to deny the award to the prevailing plaintiffs.

The denial boiled down to the reasonableness of the parties’ conduct in the litigation. The Second Circuit found that the defendants’ arguments were objectively reasonable, and the defendants prevailed on several important issues. Moreover, the defendants “also were reasonable in trying to resolve the case short of trial: [Defendants] made an Offer of Judgment in the amount of $3000, which [Plainitffs] rejected, in favor of continuing to demand over $1 million in damages, notwithstanding the evidence that [Defendants] had received less than $600 in revenues from infringing sales.”

This portion of the opinion, tacked on to the end in just a few sentences, is interesting for a couple of reasons. First, it illustrates that the prevailing party’s conduct in the course of the litigation retains relevance in the attorney’s fees analysis. Second, it highlights a thorny question at the intersection of civil procedure and copyright that remains unresolved.

Federal Rule of Civil Procedure 68 governs offers of judgment, and provides that a party defending against a claim may offer to the opposing party to allow judgment on specified terms. If the opposing party fails to accept the offer within 14 days, and later obtains a judgment that is less favorable than the offer, then “the offeree must pay the [offeror’s] costs incurred after the offer was made.” But “costs,” at least in the sense of true, out-of-pocket costs, are dwarfed by attorney’s fees in typical litigation. Do Rule 68 “costs” include attorney’s fees? In Marek v. Chesney, 473 U.S. 1 (1985), the Supreme Court held that Rule 68 “costs” include attorney’s fees if the underlying statute so prescribes. Because attorney’s fees can amount to substantial sums, the offer of judgment can be a powerful tool in a defendant’s arsenal in settlement negotiations where such fees are included as costs.

If there is no settlement and the parties proceed to judgment in a copyright case, how do Rule 68 and Section 505 interact? Section 505 defines costs as including attorney’s fees, thus bringing Rule 68 into play. The rules differ from each other in important ways, however. While Section 505 allows an award of attorney’s fees to any prevailing party, whether plaintiff or defendant, Rule 68 only shifts costs to a party “defending against a claim” – usually the defendant, though the rule would seem to apply equally to a counterclaim defendant. Moreover, Section 505 gives the court discretion to award attorney’s fees, while Rule 68 is phrased in mandatory terms. Relying on Rule 68’s mandatory language, the Eleventh Circuit, in Jordan v. Time, Inc., 111 F.3d 102 (11th Cir. 1997), awarded costs (including attorney’s fees) to the defendant even though the plaintiff prevailed, because the plaintiff recovered less than the amount of the offer of judgment – a traditional application of Rule 68. In contrast, the Seventh Circuit, in Harbor Motor Co. v. Arnell, 265 F.3d 638 (7th Cir. 2001), held that in copyright cases, only prevailing parties can receive attorney’s fees under Rule 68 because the Supreme Court in Marek tied the award of Rule 68 fees to those costs that are “properly awardable under the substantive statute at issue,” and Section 505 only awards fees to prevailing parties. The Seventh Circuit thus reads Section 505 as a limitation on Rule 68.

The Bryant court makes no reference to a request for attorney’s fees by the defendants. Presumably, the defendants made no such request, and there is nothing in the opinion suggesting how the court might have ruled had they done so. I believe the Eleventh Circuit view is the better one. Marek v. Chesney instructs us to look to the underlying statute to determine whether it defines costs as including fees, not the circumstances under which fees are to be awarded: “where the underlying statute defines ‘costs’ to include attorney’s fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.” Moreover, the Eleventh Circuit approach is consistent with the policy, emphasized by the Supreme Court in Marek, in favor of encouraging settlement of disputes. It will be interesting to see how case law develops in this area.