On April 5, the Second Circuit issued its highly anticipated opinion in Viacom v. YouTube, reversing the District Court’s grant of summary judgment and remanding for further proceedings. Significantly, the opinion marks the first time that a court has drawn a meaningful, substantive distinction between actual and “red-flag” knowledge under the DMCA. This sets it apart from earlier DMCA opinions, including that of the Ninth Circuit in UMG Recordings, Inc. v. Shelter Capital (involving the Veoh videosharing service) and, notably, the lower court opinion in Viacom. Practitioners and ISPs now have some judicial guidance as to how to construe their rights and responsibilities under the DMCA.
Ominously for YouTube, the Second Circuit held that a reasonable jury could find that, under DMCA Section 512(c), YouTube had actual knowledge or awareness of specific infringing activity on its website. Moreover, the Second Circuit ruled that the District Court had incorrectly construed the DMCA’s control and benefit provisions in holding that the “right and ability to control” infringing activity required that the ISP have knowledge of specific, identifiable instances of infringement. Finally, the court affirmed the District Court’s holding that three of YouTube’s software functions fell within the safe harbor for infringement occurring “by reason of user storage,” and remanded for further fact-finding with respect to a fourth software function.
Actual vs. “red-flag” knowledge
In order to hold an ISP liable for the infringing postings of its users, the DMCA requires that the ISP have “actual knowledge” that the “material on the system or network is infringing,” or awareness of “facts or circumstances from which infringing activity is apparent.” The latter element is frequently referred to as “red-flag knowledge.” The District Court held that both actual and red-flag knowledge required that the ISP have knowledge of “specific and identifiable infringements.” Despite YouTube’s argument that this interpretation essentially conflated actual and red-flag knowledge, the Second Circuit “substantially affirm[ed]” the District Court’s analysis. The Second Circuit was persuaded that “the basic operation of §512(c) requires knowledge or awareness of specific infringing activity” because the ISP avoids liability if it “acts expeditiously to disable, or remove access to, the material.” Expeditious removal is only possible if the ISP “knows with particularity which items to remove.”
The Second Circuit distinguished actual knowledge from red-flag knowledge on a different basis: whether the ISP’s knowledge or awareness of the infringement is subjectively or objectively reasonable. The court drew on precedent from other areas, such as criminal law, to reason that actual knowledge turns on whether the ISP actually or “subjectively” knew of the specific infringement, whereas “the red-flag provision turns on whether the provider was subjectively aware of facts that would have made the specific infringement ‘objectively’ obvious to a reasonable person.” The court reached this conclusion based on the fact that the phrase “actual knowledge . . . is frequently used to denote subjective belief,” whereas courts “often invoke the language of ‘facts and circumstances’ . . . in discussing an objective reasonableness standard.”
The court then turned to an analysis of the record to determine whether a jury could find that YouTube’s knowledge met either of these standards. It cited several examples of instances where YouTube founders expressed knowledge that clips from Viacom-owned television broadcasts had been uploaded to the site (one founder stated in an email that such clips were “blatantly illegal”), but refrained from removing them due to a desire to drive traffic to the site. Accordingly, the court concluded that the plaintiffs had raised a material issue of fact as to the state of YouTube’s knowledge of infringing material on the site. It was not clear from the record, however, whether any such clips were owned by the plaintiffs. The court thus remanded for a determination whether YouTube knew of any specific infringements of clips owned by the plaintiffs.
The court also ruled, as a matter of first impression, that the common-law doctrine of willful blindness can be applied to determine whether an ISP has knowledge or awareness under the DMCA. The issue of willful blindness gained new urgency for the parties after the Supreme Court’s ruling on May 31, 2011 in Global-Tech Appliances v. SEB that the doctrine could be applied in the context of a civil lawsuit for patent infringement. (See my post on the topic at the 1709 Blog here.) Not surprisingly, Viacom hastened to bring this late-breaking development to the Second Circuit’s attention, although the appeal was already fully briefed at the time. The Second Circuit considered whether the concept of willful blindness could be reconciled with DMCA Section 512(m), which provides that safe harbor protection cannot be conditioned the ISP’s affirmative monitoring of its service for infringement. It concluded that willful blindness does not amount to an affirmative duty to monitor. Rather, willful blindness is a situation where one is “aware of a high probability of the fact in dispute” but “consciously avoid[s] confirming that fact.” Thus, the willful blindness doctrine may be applied, in appropriate circumstances, to demonstrate red-flag knowledge.
Control and benefit
To be eligible for the DMCA safe harbor, an ISP must not “receive a financial benefit directly attributable to the infringing conduct” where the ISP has the “right and ability to control such activity.” Consistent with the Ninth Circuit’s holding on the same issue in UMG Recordings, Inc. v. Shelter Capital Partners, LLC, the District Court held that the “right and ability to control” requires that the ISP have “item-specific knowledge” of infringement. The Second Circuit disagreed, finding that this interpretation would make redundant the “actual knowledge” provision: an ISP with item-specific knowledge giving rise to the right and ability to control infringing activity “would already by excluded from the safe harbor . . . for having specific knowledge of infringing material and failing to effect expeditious removal.”
The Second Circuit also rejected the argument that the DMCA merely codifies the common-law standard for vicarious liability, which imposes liability on a third-party infringer who has the right and ability to supervise the direct acts of infringement. Such a construction would “render the statute internally inconsistent” because the ISP must block access to infringing material in order to find shelter in the safe harbor. The ability to block access cannot at simultaneously serve as a precondition to safe harbor eligibility and evidence of the ISP’s right and ability to control infringing activity, giving rise to liability.
Thus, the Second Circuit concluded that the right and ability to control “requires something more than the ability to remove or block access” to infringing materials. The Court remanded to the District Court to consider whether the plaintiffs had introduced sufficient evidence to allow a jury to conclude that YouTube had the right and ability to control the infringing activity and received a financial benefit attributable to that activity.
By reason of
Lastly, the Court considered whether YouTube’s activities occurred “by reason of” the storage of material on the site by a user, a precondition for safe harbor protection. The plaintiffs argued that the DMCA protects only ISPs which act essentially as storage lockers, and does not cover such activities as displaying materials uploaded by users. The Second Circuit declined to interpret the safe harbor so narrowly, finding that the DMCA draws a distinction between ISPs who merely transmit communications without modification to the content of the communications, and ISPs who more broadly provide online services or network access. The safe harbor protection of Section 512(c) was designed to protect ISPs in the latter category. Accordingly, the Court affirmed the District Court’s finding that three out of four of the YouTube software functions at issue satisfied the “by reason of storage” requirement: the conversion of videos into a standard display format; the playback of videos in response to users’ requests; and the display of “thumbnails” of clips that are determined by a YouTube algorithm to be “related” to a particular video selected by the user. As to the fourth function at issue, the transcoding of videos into a format compatible with mobile devices and the licensing of those videos to third parties, the Court remanded to the District Court for a determination whether any of the clips in suit were the subject of these transcoding and licensing arrangements.
Much has been, and will continue to be, written about this groundbreaking opinion. For the first time, an appellate court has provided owners and users of content with some guidance as to the meaning of the “red-flag” knowledge provision of the DMCA. The first District Court opinion applying the Second Circuit’s reasoning has issued – Obodai v. Demand Media, in which the Southern District of New York found no evidence that the defendant ISP had either subjective or objective knowledge of the infringing activity before the plaintiff filed the complaint, and promptly removed the material in question. It remains to be seen whether the Ninth Circuit, upon its next opportunity to consider what constitutes “red-flag” knowledge, will follow the Second Circuit’s suit.
The case has returned to the District Court, where the parties will wrestle with the remaining issues left in the wake of the Second Circuit’s opinion – most significantly, whether YouTube had actual or, under the newly enunciated standards, red-flag knowledge of infringing activity. Regardless of the ultimate outcome, this suit will influence DMCA jurisprudence for the foreseeable future.