Impact on Peer-to-Peer Cases: Vicarious Liability Claims May Have Their Limits

Vicarious liability is applicable in most areas of tort law. As the U.S. Supreme Court stated in an opinion early last year, “traditional vicarious liability rules ordinarily make principals or employers vicariously liable for acts of their agents or employees in the scope of their authority or employment.” Meyer v. Holley, 537 U.S. 280, 283 (2003).

In the area of copyright law, however, courts have developed an expanded form of vicarious liability that has been applied without regard for traditional limits on vicarious liability. The Ninth Circuit described this court-created copyright rule in its 1996 decision, Fonovisa Inc. v. Cherry Auction Inc.: “The concept of vicarious copyright liability was developed in the Second Circuit as an outgrowth of the agency principles of respondeat superior. … Noting that the normal agency rule of respondeat superior imposes liability on an employer for copyright infringements by an employee, the court endeavored to fashion a principle for enforcing copyrights against a defendant whose economic interests were intertwined with the direct infringer's, but who did not actually employ the direct infringer.” 76 F.3d 259, 262 (9th Cir. 1996) (citing Shapiro, Bernstein and Co. v. H.L. Green Co., 316 F.2d 304 (2d Cir.1963)). In light of Fonovisa and the Second Circuit case law it followed, courts now impose vicarious liability for copyright infringement where the defendant has “the right and ability to supervise infringing activity and also has direct financial interest in such activities,” regardless of whether a principal/agent relationship exists. See In re Aimster Litigation, 252 F.Supp.2d 634, 654 (N.D. Ill. 2003).

The most significant push for vicarious copyright liability in recent years has been made by the Recording Industry Association of America (RIAA) and other copyright owners in the continuing war against peer-to-peer file sharing and music piracy. The RIAA routinely has sued peer-to-peer services and software providers such as Napster, Aimster, and, more recently, Grokster, Morpheus, and KaZaA, on both contributory infringement and vicarious liability grounds. The copyright owners typically assert vicarious liability as an alternative theory of relief and sometimes even characterize it as an easier option for a court to accept. And while no principal/agent relationship normally exists between the purveyors of file swapping software and the users of the software (who are considered the direct infringers), courts have sometimes accepted the arguments of the copyright owners and imposed vicarious liability on the software providers. See A&M Records v. Napster Inc., 239 F.3d 1004, 1022-24 (9th Cir. 2001); In re Aimster, 252 F.Supp.2d at 654-55.

The question remains, however, whether this expanded application of vicarious liability comports with Supreme Court precedent. Meyer v. Holley suggests strongly that it does not. In Meyer, the Supreme Court reviewed a Ninth Circuit decision that had applied an expanded form of vicarious liability under the Fair Housing Act ' an expansion based on the Ninth Circuit's view that the aims of the Fair Housing Act supported a broader form of vicarious liability. Reversing the Ninth Circuit, the Supreme Court stated: “[W]hen Congress creates a tort action, it legislates against a legal background of ordinary tort-related vicarious liability rules and consequently intends its legislation to incorporate those rules.” Meyer, 537 U.S. at 285. Congress, of course, may impose alternate forms of vicarious liability through a particular statutory scheme. However, Congressional “silence, while permitting an inference that Congress intended to apply ordinary background tort principles, cannot show that it intended to apply an unusual modification of those rules.” Id. at 829 (emphasis in original). Significantly, the Supreme Court noted that it would “appl[y] unusually strict rules only where Congress has specified that such was its intent.” Id.

In light of Meyer, copyright law's expanded form of vicarious liability is highly suspect. Copyright infringement is a tort, and as Meyer indicates, vicarious tort liability is traditionally founded on principal/agent relationships. Black's Law Dictionary defines “vicarious liability” as “[l]iability that a supervisory party (such as an employer) bears for the actionable conduct of a subordinate or associate (such as an employee) because of the relationship between the two.” Black's Law Dictionary at 927 (West Publ. 7th ed. 1999); see also Proctor & Gamble Co. v. Haugen, 222 F.3d 1262, 1277 (10th Cir. 2000) (“Vicarious liability may arise either from an employment or agency relationship.”) Therefore, absent specific direction from Congress, vicarious liability under the Copyright Act should be confined to situations involving such relationships.

Legislative History

When Congress passed the Copyright Act of 1976, however, it gave no indication that it intended anything other than traditional vicarious liability rules to apply. The enacted statute said nothing at all about vicarious liability, and the Act's legislative history makes only brief mention of the doctrine:

“The committee has considered and rejected an amendment to this section intended to exempt the proprietors of an establishment, such as a ballroom or night club, from liability for copyright infringement committed by an independent contractor, such as an orchestra leader. A well-established principle of copyright law is that a person who violates any of the exclusive rights of the copyright owner is an infringer, including persons who can be considered related or vicarious infringers. To be held a related or vicarious infringer in the case of performing rights, a defendant must either actively operate or supervise the operation of the place wherein the performances occur, or control the content of the infringing program, and expect commercial gain from the operation and either direct or indirect benefit from the infringing performance. The committee has decided that no justification exists for changing existing law, and causing a significant erosion of the public performance right.” H.Rep. 1476, 94th Cong., 2nd Sess. 159-60, reprinted in 1976 U.S. Code Cong. & Admin. News 5775-76.

The legislative history therefore indicates two things, neither of which supports vicarious liability in the absence of an agency relationship. First, Congress expressly chose not to change the existing law of vicarious liability. Second, its view of existing law at the time ' ie, that the infringing activities of an independent contractor acting under the supervision or control of another can give rise to vicarious liability ' comported with traditional agency principles. See Restatement (Second) of the Law of Agency Secs. 1-3, 14N (1958). Indeed, rather than supporting expanded vicarious liability, those points likely foreclose any notion that Congress intended vicarious liability for copyright infringement to exist outside the bounds of traditional rules.

So how did this happen? A few things stand out. First, early opinions tend to confuse labels like “respondeat superior,” “employee,” “independent contractor” and “agent,” incorrectly confining agency principles to employer/employee relationships and creating a false need for a special rule for copyright infringement.

In fact, however, the Restatement (Second) of Agency makes clear that agency relationships extend well beyond employer-employee relationships. See Restatement Secs. 1-3, 14N.

Second, contrary to the more recent teachings of Meyer and similar cases, early courts allowed their own views of policy considerations to shape the law. Shapiro states, “When the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials … the purposes of copyright law may be best effectuated by the imposition of liability upon the beneficiary of that exploitation.” 316 F.2d at 307. Meyer, however, now counsels against just such an approach: “[C]ourts ordinarily should determine [vicarious liability] in accordance with traditional principles … unless, of course, Congress, better able than courts to weigh the relevant policy considerations, has instructed the courts differently.” Meyer, 537 U.S. at 290-91.

Finally, courts of more recent vintage have tended to apply the literal wording of the Shapiro test rather mechanistically, often in ways that look more appropriate for construction of statutory language than for the considered application of court precedent. See Napster, 239 F.3d at 1022-24; In re Aimster, 252 F.Supp.2d at 654-55.

The one decision in the peer-to-peer file sharing war that seems to have at least partly headed back in the right direction is In re Aimster from the Seventh Circuit. See In re Aimster Copyright Litigation, 334 F.3d 643, 654-55 (7th Cir. 2003). Without mentioning Meyer, Judge Richard A. Posner noted the traditional limits of vicarious liability and the fact that Aimster's users were not Aimster's agents. Id. at 654. He also noted, however, that vicarious liability in copyright law had been extended by courts to relationships “analogous to the relation of a principal to an agent.” Id. Ultimately, he concluded two things. First, that “[h]ow far the doctrine of vicarious liability extends is uncertain,” at least in the present context. Id. And second, that how far it extends was an academic question for the court; the issue of contributory infringement supported the district court's ruling, meaning that vicarious liability could be left for another day. Id. at 655.

Vicarious liability is applicable in most areas of tort law. As the U.S. Supreme Court stated in an opinion early last year, “traditional vicarious liability rules ordinarily make principals or employers vicariously liable for acts of their agents or employees in the scope of their authority or employment.” Meyer v. Holley , 537 U.S. 280, 283 (2003).

In the area of copyright law, however, courts have developed an expanded form of vicarious liability that has been applied without regard for traditional limits on vicarious liability. The Ninth Circuit described this court-created copyright rule in its 1996 decision, Fonovisa Inc. v. Cherry Auction Inc .: “The concept of vicarious copyright liability was developed in the Second Circuit as an outgrowth of the agency principles of respondeat superior. … Noting that the normal agency rule of respondeat superior imposes liability on an employer for copyright infringements by an employee, the court endeavored to fashion a principle for enforcing copyrights against a defendant whose economic interests were intertwined with the direct infringer's, but who did not actually employ the direct infringer.” 76 F.3d 259, 262 (9th Cir. 1996) ( citing Shapiro, Bernstein and Co. v. H.L. Green Co ., 316 F.2d 304 (2d Cir.1963)). In light of Fonovisa and the Second Circuit case law it followed, courts now impose vicarious liability for copyright infringement where the defendant has “the right and ability to supervise infringing activity and also has direct financial interest in such activities,” regardless of whether a principal/agent relationship exists. See In re Aimster Litigation, 252 F.Supp.2d 634, 654 (N.D. Ill. 2003).

The most significant push for vicarious copyright liability in recent years has been made by the Recording Industry Association of America (RIAA) and other copyright owners in the continuing war against peer-to-peer file sharing and music piracy. The RIAA routinely has sued peer-to-peer services and software providers such as Napster, Aimster, and, more recently, Grokster, Morpheus, and KaZaA, on both contributory infringement and vicarious liability grounds. The copyright owners typically assert vicarious liability as an alternative theory of relief and sometimes even characterize it as an easier option for a court to accept. And while no principal/agent relationship normally exists between the purveyors of file swapping software and the users of the software (who are considered the direct infringers), courts have sometimes accepted the arguments of the copyright owners and imposed vicarious liability on the software providers. See A&M Records v. Napster Inc. , 239 F.3d 1004, 1022-24 (9th Cir. 2001); In re Aimster, 252 F.Supp.2d at 654-55.

The question remains, however, whether this expanded application of vicarious liability comports with Supreme Court precedent. Meyer v. Holley suggests strongly that it does not. In Meyer, the Supreme Court reviewed a Ninth Circuit decision that had applied an expanded form of vicarious liability under the Fair Housing Act ' an expansion based on the Ninth Circuit's view that the aims of the Fair Housing Act supported a broader form of vicarious liability. Reversing the Ninth Circuit, the Supreme Court stated: “[W]hen Congress creates a tort action, it legislates against a legal background of ordinary tort-related vicarious liability rules and consequently intends its legislation to incorporate those rules.” Meyer, 537 U.S. at 285. Congress, of course, may impose alternate forms of vicarious liability through a particular statutory scheme. However, Congressional “silence, while permitting an inference that Congress intended to apply ordinary background tort principles, cannot show that it intended to apply an unusual modification of those rules.” Id. at 829 (emphasis in original). Significantly, the Supreme Court noted that it would “appl[y] unusually strict rules only where Congress has specified that such was its intent.” Id.

In light of Meyer, copyright law's expanded form of vicarious liability is highly suspect. Copyright infringement is a tort, and as Meyer indicates, vicarious tort liability is traditionally founded on principal/agent relationships. Black's Law Dictionary defines “vicarious liability” as “[l]iability that a supervisory party (such as an employer) bears for the actionable conduct of a subordinate or associate (such as an employee) because of the relationship between the two.” Black's Law Dictionary at 927 (West Publ. 7th ed. 1999); see also Proctor & Gamble Co. v. Haugen , 222 F.3d 1262, 1277 (10th Cir. 2000) (“Vicarious liability may arise either from an employment or agency relationship.”) Therefore, absent specific direction from Congress, vicarious liability under the Copyright Act should be confined to situations involving such relationships.

Legislative History

When Congress passed the Copyright Act of 1976, however, it gave no indication that it intended anything other than traditional vicarious liability rules to apply. The enacted statute said nothing at all about vicarious liability, and the Act's legislative history makes only brief mention of the doctrine:

“The committee has considered and rejected an amendment to this section intended to exempt the proprietors of an establishment, such as a ballroom or night club, from liability for copyright infringement committed by an independent contractor, such as an orchestra leader. A well-established principle of copyright law is that a person who violates any of the exclusive rights of the copyright owner is an infringer, including persons who can be considered related or vicarious infringers. To be held a related or vicarious infringer in the case of performing rights, a defendant must either actively operate or supervise the operation of the place wherein the performances occur, or control the content of the infringing program, and expect commercial gain from the operation and either direct or indirect benefit from the infringing performance. The committee has decided that no justification exists for changing existing law, and causing a significant erosion of the public performance right.” H.Rep. 1476, 94th Cong., 2nd Sess. 159-60, reprinted in 1976 U.S. Code Cong. & Admin. News 5775-76.

The legislative history therefore indicates two things, neither of which supports vicarious liability in the absence of an agency relationship. First, Congress expressly chose not to change the existing law of vicarious liability. Second, its view of existing law at the time ' ie, that the infringing activities of an independent contractor acting under the supervision or control of another can give rise to vicarious liability ' comported with traditional agency principles. See Restatement (Second) of the Law of Agency Secs. 1-3, 14N (1958). Indeed, rather than supporting expanded vicarious liability, those points likely foreclose any notion that Congress intended vicarious liability for copyright infringement to exist outside the bounds of traditional rules.

So how did this happen? A few things stand out. First, early opinions tend to confuse labels like “respondeat superior,” “employee,” “independent contractor” and “agent,” incorrectly confining agency principles to employer/employee relationships and creating a false need for a special rule for copyright infringement.

In fact, however, the Restatement (Second) of Agency makes clear that agency relationships extend well beyond employer-employee relationships. See Restatement Secs. 1-3, 14N.

Second, contrary to the more recent teachings of Meyer and similar cases, early courts allowed their own views of policy considerations to shape the law. Shapiro states, “When the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials … the purposes of copyright law may be best effectuated by the imposition of liability upon the beneficiary of that exploitation.” 316 F.2d at 307. Meyer, however, now counsels against just such an approach: “[C]ourts ordinarily should determine [vicarious liability] in accordance with traditional principles … unless, of course, Congress, better able than courts to weigh the relevant policy considerations, has instructed the courts differently.” Meyer, 537 U.S. at 290-91.

Finally, courts of more recent vintage have tended to apply the literal wording of the Shapiro test rather mechanistically, often in ways that look more appropriate for construction of statutory language than for the considered application of court precedent. See Napster, 239 F.3d at 1022-24; In re Aimster, 252 F.Supp.2d at 654-55.

The one decision in the peer-to-peer file sharing war that seems to have at least partly headed back in the right direction is In re Aimster from the Seventh Circuit. See In re Aimster Copyright Litigation, 334 F.3d 643, 654-55 (7th Cir. 2003). Without mentioning Meyer, Judge Richard A. Posner noted the traditional limits of vicarious liability and the fact that Aimster's users were not Aimster's agents. Id. at 654. He also noted, however, that vicarious liability in copyright law had been extended by courts to relationships “analogous to the relation of a principal to an agent.” Id. Ultimately, he concluded two things. First, that “[h]ow far the doctrine of vicarious liability extends is uncertain,” at least in the present context. Id. And second, that how far it extends was an academic question for the court; the issue of contributory infringement supported the district court's ruling, meaning that vicarious liability could be left for another day. Id. at 655.