DMCA 'Safe Harbor' Consensus Among Circuits Evolves

In Veoh 2, the Ninth Circuit reviewed the requirements that Veoh must meet to receive Section 512 safe harbor protection. On appeal, UMG contended that three of these requirements were not met.

First, UMG argued that the alleged copyright infringement activities on the Veoh website did not occur 'by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider '.'. 2013 U.S. App. LEXIS 5100, p. 16. In the Veoh 2 case, the Ninth Circuit held that this causal language is much broader than UMG contended, holding that this language is clearly meant to cover more than mere electronic storage. Id. at 18. The Ninth Circuit held that this causal language in Section 512(c) 'encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh,' Id. at 19, and does not contain any limitation on the service provider's ability to modify user submitted material to facilitate storage and access, as Veoh's automatic processes do. Id. at 31.

Therefore, the Ninth Circuit determined that Veoh had met the threshold requirement under Section 512(c) that the infringement be 'by reason of the storage at the direction of a user of material' residing on Veoh's system. Id. at 32. The Second Circuit reached a similar conclusion as to the breadth of the threshold requirement in Section 512(c) on different facts in the Viacom case. In Viacom, the Second Circuit affirmed that Section 512(c) applies to transcoding, playback and related video functions, i.e., related software functions that interact with users. Viacom International, 676 F.3d at 28. Even though the Second Circuit signaled in Viacom that not all software functions will be within the threshold requirement, the Ninth Circuit in Veoh 2 includes Veoh's access-facilitating functions as within the scope of Section 512(c).

Red Flag Knowledge

On appeal in Veoh 2, UMG also contended that Veoh was aware of facts or circumstances from which infringing activity was apparent under Section 512(c)(1)(A). 2013 U.S. App. LEXIS 5100, p. 16. The Ninth Circuit disagreed with UMG's contention in Veoh 2, holding that specific knowledge of the infringing activity is required. In so holding, the Ninth Circuit emphasized that the burden remains with the copyright holder rather than the service provider to identify the infringing material, and that the DMCA does not impose investigative duties on the service provider to determine whether materials are actually illegal. Id. at 41. In particular, the Ninth Circuit determined in Veoh 2 that Veoh's general knowledge that it hosted copyrightable material and that its services could be used for infringement is insufficient to constitute a red flag. Id.

Though the Ninth Circuit in the Veoh 2 case agreed with the Second Circuit that a service provider cannot willfully bury its head in the sand to avoid obtaining such specific knowledge of infringing activity, the Ninth Circuit did not find evidence that Veoh had acted with willful blindness. Id. Rather, the Ninth Circuit found the evidence demonstrated that Veoh promptly removed infringing material when it became aware of specific instances of infringement. Id. at 42. Further, even where the evidence suggests possible red flag knowledge, UMG failed to allege that Veoh failed to remove the applicable infringing content expeditiously. The Ninth Circuit agreed in Veoh 2 with the Second Circuit's distinction between actual and red flag knowledge. In agreeing with the Second Circuit, the Ninth Circuit found that red flag knowledge turns on whether the service provider was subjectively aware of facts that would have made the specific infringement 'objectively' obvious to a reasonable person. Id. at 49-50. The Ninth Circuit determined that UMG had not demonstrated that Veoh had either actual or red flag knowledge of
infringing activities. Id. at 49-50. With this ruling, the Ninth Circuit joined the Second Circuit with respect to the evidence required to show red flag knowledge and acknowledged the possible applicability of the willful blindness doctrine.

The 'Right and Ability' to Control Infringement

On appeal in Veoh 2, UMG also contended that Veoh was not eligible for safe harbor protection under Section 512(c) because it received '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.' Id. at 50. The Ninth Circuit again agreed with the Second Circuit, holding that 'in order to have the 'right and ability' to control, the service provider must exert substantial influence on the activities of users.' Id. at 63.

'Substantial influence' may include, as suggested by the Second Circuit, either high levels of control over activities of user (Id. at 63-64), or purposeful conduct (Id. at 64).

However, the Ninth Circuit found that Veoh's interactions and conduct with its users did not meet this 'substantial influence' requirement recognized by the Second Circuit and adopted by the Ninth Circuit in the Veoh 2 decision. Because UMG was not able to create a triable issue regarding Veoh's right and ability to control infringing activity, the Ninth Circuit concluded that Veoh met all the safe harbor requirements under Section 512(c), and therefore affirmed the district court's summary judgment to Veoh based on the DMCA safe harbor. Id. at 49-50.

Other Holdings

In Veoh 2, the Ninth Circuit also affirmed the dismissal of the investor defendants for vicarious infringement, contributory infringement and inducement of infringement. The Ninth Circuit dismissed these claims against the individual investors because there were no allegations that the three independent investors were working in concert. Id. at 69-72.

The Ninth Circuit also affirmed, in Veoh 2, the district court's ruling that because attorney's fees were not 'properly awardable' to Veoh under Section 505 of the Copyright Act, attorney's fees could not be awarded under Rule 68 of the Rules of Civil Procedure. Id. at 74-75. However, the Ninth Circuit remanded the Veoh 2 case to the district court to analyze separately whether Rule 68 costs, excluding attorney's fees, should be awarded to Veoh.

Conclusion

The Veoh 2 case is a very important ruling regarding the eligibility requirements service providers must meet to qualify for safe harbor protection under Section 512(c) of the DMCA. There is now a consensus between the Second Circuit and Ninth Circuit as to the substantive legal requirements service providers must satisfy to obtain DMCA safe harbor protection due to the Ninth Circuit largely agreeing with the Second Circuit's Viacom ruling relating to:

1. The meaning of the threshold language 'by reason of the storage at the direction of a user ”;
2. The meaning of red flag knowledge of infringing activity; and
3. Applicability of liability for willful blindness and requirements for demonstrating a service provider's right and ability to control infringement.

Greater legal certainty is always a positive development.

J. T. Westermeier is of counsel to Finnegan, Henderson, Farabow, Garrett & Dunner LLP, in the firm's Reston, VA, office. He is past president of the International Technology Law Association (ITech Law) (formerly known as the Computer Law Association), a Life Fellow of the American Bar Foundation, 2001 Burton Award recipient, and serves on a number of advisory boards, including our sibling newsletter, e-Commerce Law & Strategy. He can be reached at [email protected].

The Ninth Circuit recently issued an important ruling in UMG Recordings, Inc. v. Veoh Networks, Inc., 2013 U.S. App. LEXIS 5100 (9th Cir. March 14, 2013) (Veoh 2), relating to the Digital Millennium Copyright Act (DMCA) 'safe harbor”protection under 17 U.S.C. '512(c). After the Second Circuit's ruling' in Viacom International Inc. v. YouTube, Inc. , 676 F.3d 19 (2d Cir. 2012) ( Viacom ), the Ninth Circuit withdrew its opinion in UMG Recordings, Inc. v. Shelter Capital Partners LLC , 667 F.3d 1022 (9th Cir. 2011) ( Veoh 1 ) and granted a petition for rehearing that resulted in the superseding Veoh 2 case ruling in March.

The Ninth Circuit is now much closer to the Second Circuit's ruling in the Viacom case with respect to the substantive legal aspects of DMCA Section 512(c), even though the Ninth Circuit, in both the Veoh 2 and Veoh 1 cases, agreed with and affirmed the district court's ruling respecting Section 512(c). Arguably, there is now a consensus between the Second and Ninth Circuits' treatment of the substantive aspects of Section 512(c) based on the matters addressed in the Veoh 2 case.

Meaning of Threshold Requirement

In Veoh 2, the Ninth Circuit reviewed the requirements that Veoh must meet to receive Section 512 safe harbor protection. On appeal, UMG contended that three of these requirements were not met.

First, UMG argued that the alleged copyright infringement activities on the Veoh website did not occur 'by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider '.'. 2013 U.S. App. LEXIS 5100, p. 16. In the Veoh 2 case, the Ninth Circuit held that this causal language is much broader than UMG contended, holding that this language is clearly meant to cover more than mere electronic storage. Id. at 18. The Ninth Circuit held that this causal language in Section 512(c) 'encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh,' Id. at 19, and does not contain any limitation on the service provider's ability to modify user submitted material to facilitate storage and access, as Veoh's automatic processes do. Id. at 31.

Therefore, the Ninth Circuit determined that Veoh had met the threshold requirement under Section 512(c) that the infringement be 'by reason of the storage at the direction of a user of material' residing on Veoh's system. Id. at 32. The Second Circuit reached a similar conclusion as to the breadth of the threshold requirement in Section 512(c) on different facts in the Viacom case. In Viacom, the Second Circuit affirmed that Section 512(c) applies to transcoding, playback and related video functions, i.e., related software functions that interact with users. Viacom International, 676 F.3d at 28. Even though the Second Circuit signaled in Viacom that not all software functions will be within the threshold requirement, the Ninth Circuit in Veoh 2 includes Veoh's access-facilitating functions as within the scope of Section 512(c).

Red Flag Knowledge

On appeal in Veoh 2, UMG also contended that Veoh was aware of facts or circumstances from which infringing activity was apparent under Section 512(c)(1)(A). 2013 U.S. App. LEXIS 5100, p. 16. The Ninth Circuit disagreed with UMG's contention in Veoh 2, holding that specific knowledge of the infringing activity is required. In so holding, the Ninth Circuit emphasized that the burden remains with the copyright holder rather than the service provider to identify the infringing material, and that the DMCA does not impose investigative duties on the service provider to determine whether materials are actually illegal. Id. at 41. In particular, the Ninth Circuit determined in Veoh 2 that Veoh's general knowledge that it hosted copyrightable material and that its services could be used for infringement is insufficient to constitute a red flag. Id.

Though the Ninth Circuit in the Veoh 2 case agreed with the Second Circuit that a service provider cannot willfully bury its head in the sand to avoid obtaining such specific knowledge of infringing activity, the Ninth Circuit did not find evidence that Veoh had acted with willful blindness. Id. Rather, the Ninth Circuit found the evidence demonstrated that Veoh promptly removed infringing material when it became aware of specific instances of infringement. Id. at 42. Further, even where the evidence suggests possible red flag knowledge, UMG failed to allege that Veoh failed to remove the applicable infringing content expeditiously. The Ninth Circuit agreed in Veoh 2 with the Second Circuit's distinction between actual and red flag knowledge. In agreeing with the Second Circuit, the Ninth Circuit found that red flag knowledge turns on whether the service provider was subjectively aware of facts that would have made the specific infringement 'objectively' obvious to a reasonable person. Id. at 49-50. The Ninth Circuit determined that UMG had not demonstrated that Veoh had either actual or red flag knowledge of
infringing activities. Id. at 49-50. With this ruling, the Ninth Circuit joined the Second Circuit with respect to the evidence required to show red flag knowledge and acknowledged the possible applicability of the willful blindness doctrine.

The 'Right and Ability' to Control Infringement

On appeal in Veoh 2, UMG also contended that Veoh was not eligible for safe harbor protection under Section 512(c) because it received '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.' Id. at 50. The Ninth Circuit again agreed with the Second Circuit, holding that 'in order to have the 'right and ability' to control, the service provider must exert substantial influence on the activities of users.' Id. at 63.

'Substantial influence' may include, as suggested by the Second Circuit, either high levels of control over activities of user (Id. at 63-64), or purposeful conduct (Id. at 64).

However, the Ninth Circuit found that Veoh's interactions and conduct with its users did not meet this 'substantial influence' requirement recognized by the Second Circuit and adopted by the Ninth Circuit in the Veoh 2 decision. Because UMG was not able to create a triable issue regarding Veoh's right and ability to control infringing activity, the Ninth Circuit concluded that Veoh met all the safe harbor requirements under Section 512(c), and therefore affirmed the district court's summary judgment to Veoh based on the DMCA safe harbor. Id. at 49-50.

Other Holdings

In Veoh 2, the Ninth Circuit also affirmed the dismissal of the investor defendants for vicarious infringement, contributory infringement and inducement of infringement. The Ninth Circuit dismissed these claims against the individual investors because there were no allegations that the three independent investors were working in concert. Id. at 69-72.

The Ninth Circuit also affirmed, in Veoh 2, the district court's ruling that because attorney's fees were not 'properly awardable' to Veoh under Section 505 of the Copyright Act, attorney's fees could not be awarded under Rule 68 of the Rules of Civil Procedure. Id. at 74-75. However, the Ninth Circuit remanded the Veoh 2 case to the district court to analyze separately whether Rule 68 costs, excluding attorney's fees, should be awarded to Veoh.

Conclusion

The Veoh 2 case is a very important ruling regarding the eligibility requirements service providers must meet to qualify for safe harbor protection under Section 512(c) of the DMCA. There is now a consensus between the Second Circuit and Ninth Circuit as to the substantive legal requirements service providers must satisfy to obtain DMCA safe harbor protection due to the Ninth Circuit largely agreeing with the Second Circuit's Viacom ruling relating to:

1. The meaning of the threshold language 'by reason of the storage at the direction of a user ”;
2. The meaning of red flag knowledge of infringing activity; and
3. Applicability of liability for willful blindness and requirements for demonstrating a service provider's right and ability to control infringement.

Greater legal certainty is always a positive development.

J. T. Westermeier is of counsel to Finnegan, Henderson, Farabow, Garrett & Dunner LLP, in the firm's Reston, VA, office. He is past president of the International Technology Law Association (ITech Law) (formerly known as the Computer Law Association), a Life Fellow of the American Bar Foundation, 2001 Burton Award recipient, and serves on a number of advisory boards, including our sibling newsletter, e-Commerce Law & Strategy. He can be reached at [email protected].