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UMG v. Grande Communications: Another Victory for the Music Industry in Its Battle to Hold ISPs Liable for Peer-to-Peer File Sharing

By J. Alexander Lawrence
March 01, 2019

Since the advent of the Internet, the music industry has been in a pitched battle to combat online piracy. Initially, the industry focused on shutting down services that offered peer-to-peer or other similar platforms, such as Napster, Aimster and Grokster. (See, A&M Records, Inc. v. Napster, 239 F.3d 1004 (9th Cir. 2001); In re Aimster Copyright Litig., 334 F.3d 643 (7th Cir. 2003); MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005)). For a time, the industry also focused on filing claims against individual infringers to dissuade others from engaging similar conduct. In recent years, the industry seems to have shifted focus toward Internet Service Providers (ISPs), which provide Internet connectivity to their users.

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Cox Communications

In November 2014, the music industry launched their first attack on ISPs, with an action against Cox Communications in the Eastern District of Virginia. A little over a year later, after stripping Cox of its safe harbor protection under the Digital Millennium Copyright Act (DMCA) on summary judgment, the case culminated in a jury trial that resulted in a multi-million dollar verdict for BMG. On appeal, in a February 2018 decision, while reversing and remanding for a new trial in light of certain errors in the jury instructions, the Fourth Circuit Court of Appeals largely sided with BMG. See, BMG Rights Mgmt. (US) LLC v. Cox Commc'ns, Inc., 881 F.3d 293 (4th Cir. 2018).

The Fourth Circuit's decision in BMG sets out two basic principles. First, to receive DMCA safe harbor protection, an ISP will be required to take action against subscribers where there is evidence a subscriber has engaged in repeated acts of infringement even if the subscriber has never been proven to be an infringer. Second, an ISP can be held contributorily liable for its subscribers' actions, notwithstanding that the service — providing access to the Internet — is capable of substantial non-infringing uses.

On remand to the Eastern District of Virginia, matters moved forward swiftly with a retrial set for late August 2018. On the eve of the retrial, BMG and Cox settled their claims with BMG reporting that it had received a "substantial" cash settlement.

Notwithstanding the truce with BMG, Cox's fight with the music industry was only starting. On July 31, 2018, a large group of record labels, including Sony, Arista, Atlantic, Capitol, Elektra, EMI, Warner Bros. and UMG, filed a similar case based on their own copyrights. See, Sony Music Entm't v. Cox Commc'ns, Inc., 18-cv-950-LO-JFA (E.D. Va.) (filed July 31, 2018). In that the complaint alleges the infringement of over 10,000 musical works, Cox faces the potential of hundreds of millions of dollars in statutory damages. After a failed attempt by Cox to get the matter transferred out of the Eastern District of Virginia, the matter is currently on its rocket docket moving toward trial later this year. See, Sony Music Entm't v. Cox Commc'ns, Inc., 18-cv-950-LO-JFA, 2018 U.S. Dist. LEXIS 197230, at 10-11 (E.D. Va. Nov. 19, 2018).

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RCN Telecom and Windstream

The music industry's battle with ISPs has not been limited to Cox. Two cases filed in the Southern District of New York reveal that other ISPs have been in the music industry's crosshairs. In June 2016, two ISPs — RCN Telecom and Windstream — commenced actions seeking declaratory judgments after receiving copyright infringement notices from BMG's agent and an overture from BMG to work with the ISPs to combat infringement. See, RCN Telecom Servs., LLC v. BMG Rights Mgmt. (US) LLC, 16-cv-4417-PKC (S.D.N.Y.) (filed June 13, 2016); Windstream Servs. LLC v. BMG Rights Mgmt. (US) LLC, 16-cv-5015-KMW-RLE (S.D.N.Y.) (filed June 27, 2016).

In the RCN case, BMG moved to dismiss the complaint on the basis that the litigation was an abuse of the Declaratory Judgment Act because RCN sought a declaratory judgment that would immunize it against all future claims of secondary liability for their subscribers' direct infringement of copyrights and sought a blanket declaration that it is DMCA compliant. In March 2017, the parties voluntarily dismissed the lawsuit.

Similarly, in the Windstream case, BMG moved to dismiss on the same basis. The district court ruled in favor of BMG. Specifically, the district court held that "Windstream's declaratory judgment complaint seeks an advisory opinion that apprises Windstream on if or how it should respond to Defendants' notices and whether Windstream qualifies for DMCA's safe harbor provisions. … Because Windstream seeks declarations untethered from any actual instances of copyright infringement or any mention of a specific copyrighted work, the complaint fails to identify an actual case or controversy and the declaratory judgment claims must be dismissed." Windstream Servs., LLC v. BMG Rights Mgmt. (US) LLC, 16-cv-5015-KMW-RLE, 2017 U.S. Dist. LEXIS 58204, 24 (S.D.N.Y. Apr. 17, 2017). Windstream appealed the decision to the Second Circuit Court of Appeals but ultimately voluntarily dismissed its appeal.

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Grande Communications

In April 2017, a number of record labels, including Sony, Arista, Atlantic, Capitol, Elektra, Warner Bros. and UMG, filed an action against Grande Communications, a Texas based ISP, in the Western District of Texas. See, UMG Recordings, Inc. v. Grande Commc'ns Networks LLC, 17-cv-365-DAE-AWA (W.D. Tex.) (filed April 21, 2017). The record labels alleged that Grande is secondarily liable for the direct copyright infringement of its subscribers under both contributory and vicarious liability theories.

In December 2018, Magistrate Judge Andrew W. Austin issued reports and recommendations on motions for summary judgment that again resulted in a significant victory for the music industry in its ongoing battle to stop online infringement.

First, the court granted the record labels' motion for summary judgment and held that Grande is not protected by section 512(i) of the DMCA, a "safe harbor" provision which shields ISPs from secondary copyright infringement damages, so long as the service provider "reasonably implement[s]" a policy that provides for the termination of "repeat infringers" in "appropriate circumstances." UMG Recordings, Inc. v. Grande Commc'ns Networks, LLC, 17-cv-365-DAE-AWA, 2018 U.S. Dist. LEXIS 212592, at 18 (W.D. Tex. Dec. 18, 2018). The court held "[a] 'reasonably implemented' termination policy requires that the policy be enforced, and not just adopted." In this case, the court found that the undisputed evidence showed that although Grande may have adopted a policy permitting it to terminate a customer's internet access for repeat infringement, Grande affirmatively decided in 2010 that it would not enforce the policy at all, and that it would not terminate any customer's account regardless of how many notices of infringement that customer accumulated, regardless of the source of the notices, and regardless of the content of a notice. In fact, Grande did not terminate a single repeat infringer from October 2010 to June 2017. The court held that "[i]t is hard to imagine a case in which it is more clear that the DMCA safe harbor is not available."

Second, the court denied in large part the parties' competing motions for summary judgment on secondary liability based on contributory infringement. UMG Recordings, Inc. v. Grande Commc'ns Networks, LLC, 17-cv-365-DAE-AWA, 2018 U.S. Dist. LEXIS 212594, at 31 (W.D. Tex. Dec. 18, 2018). (Earlier in the case, the court dismissed the record labels' vicarious infringement claim, holding they had "failed to plead facts showing that Grande receives a direct financial benefit from its subscribers' infringing conduct." UMG Recordings, Inc. v. Grande Commc'ns Networks, LLC, 17-cv-365-LY, 2018 U.S. Dist. LEXIS 32275, at 29 (W.D. Tex. Feb. 28, 2018), adopted by district court, ECF No. 78 (March 28, 2018); see also, UMG Recordings, Inc. v. Grande Commc'ns Networks, LLC, 17-cv-365-LY, 2018 U.S. Dist. LEXIS 160492, at 8 (W.D. Tex. Sept. 20, 2018) (denying motion to amend complaint based on additional evidence to support vicarious infringement claim), adopted by district court, ECF No. 208 (Oct. 15, 2018).

Grande argued that secondary infringement must be based on a showing of direct infringement by its subscribers and that there was insufficient evidence of direct infringement. The court held that the evidence established that Grande subscribers made their files available through the BitTorrent protocol, and given the evidence regarding BitTorrent and the purpose of peer-to-peer networks, and the fact that BMG's agent was able to download each of the songs from Grande subscribers, there is sufficient circumstantial evidence to create a triable issue as to whether the Grande subscribers engaged in direct infringement. With respect to contributory infringement, Grande argued that to establish the intent element of a contributory infringement claim, it is insufficient to show mere knowledge of infringement combined with a lack of action to stop the infringement. Instead, Grande argued there must be evidence that the defendant took active steps to encourage or promote the infringement. Pointing to the Fourth Circuit's decision in BMG, the district court disagreed and held that contributory liability could be established against an ISP based on a showing of "willful blindness."

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Analysis

Although it remains to be seen how the parties will fare at trial — or whether stripped of its DMCA safe harbor and facing millions of dollars in potential damages, Grande will decide to settle — the case represents yet another victory for the music industry in their ongoing efforts to hold ISPs liable for unauthorized peer-to-peer file sharing by their subscribers.

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J. Alexander Lawrence is a partner in Morrison and Foerster LLP's Tokyo office.

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