United States: No Safe Harbor Shelter For ISP, But No $25 Million Payout Either

Addressing an internet service provider's (ISP's) eligibility for the Digital Millennium Copyright Act (DMCA) safe harbor and liability for contributory copyright infringement, the US Court of Appeals for the Fourth Circuit affirmed a summary judgment ruling that the defendant did not qualify for DMCA's safe harbor defense under § 512(i)(1)(A). The Court concluded, however, that instructions to the jury on the intent required for contributory copyright infringement were erroneous. BMG Rights Management (US) LLC v. Cox Communications, Inc., Case Nos. 16-1972; 17-1352; -1353 (4th Cir., Feb. 1, 2018) (Motz, J).

Cox Communications provides internet access to subscribers for a monthly fee. Some of Cox's subscribers shared and received copyrighted files without authorization through BitTorrent, a peer-to-peer sharing software. To monitor incidents of alleged infringement, Cox created an automated notification system wherein a subscriber becomes subject to termination after Cox receives 13 notifications of alleged infringement concerning that subscriber. Cox never automatically terminated a subscriber.

BMG Rights Management owns copyrights in several music compositions. BMG hired a third-party rights management company, Rightscorp, to monitor the unauthorized sharing of BMG's copyrighted works on BitTorrent. When Rightscorp detected this infringement, Rightscorp notified the infringer's ISP (here, Cox) and asked the ISP to forward the notice to the infringer. The notice contained a settlement offer to the infringer, and because of this language, Cox refused to send the notices on to the infringers. Prior to BMG hiring Rightscorp, Cox had "blacklisted" Rightscorp in part because of this language, meaning that Cox never viewed any of the millions of notices of infringement sent by Rightscorp, let alone forwarded those notices on to its infringing subscribers.

BMG sued Cox for contributory copyright infringement. Cox invoked the safe harbor under § 512(i)(1)(A) of the DMCA, which requires ISPs to adopt and implement a policy that terminates subscribers who are repeat infringers. On summary judgment, the district court held that Cox had failed to demonstrate that it qualified for that defense, and the Fourth Circuit agreed. Cox argued that "repeat infringers" in § 512(i)(1)(A) meant subscribers who had been found liable by a court for copyright infringement, and that BMG had failed to show that Cox had not terminated any "adjudicated infringers." Looking at the plain meaning of the term and finding further support elsewhere in the DMCA, the statute's legislative history and a 2016 decision from the Second Circuit, EMI Christian Music Grp., Inc. v. MP3tunes, LLC ( IP Update, Vol. 19, No. 11), the Court rejected Cox's argument, finding "repeat infringer" to mean simply one who infringes a copyright more than once.

Based on this interpretation, the Fourth Circuit held that Cox failed to reasonably implement a repeat infringer policy. Discovery had uncovered damaging emails demonstrating that Cox did not terminate repeat infringer subscribers because it did not want to lose revenue from paying subscribers. In the instances when Cox had terminated a subscriber for repeat infringements, Cox would often reactivate that subscriber, which would restart the 13-strike count under its policy. The Court determined that Cox essentially had no repeat infringer policy and was not entitled to § 512(i)(1)(A)'s safe harbor defense, and thus affirmed the district court's summary judgment decision.

After summary judgment, the case proceeded to a two-week jury trial. The jury awarded BMG $25 million in statutory damages, finding that Cox was liable for willful contributory copyright infringement. On appeal, Cox argued that the district court's jury instruction for the level of intent necessary to prove contributory copyright infringement was a misstatement of the law. The district court had instructed the jury that Cox could be liable for contributory copyright infringement if the jury found that "Cox knew or should have known of such infringing activity."

This instruction, the Fourth Circuit held, was in error. Contributory copyright infringement requires a party to have intentionally induced or encouraged infringement. While courts have held that willful blindness is sufficient to establish this requisite intent, the Court held that negligence (or "should have known") is insufficient. The Fourth Circuit found that the jury instruction could have reasonably affected the jury's verdict, and therefore remanded the case for a new trial. Providing additional guidance for proper jury instructions on remand, the Court stated that because contributory infringement requires knowledge or willful blindness of specific instances of infringement, the district court should instruct the jury that willful blindness requires Cox to have consciously avoided learning about specific instances of infringement of BMG's copyrighted works.

No Safe Harbor Shelter For ISP, But No $25 Million Payout Either.

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