United States: A Darker Shade Of Red Flags: Second Circuit Raises The DMCA Bar For Proving Internet Service Providers' Knowledge Of Copyright Infringement

In a significant across-the-board victory for internet service providers hosting user-generated content (UGC), on June 16, 2016, the Second Circuit Court of Appeals issued its much anticipated decision in Capitol Records, LLC v. Vimeo, LLC.   The ruling reaffirmed and clarified the Digital Millennium Copyright Act ("DMCA") safe harbor for hosting potentially infringing UGC when they are unaware of the infringement. The Court closed a major gap in the application of the DMCA to find that the safe harbor applies to pre-1972 sound recordings, an unresolved issue with conflicting results in district and state courts to date. The Second Circuit also held that, for a service provider to be disqualified from the safe harbor, the burden is placed squarely on the copyright holder to prove the service provider's actual or red flag knowledge of specific copyright infringement obvious to an ordinary person, i.e., a non-lawyer, non-expert, and mere interaction by a service provider's employees with user videos incorporating recognizable songs did not meet that bar. In a similar vein, the Court found that Vimeo employees' mere suspicion that infringement was taking place on the site and sporadic incidents of alleged employee encouragement of user infringement, was insufficient to demonstrate Vimeo's willful blindness and remove it from DMCA safe harbor protection.

Although most commentators have focused their attention on the significant impact of the Court's pre-1972 recordings decision, the Court's holdings on establishing proof of red flag knowledge and willful blindness are critical to service providers' entitlement to the protections of the DMCA's safe harbor and the long term viability of the UGC business model. This post focuses on the Court's red flag knowledge and willful blindness rulings concluding with key takeaways for service providers.

Background and Summary of the Decision

Vimeo is a video-sharing website on which its users post and upload videos of their own creation that are then accessible to visitors to Vimeo's website.  Vimeo is not involved in this process, nor do its employees prescreen videos before they are made available on the website.  Each user must accept Vimeo's terms of use, which include representations that the user created the video, the video is not intended for commercial use, and the video does not contain content prohibited on Vimeo's website.  Vimeo employs a "Community Team" of employees, who, among other things, occasionally comment on videos, offer technical support to users, participate in forum discussions, and review videos that are flagged for violating Vimeo's policies.

The copyright holder plaintiffs sued Vimeo – back in in 2009 – for copyright infringement based on its hosting of nearly 200 videos containing musical compositions and recordings to which the plaintiffs owned the rights, including songs by iconic artists like The Beatles, Radiohead, and Jay-Z. Vimeo moved for summary judgment claiming DMCA safe harbor protection and the plaintiffs cross-moved for a finding that Vimeo did not qualify. The District Court granted Vimeo summary judgement for all the videos where plaintiffs lacked evidence that Vimeo's employees had actually viewed the clip, but denied summary judgement to both sides with respect to videos where employees had viewed clips incorporating "recognizable" songs because, in the District Court's view, material questions of fact existed as to whether Vimeo had "red flag" knowledge of copyright infringement in those videos.  The district court also held that the DMCA did not apply to pre-1972 sound recordings, and it denied plaintiffs' arguments that Vimeo was willfully blind to infringement.

Both sides appealed to the Second Circuit seeking interlocutory review of three questions whether:

  1. the DMCA safe harbor applies to pre-1972 sound recordings;
  2. under the standard set forth in Viacom International, Inc. v. YouTube, Inc., a service provider's employee's review of a video that contains a substantial portion of a copyrighted song is insufficient to establish red flag knowledge, and disqualify the service provider from the benefits of DMCA's safe harbor; and
  3. willfull blindness to infringements could be demonstrated by (a) Vimeo's alleged policy of monitoring video content for infringement, but not for potentially infringing audio content; (b) Vimeo's awareness of facts suggesting knowledge of infringement and its alleged failure to act upon those suspicions; or (c) Vimeo employees allegedly encouraging users to upload infringing content.

Relying heavily on Congressional intent and the appellate court's seminal YouTube v. Viacom decision, the Second Circuit ruled in favor of Vimeo on all three questions.

The DMCA

Congress enacted the DMCA in 1998 to limit copyright infringement liability for internet service providers who would otherwise routinely face infringement claims in the ordinary business course, and thereby ensure the internet's efficient expansion and improvement.  As part of the DMCA, Congress created various safe harbors, including one specifically aimed toward insulating service providers from copyright liability for "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."  To qualify under the safe harbor, UGC service providers like Vimeo and YouTube have to, among other things, adopt and reasonably implement repeat infringer policies, as well as copyright take down practices requiring them, when notified of specifically infringing material, to expeditiously remove such material.

It is important to note at the outset that the Vimeo Court's decision was in large part driven by these DMCA principles and the compromise struck by Congress between the interests of copyright owners and internet service providers.  In exchange for a notice-and-takedown regime forcing the service provider to act "expeditiously" when learning of infringement, the compromise relieved service providers from "actively monitoring" or "affirmatively seeking facts indicating infringing activity."  Citing the legislative history, the Vimeo Court stated that Congress' intent behind the DMCA safe harbor was to "ensure[] that the efficiency of the Internet will continue to improve and that the variety and quality of services on the Internet will expand."  And this author and others have argued that, despite the DMCA's critics, that is exactly what happened. Consider this observation from Wired Magazine on the tenth anniversary of the DMCA's enactment:

If you're wondering whom to thank for the Web 2.0 explosion in interactive websites ... consider sending a bouquet to Congress. Today's internet is largely an outgrowth of the much-reviled Digital Millennium Copyright Act . . . .  Blogs, search engines, e-commerce sites, video and social-networking portals are thriving today thanks in large part to the notice-and-takedown regime ushered in by the much-maligned copyright overhaul.

Congress' intent behind the DMCA and the DMCA's unquestioned success in fostering innovation – at least from the service provider's perspective – clearly influenced the Second Circuit's seminal decision in YouTube v. Viacom, where it first defined the contours of "red flag" knowledge and the application of "willful blindness" to the DMCA. And it certainly loomed large in the Second Circuit's ruling in Vimeo, where the Court noted on several occasions that if the copyright plaintiffs disagreed with the narrow scope and application of "red flags" knowledge and "willful blindness" of the DMCA safe harbor, that was an issue more appropriately to be taken up with Congress than the courts.

Red Flag Knowledge

The question certified for appeal was "[w]hether, under Viacom Int'l, Inc. v. YouTube, Inc., a service provider's viewing of a user-generated video containing all or virtually all of a recognizable, copyrighted song may establish 'facts and circumstances' giving rise to 'red flag' knowledge of infringement" within the meaning of § 512(c)(1)(A)(ii). Without reservation, the Second Circuit answered: No.

DMCA section 512(c)(1)(A)(ii) states, in relevant part, that "a service provider shall not be liable for monetary relief, or for injunctive or other equitable relief, for infringement of copyright 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, if the service provider—(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing; (ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent"—i.e., the facts or circumstances often referred to as "red-flags."  In YouTube, the Second Circuit defined "red-flag" knowledge and distinguished it from actual knowledge:

The difference between actual and red flag knowledge is . . . not between specific and generalized knowledge, but instead between a subjective and an objective standard. In other words, the actual knowledge provision turns on whether the provider actually or 'subjectively' knew of specific infringement, while 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.

In Vimeo, the Court first decided the still open, "significant" threshold issue of burden of proof; that is, whether it is the copyright owner's burden to prove red flag knowledge, or the service provider's burden to prove a lack thereof.  The Court affirmed the prevailing view that a service provider's entitlement to the DMCA's safe harbor is an affirmative defense, and the "defendant undoubtedly bears the burden of raising entitlement to the safe harbor and of demonstrating that it has the status of service provider, as defined, and has taken the steps necessary for eligibility."

However, in connection with a copyright owner's allegations of red flag knowledge which would result in the service provider's forfeiture of the safe harbor, the Court adopted the approach taken in the Nimmer on Copyrights treatise, finding that "the burden of proof more appropriately shifts to the plaintiff."  The Court reasoned that the "service provider cannot reasonably be expected to prove broad negatives, providing affidavits of every person who was in its employ during the time the video was on its site, attesting that they did not know of the infringement and did not know of the innumerable facts that might make infringement obvious," nor did Congress intend to place such an onerous burden on service providers. In fact, as the Court opined, it was just the opposite.  The Court concluded that "the burden falls on the copyright owner to demonstrate that the service provider acquired knowledge of the infringement, or of facts and circumstances from which infringing activity was obvious, and failed to promptly take down the infringing matter, thus forfeiting its right to the safe harbor."

Overturning the District Court's decision, the Court held that, in this case, the copyright owner's burden was not met:

A copyright owner's mere showing that a video posted by a user on the service provider's site includes substantially all of a recording of recognizable copyrighted music, and that an employee of the service provider saw at least some part of the user's material, is insufficient to sustain the copyright owner's burden of proving that the service provider had either actual or red flag knowledge of the infringement.

The Court cited several reasons for its decision: First, there is no evidence of the length of time the employees viewed the videos; it may have been quite brief.  Second, the employees may have been reviewing the videos for a "different business purpose" (e.g., detecting obscenities) having nothing to do with detecting infringement of copyrighted music.  Finally – and perhaps most significantly – the fact that the music is "recognizable" or "famous" was "insufficient to demonstrate that the music was in fact recognized by a hypothetical ordinary individual who has no specialized knowledge of the field of music."  The Court explained that service provider's employees are not expected to be copyright experts; and even if they happen to be experts, they have no way of knowing whether the music is licensed. The Court made plain that the hypothetical "reasonable person" to whom infringement must be obvious is an "ordinary person – not endowed with specialized knowledge or expertise concerning music or the laws of copyright." Simply put, "employees of service providers cannot be assumed to have expertise in the laws of copyright." Even assuming awareness of copyright posted material, such employees "cannot be expected to know how to distinguish between, for example, between infringements and parodies that may qualify as fair use."

The Court was unpersuaded by plaintiffs' argument that the Court's interpretation of red flag knowledge pushes it so close to actual knowledge as to read the standard out of the statute. Reiterating the purpose of the DMCA, the Court reasoned that Congress did not expect red flag knowledge "to cover a large number of instances . . . § 512(c) was to give service providers immunity, in exchange for augmenting the arsenal of copyright owners by creating the notice-and-takedown mechanism."  The Court remanded the case, directing the District Court to enter summary judgment in favor of Vimeo on the videos reviewed by Vimeo's employees, unless the plaintiffs could point to additional evidence that would satisfy the "ordinary person" standard.

Willful Blindness

Also certified for appeal was the question "whether Plaintiffs have shown that Vimeo had a general policy of willful blindness to infringement of sound recordings, which would justify imputing to Vimeo knowledge of the specific infringements."  Affirming the lower court's decision, the Second Circuit answered this question in the negative.

Plaintiffs made three arguments demonstrating willful blindness:  (i) Vimeo monitored videos for infringement of visual content but not audio content and therefore was willfully blind to copyright infringement of music; (ii) Vimeo was aware of facts suggesting a likelihood of infringement, which gave rise to a duty to investigate further, and (iii) having encouraged users to post infringing matter, Vimeo was liable for the resulting infringements. The Court quickly disposed of the first two arguments by pointing to DMCA section 512(m), which relieves service providers of the obligation to monitor and investigate infringements on its website.  The Court again cited the compromise reached in enacting the DMCA, a key component of which was relieving service providers of expenses and liabilities to copyright owners and encouraging them to invest in the expansion of the Internet.  "If service providers were compelled constantly to take stock of all information their employees may have acquired that might suggest the presence of infringements in user postings, and to undertake monitoring investigations whenever some level of suspicion was surpassed, these obligations would largely undo the value of § 512(m)."

Plaintiffs' third argument appeared to resonate with the Court the most, at least in theory.  The Court took stock of various emails in which several Vimeo employees appeared to be encouraging copyright infringement by telling users via email to "go ahead and post" copyrighted material, or responding to questions about the use of copyrighted material with "Don't ask, Don't tell".  Nonetheless, relying on YouTube, the Court restated that, because knowledge under the DMCA must relate to "specific infringing material," and "willful blindness is a proxy for knowledge," willful blindness must also relate to specific infringements of the plaintiff's copyrighted material.  Plaintiffs argued that, notwithstanding YouTube, "a service provider cannot adopt a general policy of urging or encouraging users to post infringing material and then escape liability by hiding behind a disingenuous claim of ignorance of the users' infringements."  The Second Circuit did not need to reach the question here because those facts were not this case.   "[A] handful of sporadic instances (amongst the millions of posted videos) in which Vimeo employees inappropriately encouraged users to post videos that infringed music cannot support a finding of the sort of generalized encouragement of infringement supposed by their legal theory.  It therefore cannot suffice to justify stripping Vimeo completely of the protection of § 512(m)."

Conclusion and Key Takeaways

The Second Circuit's seminal YouTube decision left open several key questions concerning the scope and applicability of the safe harbor protections of the DMCA. In the years since YouTube, courts, copyright holders and service providers have dealt with shifting guide posts on what constitutes a "reasonable person" under the red flag knowledge provision of the DMCA, which party bears the burden of proof in determining whether a service provider qualifies for the DMCA safe harbor, and how to resolve the obvious tension between the common law doctrine of willful blindness and a statutory structure absolving service providers from a duty to monitor potential infringement. The importance of clarity on these questions cannot be overstated as they go to the heart of the intent and purpose of the DMCA – the balancing of the costs of copyright protection in the age of user generated content and the websites that host such content.  Consistent with Congress' DMCA intent, the Vimeo decision goes a long way toward resolving these open issues and in so doing decidedly shifting the costs of copyright enforcement from the service providers to the copyright holders themselves.

First, in finding that the benchmark of a reasonable person under the red flags standard was one of an ordinary person with no expertise in copyright law, the Vimeo court made it more difficult for copyright holders to prove red flag knowledge. That much is plain by not only the holding itself, but also the Court's application of its holding, which goes to great lengths to show why an ordinary person under the facts in Vimeo would not have understood the infringing material to violate any copyright. In many ways, the formulation reflects the Court's application of an "apparent" knowledge standard – the actual words in the statute – as opposed to the traditional "red flags" construct borrowed from other areas of law like securities fraud. This "apparent" knowledge or "objectively obvious" standard carries both legal and real world significance for service providers like Vimeo whose employees regularly interact with UGC.  On the legal side, district courts will now demand more facts from copyright holders establishing that the infringement was "obvious to an ordinary person."  This higher bar will likely give copyright holders pause before filing suit and insulate service providers from the time and expense of defending against borderline, grey area infringement actions. And by making clear that the infringement needs to be "objectively obvious to an ordinary person" without any specialized legal knowledge, the Vimeo decision removes any obligation for service providers to educate employees to recognize copyright infringement – an arguable outcome of the District Court's now overturned decision.

The Court compounded its "ordinary person" standard in favor of service providers by explicitly shifting the ultimate burden of proof to the copyright holder to prove red flag knowledge.  Parties now have a clear burden shifting paradigm for determining safe harbor application. Although the service provider bears the first step of proving eligibility for the safe harbor affirmative defense, i.e., demonstrating its status as a service provider with a working notice-and-takedown process and repeat infringer policy, that initial bar is a low one that any legitimate service provider can meet with minimal effort. Proving the much harder question to the factfinder – whether the service provider should be disqualified from the safe harbor because of red flag knowledge of copyright infringement – has now undeniably shifted to the copyright holder under Vimeo.  Service providers no longer need to prove "broad negatives," e.g., that no one in their employment had reason to know of infringement, or face a trial whenever a copyright holder contests their credibility. This standard will ultimately translate to more district judges deciding DMCA cases at the summary judgment stage, or possibly even on a motion to dismiss if the allegations of objectively obvious specific infringement  do not rise to the level of plausible, non -conclusory factual allegations.

Finally, the Vimeo decision provided further clarity on resolving the tension between willful blindness and section 512(m)'s relief from monitoring infringing conduct.  The Court removed any doubt that service providers have no obligation to monitor for copyright infringement, even when there is a suspicion of infringement.  This is especially important because Vimeo was already monitoring the videos for visual infringement.  The Court effectively found that any voluntary monitoring by a service provider is in addition to, not pursuant to, the requirements of the DMCA.  The Court also made clear that if a plaintiff attempts to show willful blindness through an alleged company culture or policy encouraging infringement, the evidence of infringement must be more than sporadic instances of misconduct and ultimately concern the copyrights at issue. Practically speaking, legitimate service providers can likely minimize even this potential window of liability by implementing straightforward safe harbor practices and policies.

All that said, there is still some room for further movement on these issues. Application of the now clarified "objectively obvious to an ordinary person" red flag knowledge standard has been remanded to the District Court. Stay tuned.

Vimeo and certain of its affiliates are clients of BakerHostetler. BakerHostetler has not represented Vimeo in connection with the DMCA litigation that is the subject of this blog post.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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