United States: Part 3: Companies Are Not Complying With The Safe Harbor Provision Of The DMCA

Last Updated: August 23 2019
Article by Craig L. Cupid

Protection From Additional Liabilities

Once a company is found ineligible for DMCA safe harbor, it is vulnerable to be found liable for copyright infringement claims. Copyright holders may pursue secondary liabilities such as vicarious, contributory or induced infringement.

Secondary liabilities are sought when the user who posted the infringing materials is not available or cannot be found. To find a company vicariously liable, the copyright holder must prove 1) the defendant directly benefited financially from the infringing activity, 2) the defendant had the right and ability to supervise or control the infringing activity and 3) the defendant failed to exercise that right and ability.i To find a company contributorily liable, the copyright holder must prove 1) the defendant knew or had reason to know of the infringing activity and 2) the defendant intentionally induced or materially contributed to the user's infringing behavior.ii In Joint Stock Co. "Channel One Russia Worldwide" v. Russian TV Co., the Southern District of New York found that plaintiff Joint Stock Co. satisfied the requirement that the defendant knew or had reason to know of infringing activity when it alleged Russian TV Co. provided unlicensed content at far lower prices to subscribers than it provided authorized content.iii Finally, a defendant may be liable for inducement of copyright infringement if it "distributes a device with the object of promoting its use to infringe copyright" and has taken affirmative steps to foster infringement.iv Courts evaluate four elements, called the Grokster III test, to determine whether inducement of copyright infringement applies: 1) distribution of a device or product (such as an internet platform), 2) acts of infringement, 3) object promoting use to infringe copyright and 4) causation.v

Individual liability is sought when copyright holders want to hold owners or employees of OSPs liable for the infringement. The Eleventh Circuit defines a liable individual as "a corporate officer who directs, controls, ratifies, [or] participates in ... the infringing activity."vi In Babbit Elecs., Inc. v. Dynascan Corp the Eleventh Circuit held the corporate officers jointly and personally liable for their participation in the corporation's counterfeiting activities. Holding liable owners or employees who permit infringement or directly infringe on the copyright themselves effectively removes the corporate veil that usually protects individuals from personal affiliation with their legal entities.

An OSP that is found liable for copyright infringement in any manner will be penalized.

Noncompliance for Online Service Providers

Potential for Retrospective Liability

>Coming into compliance with all aspects of the DMCA is a step in the right direction for OSPs, but they should also be aware that they may face liability for any copyright issues that predate the period before compliance. In Collins v. Easynews, Inc., the Western District of Texas found that Easynews could not prove it had complied with the DMCA because, even though it had an agent when the case was tried, at the time of the alleged copyright infringement it had not designated an agent.vii Even after following the proper procedures to receive safe harbor, companies may still be held liable for infringements that occurred before the correction date.

Repercussions of Noncompliance for Online Service Providers

Out of all the DMCA copyright cases that federal courts have seen, almost none have received final court decisions and damages judgments – hence the unsettled state of case law. In some cases, injunctions have been imposed; other cases have been dismissed after inactivity, repeated appeals to higher courts or joint agreement of the parties to dismiss. However, a lack of final judgments by the courts does not mean that OSPs with infringing copyright materials have not been hit with hard penalties. Many cases do not make it to final, adjudicated decision because the OSPs agree to settle rather than face judgment.

For example, after not being granted safe harbor and the court finding that Disney Enterprises may have had a viable claim for vicarious infringement, Hotfile settled the claims out of court for $80 million. Additionally, Hotfile agreed to shut down its platform until it employed content filtering technology. The settlement reached in Columbia Pictures Industries, Inc. v. Fung left Fung paying $110 million in damages for failure to control infringing activity of which he had actual knowledge and liability for inducing copyright infringement. In BWP Media v. Hollywood Fan Sites, the parties settled for an unknown amount when HFS could not be protected from liability under the DMCA by its parent entity's designated agent. The initial requested relief was $150,000 in statutory damages.

The present state of the case law makes it hard to predict just how future cases will turn out, but the possibilities should encourage strict compliance with the DMCA safe harbor provisions. For any given OSP, not just notable ones, a lack of compliance yields a loss of safe harbor, exposure to any copyright claim and the likelihood of court judgment that would presumably be worse than the cost of settlement out of court. Court judgments may also entail temporary or permanent injunctions on operation. In 2001, popular file-sharing platform Napster was forced to shut down its network and pay damages of $36 million.

For Copyright Holders

If you are a copyright holder, there is a chance that you may be able to recover damages for infringements occurring on platforms that have not complied with the DMCA safe harbor provisions. A noncomplying company may be sued under any copyright law. Free access to copyrighted music and video, including movies and television, is a pervasive issue in the digital age. The Recording Industry Association of America reported a $12.5 billion annual loss as a result of music theft.viii The loss of revenue due to piracy in the television, film and game development industries is similar. For example, the Directors Guild of America reported a $25 billion annual cost of global piracy to U.S. firms due to lost sales.ix

If your copyrighted material has been distributed online, there is recourse available. For infringement occurring on platforms of OSPs that have complied with the DMCA, the copyrighted materials can be removed and the OSP can more closely monitor repeat infringers or face penalties for failure to do so. For OSPs that have not complied with the DMCA, possibilities for compensation are broad, whether through court judgments or through settlements.

One possibility courts have yet to consider is how to punish OSPs that evade liability by shutting down one platform just to erect another that allows the same type of infringing activity. However, it is likely that a court would find that copyright law is intended to reprimand this type of behavior, and it is possible that if a copyright holder can prove infringement and lack of DMCA compliance its claims may be viable.

We encourage service providers to review these DMCA safe harbor, designated agent, and notice and takedown provisions to ensure compliance and avoid liability. Likewise, we encourage copyright holders to investigate whether an OSP displaying copyrighted content is fully complying with the DMCA, in an effort to safeguard their copyrighted media.

Contributions by Diondra K. Hicks and Georgia Turner.

Footnotes

[i] Model Civ. Jury Instr. 9th Cir. 17.20 (2017).

[ii] Model Civ. Jury Instr. 9th Cir. 17.21 (2017).

[iii] Joint Stock Co. "Channel One Russia Worldwide" v. Russian TV Co., No. 18 Civ. 2318 (LGS), 2019 WL 804506, at *7 (S.D.N.Y. Feb. 21, 2019).

[iv] Columbia Pictures Industries, Inc. v. Fung, 710 F.3d 1020, 1032 (9th Cir. 2013) (citation omitted).

[v] Id. (citation omitted).

[vi] Babbit Elecs., Inc. v. Dynascan Corp., 38 F.3d 1161, 1184 (11th Cir. 1994).

[vii] Collins v. Easynews, Inc., No. A-06-CA-451 LY, 2008 WL 11404909, at *2 (W.D. Tex. Feb. 20, 2008).

[viii] The Recording Industry Association of America, The True Cost of Sound Recording Piracy to the U.S. Economy, RIAA Facts & Research (2018), https://www.riaa.com/reports/the-true-cost-of-sound-recording-piracy-to-the-u-s-economy/.

[ix] Directors Guild of America, Piracy by the Numbers, DGA Quarterly (2010), https://www.dga.org/Craft/DGAQ/All-Articles/1001-Spring-2010/Internet-Issues-Piracy-Statistics.aspx.

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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