Veoh Protected Against UMG Copyright Infringement Claims by DMCA Safe Harbor

Veoh Networks operates a website that allows users to upload and share video content over the Internet.  Universal Music Group (UMG) is a major recorded music and publishing company and also produces music videos.  UMG sued Veoh for direct and secondary copyright infringement, alleging that Veoh’s service allows users to download unauthorized copies of songs for which UMG owns the copyright. 

I previously blogged about this case in Veoh’s Services Protected by DMCA Safe Harbor, Rules Ninth Circuit.  Last week, the Ninth Circuit withdrew its opinion filed December 20, 2011 and filed a superseding opinion.  The Ninth Circuit again upheld the district court ruling that Veoh’s services were protected by a Digital Millennium Copyright Act (DMCA) safe harbor.

The DMCA safe harbor at issue in this case is 17 U.S.C. §512(c), with the focus on §512(c)(1):   

(c) Information Residing on Systems or Networks At Direction of Users.—

(1) In general.— A service provider shall not be liable for monetary relief, or, except as provided in subsection (j), 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; or

 (iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material;

(B) does not receive 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; and

(C) upon notification of claimed infringement as described in paragraph (3), responds expeditiously to remove, or disable access to, the material that is claimed to be infringing or to be the subject of infringing activity.

UMG argued that Veoh did not meet the §512(c)(1) “by reason of the storage at the direction of a user of material” requirement, the §512(c)(1)(A)(i) and(ii) lack of knowledge requirements or the §512(c)(1)(B) lack of financial benefit requirement.

By reason of the storage at the direction of a user of material – the threshold requirement.

The threshold requirement under §512(c)(1) is that material reside on a system or network controlled by the service provider and that the material be there “by reason of the storage at the direction of a user.”  Veoh’s software automatically performs certain actions when a video is uploaded, including breaking the file into 256 kb chunks and transcoding the file into Flash 7 format for most users, and transcoding the file into Flash 8 and MPEG-4 for “Pro” users.  These processes facilitate users’ access to the videos.  UMG argued that the processes Veoh used to make music videos, including UMG’s copyrighted songs, available to users went beyond storage.  The Ninth Circuit held that “§512(c) encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh.”  (Opinion pdf page 19-20).

UMG argued that “by reason of storage” in §512(c) means that it was the storage of the infringing materials, not the access to the materials that occurred as a result of the storage, that created liability for Veoh.  The storage must proximately cause the infringement, and the access that the storage facilitates is not the proximate cause of the infringement.  UMG based its interpretation of the “by reason of” language in §512(c) on the interpretation of the “by reason of” language in the Racketeer Influenced and Corrupt Organizations Act (RICO). 

The Ninth Circuit disagreed with UMG’s analysis, ruling that the “by reason of” language in the DMCA is not analogous to the use of the same language in RICO and there is no indication that Congress intended the same meaning to apply.  In addition, UMG’s narrow reading of the “by reason of” language would make the §512(c) notice and takedown procedure superfluous.  If storage causes liability, there is no need for the provisions regarding the access that the notice and takedown procedures address.

UMG argued that §512(c) protects only “web hosting” services and that Veoh is not a web host.  The Ninth Circuit rejected this argument, as well.  The language of the DMCA anticipates that others, including copyright owners, will be able to access the stored materials.  UMG’s arguments ignore the reality of the Internet, which is that people post material on a website so that other people can view it.  Web hosting necessarily involves making multiple copies, i.e., the web host’s computers make a copy when a user uploads content and when another Internet user wants to access that material, that Internet user’s web browser automatically makes a copy so that the Internet user can view it.

To carry out their function of making websites available to Internet users, web hosting services thus routinely copy content and transmit it to Internet users.  We cannot see how these access-facilitating processes are meaningfully distinguishable from Veoh’s for § 512(c)(1) purposes.

(Opinion pdf page 25).

The language of the statute includes activities that go beyond storage, since simply storing material that no one can access is unlikely to infringe a copyright.

The DMCA has two “service provider” definitions, a narrow one that applies only to the 512(a) conduit-only functions, and a broader one that applies to the rest of the statute.  The broader definition does not limit the service provider’s ability to modify material submitted by users to facilitate storage and access.  The Ninth Circuit held that Veoh met the threshold requirement that the infringement be “by reason of the storage at the direction of a user of material” located on Veoh’s network.

Veoh’s lack of knowledge of infringement

UMG argued that although Veoh removed infringing files when it received DMCA takedown notices from the RIAA, Veoh knew of other infringing videos that it did not remove.  UMG itself did not send Veoh any take down notices before filing its lawsuit against Veoh.

UMG’s decision to forgo the DMCA notice protocol stripped it of the most powerful evidence of a service provider’s knowledge – actual notice of infringement from the copyright holder.

(Opinion pdf page 29).

UMG argued that because Veoh hosted music without a license from any major music company, Veoh must have known this content was unauthorized, given its general knowledge that users post infringing material using Veoh’s services.  The Ninth Circuit rejected UMG’s argument that Veoh’s level of knowledge was sufficient for knowledge of infringement under the statute.

Videos that were lawfully available on Veoh’s system included videos created by users and videos that Veoh made available as a result of its arrangements with major copyright holders, such as SonyBMG. 

If merely hosting material that falls within a category of content capable of copyright protection, with the general knowledge that one’s services could be used to share unauthorized copies of copyrighted material, was sufficient to impute knowledge to service providers, the § 512(c) safe harbor would be rendered a dead letter: § 512(c) applies only to claims of copyright infringement, yet the fact that a service provider’s website could contain copyrightable material would remove the service provider from § 512(c) eligibility.

(Opinion pdf page 30).

The Ninth Circuit also indicated that

requiring specific knowledge of particular infringing activity makes good sense in the context of the DMCA, which Congress enacted to foster cooperation among copyright holders and service providers in dealing with infringement on the Internet.

(Opinion pdf page 31).

Under the DMCA, the owners of copyrighted material carry the burden of identifying infringing material and adequately documenting copyright infringement.  Copyright owners know what material they own, but service providers cannot quickly or easily determine whether material is copyrighted or posted without a license.  Service providers do not have a duty to investigate.  Imposing such a duty could lead to removing noninfringing content.  The DMCA notice and takedown procedures assume that unauthorized material will appear on service providers’ websites and provides a procedure for removing that material.  The mere knowledge of the service provider that unauthorized material occasionally appears on its website does not create liability.

The Ninth Circuit held that

merely hosting a category of copyrightable content, such as music videos, with the general knowledge that one’s services could be used to share infringing material, is insufficient to meet the actual knowledge requirement under §512(c)(1)(A)(i).

(Opinion pdf page 33).

Regarding the 512(c)(1)(A)(ii) awareness of “facts or circumstances from which infringing activity is apparent,” also known as the “red flag test,” the Ninth Circuit held 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.”  (Opinion pdf page 34.)  There was no evidence that Veoh willfully avoided obtaining specific knowledge of copyright infringement. 

Emails Veoh executives and investors received from copyright holders identifying infringing content did not meet the red flag test, as the DMCA provides a procedure for copyright owners to notify service providers of copyright infringement.  Communications outside of the DMCA procedure do not constitute notice of copyright infringement.

The “red flag test” means that infringing activity would be apparent to a reasonable person operating under the same or similar circumstances.  The test has both an objective and a subjective element.  The subjective awareness of the provider of facts or circumstances must be determined, but those facts or circumstances must make specific infringement objectively obvious to a reasonable person.  The Ninth Circuit agreed with UMG that there is a distinction between actual knowledge and red flag knowledge, but ruled that UMG did not establish a genuine issue of material fact regarding either kind of knowledge.

Veoh’s lack of financial benefit

The Ninth Circuit affirmed the district court’s ruling that Veoh did not have the necessary right and ability to control the infringing activity and, accordingly, was protected by the §512(c) safe harbor. 

UMG argued that common law vicarious liability should be applied in the §512(c) analysis of ability to control.  The Ninth Circuit disagreed.  Section 512(c) does not mention vicarious liability.  Common law vicarious liability has been used to refer to the ability to supervise, rather than the ability to control.  In addition, the DMCA assumes that the service provider has the right and ability to control to the extent that the service provider must remove or disable access to infringing content when the service provider becomes aware of it.  The Ninth Circuit agreed with the district court that service providers should not lose immunity by engaging in the acts required by the DMCA. 

Section 512(c) requires “something more” than the general ability to locate infringing material and terminate users’ access.  That “something more” is the ability of the service provider to exert substantial influence on the activities of the users.  A high level of control over the activities of the users is required.  Veoh’s interactions with and conduct toward its users did not reach that high level of control. 

The Ninth Circuit ruled that UMG did not demonstrate a triable issue regarding Veoh’s right and ability to control infringing activity, that Veoh met all of the §512(c) requirements and affirmed the district court’s ruling granting Veoh summary judgment.

The Ninth Circuit also ruled that UMG failed to establish that Veoh’s investors were liable for copyright infringement.  A critical factor in the court’s ruling is that UMG failed to allege that Veoh’s investors acted in concert to achieve infringing activity.

The major difference between the withdrawn opinion and the superseding opinion is that the superseding opinion includes references to the Second Circuit’s opinion in Viacom Int’l v. YouTube, Inc., 676 F.3d 19, 31 (2d Cir. 2012).  In the superseding opinion, the Ninth Circuit expressly states that it agrees with the Second Circuit’s expression of the red flag test, specifically that the red flag test has both a subjective and an objective element.  The Ninth Circuit also agrees with the Second Circuit that common law vicarious liability does not apply to §512(c).  The superseding opinion includes a more thorough discussion of both vicarious liability and the “right and ability to control.”  Finally, the Ninth Circuit agrees with the Second Circuit that the “right and ability to control” requires “something more,” namely, the ability of the service provider to exert substantial influence on the activities of the users.

This case is UMG Recordings, Inc. v. Shelter Capital Partners LLC, No. 09-55902, Ninth Circuit Court of Appeals.

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