Veoh’s Services Protected by DMCA Safe Harbor, Rules Ninth Circuit

Facts 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 filed suit against Veoh (pdf) for direct and secondary copyright infringement. 

Veoh asserted Digital Millennium Copyright Act (DMCA) safe harbor protection as an affirmative defense.  UMG and Veoh both filed motions for summary judgment.  The district court ruled in Veoh’s favor, holding that Veoh met all of the requirements and was entitled to DMCA safe harbor protection.  The Ninth Circuit Court of Appeals upheld the district court’s safe harbor rulings.  UMG argued before the Ninth Circuit that Veoh failed to meet three of the DMCA’s requirements, as discussed below. 

DMCA arguments and rulings.

1.         UMG first argued that Veoh did not qualify for the DMCA safe harbor under the first clause of 17 USC §512(c)(1).  That subsection of the statute provides that:

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…

(Emphasis added.)

When a user uploads a video to the Veoh website, Veoh’s software automatically processes the video.  The processing includes breaking the video into 256 kilobyte chucks, converting it to Flash 7 format, and converting some videos into Flash 8 and MPEG-4 formats.  The result is that the Veoh system automatically creates and maintains up to four different copies of the video.  UMG argued that the functions automatically performed by Veoh’s software when a user uploaded a video went beyond “storage” and that the actions automatically performed by Veoh’s software when the video was uploaded were not “at the direction of the user.”  The Ninth Circuit ruled that the language of §512(c)(1) is “clearly meant to cover more than mere electronic storage lockers” and that it “encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh.”  (Opinion pdf page 16).

UMG argued that the “by the reason of” language in §512(c)(1) should be read to mean that the infringement must be proximately caused by the storage, not by the access that is facilitated by the storage.  In other words, UMG sought to limit the breadth of the safe harbor by arguing that Veoh is entitled to the safe harbor only when the storage itself causes the infringement and is not entitled to the safe harbor when it is the access to the copyrighted materials (i.e., distribution) which causes the infringement.  UMG looked to a U.S. Supreme Court ruling interpreting the meaning of the phrase “by reason of” in the Racketeer Influenced and Corrupt Organizations Act (RICO) 18 U.S.C. §§1961-1968, to support its argument.  The Ninth Circuit ruled that the DMCA and RICO are dissimilar statutes with different purposes, that the RICO rulings are not relevant to the DMCA, and rejected UMG’s argument.

2.         UMG next argued that there were genuine issues of material fact regarding Veoh’s actual knowledge of infringement or its awareness of facts or circumstances from which infringing activity was apparent.  For Veoh to qualify for the safe harbor, Section 512(c)(1)(A) further requires that 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;

UMG argued that Veoh was aware of infringing videos that it did not remove.  However, UMG did not notify Veoh of any infringing videos through the DMCA notice and takedown procedure set out in §512(c)(3).

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 24).

UMG could not prove actual knowledge on Veoh’s part with respect to specific videos, so it argued that Veoh’s general knowledge was enough to deprive it of DMCA safe harbor protection.  UMG argued that because Veoh hosted music, a category of copyrightable content, but did not have a license from a major music company, that Veoh must have known that the content was unauthorized and that therefore Veoh had knowledge of infringement. 

The Ninth Circuit refused to hold that such general knowledge of infringement is sufficient, for several reasons.  Firstly, some videos on Veoh’s website were not infringing, such as those created by users or obtained by agreement with copyright holders.  Secondly, Congress’ intent that the DMCA facilitate making movies, music, software and literary works available through the Internet makes UMG’s narrow interpretation implausible.  Thirdly, UMG’s interpretation would render the DMCA safe harbor provision meaningless, since all a copyright holder would have to do to defeat the safe harbor is show that the service provider hosts a category of copyrightable works. 

The Ninth Circuit indicated that copyright holders have the burden of policing copyright infringement and that service providers are not required to investigate.  The court held that hosting a category of copyrightable content is not enough by itself to meet the actual knowledge requirement under §512(c)(1)(A)(i).  The court further held that Veoh’s general knowledge of hosting copyrightable material and its knowledge that its services could be used for infringement are not enough to prove an awareness of “facts or circumstances from which infringing activity is apparent” under §512(c)(1)(A)(ii).

3.         Finally, UMG argued that Veoh received financial benefit directly attributable to infringing activity that it had the right and ability to control and therefore is not protected by the DMCA safe harbor.  Assuming the other safe harbor requirements are met, the DMCA safe harbor is available to a service provider that

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;

17 U.S.C. §512(c)(1)(B).

The Ninth Circuit concluded that Veoh did not have the necessary right and ability to control infringing activity to remove it from DMCA safe harbor protection.  The court did not address the financial benefit portion of the statute.

As the term “ability to control” is not defined in the statute, the court looked to the dictionary to determine the meaning.  “Ability” means “the quality or state of being able; competence in doing.”  “Able” means “possessed of needed powers or resources.”  “Control” means the “power or authority to guide or manage:  directing or restraining domination.”

Where, as here, it is a practical impossibility for Veoh to ensure that no infringing material is ever uploaded to its site, or to remove unauthorized material that has not yet been identified to Veoh as infringing, we do not believe that Veoh can properly be said to possess the needed powers or needed resources to be competent in exercising the sort of restraining domination that §512(c)(1)(B) requires for denying safe harbor eligibility.

(Opinion pdf page 33).

The court indicated that a service provider must become aware of specific unauthorized material before the service provider can control it.  In addressing all of UMG’s arguments, the court often turned to §512(m).  Section 512(m) “provides that §512(c)’s safe harbor protection may not be conditioned on a service provider monitoring its service or affirmatively seeking facts indicating infringing activity.”  In other words, service providers are not required to investigate for infringement.  In the court’s view, a narrow interpretation of “the right and ability to control” language in §512(c)(1)(B) conflicts with §512(m)’s prohibition against requiring service providers to investigate.

[W]e hold that the ‘right and ability to control’ under §512(c) requires control over specific infringing activity the provider knows about.  A service provider’s general right and ability to remove materials from its services is, alone, insufficient.

(Opinion pdf page 35).

The court specifically ruled that “right and ability to control” under §512(c) is not the same as the use of similar language in common law vicarious liability copyright infringement cases, such as A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001).  Section 512(c) does not use the term “vicarious liability.”  The legislative history indicates that Congress did not intend to exclude from the §512(c) safe harbor all service providers who would be liable for copyright infringement under the common law theory of vicarious liability.

This case is UMG, Inc. v. Shelter Capital Partners LLC, No. 09-55902, Ninth Circuit Court of Appeals.  UMG amended its complaint to include Veoh’s financial backers, hence the case name UMG v. Shelter Capital.

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