• Ninth Circuit upholds DMCA safe harbor protection from copyright infringement liability for defendant video-sharing site Veoh, affirming grant of summary judgment in defendants’ favor.

Plaintiffs, record labels and music publishing companies, sued defendants, Veoh Networks, operator of a website that allows users to share videos, and its investors, for infringement of music copyrights plaintiffs owned based on the posting and sharing of music videos. The district court granted summary judgment to Veoh, holding that it was protected by the Digital Millennium Copyright Act (DMCA) “safe harbor” limiting service providers’ liability 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.” The district court also granted defendant investors’ motion to dismiss the claims for secondary liability against them. Plaintiff UMG appealed both the summary judgment and the dismissal, and the Ninth Circuit initially affirmed (read our summary of the Ninth Circuit’s December 2011 decision here). Following the Second Circuit’s opinion in Viacom International Inc. v. YouTube, holding that the DMCA requires that a service provider have actual knowledge of specific infringing conduct before losing its safe harbor protection (read our summary of the Second Circuit’s opinion here), the Ninth Circuit withdrew its opinion and granted UMG’s motion for rehearing. On rehearing, the appellate court once again affirmed the lower court’s decisions, finding that the Second Circuit’s interpretation was correct and that, under that standard, Veoh was shielded from liability for copyright infringement.

Veoh operates a publicly accessible website that allows users to post videos to its website and share those videos with other users. After videos are posted, the site’s automated processes make the videos viewable by others and also extract data that helps others find videos for viewing. Veoh users must agree to terms of service that prohibit them from posting or sharing infringing materials. While Veoh employees do not review videos before they become publicly accessible, Veoh employs various technologies and procedures to remove copyrighted videos that have been posted to the website without authorization, and terminates the membership of users who repeatedly post infringing material. Despite Veoh’s efforts to prevent copyright infringement on its system, Veoh does not dispute that some of its users were able to download unauthorized videos containing songs for which UMG owns the copyright. Veoh and UMG also agree that, before UMG filed its complaint, the only notices Veoh received regarding alleged infringements of UMG’s works were sent, not by UMG, but by the Recording Industry Association of America. The notices simply listed specific videos and links that were allegedly infringing, but did not mention UMG or assert rights to all works by the identified artists. Veoh removed the material located at the links identified in the RIAA notices.

UMG filed suit against Veoh for direct, vicarious and contributory copyright infringement, and for inducement of infringement, asserting, among other contentions, that efforts to prevent copyright infringement on its system were “too little too late,” that Veoh did not adopt the filtering technology until after it harbored infringing material “for its own benefit,” and initially only applied the technology to new videos that users uploaded, and only later applied the filtering software to existing videos on the site. UMG also asserted that Veoh removed copyrighted material only if identified specifically in a notice of infringement. UMG also sued three of Veoh’s investors, asserting secondary copyright infringement. Veoh asserted as an affirmative defense that the DMCA’s safe harbor for web service providers protected it from liability. The district court granted Veoh’s motion for summary judgment, finding that the DMCA’s safe harbor provision at 17 U.S.C. Sec. 512(c) shielded Veoh from liability.

As the Ninth Circuit explained, the safe harbor is only available to a website that meets a number of criteria. As a threshold matter, Section 512(c) only applies where the alleged infringing activities fall within the meaning of “infringement of copyright by reason of the storage at the direction of a user.” In addition, to qualify for the safe harbor, the service provider: (i) does not have actual knowledge that the material or an activity using the material [posted to the site] 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. In addition, to qualify, the service provider “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[,]”

On appeal, UMG argued that Veoh does not meet the threshold requirement for Sec. 512(c), that the alleged infringement of copyright be “by reason of the storage at the direction of a user,” and specifically that Veoh’s automatic processes that allowed users access to the uploaded videos went beyond “storage” of material and were not at the direction of the user, removing Veoh from the safe harbor protection. The Ninth Circuit concluded that UMG’s reading of the “by reason of” language to require that the infringing conduct “be storage” as opposed to “by reason of storage” was too narrow and that “the language and structure of the statute, as well as the legislative intent that motivated its enactment, clarify that §512(c) encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh.” The court likewise rejected UMG’s argument that the automatic process by which Veoh allowed users to access uploaded videos was not at the direction of the user. Noting that Veoh does not actively participate in or supervise the file uploading and that it does not preview or select files before the upload is complete, but rather simply employs software that automatically processes user-submitted content and puts it in a format that is readily accessible to users, which process “is initiated entirely at the volition of Veoh’s users,” the court concluded that Veoh satisfied the threshold requirement that the infringement be “by reason of the storage at the direction of a user of material” residing on Veoh’s system.

Having concluded that Veoh met the DMCA’s threshold requirement, the Ninth Circuit turned to UMG’s argument that genuine issues of fact remained as to whether Veoh had actual knowledge of infringement, or was aware of facts or circumstances from which infringing activity was apparent. UMG asserted that the district court improperly construed the knowledge requirement to unduly limit the circumstances in which a service provider can be considered to have actual knowledge and applied too stringent a standard for so-called “red flag” awareness. Specifically, UMG argued that Veoh hosted a category of copyrightable material – music – on its site, and must have known that content in this category contained infringing material, and that Veoh’s general knowledge that its services could be used to post infringing material sufficiently demonstrated knowledge of infringing activity.

The appellate court disagreed, rejecting UMG’s “should-have-known approach.” Noting that, contrary to UMG’s assumptions, many music videos could be legally posted on Veoh’s site, the court reasoned that UMG’s interpretation of the knowledge requirement would not only undermine the express intent of the statute, to “facilitate making available quickly and conveniently via the Internet . . . movies, music, software, and literary works – precisely the service Veoh provides[,]” but would also render the safe harbor useless. Sec. 512(c) applies only to claims of copyright infringement, yet, under UMG’s interpretation, the fact that a service provider’s website could contain copyrightable material would remove the service provider from the safe harbor’s protections. The court declined to adopt UMG’s broad interpretation of the knowledge requirement, stating “We therefore hold 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).”

The appellate court reached a similar conclusion with respect to the issue of Veoh’s red-flag awareness under Sec. 512(c)(1)(A)(II), holding that the safe harbor does not impose an affirmative investigative duty on the service provider to determine whether materials are infringing, based on the general knowledge that its site could be used for infringing activity. “[W]e hold 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.” Citing to the Second Circuit’s YouTube decision, the court acknowledged that the DMCA’s safe harbor does not allow a service provider to “willfully bury its head in the sand to avoid obtaining such specific knowledge,” but concluded that no evidence existed that Veoh did so and, in fact, the evidence demonstrated that Veoh promptly removed infringing material when it became aware of specific instances of infringement.

The court also rejected UMG’s argument that the district court had improperly mixed the two tests for actual knowledge and red-flag awareness, citing to the standard set by the Second Circuit in the YouTube case: “The difference between actual and red flag knowledge is . . . 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.” Acknowledging the distinction between actual and red flag knowledge, the court concluded that UMG had not established any genuine issue of material fact on whether Veoh had either actual or red-flag knowledge.

The Ninth Circuit also affirmed the district court’s determination that Veoh did not have the necessary right and ability to control infringing activity to remove it from the safe harbor protection. Noting that the DMCA does not define the phrase “ability to control,” the court declined to adopt UMG’s approach incorporating vicarious liability standards, finding the ability to control requires “something more” than the general ability to locate infringing material and terminate users’ access. Agreeing with the Second Circuit decision in YouTube, the court held that in order to have the necessary ability to control, a service provider must “exert substantial influence on the activities of users,” and not just have the ability to delete infringing content. Under that standard, UMG failed to show that Veoh had such control.

The Ninth Circuit also affirmed the district court’s dismissal of claims for vicarious infringement, contributory infringement, and inducement of infringement against three Veoh investors, as well as the district court’s denial of Veoh’s request for attorneys’ fees.