In a much-anticipated ruling with respect to the strength of the safe harbor provisions within the Digital Millennium Copyright Act (“DMCA”), the Ninth Circuit Court of Appeals has affirmed a district court’s decision that Veoh Networks Inc. (“Veoh”) is protected by the DMCA’s safe harbor provisions from copyright infringement claims brought against it by UMG Recordings Inc. (“UMG”).

Veoh operates a publicly available Web site that permits users to upload and share videos, including music videos. Veoh also entered into various agreements with major copyright holders to allow for their content to be accessed and viewed on Veoh’s Web site. In 2007, UMG filed suit against Veoh for direct, vicarious and contributory copyright infringement. Veoh argued that it qualified for the DMCA’s safe harbor, and moved for summary judgment. In 2009, the district court granted Veoh’s summary judgment motion.

In its appeal, UMG claimed that Veoh did not qualify under the DMCA safe harbor because: (i) Veoh’s services that allowed users to upload and access videos did not fall within the plain meaning of Section 512(c)(1) of the DMCA, which protects a service provider for “infringement of copyright by reason of the storage at the direction of a user . . .”; (ii) Veoh had actual knowledge of the infringement or was aware of facts that infringing activity was apparent; and (iii) Veoh received a financial benefit directly attributable to the infringing activity that Veoh had the right and ability to control.

In affirming the district court’s decision, the court held that UMG’s reading of Section 512(c)(1) was too narrow with respect to service providers storage and that the legislative intent was clear that the DMCA language “by reason of the storage at the direction of the user” was clearly intended to cover more than just electronic storage lockers. Therefore, the court held that the fact that Veoh stored videos and provided web hosting services that allowed users to upload and access to such videos did not make Veoh fall outside the Section 512(c)(1) requirements.

In affirming the district court’s decision that Veoh did not have actual knowledge of the infringing activity, the court 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 Section 512(c)(1)(A)(i)” of the DMCA. Further, the court held that Veoh’s “general knowledge that it hosted copyrightable material and that its services could be used for infringement was insufficient to constitute a 'red flag.'” Interestingly, however, the court did suggest that the “red flag” test may be met if a service provider received e-mails from users about infringing materials on its Web site and failed to expeditiously remove or disable access to such materials. Veoh received such e-mails from copyright holders, but these e-mails were insufficient since the DMCA sets forth specific takedown procedures that copyright holders must follow.

Finally, the court held that Veoh did not have the ability to control infringing activity, as required under Section 512(c)(1)(B). As such, the court did not address any financial benefit that Veoh received directly from infringing activity. The court further rejected UMG’s suggestion that the vicarious liability standard set in past cases should be used when determining whether Veoh had the sufficient right and ability to control the infringing activity of users. It found that there was no intent by Congress to exclude vicarious liability from the safe harbor.

UMG also appealed the dismissal of Veoh’s investors from the lawsuit, arguing that the investors were liable for the infringement on theories of contributory or vicarious liability or inducement. Commentators have referred to this as “tertiary” liability. Because Veoh had no liability to UMG, the Ninth Circuit held that the investors could not be secondarily liable.

Now that the Ninth Circuit has ruled on this matter, focus will turn to the Second Circuit, where another high-profile DMCA safe harbor case, Viacom International Inc. v. YouTube Inc. is currently on appeal.

The case is UMG Recordings Inc. et. al v. Veoh Networks Inc et al., case number 09-56777, in the U.S. Court of Appeals for the Ninth Circuit.