In another much-anticipated ruling regarding the scope of the safe harbor provisions of the Digital Millennium Copyright Act (“DMCA”), the Second Circuit Court of Appeals vacated and remanded a 2010 lower court ruling granting summary judgment in favor of YouTube and others (Viacom International, Inc. et al v. YouTube Inc., et al and The Football Association Premier League Ltd et al v. YouTube Inc, et al., 2012 WL 1130851(2d Cir., April 5, 2012)). In particular, the Second Circuit came to the following conclusions: (i) there is a difference between actual knowledge and “red flag” knowledge of a service provider under Section 512(c)(1)(A) of the DMCA, with the former applying a subjective standard that requires knowledge or awareness of specific and identifiable instances of infringement and the latter applying an objective standard that turns on whether the service provider was aware of facts or circumstances that would have made the specific infringement obvious to a reasonable person; (ii) the DMCA limits but does not eliminate the applicability of the common law “willful blindness” doctrine (an issue of first impression); and (iii) requiring a service provider to have “specific knowledge” of an infringing activity in order to show it had a right and ability to control such activity under Section 512(c)(1)(B) was too duplicative with Section 512(c)(1)(A) and therefore required “something more,” which it remanded for further consideration. The 2nd Circuit decision comes on the heels of, and is partially contrary to, the 9th Circuit’s recent decision in UMG Recordings, Inc. v. Shelter Capital Partners LLC, 667 F.3d 1022 (9th Cir. 2011), which affirmed broad protection to service providers under the DMCA safe harbor provisions.

The reversal and remanding of several aspects of the lower court’s decision is a victory for copyright holders who, up to now, have consistently lost out to a broader interpretation of the DMCA by courts. The decision is also, however, a victory for service providers since the Court clearly affirmed that the actual knowledge standard is required under Section 512(c)(1)(A) in order for the safe harbor to be inapplicable, that the 512(c) safe harbor applies to both direct and secondary infringement claims, and that there is no general affirmative duty on the part of the service provider to monitor its site for infringing content. Depending on how the lower court rules on remand, a split in the circuits appears to be developing whereby the 2nd circuit may be more favorable to copyright owners and the 9th circuit more favorable to service providers regarding the knowledge standards held by service providers.

In its opinion, the Court of Appeals reviewed three specific aspects of the lower court’s decision: (i) whether YouTube had actual knowledge or “red flag” knowledge of infringing activity under Section 512(c)(1)(A) of the DMCA; (ii) whether YouTube had the “right and ability to control” infringing activity under Section 512(c)(1)(B) of the DMCA; and (iii) whether YouTube was ineligible for the safe harbor because the infringement did not occur “by reason of the storage” of the infringing materials at the direction of a user, as required under Section 512(c)(1) of the DMCA.

  1. Actual Knowledge and “Red-Flag” Knowledge. In affirming the lower court’s decision that Section 512(c) requires actual knowledge, the Court held that the obligation of a service provider to act “expeditiously to remove or disable access to, the [infringing] material,” requires actual knowledge or awareness of specific infringing materials since a service provider can only remove the materials that it knows exists. In addition, the Court held that the requirement of actual knowledge does not render the “red flag” provision under Section 512(c)(1)(A)(ii) superfluous because the difference between the two requirements is a subjective versus objective standard. The Court stated that, “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.” Ultimately, however, the Court held that granting YouTube’s summary judgment motion on this issue was premature since the record included evidence that YouTube may have had actual knowledge of infringing activities. Therefore, the Court vacated the summary judgment order and instructed the lower court to determine if YouTube was aware of specific infringements of the video clips that were the subject of the litigation.

The Court also held that Section 512(m) of the DMCA (which provides that safe harbor protections shall not be conditioned on a service provider monitoring its services for infringing activity) only limited and did not eliminate the common law “willful blindness” doctrine, which applies in copyright cases when a person is aware of a high probability of the facts in dispute and consciously avoids confirming such facts. Since the lower court did not expressly address the “willful blindness” doctrine, the Court remanded the cause for consideration.

  1. Indirect Liability; Right and Ability to Control. The Court further addressed the Section 512(c)(1)(B) safe harbor provision requiring that a service provider “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.” The Court noted that previous DMCA cases had not adequately addressed this issue, but found the holding by the lower court that such right and ability to control required item-specific knowledge went too far. The Court noted that construing this Section to require “specific knowledge” of the infringing item renders the “control” provision duplicative of Section 512(c)(1)(A). Thus, no service provider would be excluded under Section 512(c)(1)(B) of the DMCA that was not already excluded under Section 512(c)(1)(A). Therefore, the Court held that Section 512(c)(1)(B) requires “something more” than the ability to remove or block access to materials posted on its website (which would require actual knowledge of the infringement). Unfortunately, the Court did not address what that “something more” is and remanded this issue to the lower court to consider in the first instance whether plaintiffs had shown sufficient evidence to allow a reasonable jury to conclude that YouTube had the right and ability to control the infringing activity and received a financial benefit directly attributable to that activity.
  1. “By Reason of” Storage and the Direction of User. Finally, the Court addressed whether the software functions that allowed YouTube to modify, edit and display video clips met the requirement under Section 512(c)(1) that the infringement occur “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 Court affirmed that the word “storage” in the DMCA permitted more than merely electronic storage lockers and therefore held that three of the four software functions used by YouTube (the conversion of videos into a standard display, the playback of videos on watch pages, and the “related videos” function) all met the “by reason of storage” definition under the DMCA. Noting that the fourth software function (allowing for third-party syndication of videos) was a closer case, the Court remanded for further fact-finding on the question of whether the clips involved in the litigation were in fact syndicated to a third-party.