USDC S.D. New York, June 30, 2009

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  • In copyright infringement action against file sharing service, court holds defendants directly infringed plaintiffs’ copyrights in their sound recordings and defendants are liable for vicarious and contributory infringement and inducement to infringe; court grants in part plaintiffs’ motion for sanctions for discovery abuse and prevents defendants from asserting DMCA safe harbor defense.

Defendants operate electronic message boards (known as “newsgroups”) where subscribers can upload and download files including digital music files. Plaintiffs, fourteen record companies, filed suit for direct and secondary copyright infringement, alleging that defendants’ service was used by subscribers to download plaintiffs’ copyrighted sound recordings. Before the court were plaintiffs’ motion for sanctions, plaintiffs’ motion for summary judgment on all of their copyright infringement claims, and defendants’ motion for summary judgment based on the safe harbor provided by Section 512(c) of the DMCA.

The court began by addressing plaintiffs’ motion for terminating sanctions based on defendants’ failure to produce documents, destruction of documents, and witness misconduct. (The court had granted plaintiffs’ earlier motion for sanctions for spoliation of evidence and had ordered adverse inference instructions.) The court found that defendants destroyed evidence in bad faith and were grossly negligent, but the court declined to order the “ultimate sanctions” of default judgment. The court determined that the evidence that defendants allegedly destroyed was highly relevant to the factors defendants needed to establish in order to qualify for the DMCA safe harbor defense, so the court granted plaintiffs’ motion for sanctions in part, and ordered that defendants would not be able to assert a defense based on Section 512(c) of the DMCA.

The court then turned to plaintiffs’ motion for summary judgment on its direct and secondary copyright infringement claims. The court held that plaintiffs provided overwhelming evidence of defendants’ direct infringement of plaintiffs’ copyrights and complicity in infringement by their subscribers so that there is no genuine issue of material fact. The court granted summary judgment for plaintiffs on all of their copyright infringement claims.

Regarding direct infringement, the court held that a finding of direct infringement of the right of distribution requires a showing that defendants engaged in some volitional conduct (citing Cartoon Network LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008)). In this case, volitional conduct was shown by defendants’ awareness that digital music files were among the most popular articles on their service; defendants’ measures to create servers dedicated to mp3 files and to increase the retention times of newsgroups containing digital music files; and defendants’ ability to remove access to some newsgroups. According to the court, these actions transformed defendants from “passive providers of a space in which infringing activities happened to occur to active participants in the process of copyright infringement.”

Regarding inducement to infringe, contributory infringement and vicarious infringement, the court said there must be some direct infringement by third parties, and that plaintiffs had provided uncontroverted evidence that defendants’ subscribers downloaded plaintiffs’ copyrighted sound recordings.

In a footnote the court briefly discussed whether inducement to infringe is a separate theory of secondary copyright infringement or if it is merely a species of contributory infringement. The court decided to analyze it as a separate theory because that is how plaintiffs presented it.

Inducement to infringe was established in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005), a case that also involved a file-sharing service. In Grokster, the court held that “one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.” 545 U.S. at 936-37.

The facts that defendants’ service “harbors massive amounts of infringement,” defendants openly and affirmatively sought to attract former users of other file sharing services, defendants’ own employees downloaded copyrighted digital music files and assisted subscribers in downloading copyrighted digital music files, and defendants had tools for blocking access to infringing material but didn’t use them made it “unmistakable” that defendants induced infringement of plaintiffs’ copyrighted sound recordings.

Defendants’ primary arguments in opposition to plaintiffs’ inducement claim were based on their position that questions of intent and witness credibility are traditionally reserved for a jury. According to the court, this is true “in the ordinary case; however, this is not the ordinary case. . . . Here, defendants have submitted testimony denying wrongful intent; yet, the facts speak for themselves, and paint a clear picture of defendants’ intent to foster infringement by their users.”

A party is liable for contributory infringement if, “with knowledge of the infringing activity,” it “induces, causes, or materially contributes to the infringing conduct of another.” Gershwin Publ’g Corp. v. Columbia Artists Mgmt, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971). The court held that defendants’ own employees’ statements made clear that defendants knew their service was used primarily to obtain copyrighted material and that defendants provided the “site and facilities” that subscribers used to directly infringe plaintiffs’ copyrights.

A defendant is liable for vicarious copyright infringement by “profiting from direct infringement while declining to exercise a right to stop or limit it.” Grokster, 545 U.S. at 930. The court found that defendants benefited financially from the infringement because defendants’ revenues increased with the volume of downloads and the infringing content was a “draw” for users to subscribe to the service. Regarding control, the court held that defendants had the right and ability to control access to the infringing material even though they did not use that ability to block access to plaintiffs’ copyrighted sound recordings.