USDC N.D. California, August 27, 2008

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In a significant decision concerning the liability of websites hosting user-provided content for copyright infringement, Magistrate Judge Howard R. Lloyd held that Veoh Networks, which provides software and a website (veoh.com) that enables the uploading and sharing of user-provided video content over the Internet, qualified for the protections of the DMCA § 512(c) safe harbor and, accordingly, dismissed Io Group's copyright infringement suit.

Io Group, a producer and distributor of adult entertainment films, sued Veoh Networks when it found several clips, some lasting as long as 20 minutes or more, from 10 of its copyrighted films on veoh.com. Io filed suit against Veoh for copyright infringement without serving any DMCA notice or otherwise notifying Veoh of its claims. The parties cross-moved for summary judgment, but the court chose only to address, and grant, Veoh’s motion claiming that it qualified for the DMCA § 512(c) safe harbor because it disposed of the entire case.

The court held that Veoh met the safe harbor threshold requirements: it met the definition of “service provider;” it adopted, reasonably implemented and informed subscribers of its termination policy for repeat infringers; and it did not interfere with standard technical measures to protect copyrighted works.

The court rejected the plaintiff’s argument that Veoh failed to reasonably implement its repeat infringer policy because it does not prevent repeat infringers from reappearing on the site under a pseudonym and a different email address. Citing the Ninth Circuit, the court held that a service provider reasonably implements a policy “if it has a working notification system, a procedure for dealing with DMCA-compliant notifications, and if it does not actively prevent copyright owners from collecting information needed to issue such notifications.” See Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102 (9th Cir. 2007). The court stated that the DMCA requires reasonable, not perfect, policies and it rejected the plaintiff’s contention that to have a reasonable policy, the defendant must track users by their actual names or by Internet Protocol addresses.

Turning to the requirements for the § 512(c) safe harbor, the court summarized that a service provider is eligible for the safe harbor if it (1) does not know of infringement; or (2) acts expeditiously to remove or disable access to the material when it (a) has actual knowledge, (b) is aware of facts or circumstances from which infringing activity is apparent, or (c) has received DMCA-compliant notice; and (3) either does not have the right and ability to control the infringing activity, or – if it does – that is does not receive a financial benefit directly attributable to the infringing activity.

The court rejected the plaintiff’s argument that Veoh could not qualify for the safe harbor because it employs software that automatically changes the format of the user-submitted video content into “Flash files” and still-image files (screen captures for preview purposes) so that it is readily accessible to users. This, Io argued, meant that the infringing content was stored on Veoh’s system not “at the direction of a user” but by Veoh’s own acts and decisions. The court held that Veoh itself does not actively participate in or supervise the uploading of files and that there was nothing in § 512(c) that precluded a service provider from the safe harbor protections by virtue of its automatic processing of user-submitted content.

Because the plaintiff did not serve a DMCA notice on Veoh before initiating the lawsuit, the court held that “there is no question on the record presented that Veoh lacked actual knowledge of the alleged infringing activity.” Nevertheless, Io argued that Veoh could not qualify for safe harbor protection because it had knowledge of “apparent infringing activity.” Under this so-called “red flag” test, a service provider may lose safe harbor protection “if it fails to take action with regard to infringing material when it is ‘aware of facts or circumstances from which infringing activity is apparent.’” In determining whether a service provider has such awareness, the question is whether the service provider “deliberately proceeded in the face of blatant factors of which it was aware.” In other words, “apparent knowledge requires evidence that a service provider ‘turned a blind eye to ‘red flags’ of obvious infringement.’” According to Io, the fact that it registered the copyrights in the videos, the videos looked professionally produced and the clips online did not contain the labeling required for adult content were all “red flags” sufficient to evidence Veoh’s awareness of infringing activity. The court rejected each of these arguments and held that none was sufficient to put Veoh on notice.

The court also rejected the plaintiff’s argument that Veoh had the right and ability to control the infringing activity based on Veoh’s maintenance of a central index of video files on its servers and its ability to terminate user accounts, remove infringing material, disable access to such materials on its users’ hard drives, and feature certain videos on portions of its website. The court stated that “Veoh’s right and ability to control its system does not equate to the right and ability to control infringing activity. Unlike Napster, there is no suggestion that Veoh aims to encourage copyright infringement on its system. And, there is no evidence that Veoh can control what content users choose to upload before it is uploaded.” The court also rejected the plaintiff’s suggestion that Veoh should be required to prescreen every submission before it is published. “Veoh has submitted evidence indicating that it has received hundreds of thousands of video files from users . . . and this court finds that no reasonable juror could conclude that a comprehensive review of every file would be feasible.”

The plaintiff also argued that Veoh should have changed its business operations to prevent infringing activity from occurring on its site. Specifically, it contended that Veoh should have verified the source of all incoming videos by obtaining and confirming the names and addresses of the submitting user and the producer, as well as the submitting user’s authority to upload a given file. Alternatively, the plaintiff suggested that, if Veoh cannot prevent infringement on its site given the current volume of its business, then Veoh should be required to either hire more employees or to decrease its operations and limit its business to a manageable number of users.

The court stated that the DMCA does not require service providers to deal with infringers in a particular way and that the plaintiff’s suggestion that Veoh must be required to reduce or limit its business operations is contrary to one of the stated goals of the DMCA. “The DMCA was intended to facilitate the growth of electronic commerce, not squelch it. In sum, Io has not raised a genuine issue of material fact that Veoh had the right and ability to control the alleged infringing activity on veoh.com. This court finds that there is no triable fact issue as to whether Veoh qualifies for safe harbor under section 512(c) with respect to the alleged infringing activity in question.”