Secondary Liability & ISP Liability Limitations

Ben HardmanAttorney - Advisor

Office of Intellectual Property Policy & Enforcement

USPTO

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Secondary Liability

• What is secondary liability?– Secondary liability is when one party is held

legally responsible for the actions of another party.

• What is the justification for secondary liability?– When by virtue of their relationship with the

actor or their relationship to the harm, a third party benefits from or contributes to the exploitation of a copyrighted work.

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Two Types of Secondary Liability

• Vicarious Liability (Based on control)– Right and ability to control, and– Direct financial interest

• Contributory Liability (Based on culpable acts)– Knows or has reason to know of infringement,

and– Induces, causes, or materially contributes to the

infringing conduct of another.

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Vicarious Liability

• Two requirements– The right and ability to control

• Lack of a legal right to control does not defeat liability.

• Unsuccessful attempts to control do not defeat liability.

– A direct financial interest• Percentage of profits from infringing sales

• Infringing goods “draw” customers to a venue.

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Venues that Facilitate Infringement

• The “Landlord Cases” - The defendant rents space in an apartment or a building to an infringer.

– Secondary liability often avoided.– Secondary liability may attach in unusual cases.

• Defendant received rent based upon a percentage of the infringer’s sales or profits.

• Infringing goods might have drawn more customers to the defendant’s store.

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Venues that Facilitate Infringement

• The “Dance Hall” Cases – Defendant owns a facility at which musicians perform protected works for customers.

• Cases involved dance halls, restaurants, race tracks. • Many did not separately charge customers for

listening to infringing performances.• Vicarious liability was often imposed.• Courts often found an ability to control even if

musicians were “independent contractors.”

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Venues that Facilitate Infringement

• The “Swap Meet” Cases – Defendant operated a market at which vendors sell infringing goods.

• Cases often involved informal “flea markets” that charged vendors a fee to sell goods to customers attracted to the market

• Vicarious liability was often imposed.

– Market operators benefited when infringing goods acted as a “draw” to attract customers to the market (e.g. increases in admission fees, concession stand sales, and parking fees).

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Contributory Liability

• Two requirements

– An act• The Defendant’s own act must cause, encourage, or materially

contribute to the infringing conduct of another.

– A culpable mental state.• Intent: The Defendant intended to encourage infringement.

• Knowledge: The Defendant knew that his act would encourage infringement.

• Recklessness/Constructive Knowledge: The Defendant should have known that his act would encourage infringement.

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Devices that Facilitate Infringement

• Devices like photocopiers or VCRs can enable consumers to make infringing copies of protected works.

• Distributors cannot control how customers will use the devices (Vicarious Liability), but they will know (Contributory Liability) that some users will infringe.

– Vicarious liability might be too easy to avoid.– Contributory liability might attach too easily.

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Devices that Facilitate Infringement

• Sony – Should distributors of VCRs be held secondarily liability when consumers use VCRs to videotape free over-the-air broadcast television programs for later viewing.

• The Supreme Court held that the test for secondary liability for distributors of copying devices must “strike a balance.”

– It must leave rightsholders with a practical ability to impose secondary liability in appropriate cases.

– It must not let rightsholders control commerce “substantially unrelated” to infringement.

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Devices that Facilitate Infringement

• Sony tried to strike this balance by importing and modifying the substantial-noninfringing-use rule that Congress had codified in the Patent Act.

• The Sony test: If a device is capable of “substantial” or “commercially significant” noninfringing uses, knowledge that some of its users will infringe will not subject its distributor to contributory liability.

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Devices that Facilitate Infringement

• In MGM v. Grokster, lower courts held that distributors of the Morpheus and Grokster software that used a decentralized file-sharing system could not be held secondarily liable.

• Vicarious liability could not attach because the distributors did not control a centralized indexing system listing all files available for users. Once the software was distributed, users shared files directly with other users.

• Contributory liability could not attach because Sony precluded liability if a device was capable of substantial noninfringing use.

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Devices that Facilitate Infringement

• The Supreme Court reversed, unanimously: It held that even if devices can pass the Sony test, their distributors will be secondarily liable if they “intentionally induce” infringing use of those devices.

• Thus, where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, the Sony rule will not preclude liability.

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Devices that Facilitate Infringement

• The Supreme Court found “unmistakable” and “unequivocal” evidence that the distributors of Grokster and Morpheus software intended to induce infringement.

• The Court inferred intent from evidence in the record; three types of evidence of intent were “particularly notable.”

– First, they provided former Napster users with software that “functions as Napster did.”

– Second, they had not used “filtering tools or other mechanisms to diminish the infringing activity using their software.”

– Third, “the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing.”

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Internet Service Provider

• Internet Service Provider (ISP) – Includes any entity that provides “online services or network access, or the operator of facilities thereof.”

• Safe Harbors are only available to ISPs who:

– adopt, reasonably implement, and inform subscribers of a policy of terminating service to users who are repeat infringers, and

– accommodate and do not interfere with “standard technical measures,” that protect or identify copyrighted works.

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Safe Harbor – Hosting

• § 512(c) protects providers that host infringing materials if they:

– Host infringing material at the direction of a third party;– Lack knowledge that the material, or uses of it, are

infringing, or act expeditiously to remove it after acquiring such knowledge;

– Do not receive a financial benefit directly attributable to infringement that the provider has a right and ability to control; and

– Respond expeditiously to a notice-and-takedown request.

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Safe Harbor – Information Location Service

• § 512(d) protects providers that provide information-location tools that refer or link to infringing materials if they:

– Lack knowledge that the material, or uses of it, are infringing, or act expeditiously to remove it upon acquiring such knowledge;

– Do not receive a financial benefit directly attributable to infringement that the provider has a right and ability to control; and

– Respond expeditiously to a notice-and-takedown request.

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Notice and Takedown

• To claim the benefits of most safe-harbors, an ISP must designate an agent to receive notices of alleged infringement and provide contact information to the public and the U.S. Copyright Office. 37 CFR § 201.38

• The designation must include “the name, address, phone number, and electronic mail address of the agent”

• Examples of agent designations are available from Copyright Office’s listing of designated agents at http://www.copyright.gov/onlinesp/list/x_agents.html.

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Notice and Takedown

• § 512(c)(3) provides that a written communication to a provider’s designated agent triggers notice-and-takedown obligations if it:

– Contains a physical or electronic signature of a person who states under penalty of perjury that they are authorized to act on behalf of the relevant copyright holder;

– Identifies, or provides a representative list of, the works claimed to have been infringed;

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Notice and Takedown

– Provides “information reasonably sufficient to permit” the provider to locate the material;

– Enables the provider to contact the complaining party; and

– States that the complaining party has a good-faith belief that the use of the material complained of is not authorized by the rightsholder or the law.

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Notice and Takedown

• A notice must “substantially” comply with all of these criteria.

• An adequate notice or appropriate knowledge triggers a duty to “expeditiously” remove or disable access to infringing materials.

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Counter-Notice

• Hosting-service providers receiving a takedown notice must also:– (1) try to notify the subscriber that its hosted materials have been

taken down; – (2) provide any counter-notice received from that subscriber to the

complaining party and notify it that the disputed materials will be replaced or restored in 10 days; and

– (3) replace or restore access to disputed materials no earlier than 10 and no later than 14 days after receiving the counter-notice unless the complaining party notifies the provider that it has sued the allegedly infringing subscriber.

• Requirements for a valid counter-notice are similar to those for a notice.

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Liability Limitations

• No monetary damages for:– Infringement by customer– Take down (or put back up), by ISP

• Injunctions still available

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Notice / Counter-Notice Statistics

• IIPA reports that during the 18-month period including 2001 and the first half of 2002, the four major associations of U.S. rightsholders sent about 158,300 notices of alleged infringement to ISPs.

• During this period, these rightsholders received only 13 counter-notices, so only 0.008% of notices were contested by the alleged infringer.

• Notice and Takedown has been very successful at halting infringement and limiting the need for lawsuits against Internet users.

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The Information-Subpoena Process

• § 512(h) provides a legal process to require ISPs to identify allegedly infringing users of their networks or services.

• A U.S. District Court clerk must “expeditiously” issue a subpoena that rightsholders must deliver to an ISP. The subpoena request must include:

– A copy of a takedown notice, a proposed subpoena; and

– A sworn declaration that the subpoena is to identify an alleged infringer and that any information obtained will be used only for that purpose.

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Conclusion

• Laws like the DMCA will only deter piracy and promote cooperation if they operate against a strong, flexible civil-enforcement system.

– Rogue ISPs that intend to encourage piracy must still be deterred.

– ISP-liability limitations cannot encourage cooperation unless the failure to cooperate has consequences.

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THANK YOU

Ben Hardman

Attorney - Advisor

Office of Intellectual Property Policy & Enforcement

USPTO

Benjamin.Hardman@USPTO.gov