Sticks, Carrots and Copyrights

ast month, in Sandy Routt, d/b/a sandybeachgifts.com, d/b/a Sandys Beach v. Amazon.com, Inc., the Ninth Circuit Court of Appeals dismissed claims seeing to hold Amazon.com vicariously liable for the copyright and trademark infringing activities of its affiliate marketing partners.

Amazon.com maintains a program in which third party websites agree to display a widget that contains advertisements for Amazon products. Amazon controls the content of the widget and enters into an agreement with each third-party site that displays it. In this case, affiliate websites allegedly used Routt’s copyright-protected photographs and displayed those photographs on their websites next to Amazon’s widget.  Rather than bring the individual direct infringers to court, Routt asserted that Amazon’s agreement with their affiliates, combined with the fact that Amazon derived financial gain from the relationship, gives rise to vicarious liability for those third parties’ infringement. The Ninth Circuit disagreed.

Citing Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, the Court noted that the test for vicarious copyright infringement liability is twofold.  Plaintiffs must allege that the defendant has (1) the right and ability to supervise the infringing conduct and (2) a direct financial interest in the infringing activity.  Routt argued that the agreement between Amazon and the affiliates constitutes such a supervisory right. However, while Amazon may have had the ability to monitor affiliates and to control its contractual relationship with them, it did not have the ability to directly put an end to the infringing conduct occurring on the affiliate’s website.  As the panel noted, quoting a prior case, “the mere ability to withdraw a financial ‘carrot’ does not create the ‘stick’…that vicarious liability requires.”  Routt’s failure to plead facts sufficient to satisfy this first prong of the vicarious liability test was enough to dispose of the matter and the Court did not touch on the economic gain prong of the test.  (For the same reasons the court found that Amazon lacked the ability to supervise its affiliates’ conduct, it likewise lacked the requisite joint ownership or control over its affiliates’ infringing websites sufficient to state a claim of vicarious liability under the Lanham Act.)

This decision marks another waypoint in a growing trail of cases that decline to find vicarious liability for copyright infringement, turning on the ability to control the behavior of third-party affiliate websites. In both Perfect 10, Inc., v. Amazon.com, Inc. and Perfect 10, Inc., Visa Int’l Serv. Ass’n, for instance, Perfect 10 was unsuccessful in its vicarious liability claims because it could not show the requisite level of control over third-party infringers.  In the former case, the court explained that a provider’s ability to terminate an advertising partnership did not give the provider the right to stop direct infringement by third-party websites.  So too with Routt, who failed to allege that termination of the relationship would put an immediate end to the affiliates’ infringement.

However, the doctrine of vicarious liability is not out of reach for many copyright owners, and the Ninth Circuit carefully explained the difference between the line of cases following the Fonovisa case, and those like the one at bar. In Fonovisa, Inc., v. Cherry Auction, Inc., the Ninth Circuit held a swap meet operator could be vicariously liable for large-scale music copyright infringement that took place on the premises.  But there, the operator could have kicked the infringers out; the operator failed to do so and continued to realize financial gain from the fees the vendors paid to peddle their wares. Similarly, in A&M Records, Inc., v. Napster, Inc., the once-infamous Napster was vicariously liable for the infringement of its users because it could have blocked access to repeat infringers, but did not.  The key disparity separating these lines of precedent is that in one, the defendant is able to control the infringing behavior itself, while in the other the defendant is only able to control the contractual relationship between the parties. As affiliate marketing online becomes more and more common, advertising providers that limit their ability to actually control their partners’ content and behavior may find themselves more able to enjoy their carrots without fear of the stick.