he United States Court of Appeals for the Ninth Circuit substantially affirmed a district court judgment in favor of several film studios in Columbia Pictures Industries v. Fung, holding on March 21st, 2013 that the defendant was liable for contributory copyright infringement because its bittorrent hosting service, known as isoHunt, induced third parties to download infringing copies of the studios’ copyrighted works. The Ninth Circuit also held that the defendant was not entitled to protection from liability under any of the safe harbor provisions of the Digital Millennium Copyright Act (DMCA).
Defendant Gary Fung owns several torrent-related sites, most notably isoHunt.com, that facilitate the identification and sharing of files through a peer-to-peer network based upon the bittorrent protocol. Bittorrent sharing allows users to download large files from a decentralized network by downloading small sections from many different users. The “torrent” files, as hosted by Fung’s sites, contain only critical data for locating, authenticating reassembling the larger file from its fragments. Isohunt.com also modified each torrent file it stored by adding a backup tracker to it, which altered the file to make it more likely that a user will be able to download all sections successfully.
Columbia Pictures Industries, together with several other major movie studios, brought suit against Fung and several “John Does” in 2006. The U.S. District Court for the Central District of California held Fung liable for contributory infringement for inducing others to infringe on the plaintiff movie studios’ copyrighted material. It also held that none of the DMCA safe harbor provisions were applicable to Fung and thus granted summary judgment in favor of the studios. Fung appealed.
The Ninth Circuit analyzed isoHunt.com under the standard for inducement liability set forth in the U.S. Supreme Court decision Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd. The “inducement rule” has four elements: (1) the distribution of a device or product; (2) acts of infringement; (3) an object of promoting its use to infringe copyright; and (4) causation. The court held that the plaintiffs had satisfied each of the four elements.
Under element one, the court held that Fung’s argument that he did not develop or distribute any “device” used for downloading did not insulate him from liability. The court drew an analogy between isoHunt and a retail photocopying service that promotes its willingness to replicate copyrighted materials despite not producing or selling any copying machines. The court stated that copyright liability depends on one’s purposeful involvement in the process of reproducing copyrighted material, not the precise nature of that involvement. Moreover, the court cited Perfect 10, Inc. v. Visa Int’l Serv. Ass’n as confirmation that Grokster’s inducement copyright doctrine applies to services available on the internet as well as to devices and products.
Under element two, “acts of infringement,” the court held that there was overwhelming evidence of both uploading and downloading copyrighted materials; based on statistical sampling, between 90% and 96% of all content associated with the torrent files on isoHunt.com were for “confirmed or highly likely copyright infringing” material. The court stated that even tripling the margin of error in that report would still result in overwhelming evidence of infringement.
Under element three, the court pointed to Fung’s “active encouragement” of the uploading of files containing copyrighted content. For instance, isoHunt.com prominently featured a list of highest grossing “Box Office” movies that encouraged users to “upload a torrent” file for those movies by clicking a link. Fung also posted numerous messages to the isoHunt message boards requesting that users upload torrents for specific copyrighted movies. The court stated that – like Grokster’s advertisements for its music file-sharing system – Fung’s posts were explicitly designed to “stimulate others to commit copyright violations.” Moreover, Fung actively assisted others to locate infringing torrents by personally responding to their requests for help in locating, downloading and playing copyrighted content. The court also noted that Fung took no steps to develop any filtering tools and derived revenue almost exclusively by selling advertising space on his websites (and thus was incentivized to encourage a high volume of infringing content in order to draw traffic to his site and maximize ad revenue.
On element four, causation, the court agreed with the plaintiffs’ interpretation of Grokster, which maintained that a plaintiff need only prove that the “acts of infringement by third parties” were caused by the product distributed or services provided. Mindful of the “potential severity” of this interpretation, however, the court emphasized three points. First, it stated that mere knowledge of infringing potential or of actual infringing uses does not subject a product distributor or service provider to liability. Second, it stated that when dealing with a corporate entity defendant, liability cannot be premised on stray or unauthorized statements that cannot fairly imputed to the entity. Third, the court stated that proving that an entity had an unlawful purpose at a particular time in providing a product or service does not infinitely expand its liability both forward and backward in time. The court held that “people, companies and technologies must be allowed to rehabilitate… lest the public be deprived of the useful good or service they are still capable of producing.”
DMCA Safe Harbors
Having found infringement, the court turned to Fung’s DMCA defenses. As a threshold issue, the court stated that there is not any inherent incompatibility between inducement liability and the requirements that apply to all of the DMCA safe harbors. The court stated that it is not “clairvoyant” enough to certain that there is no instance in which a defendant otherwise liable for contributory copyright infringement could meet the prerequisites for one or more of the DMCA safe harbors, and accordingly conducted the two inquiries separately.
Under section 512(a), the court held that Fung’s trackers are not “service providers” under the DMCA because they manage a “swarm” of connections and select which users will communicate with each other. Fung’s argument that the functions at question are “automatic technical processes” was not relevant to this analysis.
The court also held that Fung was not entitled to “safe harbor” protection under sections 512 (c) and (d) because Fung had “red flag” knowledge of a broad range of infringing activity (independent of any notifications from Columbia or other studios) and, in fact, both assisted others with upload and download of copyrighted material and used isoHunt to download infringing materials himself. Furthermore, the court held that Fung would lose safe harbor protection under section 512 (c)(1)(B) because he (1) received a direct financial benefit directly attributable to the infringing activity; and (2) had the right and ability to control such activity.. Fung received most of his income through advertising and his ability to control infringing activity on his sites went well beyond merely locating and terminating users’ access to infringing material. Fung had a broad ability to locate and remove files (including “fake, infected or otherwise bad or abusive torrents”).
As a final note, the Ninth Circuit did agree with Fung that an injunction imposed by the district court (prohibiting Fung from “knowingly engaging in any activities having the object or effect of fostering infringement of Plaintiffs’ copyrighted works, including without limitation by engaging” in certain specified activities) was unduly burdensome as it could be interpreted to prohibit him from seeking legitimate employment. The court amended the prohibition accordingly. Fung petitioned for a rehearing or rehearing en banc on April 3rd, arguing that statements relied upon by the court that Fung made online were allegedly “sarcastic,” and accordingly his First Amendment rights were violated.
The Fung decision demonstrates that the Grokster holding is alive and well, and serves as a warning to file sharing services that are perceived to encourage copyright infringement. Any site or services that fail to develop tools to filter out copyrighted content and operate on an ad-supported model are likely to be found liable for copyright infringement. On a broader note, the decision is encouraging for content creators and owners as the legitimate content industry continues to target pirates profiting from its intellectual property and seeks to steer users towards legal download and streaming services.
Filed in: Copyright, IP/Internet Transactions, Legal Blog
April 9, 2013