UMG Recordings v. Shelter Capital Partners

For the purposes of the “safe harbor” affirmative defense under the Digital Millennium Copyright Act §512(c) website owners are “service providers” and the defense encompasses certain “access-facilitating automatic functions;” additionally, the “red flag” knowledge test was adopted; and Napster liability does not invalidate a §512(c) defense unless the “service provider” has the “right and ability to control” users infringing activity via an exertion of “substantial influence.”

UMG Recordings, Inc. (“UMG”) sued Veoh Networks, Inc. (“Veoh”) and three of Veoh’s investors (“Investor Defendants”) for copyright infringement and the Investor Defendants on secondary liability claims. Veoh owns a public website which enables public video sharing between users. UMG argued that Veoh’s Digital Millennium Copyright Act (“DMCA”) §512(c) “safe harbor” affirmative defense failed either because Veoh did not meet certain requirements necessary for a party to be subject to the “safe harbor” exemption or because Veoh had sufficient knowledge of so called “red flag” copyright infringement indicators as to be outside §512(c)’s protection. The Ninth Circuit held §512(c) “covers the access-facilitating automatic functions [such as those] Veoh’s system undertakes” and that website owners, and not just web hosting services, are “service providers” for certain §512(c) purposes. The panel adopted the Second Circuit’s “red flag” knowledge test which invalidates a “safe harbor” defense only when, “infringing activity would have been apparent to a reasonable person under the same or similar circumstances” and such activity was not otherwise subject to the copyright holders’ duty to investigate abuse of its rights. The panel also adopted the Second Circuit’s position that Napster liability does not invalidate a §512(c) defense unless the “service provider” has the “right and ability to control” users infringing activity via “[exertion of] substantial influence on the activities of the users.” Finally, the Court declined to decide whether the Investor Defendants could be secondarily liable when Veoh was protected from monetary liability by the DCMA, finding the Investor Defendants were not liable on the merits of the case and remanded for consideration whether Fed. R. Civ. P. 68 fees, excluding attorney’s fees, were warranted on Veoh’s behalf. AFFIRMED in part REMANDED in part.