A Mixed Result for Cox in the Fourth Circuit

            The Fourth Circuit has issued its decision in BMG v. Cox. In case you haven’t been following the ins and outs of the suit, BMG sued Cox in 2014 alleging that the broadband provider was secondarily liable for its subscribers’ infringing file-sharing activity. In 2015, the trial court held that Cox was ineligible as a matter of law for the safe harbor in section 512(a) of the DMCA because it had failed to reasonably implement a policy for terminating the accounts of repeat infringers, as required by section 512(i). In 2016, a jury returned a $25M verdict for BMG, finding Cox liable for willful contributory infringement but not for vicarious infringement. Following the trial, Cox appealed both the safe harbor eligibility determination and the court’s jury instructions concerning the elements of contributory infringement. In a mixed result for Cox, the Fourth Circuit last week affirmed the court’s holding that Cox was ineligible for safe harbor, but remanded the case for retrial because the judge’s instructions to the jury understated the intent requirement for contributory infringement in a way that could have affected the jury’s verdict.

The Safe Harbor Determination

           There is no big surprise in the court’s decision to affirm the summary judgment on Cox’s ineligibility for the DMCA safe harbor. As I said when I wrote about this case (here) back in 2015, and as the Fourth Circuit’s recitation of the facts highlights, this was not a good record for Cox. Reviewing the facts de novo, the court agreed with the trial court’s finding that Cox more or less completely failed to implement the repeat infringer policy that it had adopted:

Here, Cox formally adopted a repeat infringer “policy,” but, both before and after September 2012, made every effort to avoid reasonably implementing that policy. Indeed, in carrying out its thirteen-strike process, Cox very clearly determined not to terminate subscribers who in fact repeatedly violated the policy. . . . [T]he evidence shows that Cox’s decisions not to terminate . . . were based on one goal: not losing revenue from paying subscribers.

Importantly for future cases involving section 512(i)’s repeat infringer requirement, the Fourth Circuit in this case had nothing negative to say about the liberality of Cox’s thirteen-strike policy. “We are mindful,” the court wrote, “of the need to afford ISPs flexibility in crafting repeat infringer policies.” If BMG was hoping the court would find Cox’s policy insufficiently stringent as a matter of law, that hope was disappointed. (For many years, right holders argued that “three strikes” should be the rule, even if those strikes were communicated in a single notice.) And if Rightscorp, the company that sent notices to Cox on BMG’s behalf, hoped the court would hold that broadband providers are required by the DMCA to forward notices of infringement containing “settlement offers” to subscribers, that hope was also disappointed. (Rightscorp, known for its “notice and shakedown” business model, has long argued that section 512(i) requires providers to forward its notices to users.) The court’s opinion makes it clear, however, that Cox’s failure to comply with the DMCA’s repeat infringer requirement was one of implementation, not design.

            The Fourth Circuit also agreed with the district court that “repeat infringer” within the meaning of the DMCA does not refer only to those subscribers who are adjudicated repeat infringers. The court turned to both the language of the DMCA and its legislative history to conclude that “Congress knew how to expressly refer to adjudicated infringement, but did not do so in the repeat infringer provision.” To bolster its conclusion, the court cited the Second Circuit’s 2016 decision in EMI Christian Music Group v. MP3Tunes, which defined “infringer” without reference to adjudication: “someone who interferes with one of the exclusive rights of a copyright” “again or repeatedly.” I think it’s fair to say that this case lays to rest the “adjudicated infringer” theory of repeat infringement under the DMCA.   

The Intent Requirement for Contributory Infringement

            Cox challenged the district court’s instructions to the jury concerning the elements of a claim for contributory infringement. With respect to contributory infringement generally, Cox argued that the court should have instructed the jury that Cox could not be found liable for contributory infringement because its system is “capable of substantial non-infringing uses.” The Fourth Circuit dispatched this argument fairly quickly, holding that the Supreme Court’s decision in Sony v. Universal, on which Cox was attempting to rely, does not compel a finding that the operator of a system capable of substantial non-infringing uses can never be contributorily liable for its users’ infringements. Citing the Supreme Court’s decision in MGM v. Grokster, the court said that liability can arise if the operator of such a system intends it to be used for infringing purposes. Because the trial court’s decision comported with Grokster’s holding that distributors of dual-use technologies aren’t necessarily insulated from liability for infringing uses of those technologies, the Fourth Circuit held that there was no error in the trial court’s declining to give the instruction.

            Again relying on Sony, Cox argued that the trial court erred by failing to instruct the jury that the operator of a system “capable of substantial non-infringing uses” does not materially contribute to infringements by users of the system. The court rejected that argument, too. It cited the Ninth Circuit’s decision in Perfect 10 v. Amazon, which held that Google’s provision of search results containing hyperlinks to sites offering infringing material can constitute material contribution to infringement, even though Google also provides search results containing hyperlinks to sites that offer no infringing material.

            Cox did prevail, however, on its challenge to the trial court’s instructions concerning the intent required for contributory liability. The court instructed the jury that Cox should be found liable if it “knew of should have known” of its subscribers’ infringing activity. On this point, the Fourth Circuit held, the trial court erred by setting too low a threshold for liability: “Grokster teaches that ‘[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement.’” Finding analogies in patent law’s secondary liability doctrines and in criminal law’s rules on aiding and abetting, the Fourth Circuit held that “contributory liability can be based on willful blindness but not on recklessness or negligence.” Moreover, the court said, the defendant’s knowledge (or willful blindness) must relate to specific infringing acts; it cannot be generalized knowledge of (or willful blindness to) unspecified infringements by unspecified direct infringers. Because the court concluded that the error in the judge’s instruction on intent could have affected the jury’s verdict, it remanded the case for retrial. In doing so, it rejected Cox’s argument that it is now entitled to summary judgment because a properly instructed jury could not reasonably find it liable on the facts in the record. On the contrary, the court said, a jury could still find that Cox met the higher threshold.  

Summing Up

            The court’s decision on safe harbor eligibility is in line with recent cases applying the DMCA’s repeat infringer provision. Its focus on implementation rather than policy design gives this case fairly limited reach. The takeaway is straightforward: a provider can’t altogether fail to implement its own policy. Some amici were concerned that the Fourth Circuit would decide the case in a way that would limit service providers’ latitude in designing repeat infringer policies, leading them to take a draconian, one-size-fits-all approach to terminating user accounts. Given how much of our lives are now lived online, the sanction of account termination for repeat copyright infringement falls more heavily than it would have 20 years ago, when the DMCA was first enacted. Fortunately, however, the court found no fault with the design of Cox’s relatively forgiving system. Following this decision, the different types of service providers covered by the DMCA safe harbor maintain the latitude courts have historically given them to craft repeat infringer policies that are appropriate for the nature and scope of the services they provide.

            The part of the opinion concerning jury instructions is likely to be controversial among many right holders, who are convinced that the standards for proving secondary infringement by online intermediaries are too high. Some of the early file-sharing cases—A&M Records v. Napster (9th Cir.) and In re Aimster (7th Cir.)—formulated the intent standard for contributory infringement to include negligence. Post-Grokster, however, I’m not aware of any appellate cases that have applied a “knew or should have known” standard. Both UMG v. Shelter Capital (9th Cir.) and Viacom v. YouTube (2d Cir.) state the standard as one of actual knowledge, red-flag knowledge (which must also be actual in nature), or willful blindness. And both of those cases require knowledge with respect to specific instances of infringement. The Fourth Circuit’s reversal of the district court on the jury instructions is in keeping with the state of the law on secondary copyright infringement after Grokster. Because of the district court’s misstep on the intent standard, Cox will get another shot with a new jury, if the case doesn’t settle first.     

(Readers: If you know of any appellate cases post-Grokster that include negligence in their articulation of the contributory infringement standard, let me know, and I’ll do an update.)

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