Angel Investors: Secondary Liability for DCI Copyright Infringement

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Digital content intermediaries (DCIs) such as YouTube, Facebook, Ebay and others handle vast quantities of digital content uploaded by users, raising questions about their potential secondary liability for copyright infringement. Congress partially addressed the problem in the Digital Millennium Copyright Act ("DMCA"), which, among other things, created a safe harbor for certain "service providers." But a variety of issues have remained unclear. One issue of particular concern to the venture community has been the extent to which investors in DCIs can be held liable for activities ultimately deemed to be copyright infringement. A recent survey of angel investors, for example, reveals that many investors have become reluctant to invest in DCIs for fear of copyright liability.

The Ninth Circuit Court of Appeal recently came down on the side of investors in an opinion entitled UMG Recordings, Inc. v. Shelter Capital Partners LLC, 667 F.3d 1022 (9th Cir. 2011) ("Shelter Capital"). The Shelter Capital case centered on a video-sharing network company, Veoh Networks, Inc., in which venture firm Shelter Capital Partners and others (the "Investor Defendants") had invested. Music publisher UMG contended that Veoh infringed their copyrights by making infringing music available at their website, and that the Investor Defendants should be held secondarily liable for Veoh's primary copyright infringement.

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