IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks -- May 23, 2013

Table of Contents

Capitol Records, Inc. v. MP3tunes, LLC, USDC, S.D. New York, May 14, 2013
 Click here for a copy of the full decision.

  • District court grants in part motions for reconsideration of order granting summary judgment in defendants' favor based on DMCA safe harbor protection against liability for contributory infringement liability, finding that, under Second Circuit’s ruling in Viacom v. YouTube, factual issues preclude summary judgment on issues of defendants’ willful blindness and red flag knowledge of copyright infringement.

Plaintiffs, EMI, Inc. and fourteen record companies and music publishers, brought copyright infringement claims against defendants, MP3Tunes, LLC, a defunct locker storage service for MP3 music files, and Michael Robertson, its CEO, alleging that MP3tunes purposefully blinded itself to its users’ infringement and failed to take any action against hundreds of users who sideloaded (transferred from users’ devices) copies of songs identified in plaintiffs’ takedown notices. Relying on the decision by the U.S. District Court for the Southern District of New York in Viacom v. YouTube, the court granted summary judgment in defendants’ favor, finding that defendants could claim safe harbor protection under the Digital Millennium Copyright Act for plaintiffs’ copyrighted works stored on their website and linked to another defendants’ websites. After the Second Circuit reversed portions of the district court’s holding in Viacom, holding, the parties moved for reconsideration of the district court’s order. The district court granted in part plaintiffs’ motion to reconsider, holding that factual issues precluded summary judgment on issues of willful blindness and red flag knowledge. The court also denied plaintiffs’ motion to revive their claim of copyright inducement, rejecting as unsupported by any authority plaintiffs’ argument the DMCA safe harbor cannot shelter a defendant because of the willful, bad-faith nature of an inducement claim, and defendant Robertson’s motion for reconsideration of holding denying summary judgment on plaintiffs’ copyright infringement claim related to album cover art, declining to find that the DMCA safe harbor applied to the algorithm through which the cover art was retrieved for display. The court also denied Robertson’s motion for summary judgment on plaintiffs’ vicarious liability claims against him personally, which motion had not previously been before the court, finding that a genuine issue of material fact existed as to whether Robertson benefited from the infringement under the common-law vicarious liability standard.

At the outset, the district court noted that reconsideration is an extraordinary remedy that requires an intervening change in controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice. In cases in which an intervening change of controlling law arguably exists, the court must consider whether the change justifies a departure from the law of the case and revision of a previous decision and must have a "clear conviction of error with respect to a point of law on which its previous decision was predicated."

Plaintiffs argued – and the district court agreed – that the Second Circuit’s decision in Viacom directs district courts to engage in explicit fact-finding on the issue of willful blindness before determining that a party is entitled to the protections of the DMCA safe harbors. In Viacom, the appellate court held that the willful blindness doctrine may be applied, in appropriate circumstances, to demonstrate knowledge or awareness of specific instances of infringement under the DMCA. In cases in which a service provider is aware of a high probability of the fact of infringement and consciously avoids confirming that fact, that provider is willfully blind to infringement and may lose the protections of the safe harbor. In the district court’s view, the Second Circuit in Viacom offered little guidance on how to reconcile the application of the doctrine of willful blindness and the DMCA's explicit repudiation of any affirmative duty of the service providers to monitor user content, favoring explicit fact-finding on the issue over a bright-line test. Citing to the district court’s decision on remand in Viacom, the court noted that, under appropriate circumstances, imputed knowledge of a willfully avoided fact may impose a duty to make further inquiries that a reasonable person would make. The court concluded that, based on internal and third-party communications in the record, a jury could reasonably find that defendants’ general awareness of infringement imposed a duty to make further inquiries into specific and identifiable instances of possible infringement, and vacated the portion of its order granting summary judgment to defendants on the issue of contributory infringement liability. The court rejected defendants' argument that it had already considered the issue of willful blindness when it found that MP3tunes "does not purposefully blind itself to its users' identities and activities.” This ruling was in the context of MP3tunes’ repeated infringer policy – which every service provider must implement to claim safe harbor protection under the DMCA – and was not an explicit consideration by the court of whether MP3tunes "engaged in a deliberate effort to avoid guilty knowledge" regarding the sideloaded content. In the court’s view, “MP3tunes' ability to identify repeat infringers does not mean that it never looked the other way when confronted by a high probability that certain conduct was infringing.”

The district court also reconsidered portions of its prior order granting summary judgment in favor of defendants based on plaintiffs’ failure to show that defendants had apparent or red flag knowledge of infringement of songs that were not the subject of DMCA-compliant takedown notices. A service provider may lose the protection of the DMCA safe harbors if it has either actual or apparent knowledge of infringing content. In the district court’s view, Viacom distinguishes between actual and red flag knowledge by applying an “exquisite 'subjective/objective' standard: 'the actual knowledge provision turns on whether the provider actually or "subjectively" knew of specific infringement, while the red flag provision turns on whether the provider was subjectively aware of facts that would have made the specific infringement "objectively" obvious to a reasonable person.'" Both actual and red flag knowledge "apply only to specific instances of infringement. Plaintiffs argued – and the court agreed – that Viacom established that red flag knowledge can be demonstrated by evidence other than formal takedown notices, such as internal or third-party communications regarding the content at issue. Based on internal documents in the record acknowledging likely infringement, the court reluctantly withdrew its prior grant of summary judgment to defendants on their lack of red flag knowledge. “Since something less than a formal takedown notice may now establish red flag knowledge and EMI offers communications acknowledging likely infringement, the issue of Defendants' red flag knowledge cannot be resolved on summary judgment. This Court reaches this conclusion reluctantly, given MP3tunes' salutary practice of sending instructions regarding DMCA-compliant takedown notices to third parties reporting possible infringement and the DMCA's disavowal of any duty on the part of service providers to monitor user content.”

The court denied plaintiffs’ motion to revive its claim of copyright inducement, based on the arguments that inducement is a separate cause of action, and that the DMCA safe harbor cannot shelter a defendant from that claim. Specifically, plaintiffs argued that the intentional nature of an inducement claim is incompatible with the basic premise of DMCA immunity because an inducement claim requires a showing of bad faith—that the defendant engaged in purposeful conduct that encouraged copyright infringement. The court noted that it was not aware of any authority supporting the proposition that the DMCA safe harbor is per se unavailable in an inducement claim, or that evidence of inducement would obviate the requirement to prove actual or red flag knowledge of infringement. Rather than adopt a categorical bar to the safe harbor, the court held that inducement conduct may be relevant to establish an exception of safe harbor protection, such as actual or apparent knowledge of infringement. Regardless of whether an inducement claim is a separate cause of action, or a form of contributory negligence, the court concluded that reviving the claim would be futile, since it had previously rejected as insufficient EMI’s proffered evidence on the claim, and plaintiffs’ argument that it had significant further evidence demonstrating defendants' intent to encourage infringement was not borne out by the record.

The district court also denied defendants’ motion for reconsideration of the court’s ruling denying summary judgment on plaintiffs’ copyright infringement claim related to album cover art. The court previously found that questions of fact precluded summary judgment because of "contradictory proof' on the use and storage of cover art by MP3Tunes, and the site’s direction of traffic to Amazon.com. under defendants’ licensing agreement with Amazon for the cover art. Defendants argued that Viacom precludes copyright infringement liability for cover art because it is protected by the DMCA safe harbor. The court disagreed, instructing that the DCMA safe harbor is only available when the infringement occurs by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider. In Viacom, the Second Circuit concluded that safe harbor protections extend to more than mere electronic storage lockers. Rather, its protections extend to software functions performed for the purpose of facilitating access to user-stored material. Under a licensing agreement with Amazon.com, MP3tunes’ Lockersync program allowed users to retrieve and display the corresponding album cover art from Amazon.com while playing the song in their MP3tunes lockers. While the court acknowledged that MP3tunes’ Lockersync retrieved and copied cover art solely in response to a user’s song selection, it concluded that the cover art itself was provided by Amazon.com, not other MPTtunes users and declined to rule that the DMCA safe harbor applied to the cover art algorithm.

The court also considered – and denied – defendant Roberston’s motion for summary judgment on the issue of his vicarious liability, which motion previously had not been before the court. Robertson argued that EMI is collaterally estopped from proving the financial benefit prong of its vicarious liability claim against him personally because the court found, in evaluating whether MP3tunes was eligible for the DMCA safe harbor, that MP3tunes neither received a direct financial benefit nor controlled the infringing activity. The court found that Robertson’s argument lacked merit because the standard applicable to the direct financial benefit prong of a common law vicarious liability claim is broader than the standard under the DMCA. In light of Robertson’s beneficial interest in SKL trust, which held a substantial interest in MP3tunes, the court found that a genuine issue of material fact existed as to whether Robertson benefited from the infringement under the common law vicarious liability standard.

Gibson Guitar Corp. v. Viacom International Inc., USDC, C.D. California, May 17, 2013
 Click here for a copy of the full decision.

  • District Court grants motion to dismiss amended complaint against Viacom asserting secondary trademark liability based on licensing relationship with co-defendant that marketed and sold products that allegedly infringed plaintiff’s trademarks, finding that control Viacom exercised as licensor under licensing agreement was not sufficient to support a claim of contributory or vicarious trademark infringement.

Plaintiff Gibson Guitar Corp. brought suit against defendants Viacom International, Inc., and John Hornby Skewes & Co., Ltd. (JHS), asserting Lanham Act claims and state law claims based on the alleged unauthorized use of Gibson’s trademarks in products made and sold by JHS under a licensing agreement with Viacom. Viacom owns the trademarks to the animated television character SpongeBob Square Pants, and JHS promotes and sells various products, musical instruments including a ukelele with a V-styled body, using the SpongeBob trademark. Gibson asserted ownership of several trademarks related to its Flying V guitar style, and alleged that the JHS SpongeBob SquarePants Flying V ukulele infringes its trademarks. The complaint alleged both contributory and vicarious trademark infringement against Viacom. The district court previously granted Viacom’s motion to dismiss, finding that Gibson’s original complaint failed to articulate which defendants allegedly performed which acts underlying plaintiff’s claims. (Read our summary of the district court’s decision here.) Gibson filed an amended complaint and Viacom again moved for dismissal for failure to state a claim. The district court again granted Viacom’s motion to dismiss for failure to state a claim, finding that the control Viacom that exercised as licensor under its licensing agreement with JHS was not sufficient to support a claim of either contributory or vicarious trademark infringement.

To be liable for contributory trademark infringement, a defendant must have either intentionally induce the primary infringer to infringe or continue to supply an infringing product to an infringer with knowledge that the infringer is mislabeling the particular product supplied. When the alleged direct infringer supplies a service rather than a product, under the second prong of this test, the court must find direct control and monitoring of the instrumentality used by a third party to infringe the plaintiff's mark. Acknowledging the relative difficulty of establishing contributory infringement, the district court rejected Gibson’s assertion that Viacom intentionally induced JHS’s alleged infringement by controlling and approving JHS’s products and receiving fees pursuant to their license agreement. In the court’s view, he licensing agreement, without more, could not establish sufficient control over JHS’s actions to constitute intentional inducement, and the amended complaint did not allege any other specific or affirmative acts intended by Viacom to induce or encourage infringement by JHS. Although it acknowledged that a certain amount of supervision and control is required of licensors under trademark law, the court observed that the legal requirement of control is intended to protect consumers from deceptive use of the licensor’s trademark. A licensor bears a duty to ensure that a licensed product conforms to the licensor’s own quality standards; its duty does not extend to ensuring that a licensed the product “breaks no other law, including trademark infringement.” To allow a claim to rest solely on a license agreement would, in the court’s view, “expose every licensor to claims of contributory infringement for every license” and “dilute the standard… by lowering the bar for intentional inducement.”

The court also held Viacom’s “actual or constructive” knowledge of the alleged infringement was irrelevant, because Viacom lacked the requisite degree of control to prevent continuing infringement. Under the second prong of the applicable contributory infringement test, Viacom did not control the “instrument of infringement.” While Viacom could bar the use of its own SpongeBob trademarks on products infringing on Gibson’s trademarks, JHS could still make infringing products without the Viacom trademark. Viacom’s licensing relationship was not sufficient to support contributory infringement liability, regardless of its alleged knowledge of JHS’s infringing use.

Likewise, the court found that Viacom could not be held vicariously liable for JHS’s actions. Vicarious liability for trademark infringement requires that the defendant and the infringer have an apparent or actual partnership, with the authority to bind one another in transactions with third parties, or exercise joint ownership or control over the infringing product. The court concluded that the license agreement did not give Viacom the joint control or ownership sufficient to make Viacom vicariously liable, as the licensor’s control was only indirect. Although plaintiff asserted that the full extent of Viacom’s relationship with JHS was unknown and would become clearer after discovery, the court saw no alleged facts that, taken as true, would give rise to vicarious liability. 

For more information, please contact Jonathan ZavinW. Allan Edmiston, David Grossman, Jonathan Neil StraussTal Dickstein or Meg Charendoff.

Westlaw decisions are reprinted with permission of Thomson/West. If you wish to check the currency of these cases, you may do so using KeyCite on Westlaw by visiting http://www.westlaw.com/.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

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Loeb & Loeb LLP on:

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