The Ninth Circuit Clarifies Safe Harbor Rules in Veoh Victory

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Last week, the Ninth Circuit further clarified the scope of the Digital Millennium Copyright Act’s (“DMCA”) safe harbor provision for online content providers.  See UMG Recordings, Inc. v. Shelter Capital Partners LLC, No. 09-55902, 2013 WL 1092793 (9th Cir. Mar. 14, 2013).  Universal Music Group, America’s largest music corporation, filed a copyright infringement lawsuit against Veoh Networks Inc., an online video-sharing website, based on UMG copyrighted works that had been uploaded by users to Veoh’s website.  Veoh had prevailed on summary judgment by arguing that its system and policies brought it within one of the DMCA’s safe harbor provisions, immunizing it from UMG’s claims.  The three-judge panel affirmed the judgment in Veoh’s favor.

The DMCA safe harbor provision at issue in this case protects qualifying service providers from copyright infringement actions “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,” provided the service provider can meet certain criteria. 17 U.S.C. § 512(c).  In addition to implementing statutory notice and take down procedures, service providers seeking to fall under the safe harbor must show that they do not receive direct financial benefit from infringement while having the “right and ability to control” the activity in question, that they do not have actual knowledge of infringing works on their systems, and that they are unaware of facts and circumstances that would make knowledge of the infringement apparent (“red flag” knowledge).  Id.

Veoh’s service permits users to upload videos to be viewed on Veoh’s website.  Users are informed that they are not to upload unauthorized copyrighted works.  The record showed that Veoh offered a substantial amount of authorized material through a licensing deal with SonyBMG, and that Veoh acted promptly in removing infringing material when notified by copyright owners.  Veoh’s servers executed automated programs to store and process the uploaded videos for viewing in the Flash video format.

The Ninth Circuit had previously ruled that Veoh’s activities were protected by Section 512(c) in 2011.  UMG Recordings, Inc. v. Shelter Capital Partners LLC, 667 F.3d 1022 (9th Cir. 2011).  The panel subsequently withdrew its decision following the Second Circuit’s ruling in Viacom v. YouTube, which disagreed with the Ninth Circuit’s 2011 holding on the meaning of a service provider’s “right and ability to control” under the safe harbor test. See Viacom Int’l, Inc. v. YouTube, Inc., 676 F.3d 19, 36 (2d Cir. 2012).  The UMG case issued last week resolved this disagreement by adopting the Second Circuit’s test, and held that “right and ability to control” means that a service provider has a “substantial influence on the activities of users.”  The court again affirmed Veoh’s victory.

There were other notable aspects to the decision.  The Ninth Circuit found that Veoh did not have “red flag” knowledge of copyright infringement despite news articles about unauthorized works being available on Veoh.  The court concluded that this knowledge was too general, particularly in light of Veoh’s track record of informing users not to upload unauthorized works, its prompt removal of copyrighted material specifically identified to it, and its commercial licenses to host a substantial amount of copyrighted works.  UMG, 2013 WL 1092793 at *12.  In general the Ninth Circuit rejected the notion that Veoh affirmatively needed to police its website for unauthorized material, appearing to conclude instead that the notice-and-takedown provisions of the DMCA reflected the legislative intent that the copyright holders are better positioned than service providers to determine whether hosted material was unauthorized.  See id. at 18.

The court also extended the safe harbor to cover Veoh’s automated video-processing software that automatically transcoded uploaded videos to the Flash format.  The court concluded that these automated processes occurred “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,” rejecting the argument that the safe harbor was only meant to immunize cloud-based data storage.  This aspect of the decision means that the safe harbor may be available going forward to different types of online content providers.

Unfortunately for Veoh, the cost of this lawsuit appears to have been the primary cause of the company’s filing for bankruptcy in 2010.  Substantially all of its assets were sold, but the website remains operational.

Judge Raymond C. Fisher wrote the opinion and was joined on the panel by Judges Harry Pregerson and Marsha Berzon.