Northwest Business Litigation

A safe harbor protects filesharing websites from claims of copyright infringement

The Ninth Circuit recently measured the scope of a safe harbor for service providers accused of copyright infringement, holding that it's broad enough to protect operators of filesharing websites. In UMG Recordings, Inc. v. Shelter Capital Partners LLC, the Ninth Circuit interpreted and clarified the part of the Digital Millenium Copyright Act that created the safe harbor, 17 U.S.C. § 512(c).

Defendant Veoh Networks maintained a website that allowed users to share videos with other users. To make the videos accessible, Veoh Networks automatically made four different copies of each uploaded file in different formats. Veoh Networks acknowledged that some users were able to download copyright-protected videos despite its efforts to prevent infringement. These efforts included blocking access to infringing material, requiring users to agree not to infringe on any copyright, filtering uploaded files for infringing videos, and terminating users who repeatedly violated the terms of use. Based on the acknowledged instances of unauthorized downloading, Universal Music Group (UMG) sued Veoh Networks for copyright infringement, and Veoh Networks asserted the service provider safe harbor as an affirmative defense.

UMG offered three reasons for denying to Veoh Networks safe harbor protection. First, UMG argued that the automatic copying of uploaded files to enable access fell outside the plain meaning of "infringement of copyright by reason of the storage [of material] at the direction of a user." (emphasis added). The Ninth Circuit disagreed, holding that the service provider safe harbor encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh Networks.

Second, UMG insisted that Veoh Networks had actual knowledge of infringement or was aware of facts from which infringing activity was apparent, in violation of specific provisions of the safe harbor. Again, the Ninth Circuit rebuffed UMG's argument, holding that a service provider must have specific knowledge of particular infringing activity to have actual knowledge. It is not enough that a service provider has general knowledge that its services could be used to share infringing material. With respect to the facts from which infringing activity was allegedly apparent, the Ninth Circuit held that the red flags were insufficient because a service provider has no duty to determine whether stored materials are actually infringing.

Finally, UMG argued that Veoh Networks was ineligible for the safe harbor because it received financial benefit directly attributable to the infringing activity, which it had the right and ability to control. The Ninth Circuit affirmed the District Court and held that the "right and ability to control" under the safe harbor requires control over specific infringing activity the service provider knows about.

With this opinion, the Ninth Circuit has reassured the operators of filesharing websites that the safe harbor in the Digital Millenium Copyright Act is real.

Ninth Circuit voids class action waiver in a consumer contract

Last week in Chalk v. T-Mobile USA, the Ninth Circuit Court of Appeals applied Oregon law to invalidate a contractual class action waiver.  The court held that, where individual damages from breach of a consumer contract are likely to be small, a waiver of the right to pursue a class action is substantively unconscionable and therefore unenforceable.

This case was filed in the federal district court in Oregon in 2006 by a plaintiff who bought a wireless internet plan and card from T-Mobile.  The service agreement provided for arbitration under the American Arbitration Association’s Wireless Industry Arbitration Rules.  The arbitration clause barred class-wide proceedings.  When the plaintiff could not get the wireless internet card to fit in her laptop, she commenced a putative class action against T-Mobile, alleging a violation of Oregon’s Unlawful Trade Practices Act (UTPA).  T-Mobile moved to compel arbitration pursuant to the service agreement.

In opposing the motion, the plaintiff argued that the bar on class-wide proceedings rendered the arbitration agreement unconscionable and therefore unenforceable. The district court rejected this argument and upheld the waiver.  The plaintiff also argued that the costs of arbitration would be prohibitively expensive and preclude her from vindicating her statutory rights.  The Court rejected this argument because the plaintiff did not present any evidence to support her cost estimates.

The district court did find merit in the plaintiff's argument that the arbitration agreement was unconscionable because it would prevent the arbitrator from awarding her attorney fees pursuant to the UTPA.  Instead of invalidating the arbitration agreement, however, the Court severed those provisions that would prevent the arbitrator from awarding attorney fees to the plaintiff.

On appeal, the Ninth Circuit relied on Vasquez-Lopez v. Beneficial Oregon, Inc., an Oregon Court of Appeals case decided after the district court issued its ruling.  Applying Vasquez-Lopez, the court held the class action waiver was substantively unconscionable and unenforceable under Oregon law due to its one-sided nature.  Class action waivers unfairly prevent individuals from vindicating their rights when the cost of pursuing each claim individually outweighs the potential relief, according to the court.  The court was careful to note that it did not hold that all class action waivers are necessarily unconscioniable.  Finally, because the arbitration agreement prohibited severance of the waiver, the court ruled the agreement as a whole unenforceable.

See our January 2007 coverage of the Vasquez-Lopez case here.