9th Cir. Supersedes Veoh Opinion in Light Of Viacom Decision, But Still Finds No Liability

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By Anandashankar Mazumdar  

Actual knowledge and “red flag” knowledge of infringement by users of an online service are two ways that a service provider can lose protection of a safe harbor, but both require knowledge of specific instances of infringement, not a generalized awareness that infringement might be taking place, the U.S. Court of Appeals for the Ninth Circuit ruled March 14, superseding a 2011 opinion for reconsideration in light of another federal appeals court's ruling on similar issues (UMG Recordings Inc. v. Shelter Capital Partners L.L.C., 9th Cir., No. 09-55902, 3/14/13).

In light of a decision by the U.S. Court of Appeals for the Second Circuit, the court expanded on its analysis of the questions of knowledge of infringement and qualifications for the safe harbor, but these considerations did not result in any change to the outcome of its prior ruling.

Again granting summary judgment in favor of the Veoh video-sharing service, the court also held that a service provider does not lose the protection of the safe harbor merely because it has the general ability to locate infringing material and the ability to terminate user accounts. The service provider must have “substantial influence” over user submissions in order for the safe harbor to be inapplicable, the court said.

Music Labels Sue Video-Sharing Service

Starting in September 2005, Veoh Networks operated a video-sharing website that featured user-contributed content as well as licensed content, such as television programs and motion pictures, produced by professional entertainment producers. Veoh has since gone through bankruptcy proceedings and has been acquired by Qlipso Media Networks Ltd.

The Universal Music Group is among the largest producers of recorded music and music videos. In 2007, UMG and several of its affiliated entities sued Veoh and several of its backers, including Shelter Capital Partners L.L.C. UMG's claims included direct and secondary copyright infringement. According to UMG, Veoh was liable for unauthorized uploading of its copyrighted works by Veoh's users.

Judge A. Howard Matz of the U.S. District Court for the Central District of California found that Veoh was protected by a safe harbor pursuant to the Digital Millennium Copyright Act of 1998, 17 U.S.C. §512(c), and granted summary judgment in Veoh's favor. UMG appealed.

District Court Rulings Affirmed.

In December 2001, the Ninth Circuit affirmed the district court's ruling. UMG Recordings Inc. v. Shelter Capital Partners L.L.C., 667 F.3d 1022, 101 U.S.P.Q.2d 1001 (9th Cir. 2011) (245 PTD, 12/21/11).

In so doing, the appeals court found that Veoh qualified for the safe harbor because it did not have actual knowledge of infringing content. The court rejected UMG's argument that, among other things, there were several circumstances that constituted a “red flag” such that Veoh should have known that infringing content was being posted.

Among the facts that the court rejected under the red flag theory were:

• tagging of user-supplied content with titles like “music videos”;

• purchasing of Google AdWords that included names of recording artists whose works are protected under copyright law;

• hosting of content that might have been related to content that had been taken down pursuant to DMCA notices; and

• communications from UMG that complained generally about infringing content, as opposed to notices complying with the DMCA that specifically identified infringing files.


The court also rejected the argument that Veoh had actual knowledge of infringement based on its hosting a “music” category. According to UMG, because at the time Veoh did not hold any licenses to post music from any major music producers, Veoh, must have known that the music category would be populated by users with infringing content.

More Briefing Ordered in Light of Viacom

In the meantime, however, Viacom International Inc. v. YouTube Inc., 676 F.3d 19, 103 U.S.P.Q.2d 1283 (2d Cir. 2012) (66 PTD, 4/6/12), upheld the “red flag” liability standard. Viacom recognized the possibility of liability under a theory of willful blindness.

When UMG petitioned the Ninth Circuit for panel rehearing and rehearing en banc, the appeals court requested additional briefing from the parties regarding Viacom's distinction between actual knowledge and red flag knowledge.

Having considered the additional briefing, the appeals court in its instant decision, withdrew the December 2011 opinion, granted UMG's petition for a panel rehearing, and denied as moot its petition for rehearing en banc. It also withdrew its prior opinion and issued a superseding opinion that included some new discussion.

District Court Again Affirmed

In the superseding opinion issued by the court, Judge Raymond C. Fisher again affirmed summary judgment in Veoh's favor, finding that the DMCA safe harbor was applicable.

According to the appeals court, Veoh's actions, as alleged by UMG, did not constitute “infringement of copyright by reason of the storage [of material] at the direction of a user.” Furthermore, the court found that there were no outstanding genuine questions of material fact regarding whether Veoh had actual knowledge of infringement or whether it was even “aware of facts or circumstances from which infringing activity [was] apparent.”

Finally, with respect to the claims of indirect infringement the court rejected UMG's assertion that Veoh had received any financial benefit from infringing activity over which it had the right and ability to control.

Red Flag Knowledge Also Must Be Specific

In the superseding opinion, the court included new commentary regarding the requirement of specific knowledge of infringement, with reference to Viacom.

“Of course, a service provider cannot willfully bury its head in the sand to avoid obtaining such specific knowledge,” the court said.

However, the evidence before the court did not support the allegation that Veoh had behaved in that manner. According to the court, the evidence was that when Veoh had acquired specific knowledge of infringement, it moved to remove such material in a prompt manner.

Even then, there was infringing content available on Veoh's service, but “the DMCA recognizes that service providers who do not locate and remove infringing materials they do not specifically know of should not suffer the loss of safe harbor protection.”

Furthermore, the court rejected UMG's argument that the district court had conflated consideration of actual knowledge with red-flag knowledge by determining that both kinds of knowledge applied to knowledge of specific instances of infringement and neither applied any generalized knowledge that infringing activity might be taking place.

Actual knowledge, for example, could take the form of a notice submitted by a copyright holder that complied with the DMCA notice-and-takedown provisions. Red-flag knowledge, on the other hand, could take the form of a message from a user indicating that a particular file was infringing, but not including all the information required for an official DMCA takedown notice.

The court quoted from Viacom's elaboration on this point:


The difference between actual and red flag knowledge is … between a subjective and an objective standard. In other words, 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 provisions do independent work, and both apply only to specific instances of infringement.


In neither case, the court said, had UMG brought forth evidence that created a material question regarding Veoh had been in possession of either kind of knowledge.

'Substantial Influence' Over Users Required

Turning to UMG's next argument, the court again rejected the claim that Veoh was not eligible for the safe harbor because it had the right and ability to control infringement occurring on its website.

The court said that the reference to “right and ability to control” in the DMCA safe harbor provision, 17 U.S.C. §512(c)(1)(B), was not coextensive with jurisprudence surrounding the law of vicarious liability.

Under Section 512(c), a service provider is protected if it “does not receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity.”

According to UMG, however, the court should apply A&M Records Inc. v. Napster Inc., 239 F.3d 1004, 57 U.S.P.Q.2d 1729 (9th Cir. 2001), which found that the online peer-to-peer file-sharing service Napster did indeed have a right and ability to control infringement by its users.

Napster found a right and ability to control infringement when the service provider had “the ability to locate infringing material” and the ability to “terminate users' access.” Thus, there would be no requirement that the service provider become aware of specific infringing content.

The court rejected the assertion that Section 512(c)(1)(B)'s reference to “right and ability to control” should be interpreted by this holding in Napster. Not only was Napster decided after the enactment of the DMCA, the court said, but there was also evidence of congressional intent in the form of legislative history that contradicted such an interpretation.

In its superseding opinion, the appeals court added a section stating that applying the Napster standard to “right and ability to control” would also create an internal inconsistency in the DMCA.

Thus, the court said, the DMCA required “something more” than mere general ability to locate infringing material and terminate users' access in order for a service provider to lose the protection of the safe harbor.

The court again quoted from Viacom, which referred to a finding of right and ability to control under Section 512(c)(1)(B) by Perfect 10 Inc. v. Cybernet Ventures Inc., 213 F. Supp. 2d 1146, 60 U.S.P.Q.2d 1879 (C.D. Cal. 2002).

Viacom said that Cybernet “found control where the service provider instituted a monitoring program by which user websites received 'detailed instructions regard[ing] issues of layout, appearance, and content.' The service provider also forbade certain types of content and refused access to users who failed to comply with its instructions.”

The court also cited to Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., 545 U.S. 913, 75 U.S.P.Q.2d 1001 (2005) (123 PTD, 6/28/05), which found inducement to infringement based on “purposeful, culpable expression and conduct” on the part of the service provider.

The court thus held that:

in order to have the “right and ability to control,” the service provider must “exert[ ] substantial influence on the activities of users.” … “Substantial influence” may include, as the Second Circuit suggested, high levels of control over activities of users, as in Cybernet. Or it may include purposeful conduct, as in Grokster. In this case, Veoh's interactions with and conduct toward its users did not rise to such a level.


Even though Veoh could remove infringing material on its website, and it was able to use filtering technology to identify some infringement, and it could have actively searched for infringement, the court said that this did not amount to substantial influence of the kind that would result in liability.

There was no evidence in the record that would create a material question on this issue, the court said, and thus it affirmed the district court's award of summary judgment.

The court's opinion was joined by Judges Harry Pregerson and Marsha S. Berzon.

UMG was represented by Steven A. Marenberg of Irell & Manella, Los Angeles. Shelter Capital was represented by Michale S. Elkin of Winston & Strawn, Los Angeles.


Text is available at http://www2.bloomberglaw.com/desktop/public/document/UMG_Recordings_Inc_et_al_v_Shelter_Capital_Partners_LLC_et_al_Doc/1.


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