UMG Recordings v. Veoh Networks: Mere Hosting Not Enough to Comply with Actual Knowledge Requirement under DMCA

The Ninth Circuit has provided extensive guidance on one of the DMCA’s safe harbor statutes, § 512(c), in a case pitting a major music label versus an internet video-sharing website. In UMG Recordings, Inc., v. Veoh Networks, Inc., Nos. 09-55902, 09-56777, 10-55732, 2011 U.S. App. WL 6357788, (9th Cir. Dec. 20, 2011), the Court affirmed summary judgment in favor of Veoh, finding a lack of sufficient knowledge or control that would otherwise remove the safe harbor’s protections. In doing so, the Court rejected several attempts by UMG to narrow the scope of the safe harbor.

Background

Veoh is the operator of veoh.com, a Youtube-like video sharing website.  At veoh.com, the general public can watch videos for free, and registered users can login and upload videos.  Uploaded videos are copied to Veoh’s servers, processed automatically to make them viewable on the internet, and streamed to veoh.com’s visitors.  Id. at *1-2. 

To combat copyright infringement, Veoh complies with notice and takedown procedures.  In the past, Veoh has consistently removed infringing videos at the request of RIAA takedown notices.  Id. at *3.  Veoh also employs automatic filters that identify copies of videos previously taken down and automatically remove public access to those videos.  Veoh’s terms of use prohibit users from uploading infringing videos. Id.

In September 2007, UMG sued Veoh for direct, vicarious, and contributory infringement.  UMG also alleged that Veoh induced infringement.  In addition, UMG sued three of Veoh’s major investors, alleging secondary liability.  The Central District of California awarded summary judgment to Veoh and dismissed the claims against Veoh’s investors.  Veoh then moved for an award of costs and attorney’s fees, but the court declined to do so under § 505 and Rule 68, declaring that Veoh did not show that UMG’s suit was improper or in bad faith.  Id. at *3-4. 

On appeal to the Ninth Circuit, UMG appealed the summary judgment and dismissals.  Id. at *4.

Discussion

The general issue for the Court was whether Veoh qualified for the § 512(c) safe harbor under the Online Copyright Infringement Liability Limitation Act (“OCILLA”) in the Digital Millennium Copyright Act (“DMCA”).  Generally, the § 512(c) safe harbor allows service providers to avoid copyright infringement liability if the provider (1) lacks sufficient knowledge of the infringing activity; (2) quickly removes infringing material upon notification; and (3) does not receive a financial benefit from the infringing activity when the provider has the ability to control the activity.  Id. at *5.

“Storage at the direction of a user” Not Limited to Storage Alone

The first step in the Court’s § 512(c) analysis was whether Veoh met the threshold element of “by reason of the storage at the direction of a user.”  UMG argued that this phrase limited protection to service providers who provide storage for its users and no more, thus excluding Veoh, as its site goes beyond mere storage when users upload videos — the site copies videos from its users, processes them for internet viewing, stores them on its servers, and streams them to the public.  Id.  The Court found UMG’s narrow definition inconsistent with the statute itself, noting that, “the language of the statute recognized that one is unlikely to infringe a copyright by merely storing material that no one could access, and so includes activities that go beyond storage.” Id. at *8.  The Court ultimately held that by reason of the storage at the direction of a user “encompasses the access-facilitating processes that automatically occur when a user uploads a video to Veoh,” thus rejecting UMG’s appeal on this element. Id. at *6.

Court Demands Specific Knowledge

The second step of the Court’s analysis was whether Veoh had sufficient knowledge of infringing videos on its website but did not take them down, in violation of 512(c)(1)(C)’s takedown requirement.  However, UMG did not dispute the fact that once the RIAA issued a takedown notice to Veoh involving one of UMG’s videos, Veoh promptly removed the video or disabled access to that video.  Instead, UMG alleged that Veoh had knowledge of other infringing videos not mentioned in any RIAA takedown notice and subsequently did not remove them.

UMG tried to prove Veoh’s knowledge in several arguments, but the Court refused to follow any of UMG’s interpretations.  Instead, the Court repeatedly pointed to the copyright holder’s burden to alert service providers of infringement through the notice and takedown regime, to which UMG failed to ever utilize directly with Veoh.

Actual Knowledge Distinguished from General Knowledge

The statute mandates that service providers cannot have “actual knowledge” of infringing activity in order to qualify for the safe harbor.  UMG alleged that Veoh did have actual knowledge because (1) Veoh hosted a category of copyrightable content and (2) it had general knowledge that is services could be used to post infringing material. Id.at *7.  The Court did not accept this gloss as it would swallow the rule:

If merely hosting material that falls within a category of content capable of copyright protection, with the general knowledge that one’s services could be used to share unauthorized copies of copyrighted material, was sufficient to impute knowledge to service providers, the § 512(c) safe harbor would be rendered a dead letter: § 512(c) applies only to claims of copyright infringement, yet the fact that a service provider’s website contained copyrightable material would remove the service provider from § 512(c) eligibility.  Id. at *10.

Thus, the Court held that “merely hosting a category of copyrightable content, such as music videos, with the general knowledge that one’s services could be used to share infringing material, is insufficient to meet the actual knowledge requirement under § 512(c)(1)(A)(i).”  Id. at *11.

“Red Flag Test” Places Burden on Copyright Holders

The statute also requires that a service provider, “in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent.”  Id.  The Court cited CCBill’s “red flag test” in determining whether Veoh was aware of facts or circumstances that would point to infringing activity.  Id.  Under the “red flag test”, however, the burden of investigating infringement is not on the service provider.  Id.  Analogous to the court’s analysis above, the Court held that “Veoh’s general knowledge that it hosted copyrightable material and that its services could be used for infringement is insufficient to constitute a red flag.”  Id.

Google AdWords Do Not Constitute Knowledge

The Court declined to find actual or apparent knowledge on Veoh’s purchase of Google AdWords that matched names of UMG music artists.  For example, Veoh purchased AdWords like “Britney Spears”, a UMG artist, and thus UMG alleged that Veoh had knowledge that it hosted unlicensed Britney Spears videos, among others.  Id. at *12.  But the Court found that UMG does not own all of Britney Spears’ music videos, and thus some of her videos on veoh.com could be and actually were properly licensed by other labels, such as Sony BMG.  Id.

The Court also recognized that companies may buy AdWords that are merely related to its website, but do not describe the actual goods or services that appear on its website. Id.  For example, a grocery store may buy AdWords that match the names of its competitors in order to steer people looking for grocery stores to its own store.  Thus, the Court declined to attribute the purchase of AdWords to knowledge of infringement.

Takedown Notices Do Not Create Knowledge of Unmentioned Infringement

The Court also rejected UMG’s argument that upon receiving a RIAA takedown notice, Veoh had constructive knowledge of infringement because it could then search the site for other infringing videos by the same artist.  UMG also pointed to the fact that Veoh executives generally acknowledged the presence of unauthorized videos on its website.  However, the Court recognized that if these acts constituted knowledge, then the notice and takedown safe harbor would make little sense if the receipt of a statutorily-mandated takedown notice removed a service provider from the safe harbor.  Id. at *13.

In discussing proper notice, the Court distinguished between the procedures required of copyright holders versus third-parties.  The Court noted that copyright holders must meet the notification requirements of § 512(c) in order to provide sufficient notice to a service provider like Veoh.  Id.  However, the Court suggests that third-party users who alert Veoh to infringement may not have to adhere to the statutory standard in order to constitute sufficient notice.  Yet the Court notes that even if there is proper notice in either case, Veoh must fail to take down an infringing video in order to fall outside of the safe harbor. Id. at *13-14. 

Court Declines to Follow Napster’s Reading of Vicarious Liability

The Court next asked whether Veoh met the next element of the safe harbor, which demands that service providers like Veoh “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.”  UMG cited Napster for the argument that service providers have the “right and ability to control” when they have the “ability to locate infringing material” and “terminate users’ access.” Id. at *15.

However, the Court rejected Napster’s application to this part of § 512(c) and declared that a service provider cannot exercise such control over infringing material until it becomes aware of specific unauthorized material.  Id. at *17-18.  Thus, absent any other knowledge, a service provider does not have the ability to control until it receives notice about specific infringing content.  Even then, a finding of the “right and ability to control” alone is insufficient to exclude a service provider from the safe harbor – the provider must also fail to remove the infringing content.  Under the evidence showing that Veoh always removed videos when it received takedown notices, the Court concluded that Veoh was in compliance with this element and with § 512(c) as a whole, and thus affirmed summary judgment in favor of Veoh.

Court Upholds Dismissal of Claims against Veoh’s Investors

As for Veoh’s investors, the Court agreed with the district court that UMG did not meet the “site and facilities test”, where “providing the site and facilities for known infringing activity is sufficient to establish contributory liability.”  Id. at *18.  UMG argued that Veoh’s three major investors collectively supplied funding and majority control, and thus could direct Veoh’s spending.  Id. at *19.  However, the Court found that UMG made no allegation that the three investors agreed to operate as a unified entity with the ability to collectively control Veoh’s activities. Id.  The Court noted that this missing allegation was crucial because “without it would allow plaintiffs to sue any collection of directors making up 51 percent of the board on the theory that they constitute a majority, and therefore together they control the company.” Id.  Thus, the Court declared that UMG’s argument “falls apart” and affirmed the dismissal in favor of the investors.

Conclusion

The Ninth Circuit’s extensive discussion of the § 512(c) safe harbor in Veoh sends a strong message to copyright holders to be diligent in issuing takedown notices to service providers.  Conversely, service providers must take these notices very seriously in order to remain within the safe harbor’s protection.  As Veoh helps define several key aspects of § 512(c), content developers and service providers should contact experienced counsel to bring DMCA management up-to-date.

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Jeff Zuber

Ryan Smith

Also See:

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