UMG v Veoh: US appeal court sides with Veoh in appeal

Last week, the Ninth Circuit Court of Appeals released a revised opinion in the Veoh Networks case, UMG Recordings v Shelter Capital Partners No. 09—55902 (9^th.Cir. Marc. 14, 2013), superseding the earlier opinion, UMG Recordings v Shelter Capital Partners LLC, 101 U.S.P.Q.2d 1001 (9^th.Cir. 2011). The decision reviewed the scope of the DMCA hosting safe harbor finding it applicable on the facts of the case to the Veoh Networks video sharing site.

In the original decision the Ninth Circuit made three important rulings with respect to the scope of the DMCA hosting safe harbor:

• The safe harbor can cover use by service providers of an automated process for transcoding and making files accessible.
• Merely hosting copyrightable content with the general knowledge that one’s services could be used to share infringing material, is insufficient to meet the DMCA knowledge requirements that can lead to a loss of immunity if steps are not taken to takedown or disable access to infringing content.
• A service provider does not lose its eligibility for the hosting safe harbor merely because it has a general right and ability to remove materials from its systems.

Veoh Networks (Veoh) was the operator of a publicly accessible website that enabled users to share videos with other users. (It is now out of business.) It was sued by Universal Music Group (UMG) for direct, vicarious and contributory copyright infringement, and for inducing infringement. A California District dismissed the claims holding that Veoh was entitled to immunity under the DMCA.

On appeal, UMG contended Veoh was not entitled to the hosting exception for three reasons.

• First, that the alleged infringing activities did not fall within the wording of the safe harbor which covers “infringement of copyright by reason of the storage [of material] at the direction of a user,” a threshold requirement under § 512(c)(1).
• Second, that Veoh had actual knowledge of infringement, or was  “aware of facts or circumstances from which infringing activity [wa]s apparent” under § 512(c)(1)(A).
• Finally, that Veoh  “receive[d] a financial benefit directly attributable to infringing activity” that it had the right and ability to control under § 512(c)(1)(B).

On the facts, as found by the Court, when a video was uploaded to Veoh’s site, various automated processes took place. Veoh’s software automatically broke down the video files into smaller 256-kilobyte “chunks,” which facilitated making the video accessible to others. Veoh also automatically converted, or transcoded the video files into Flash 7, Flash 8 and MPEG-4 formats. It also automatically extracted metadata to help others locate the videos for viewing. Every video was also assigned a “permalink,” or web address, that uniquely identified the video and made it available to users. The videos could be accessed by streaming or downloading copies.

According to the Court

“Veoh has simply established a system whereby software automatically processes user-submitted content and recasts it in a format that is readily accessible to its users.” Id. at 1148. Veoh does not actively participate in or supervise file uploading, “[n]or does it preview or select the files before the upload is completed.” Id. Rather, this “automated process” for making files accessible “is initiated entirely at the volition of Veoh’s users.”

On the first issue, based on these factual findings, the Court held that Veoh had satisfied the threshold requirement to fall within the hosting exception that the infringement be “by reason of the storage at the direction of a user of material” residing on Veoh’s system.

On the second issue, UMG claimed that Veoh had general knowledge or awareness that it was hosting infringing videos that it did not remove and had therefore lost the benefit of the DMCA hosting safe harbor. Under § 512(c)(1)(A) of the DMCA, a service provider can receive safe harbor protection only if it  “(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing;”  “(ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent; or”  “(iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material.”

The Court rejected UMG’s claim holding 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 knowledge requirement. The Court also reached the same conclusion with regard to the §512(c)(1)(A)(ii) inquiry into whether a service provider is “aware of facts or circumstances from which infringing activity is apparent.”  The Court held that Veoh’s general knowledge that it hosted copyrightable material and that its services could be used for infringement was insufficient to constitute a red flag.

On the third issue, UMG had claimed that Veoh had a general right and ability to remove infringing materials from its services and that because it failed to do so it lost the DMCA safe harbor. Under the DMCA, a service provider is eligible for the §512(c) safe harbor only 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.” The Court again sided with Veoh, holding that the “right and ability to control” under § 512(c) “requires control over specific infringing activity the provider knows about. A service provider’s general right and ability to remove materials from its services is, alone, insufficient.” This holding was subject to the caveat that “a service provider cannot willfully bury its head in the sand to avoid obtaining such specific knowledge.”

The decision released last week reached the same result. However, the Court made a few amendments to take into account the decision of the Second Circuit in Viacom International, Inc v YouTube, Inc. 676 F.3d 19 (2nd.Cir. 2012), which was released after the first decision, but before the amended decision.

On the first issue, the Court again ruled that the wording of safe harbor which grants immunity for infringement “by reason of the storage at the direction of a user of material” residing on Veoh’s system is broad enough to include the storage and file conversion features made available at Veoh’s site.

On the second issue, the Court again ruled that specific knowledge of particular infringing activity is necessary. The Court ruled “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). The Court reached a similar conclusion on what constituted red flag knowledge. Following the decision of the Second Circuit in the Viacom case, the Court also ruled that the knowledge requirement can be met by willful blindness.

Last, the Court reviewed the safe harbor eligibility requirement that only gives the protection of the safe harbor to a service provider 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.” Like the second Circuit in the Viacom case, the Court rejected the argument that the common law vicarious liability standard should be applied to evaluate whether Veoh had sufficient “right and ability to control” infringing activity under § 512(c).

The Court held, however, following the Viacom case that the DMCA safe harbors including the hosting safe harbor does not apply if a service provider exerts substantial influence on the activities of users. Substantial influence” may include “high levels of control over activities of users”. It may also include purposeful conduct such as where the service provider induces users to infringe.