Significant Developments in U.S. and European Copyright Law: 2019 Annual Update
March 6, 2020, Covington Alert
Below are the selections of Covington’s Copyright Practice Group for the “Top Ten” most significant and interesting developments in U.S. and European copyright law during 2019.
Copyrights registered when application granted, not when submitted.
In Fourth Estate Public Benefit Corp. v. Wall-Street.com, a unanimous Supreme Court held that “registration” of a copyright occurs when the Register of Copyrights grants the registration application—not, as some Courts of Appeals had held, when the Copyright Office receives the application.
Fourth Estate produced online articles, which it licensed to Wall-Street under an agreement. That agreement required Wall-Street to remove all of Fourth Estate’s content from its website before canceling the agreement. Wall-Street canceled the agreement without removing that content, and Fourth Estate sued for copyright infringement. Fourth Estate had applied to register its copyrights in those articles, but the Copyright Office had not yet acted on those applications. (It eventually denied them).
Under the Copyright Act, “no civil action for infringement of the copyright in any United States work shall be instituted until . . . registration of the copyright claim has been made in accordance with this title.” 17 U.S.C. section 411(a). The district court dismissed Fourth Estate’s complaint, reasoning that registration occurs when the Register actually registers a copyright, and the Eleventh Circuit affirmed. Other circuits, however, had held that registration occurs when the Copyright Office receives a registration application.
The Supreme Court took the case to resolve the circuit split, and affirmed. (Covington submitted an amicus brief in the Supreme Court.) The overarching conclusion of Justice Ginsburg’s opinion for the Court was that when the Act uses the word “registration,” it is referring to actions of the Office, not of applicants.
The Court observed that other provisions in Section 411(a) would become meaningless if “registration” occurred when the Office received the application. Section 411(a) also contains an exception that permits an infringement suit when the “deposit, application, and fee . . . have been delivered to the Copyright Office . . . and registration has been refused” and the Register receives notice of the suit. The Court concluded that “registration” cannot have two different meanings in consecutive sentences, and that the exception would be superfluous if a copyright holder could sue immediately after applying for registration in any case. Other language in Section 411(a) permits the Register to become a party to an infringement action with respect to the registrability of the copyright at issue. And the Court held that it would make no sense to allow such participation if an infringement suit could be filed and resolved before the Register took any action on an application.
The Court also pointed to other language in the Act “confirm[ing] that application is discrete from, and precedes, registration.” This included a provision stating that the “effective date” of registration is the date of a proper submission to the Office—a provision that would be unnecessary if submission was itself registration.
The Court thus rejected Fourth Estate’s arguments that “registration” in Section 411(a)’s registration requirement referred to application. It also dismissed policy-based arguments that its reading would deprive copyright holders of their rights. First, the Court pointed out that owners of certain works, such as live broadcasts, enjoyed explicit exceptions to the general rule. Second, the Court observed that the seven-month average application processing time left little danger of the three-year statute of limitations running. It admitted that “the statutory scheme has not worked as Congress likely envisioned,” with the Office’s staffing and budgetary shortfalls creating these delays. But the Court left that issue for Congress to address.
“Full costs” in Copyright Act limited to costs specified in statute.
Unanimous again, in Rimini Street v. Oracle USA the Supreme Court held that the Copyright Act only permits courts to award the six types of costs specified in the U.S. Code, overturning a $12.8 million award including various other litigation expenses.
Oracle develops, licenses, and offers maintenance support services for various business software programs. Rimini offered third-party support services for Oracle software in competition with Oracle. Oracle sued Rimini, alleging copyright infringement in Oracle’s software and support materials, and won. The jury awarded $50 million in damages, and the district court awarded $28.5 million in attorney’s fees, $3.4 million in costs, and $12.8 million in litigation expenses. Those expenses included expert witness fees, e-discovery costs, and jury consulting fees.
Many subject-specific federal statutes authorize courts to award “costs” to the prevailing party. “Costs” are defined as six specific categories of expenses by a general costs statute. Case law has established that additional categories of expenses may only be awarded if expressly authorized by a specific statute. The Copyright Act states that the prevailing party may recover “full costs.” According to Ninth Circuit precedent, that language permits awards of costs beyond the six defined categories. The district court therefore awarded the $12.8 million in expenses, which did not fall within those categories, and the Ninth Circuit affirmed.
The Supreme Court, in an opinion by Justice Kavanaugh, reversed. It reasoned that the Act does not “explicitly” authorize litigation expenses outside the six categories, as its precedents require. The award was therefore improper. The Court rejected Oracle’s argument that “full” expanded the “costs” that could be awarded, reasoning that “‘full’ is a term of quantity or amount . . . that means “the complete measure of the noun it modifies” and “does not alter the meaning of the word ‘costs.’” So “full costs” just means all of the “costs” courts are generally authorized to award.
First Amendment challenge to DMCA survives—but is narrowed.
A D.C. federal court allowed two computer scientists to move forward with claims that the Digital Millennium Copyright Act (DMCA) infringes their First Amendment rights in Green v. DOJ, but dismissed their claim that the law is facially unconstitutional.
The DMCA was passed in 1998 to address growing concerns about the ease with which digital works can be copied and distributed. One provision prohibits circumvention of means of controlling access to copyrighted works, such as keys and encryption, which the statute calls technological protection measures (“TPMs”). The DMCA also prohibits distributing means of circumventing TPMs. These provisions are referred to as “anti-circumvention” and “anti-trafficking,” respectively.
The DMCA itself contains several exceptions to its anti-circumvention and anti-trafficking provisions. Additionally, the statute charges the Library of Congress, with the assistance of the Copyright Office and Department of Commerce, with a triennial rulemaking to create new exemptions for particular uses.
Matthew Green is a computer science professor who studies “the security of electronic systems” and sought to include information on how to circumvent such systems in a book he was drafting. He requested certain DMCA exemptions for security research through the rulemaking process, but claimed that the final relevant rules did not cover all of his proposed research. Andrew Huang runs several technology businesses, including Alphamax. Huang and Alphamax were developing NeTVCR, a digital video editor. They wished to add certain features and uses to their program. But in order to do so, NeTVCR would need to circumvent TPMs related to high-definition multimedia interface (“HDMI”) signals. Huang and Alphamax had not proposed any exemptions, but claimed that certain unadopted exemptions proposed by others would have protected their project.
Fearing litigation and prosecution if they proceeded as planned, Green, Huang, and Alphamax brought a pre-enforcement challenge to the DMCA. They claimed that its anti-circumvention and anti-trafficking provisions are facially overbroad, unconstitutional prior restraints on protected speech, and unconstitutional as applied to their specific proposed research and development. They also claimed that the Library of Congress’s failure to adopt their desired exemptions violated the First Amendment and the Administrative Procedure Act’s requirements for rulemaking. The government moved to dismiss on a number of grounds. The court granted that motion in part and denied in part.
The court first held that the plaintiffs had standing to challenge the DMCA. They sufficiently alleged that the DMCA prohibited their proposed activities, and that there was a credible threat of prosecution under the lesser showing required for pre-enforcement challenges based on First Amendment claims. The court also found that the plaintiffs sufficiently alleged that their proposed activities were protected by the First Amendment. The government argued that not every law restricting the flow of information implicates First Amendment rights, but the court observed that in the context of the case, the DMCA burdened the “use and dissemination of computer code,” which is speech and information.
Turning to the substance of the claims, the court dismissed the plaintiffs’ facial challenges to the anti-circumvention and anti-trafficking provisions. For a law to be unconstitutionally overbroad in the First Amendment context, it must inhibit the protected speech of parties not before the court. But the court found that the plaintiffs failed to allege any such impact on third parties distinct from the harms alleged in connection with the as-applied claim. The court also dismissed the claim that the DMCA’s rulemaking process amounted to an unconstitutional prior restraint and speech-licensing scheme, i.e., censorship. It found that the plaintiffs did not allege any facts indicating that exemptions were granted based on the content or viewpoint of those seeking those exemptions.
But the plaintiffs’ claims that the anti-circumvention and anti-trafficking provisions were unconstitutional as applied to their own proposed activities survived. The court followed an influential DMCA case, Universal City Studios v. Corley, in determining that the DMCA’s provisions were content-neutral because they targeted the “functional, non-speech capacity of code to communicate messages to a computer,” which is “not speech,” and only incidentally burdened code’s capacity to express a message to a human—its speech component. The court reasoned that while the DMCA contains categorical distinctions on its face, those distinctions are not based on the content of expressive activity.
A content-neutral regulation of speech is subject to intermediate scrutiny, meaning that it is constitutional if it (1) furthers a substantial government interest (2) unrelated to the suppression of free expression (3) without burdening substantially more speech than necessary. The parties agreed that the DMCA satisfied the first two requirements, but disputed the third. The court found that the government failed to carry its burden, providing no support for the anti-circumvention provision at all and offering only unsupported allegations that plaintiffs’ proposed dissemination of information would undermine the effectiveness of access controls. The court therefore denied the motion to dismiss this claim.
The court also dismissed the plaintiffs’ claim that the DMCA rulemaking violated the Administrative Procedure Act (“APA”). It reasoned that the Library of Congress, which is responsible for that rulemaking, was not subject to the APA, and that Congress did not explicitly make the APA applicable to the DMCA.
Although the plaintiffs’ broadest claims, attempting to invalidate provisions of the DMCA wholesale were dismissed, their as-applied claims are still a potentially significant challenge to the breadth of the statutory scheme.
Good faith does not support fair use.
In April, the Fourth Circuit reversed a controversial finding of fair used based on a defendant’s good faith in Brammer v. Violent Hues Productions.
Brammer, a photographer, published photographs to his Flickr page. One such photo was of a street in Washington, D.C.’s Adams Morgan neighborhood, and had a caption that included the phrase “© All rights reserved.” Brammer had sold prints of this photo for $200 – $300 and licensed it as a stock image for around $1,000.
Violent Hues was promoting the Northern Virginia International Film Festival on its website. That website included a page listing tourist destinations in the greater Washington, D.C. area. Fernando Mico, Violent Hues’s owner, found Brammer’s photo through a Google Images search, cropped it “for stylistic reasons,” and added it to the tourism page. Mico stated that he saw no indication that the photo was copyrighted.
Brammer discovered the use and requested compensation. Violent Hues removed the photo but did not provide compensation, and Brammer sued. The district court granted Violent Hues summary judgment, determining that its use was fair in part because its good faith tipped the balance of the first factor, the purpose and character of the use, in Violent Hues’s favor. Brammer appealed, and the Fourth Circuit reversed and remanded. (Covington submitted an amicus brief in the Fourth Circuit.)
Addressing the fair use factors in turn, the court found that they did not weigh in favor of Violent Hues. Regarding the first factor, the court found Violent Hues’s use was not transformative. The court delineated two general categories of transformative works: “new information-sorting technologies” and scholarly, journalistic, and other documentary uses or historic preservation. Violent Hues simply cropped the photo and used it “for its content,” without creating a new function or meaning. The court also observed that Violent Hues’s use was in advertising a for-profit festival, a commercial use, and that it was “exploitative” because others usually pay for the same uses—here, a license for a stock photo. The first factor therefore weighed against fair use.
The court rejected Violent Hues’s argument, successful below, that the first factor weighed in favor of fair use because of Violent Hues’s good faith. The court observed that copyright infringement is a strict liability offense that does not require any culpable state of mind, and the defense of fair use presumes the defendant’s good faith. Many courts thus consider evidence of bad faith, to weigh against a finding of fair use. But this does not mean that good faith tips the balance in the other direction; to the contrary, the Fourth Circuit held good faith will never support a finding of fair use. Moreover, the court found that Violent Hues had not offered any evidence of its good faith, because Mico’s belief that the photo was not copyrighted did not appear reasonable.
The court also found that each of the other factors weighed against a finding of fair use. For the second factor, the nature of the work, photos are creative, aesthetic works entitled to “thick” copyright protection, and the court found no reason to conclude that it was entitled to lesser protection because it had been published. Addressing the third factor, the amount and substantiality used, the court found that Violent Hues had cropped only negative space and retained “the most expressive features.” And turning to the fourth factor, the effect on the market, the court observed that if Violent Hues’s conduct was widespread, it would destroy the market for licenses of Brammer’s photo.
Considering the factors together, the court found that allowing Violent Hues’s fair use defense “would frustrate copyright’s central goal” and disincentivize commercial photography. It noted that many internet and social media platforms make the sharing, and thus copying, of content trivially simple. But the court observed that Violent Hues was not commenting on or engaging with the photo—just using it to promote its own commercial goal. The court therefore reversed the finding of fair use and remanded.
European Union introduces copyright reform for the “digital single market”
In April 2019, the EU adopted new copyright legislation—Directive 2019/790 on “copyright and related rights in the Digital Single Market” (“DSM Copyright Directive”) —designed to update certain elements of EU copyright law in line with the digital age.
Many of the changes introduced by the DSM Copyright Directive seek to strengthen the protections afforded to rightholders, particularly when third parties facilitate access to their works online. The Directive also introduces certain new exceptions to copyright (unlike in the U.S., EU copyright law does not recognize a general “fair use” defense; instead, it provides a series of explicit exceptions to rightholders’ exclusive rights). This update focuses on some of the more high-profile changes brought in by the DSM Copyright Directive.
(1) Exceptions for acts of “text and data mining” (“TDM”): Articles 3 and 4 of the DSM Copyright Directive introduce exceptions covering certain uses of copyright-protected works for the purpose of carrying out TDM—i.e., automated analytical techniques commonly associated with machine-learning (“ML”) and artificial intelligence (“AI”).
While Article 3 of the Directive provides an exception for research organizations and cultural heritage institutions only, Article 4 applies broadly to anyone carrying out TDM, including for-profit companies. Article 4 thus provides a degree of legal certainty for commercial entities that wish to use copyright-protected materials (including online content) to conduct AI and ML activities. That said, the exception sets out conditions that companies must satisfy—for instance, entities may only benefit from the exception with respect to “lawfully accessible” works, and it does not apply where a rightholder has expressly reserved its rights “in an appropriate manner.”
(2) Rights for publishers of press publications for online use of their works: Article 15 bestows on press publishers (e.g., newspapers and magazines) new rights under copyright law, enabling them to prevent online service providers, such as news aggregators and social media platforms, from making “online use” of their press publications without first obtaining a license. These new rights are intended to remedy the perceived harm suffered by press publishers when online service providers provide access to their works without a license.
Article 15 builds in some exceptions to these new rights, however. For example, individuals may continue making online uses of press publications for private or non-commercial purposes; the new rights also do not apply to acts of hyperlinking; and third parties may continue to use press publications online when their use is limited to taking “individual words or very short extracts” from a press publication. It is unclear, in some cases, how these exceptions will operate in practice, but their scope may become clearer as EU Member States start to implement Article 15 into national law.
(3) Online platforms that host copyright-protected content uploaded by users: Article 17, arguably the most controversial of all provisions in the DSM Copyright Directive, provides that online platforms that host “large amounts” of copyright-protected works uploaded by their users are liable for primary acts of copyright infringement merely by giving the public access to those user-uploaded works. This provision is widely viewed as targeting video-sharing platforms and social media sites in particular.
The online platforms in question face copyright liability unless they (i) make “best efforts” to obtain a license or other authorization from rightholders; (ii) make “best efforts” to “ensure the unavailability of specific works . . . for which the rightholders have provided the [online platform] with the relevant and necessary information”; and (iii) act expeditiously to remove content on receipt of “sufficiently substantiated” notice from a rightholder and prevent its future upload. There are concerns that courts might interpret the obligations in (ii) and (iii) to require online platforms to engage in filtering of content, including to ensure that content that they have previously taken offline stays offline.
Importantly, Article 17 also suspends operation of the safe harbors from liability set out in Directive 2000/31/EC (the “Ecommerce Directive”). That Directive provides limitations on liability for online platforms when they have no “actual knowledge” of illegal activity taking place on their services. The Ecommerce Directive continues to apply to cases falling outside Article 17, however.
Next steps: EU Member States have until June 2021 to implement the Directive into national law. It remains to be seen whether Member States will vary in how they implement and interpret these provisions. Any such divergence could make it more challenging for companies to comply with the Directive across the EU.
No evidence another third-party vendor copied Oracle’s software.
A California federal court granted summary judgment for a provider of third-party support services for Oracle software in Oracle America v. Hewlett Packard Enterprise, finding that Oracle failed to present any evidence of unauthorized copying.
Oracle develops and owns all the copyrights in its Solaris enterprise software. Oracle grants customers non-exclusive and non-transferable licenses to Solaris, and separately sells support services for the software. Support service customers receive a license to download and install patches on each server for which they have paid a fee, and the license prohibits installing the patches on other servers. Some customers retain third-party support services, such as HPE, to take care of server updates and patches. In these situations, the third party service purchases the support license from Oracle.
Terix was another third-party service that both served its own customers and subcontracted with HPE. Oracle sued Terix, alleging that it had installed Solaris patches onto servers not covered by a support contract. That case settled, with the parties stipulating to a judgment of copyright infringement.
Oracle then sued HPE alleging that HPE knew of and facilitated Terix’s conduct, that HPE installed patches that Terix had unlawfully downloaded, and that HPE itself installed patches on non-covered servers. The parties filed cross-motions for summary judgment, and the court granted HPE’s motion and denied Oracle’s.
The court first held that the statute of limitations had run on some of Oracle’s claims. The clock starts ticking when a plaintiff has actual knowledge of, or reasonably could discover, copyright infringement. But if the plaintiff can show that the defendant successfully used fraudulent means to keep the plaintiff unaware of the infringement, the clock is paused. The parties had agreed to put all as-yet unexpired statutes of limitation on hold on May 6, 2015. Copyright infringement has a three-year statute of limitations. HPE introduced evidence that Oracle had actual knowledge of or strongly suspected Terix’s infringement prior to May 6, 2012, and Oracle was unable to show that HPE or Terix had successfully concealed the infringement. The court therefore dismissed Oracle’s pre-May 6, 2012 infringement claims.
The court then found that Oracle failed to present any evidence that HPE directly infringed the Solaris copyrights by installing patches impermissibly downloaded by Terix on non-covered servers. Oracle did show that HPE stored a number of Solaris patches received from Terix for future use, but not that HPE itself, rather than a customer, installed the patches. In fact, Oracle had no evidence that the patches were actually installed at all, only that HPE and Terix transferred them to customers. Nor did Oracle show when the patches were downloaded—and because the support license permits customers to install, but not download, patches after the license has expired, download timing was essential to establish violation of the license. The court thus dismissed Oracle’s direct infringement claims.
Oracle’s contributory and vicarious infringement claims met the same fate. Both such claims require direct infringement by another party. Without any evidence that the patches were actually installed, no jury could find direct infringement. The court also dismissed a number of state law claims.
The decision is a stark reversal of Oracle’s fortunes in its pursuit of third-party support service providers. Oracle had won hundreds of millions of dollars in damages and settlement payments in previous cases, including those against Rimini Street and Terix.
Liability for service streaming decrypted DVDs.
In March, a California federal court ruled in Disney Enterprises v. VidAngel that a streaming service offering family-friendly versions of films infringed film studios’ copyrights and violated the Digital Millennium Copyright Act (DMCA).
VidAngel purchased and decrypted physical DVDs, then uploaded a digital copy of the contained film or television show. It then “sold” the DVDs to users—but instead of mailing these DVDs out, VidAngel retained physical possession. The “owner” of the DVD then specified content to be filtered from the work—a character, audio, or even the credits—and VidAngel streamed a filtered version of the digital copy to the user. This would, for example, allow parents to stream a version of a movie with profane language deleted. Finally, the owner “sold” the DVD back, with the final cost of one day of ownership only $1-2—effectively an affordable online rental service.
Disney, Lucasfilm, 20th Century Fox, and Warner Brothers sued to halt the streaming of their copyrighted works, claiming infringement of the exclusive rights of reproduction and public performance, as well as circumvention of encryption that controlled access to those works, in violation of the DMCA.
The court granted a preliminary injunction, rejecting VidAngel’s argument that its copying and circumvention were permissible under the Family Movie Act, as well as finding that the studios were likely to succeed on the merits and VidAngel unlikely to establish fair use. The Ninth Circuit affirmed. Back in the district court, the studios moved for summary judgment on VidAngel’s liability with respect to four representative films, and the court granted the motion.
Because VidAngel expressly admitted that it circumvented the studios’ encryption methods, the court did not need long to find that VidAngel had violated the DMCA. The court rejected VidAngel’s defenses. VidAngel argued that it made a fair use of the works and that its conduct was protected by the First Amendment. But the court observed that there is no fair use defense to the DMCA’s anti-circumvention provisions because they concern access, not use.
Turning to infringement, the court again found that VidAngel had admitted key facts such that it was “undisputed” that it copied the studios’ films, despite attempts to frame its conduct otherwise. In fact, the court cited multiple instances in which VidAngel flat-out stated that it “copied” works. The court also found it undisputed that VidAngel publicly performed the films by streaming them to its customers. VidAngel again attempted to resurrect arguments that had failed at the preliminary injunction stage, but the court again rejected them. VidAngel claimed that since the customers “owned” the discs, the performances were private, but the court pointed out that VidAngel in fact streamed a copy from its servers, not from the “owned” disc.
VidAngel again argued that the Family Movie Act permitted streaming filtered versions of the films, but the court again observed that only filtered versions created from “authorized copies” are exempted from infringement under that Act. Because VidAngel streamed from its unauthorized server copies, the exemption could not apply.
Finally, the court found no fair use. VidAngel’s use was commercial and it did not add any new purpose or character to the works by filtering objectionable content. The expressive nature of the films and VidAngel’s copying the entire works also weighed against fair use. Turning to impact on the market, the court held that where the use is commercial and non-transformative, market harm may be presumed. And even if VidAngel could introduce evidence that it did not harm the market, that would not make its use fair in light of the court’s findings on the character of the use.
Damages for Zillow’s infringement set for reevaluation, based on number of infringed works.
In March, the Ninth Circuit sent VHT v. Zillow back to the district court to determine whether Zillow infringed the copyrights in nearly four thousand individual photographs or just one compilation of those photographs—which could drastically reduce a $4 million damages award.
Zillow is an online real estate marketplace where users can list and view properties for sale and rental. Many listings feature photographs of the properties, and thousands of these photographs were taken by VHT, the largest professional real estate photography studio in the U.S. Brokers and agents hire VHT to photograph properties, and VHT provides the photographs under licenses that generally permit use in relation to marketing the properties for sale.
Users, including these brokers, uploaded VHT photographs to Zillow’s website, and Zillow used the photographs in connection with two different features. First, the photos appeared on the “Listing Platform,” Zillow’s core feature, which lists information about and photographs of “most homes in America.” Second, the VHT photos appeared on Zillow’s “Digs” feature, which profiles attractively-designed rooms and is geared towards remodeling. Zillow selected and tagged certain Digs photos with information such as color, room type, and cost, and Digs users could search those photos using these tags. Some Digs photos are not tagged and are thus not searchable, while others are hosted on Zillow’s website but not even displayed to users.
VHT sued Zillow for direct and secondary copyright infringement, alleging that the use of its photos in connection with both of these features exceeded the scope of the licenses it grants to brokers and agents. The district court granted partial summary judgment, holding that Zillow did not directly infringe by using the photographs on the Listing Platform, but that displayed, searchable Digs photographs did infringe. A jury found Zillow liable for direct and secondary infringement on non-searchable Digs photos, but the district court granted judgment notwithstanding the verdict for Zillow on these issues. After upholding the jury’s finding that Zillow’s infringement was willful, the court also reduced the damages award from $8.27 million to $4 million.
The parties cross-appealed. The Ninth Circuit affirmed each of the rulings on liability, but reversed and remanded issues relating to damages. At the outset, the panel noted that in order to prove direct infringement, VHT had to satisfy the volitional conduct requirement: VHT had to show that Zillow itself selected material to be copied or instigated that copying, rather than storing or transmitting copies through an automated system at the direction of others.
VHT was only able to show that Zillow exercised such control over about four thousand Digs photographs that Zillow both selected and tagged for searchability, and also actually displayed—i.e., copied. And the panel rejected Zillow’s fair use defense, primarily because it found that the searchability function was not transformative. But other Digs images were tagged but not actually displayed—not copied—or uploaded by users to personal bulletin boards (not controlled by Zillow) so Zillow did not directly infringe VHT’s rights in these images.
Further, VHT failed to show that Zillow exercised sufficient control over any of the Listing Platform photographs. Those photographs are uploaded to Zillow through user-generated feeds. In turn, users providing content for feeds must attest that they have necessary rights in the content and that Zillow’s use of the content will not violate any other party’s rights. And the panel found that Zillow in fact “actively designed” the system that selected photographs for the Listing Platform “to avoid and eliminate copyright infringement,” and responded diligently to takedown requests (including VHT’s). For similar reasons, the panel affirmed that Zillow was not liable for secondary infringement.
But the panel disagreed with the district court’s damages analysis and on the related issue of willfulness. First, it observed that the jury and district court failed to explicitly consider whether VHT’s photographs were part of a compilation—a single work—rather than being individual works. If so, VHT would be limited to a single instance of statutory damages, rather than nearly four thousand. This would cap its damages at $30,000, down from the $4 million it had been awarded. VHT did register thousands of its photographs as compilations, rather than individually, leaving the possibility open but not determined, as the registration label is not controlling. The panel remanded on this significant question.
Second, noting its findings as to Zillow’s systems and procedures for vetting rights in user-submitted content, the panel found that Zillow was not on actual notice or reckless as to the risk of infringement. As a result, the panel held that Zillow’s infringement could not have been willful, and reversed the district court and vacated the jury’s finding on this point.
ISP owes record labels $1 billion for secondary infringement by network users.
In December, a Virginia federal jury awarded $1 billion to a number of music labels who sued an internet service provider for allowing its users to infringe thousands of the labels’ works in Sony Music Entertainment v. Cox Enterprises.
Cox is a major internet service provider, and in 2014 the publishing company BMG sued for infringement of about 1,000 songs committed by Cox users. Under the Digital Milennium Copyright Act, ISPs that adhere to certain procedures for combatting such infringement, including a notice and takedown process, are immune from this kind of secondary liability. But those labels argued that Cox had failed to “reasonably implement” any policies to terminate repeat infringers as the statute requires, and after discovery, a judge agreed. After trial, a jury awarded $25 million against Cox. The Fourth Circuit vacated the award because of improper jury instructions, but agreed that Cox was not entitled to protection under the DMCA safe harbor provisions because it made efforts to avoid terminating subscribers who repeatedly infringed.
A larger group of labels and publishers including Sony, Universal, and Warner then sued Cox for users’ alleged repeated infringements of over 10,000 separate works. The labels pointed, among other arguments, to the findings in BMG’s suit in arguing that Cox willfully turned a blind eye to its subscribers’ repeated infringement in order to bolster its profits. After two days of deliberations, the jury awarded the labels precisely $1 billion in statutory damages. Cox stated that it would appeal.
The outcomes in these cases turned heavily on evidence that Cox deliberately avoided terminating repeat infringers. But rightsholders have begun to employ similar methods to pursue large-scale infringement. Notably, Sony, Universal, and Warner (represented by Covington) have sued other ISPs under a similar theory in two pending federal cases.
First sale doctrine does not apply to the sale of ebooks in the EU.
In December 2019, the EU Court of Justice (“CJEU”), in Nederlands Uitgeversverbond v Tom Kabinet Internet BV, Case C-263/18 (“Tom Kabinet”), ruled on whether the sale of ebooks, via download, constitutes a “communication to the public” or a “distribution to the public” under EU copyright law.
The communication to the public right in EU law is not subject to rules on exhaustion of copyright; conversely, the distribution to the public of a copyright-protected work exhausts copyright in a work following “the first sale or other transfer of ownership in the [EU] of that object . . . by the rightholder or with his consent” (Article 4(2) of EU Directive 2001/29 on harmonization of copyright in the information society (the “InfoSoc Directive”)). The CJEU determined that the sale of ebooks falls into the former category. As such, the defendant in the case, who ran an online platform for the digital resale of “second-hand” ebooks (ebooks purchased by members of the public that are subsequently sold or donated to the defendant by passing on the download link) was engaging in a communication to the public and thus infringing copyright.
In reaching its conclusion, the CJEU considered the following points:
(1) Examining the intent behind the rights of communication to the public and distribution in the InfoSoc Directive, the Court determined that the concepts contained within these rights must be interpreted in line with the WIPO Copyright Treaty, from which they derive. The Court held that, while the right of communication to the public “covers acts of on-demand transmission” (i.e., electronic distribution, such as digital downloads), the distribution right is limited to copies of a work incorporated in a physical or tangible medium (e.g., a book or a CD-ROM).
(2) The Court compared the resale of ebooks to the resale of computer programs, but found that rules on exhaustion of copyright concerning computer programs cannot be applied to ebooks. The CJEU has previously held, in UsedSoft GmbH v Oracle International Corp., Case C-128/11 (“UsedSoft”), that the supply of a copy of a computer program by digital download, accompanied by a licence to use the computer program for an indeterminate period of time, constitutes a sale and exhausts the distribution right in that copy of the computer program. The decision in UsedSoft, however, was based on an interpretation of a different EU directive — namely, Directive 2009/42/EC on the legal protection of computer programs (the “Software Directive”).
The Software Directive is a lex specialis under EU law; it applies specific rules on the exhaustion of the distribution right with respect to software, which are different from those concerning other types of copyright-protected works, governed by the InfoSoc Directive. Notably, while the InfoSoc Directive draws a distinction between the electronic and physical distribution of copyright-protected material, the Software Directive treats the sale of a computer program on a physical medium as functionally equivalent to the sale of a computer program by digital download.
The Court also ruled out treating ebooks as computer programs, holding that the software element of an ebook “is only incidental in relation to the [literary] work contained in such a book.”
(3) Finally, on the assumption that the resale of ebooks falls within the communication to the public right, the Court assessed whether there was, in fact, a communication to the public on the facts of this case. It held, first, that there was a “communication,” on the basis that the defendant offers the work on a publicly accessible website; and, second, that the work is communicated to a “new public” — that is, to a potentially indeterminate number of people, who have individual access to the work from different places and at different times, and who were not the intended recipients when the rightholders authorized the initial communication of their work to the public. Thus, the defendant’s actions met the relevant test for copyright infringement.
The ruling in this case provides long-awaited clarity in the EU on the application of the first sale doctrine to copyright in digital goods other than software.
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