A QUESTION OF INTENT: WHY INDUCEMENT LIABILITY SHOULD PRECLUDE PROTECTION UNDER THE SAFE HARBOR PROVISIONS OF THE DIGITAL MILLENNIUM COPYRIGHT ACT

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1 A QUESTION OF INTENT: WHY INDUCEMENT LIABILITY SHOULD PRECLUDE PROTECTION UNDER THE SAFE HARBOR PROVISIONS OF THE DIGITAL MILLENNIUM COPYRIGHT ACT INTRODUCTION There are few contemporary topics in the area of intellectual property law that are simultaneously as consequential and divisive as liability for copyright infringement on the internet. Many see copyright as a weapon used by wealthy corporations to pursue profits at the expense of the free movement of ideas a concept that is widely considered to be fundamental to the continuing utility of the internet. To others, copyright is the only available tool suitable to combat increasingly widespread piracy in an online culture that refuses to acknowledge the costs associated with content creation. Nowhere has this clash of interests been more pronounced than in the cases involving peer-to-peer 1 file sharing websites, and more recently, user generated content websites like YouTube. But these cases have not merely been polarizing they have also presented numerous novel and complex legal issues, many of which are still developing today. One such developing issue is the degree to which online service providers (such as Google) should be liable for acts of copyright infringement perpetrated by their users. Traditionally, the common law doctrines of secondary infringement contributory and vicarious infringement have been the primary legal mechanisms for establishing third party liability. 2 However, applying these doctrines in the context of 1. Peer-to-peer file sharing programs employ software that creates a network whereby users can directly download files hosted on the computers of other users. For an in-depth discussion of this technology and its copyright ramifications, see generally Joseph A. Sifferd, Note, The Peerto-Peer Revolution: A Post-Napster Analysis of the Rapidly Developing File-Sharing Technology, 4 VAND. J. ENT. L. & PRAC. 92 (2002) MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT 12.04[A][3][a] (rev. ed. 2011). 487

2 488 SOUTHWESTERN LAW REVIEW [Vol. 41 the internet has proven to be a quandary for many courts, and the results have not always been consistent. In 2005, the landscape of secondary liability changed significantly when the Supreme Court issued its opinion in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd. 3 In that case, the defendants operated wellknown peer-to-peer file sharing websites that were notoriously used to share copyrighted musical works. 4 In finding the defendants liable for secondary infringement, the Court articulated a new standard 5 for secondary liability that it adapted from patent law: inducement of copyright infringement. 6 The Court held, notwithstanding existing theories of secondary infringement, that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties. 7 Unlike the existing theories of secondary liability, inducement turns on the defendant s culpable intent to encourage copyright infringement. 8 Since the Grokster case, courts have been inconsistent in their application of the inducement test. Some courts treat inducement as a subspecies of contributory liability that cannot be maintained separately from a traditional claim of contributory infringement. 9 Other courts treat it as an independent cause of action. 10 Still other courts treat it as an independently viable subspecies of contributory infringement. 11 This U.S. 913 (2005). 4. See id. at 922 ( [N]early 90% of the files available for download... were copyrighted works. ). 5. Id. at ( For the same reasons that Sony took the staple-article doctrine of patent law as a model for its copyright safe-harbor rule, the inducement rule, too, is a sensible one for copyright. We adopt it here.... ). It is worth noting that there is another school of thought that inducement was not created by the Grokster court, but rather predated the case as a latent theory of contributory infringement that was fleshed out for the first time in Grokster. See Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir. 1996) ( [O]ne who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a contributory infringer. ) (emphasis added) (citation omitted). However, such a debate is within the scope of this Comment only insofar as it may underlie some of the courts confusion as to whether inducement is appropriately categorized as a distinct cause of action. Whether inducement is better categorized as a distinct cause of action or subspecies of contributory liability is discussed infra in Part II. 6. Grokster, 545 U.S. at Id. at Id. at See KBL Corp. v. Arnouts, 646 F. Supp. 2d 335, (S.D.N.Y. 2009). 10. See Arista Records LLC. v. Lime Group LLC, 784 F. Supp. 2d 398, 424 (S.D.N.Y. 2011) ( In Grokster, the Supreme Court confirmed that inducement of copyright infringement constitutes a distinct cause of action. ). 11. See Columbia Pictures Indus., Inc. v. Fung, No. CV SVW (JCx), 2009 U.S. Dist.

3 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 489 distinction has more than mere semantic significance because by defining inducement as a subset of contributory infringement, courts have brought inducement liability automatically within the meaning of the safe harbor provisions of the Digital Millennium Copyright Act ( DMCA ), 12 when it is not at all clear that inducement liability should be so limited. 13 The 1998 enactment of the DMCA established section 512 of the Copyright Act, commonly referred to as the safe harbor provisions. 14 Under section 512, qualifying service providers 15 are largely immunized 16 from liability for copyright infringement if they comply with, among other things, notice and takedown formalities. 17 The notice and take down provisions were designed to place the burden of policing websites for copyright infringement on the content owner, while requiring the service provider to create and effectively implement policies for the expedient removal of infringing material should such infringement be brought to their attention. 18 However, an otherwise qualifying service provider can forfeit its safe harbor protection if it has actual knowledge of any direct infringement, or in the absence of actual knowledge, is aware of facts or circumstances from which infringing activity is apparent, and fails to take timely action to remove the infringing content on its own. 19 This Comment will focus on the relationship between inducement liability and the safe harbor provisions, and ultimately will conclude that a finding of intentional inducement of copyright infringement should preclude protection under section 512. Part I will examine the formal and conceptual interplay between inducement and section 512, focusing on whether it is in fact possible to qualify for safe harbor protection while contemporaneously inducing copyright infringement, as well as the nature LEXIS , at *24-25 (C.D. Cal. Dec. 21, 2009). 12. Digital Millennium Copyright Act (DMCA), Pub. L. No , 202, 112 Stat (1998) (codified as amended at 17 U.S.C. 512 (2006)). 13. See Fung, 2009 U.S. Dist. LEXIS , at * See Section 512 insulates services providers from liability if they comply with the threshold requirements of subsection 512(i) as well as the individual requirements of one or more of subsections 512(a)-(d), which apply to four distinct categories of conduct. See 512. Because the majority of litigation dealing with inducement and the safe harbors involves subsections 512(c) and (d), this Comment will focus primarily on those subsections. 16. Qualifying service providers are insulated from monetary damages but subject to limited injunctive relief. 512(a)-(d), (j). 17. The notice and take down provisions only apply to conduct qualifying under subsection (c) (information residing on systems or networks at direction of users) or subsection (d) (information location tools). 512(c)-(d). 18. See Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102, (9th Cir. 2007) (c)(1)(A)(i)-(iii), (d)(1)(a)-(c).

4 490 SOUTHWESTERN LAW REVIEW [Vol. 41 of the safe harbors as vehicles for protecting passive, good faith conduct 20 of online service providers engaged in legitimate internet businesses. Part II will show that courts inconsistent application of inducement and section 512 can lead to unfair results. Part III will argue that because inducement is inconsistent with the nature and purpose of the safe harbors, it should be treated as a distinct cause of action, and a finding of inducement should preclude safe harbor protection. Finally, Part III will also argue that the Grokster inducement test must necessarily be interpreted as an exceedingly high bar in order to afford adequate protection to good faith online service providers. I. THE PROBLEMATIC INTERPLAY OF INDUCEMENT AND SECTION 512 As mentioned above, the DMCA was enacted in 1998, seven years before the Grokster opinion was issued. 21 It is therefore unsurprising that the inducement rule does not square with the safe harbors as comfortably as contributory and vicarious infringement, each of which were specifically contemplated by the legislature in drafting the DMCA. 22 Reconciling the relationship of the two raises two initial issues: in a case in which a defendant was found to have induced copyright infringement, is it even possible that they could contemporaneously qualify for safe harbor protection, and if so, is inducement the sort of secondary liability from which Congress sought to protect online service providers by establishing section 512? These issues are addressed in turn below. A. Inducement Liability Does Not Result in Safe Harbor Forfeiture Under the Problematic Holding of Viacom v. YouTube Can a defendant who induces copyright infringement within the meaning of the Grokster rule do so without forfeiting his or her section 512 safe harbor protection? Subsections 512 (c) and (d) 23 both require that in order to qualify for protection, a service provider must not have actual knowledge of infringing material or activity, or absent actual knowledge, 20. Columbia Pictures Indus., Inc. v. Fung, No. CV SVW (JCx), 2009 U.S. Dist. LEXIS , at *67-68 (C.D. Cal. Dec. 21, 2009). 21. See Digital Millennium Copyright Act (DMCA), Pub. L. No , 112 Stat (1998); 2 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT 8.21[C][2] (rev. ed. 2011). 22. See H.R. REP. NO , pt. 2, at 50 (1998) ( The limitations in subsections (a) through (d) protect qualifying service providers from liability for all monetary relief for direct, vicarious and contributory infringement. ). 23. Again, this comment focuses primarily on (c) and (d) because these are the subsections under which the majority of litigation which implicates the inducement rule has arisen.

5 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 491 awareness of facts or circumstances from which infringing activity is apparent. 24 Upon obtaining such knowledge or awareness of infringement, the service provider must act expeditiously to remove or disable access to the infringing material in order to retain safe harbor eligibility. 25 By failing to act expeditiously to eliminate the infringement, a service provider forfeits safe harbor protection. 26 The question is whether evidence of clear expression or other affirmative steps taken to foster infringement as required by the Grokster test would, without more, amount to facts or circumstances from which infringement is made apparent such that section 512 protection would be forfeit absent expeditious self-initiated removal of any infringing content. 27 It would certainly seem logical to assume that one who induces others to use his or her service for the purpose of infringing copyrights should have reason to know that infringing activity is, in fact, occurring. In the recent case of Viacom Int l Inc. v. YouTube, Inc., 28 the District Court for the Southern District of New York had a chance to interpret the knowledge requirement of section 512(c) as it relates to an inducement cause of action. 29 Professor Miquel Peguera s recent article analyzing the YouTube holding addresses this topic at some length. 30 Professor Peguera points out that the YouTube court interpreted the knowledge requirement of 512(c) so as to require actual or constructive knowledge of specific instances of infringement, rather than general knowledge of infringing practices. 31 He therefore concludes that a scenario in which a defendant satisfies both the Grokster inducement test and the hosting safe harbor 32 is possible, at least in theory, because none of the evidence that the Grokster court used to find intentional inducement (c)-(d). 25. Id. 26. Id. 27. It is unlikely that a service provider would be manifestly encouraging infringement, while simultaneously taking sufficient preventative steps so as to preserve safe harbor protection. Therefore, in cases of inducement, the pertinent question would usually be whether the defendant had sufficient knowledge to forfeit safe harbor protection F. Supp. 2d 514 (S.D.N.Y. 2010). This comment was finalized for publication before the Second Circuit released its opinion in the Viacom v. YouTube appeal. As such, it only addresses the District Court s decision, which is discussed more thoroughly infra in Part II. 29. YouTube, 718 F. Supp. 2d at 516, See Miquel Peguera, Secondary Liability for Copyright Infringement in the Web 2.0 Environment: Some Reflections on Viacom v. YouTube, 1 J. INT L COM. L. & TECH. 18, (2011). 31. See id. at See 512(c). 33. Peguera, supra note 30, at ( The Grokster court, moreover, pointed to three

6 492 SOUTHWESTERN LAW REVIEW [Vol. 41 directly involve[d] the requirement of having actual or constructive knowledge of specific instances of actual infringements. 34 In other words, under the YouTube court s interpretation of the section 512(c) knowledge requirement, it would seem that a defendant can satisfy the Grokster test for actionable inducement (which does not require knowledge of specific acts of infringement) without forfeiting his or her statutory right to safe harbor (which under the YouTube holding would be forfeit only 35 on a showing of actual or constructive specific knowledge and failure to remove). However, as Professor Peguera points out, 36 the YouTube court s reasoning on this point has a significant problem. Regarding the constructive knowledge prong of section 512(c)(1)(A), the House Reports state: New subsection (c)(1)(a)(ii) can best be described as a red flag test. As stated in new subsection (c)(l), a service provider need not monitor its service or affirmatively seek facts indicating infringing activity.... However, if the service provider becomes aware of a red flag from which infringing activity is apparent, it will lose the limitation of liability if it takes no action. 37 This language underscores the difference between the constructive and actual knowledge prongs of section 512(c)(1)(A). More than once, the House Reports make it clear that the two prongs are intended reach different conduct. 38 However, under the YouTube court s holding, it is difficult to meaningfully distinguish between them in terms of practical application. 39 This tends to indicate that the YouTube court has contracted the meaning of 512(c)(1)(A)(ii) to a point that it is no longer consistent 40 with the intent of the legislature. 41 elements that allowed finding the intent to induce infringement: (a) defendants aimed to satisfy a known source of demand for copyright infringement; (b) defendants did not attempt to develop filtering tools or other mechanisms to diminish the infringing activity using their software; (c) the commercial sense of defendants enterprise turned on high- volume use, which the record showed was infringing. ). 34. Id. at There are other means of forfeiture, but this portion of the article deals only with the knowledge requirement. 36. See Peguera, supra note 30, at H.R. REP. NO , pt. 2, at 53 (1998). See also Peguera, supra note 30, at See H.R. REP. NO , pt 2, at 53 ( This standard is met by actual knowledge of infringement or, in the absence of such knowledge, by awareness of such knowledge, by awareness of facts or circumstances from which infringing activity is apparent. ). 39. See Peguera, supra note 30, at The extent to which this difference would materially impact other litigation depends, in part, on whether the court takes an intentionalist approach or a textualist approach to statutory interpretation. 41. Professor Peguera attributes this result to an internal inconsistency within the statute. See

7 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 493 So while it is clear that the safe harbors can limit a service provider s liability under the YouTube court s reading of 512(c)(1)(A)(ii), even in a case where the service provider would otherwise be liable for inducement, it is far less clear whether this is the result that Congress sought to achieve by enacting the DMCA. 42 To further elucidate this point, the purpose of the DMCA safe harbors, as well as the substantive similarities and difference between inducement and the theories of secondary liability existing at the time the DMCA was enacted, are discussed below. B. Inducement Was Not Contemplated by the Legislature The safe harbor provisions of the DMCA were enacted, at least in part, in response to competing lobbying efforts by online and internet service providers and content providers. 43 In passing the Act, the legislature sought to balance these groups respective interests: promoting the...growth and development of electronic commerce[,] and protecting intellectual property rights. 44 These goals were seen as mutually supportive. 45 However, the balance struck by the legislature was expressly calibrated on existing intellectual property law. 46 Due to inducement s substantial substantive departure from the existing theories of secondary infringement (as well as the seven year gap between the passing of the Act and the Grokster holding), it is not possible that inducement was adequately contemplated by the legislature as being subject to the safe harbor provisions. 47 Not only is the inducement rule substantively divergent from vicarious and contributory infringement on key points (namely the required mental state of the actor), but as it turns on intentional culpable conduct, it is also antithetical to the passive, good faith conduct that the framers of the safe harbor provisions sought to insulate Peguera, supra note 30, at 27. While this is a valid point, this Comment focuses primarily on the intent of the legislature as it pertains to inducement. 42. While Professor Peguera s article deals with this in passing, it ultimately limits its focus to other issues. See id. at 22-23, See Peter S. Menell, Envisioning Copyright Law s Digital Future, 46 N.Y.L. SCH. L. REV. 63, (2003). 44. H.R. REP. NO , pt. 2, at 23 (1998). 45. Id. 46. See id. at 50 ( The limitations in subsections (a) through (d) protect qualifying service providers from liability for all monetary relief for direct, vicarious, and contributory infringement. ); H.R. REP. NO , at 73 (1998) (Conf. Rep.) ( [T]he limitations of liability apply if the provider is found to be liable under existing principles of law. ) (emphasis added). 47. The act s legislative history acknowledges the evolving nature of copyright. See H.R. REP. NO , pt. 2, at 23 ( As electronic commerce and the laws governing intellectual property (especially copyright laws) change, the relationship between them may change as well. ).

8 494 SOUTHWESTERN LAW REVIEW [Vol. 41 from liability. 1. Inducement Could Not Have Been Contemplated by the Legislature Because the Substantive Requirements of Contributory and Vicarious Infringement Are Materially Different from Those of Inducement To understand the substantive departure that the Supreme Court made in Grokster, it is fist necessary to establish a few key points regarding the traditional doctrines of copyright infringement. Direct copyright infringement is traditionally a strict liability tort. 48 One may therefore infringe a copyright whether he or she intended to do so or not. 49 Traditional secondary liability for copyright infringement, on the other hand, may be established in one of two ways: through a showing of either vicarious or contributory infringement. 50 In addition to the requirements set forth below, both of these theories of secondary infringement require proof of an underlying act of direct infringement. 51 Vicarious infringement is proved when the plaintiff establishes that (1) the defendant had a right and ability to control the direct infringement, and (2) the defendant had a direct financial interest in the infringement. 52 Vicarious infringement has been described as an outgrowth of respondeat superior that extends beyond an employer/employee relationship Notably absent from the elements of vicarious infringement is any sort of intent requirement. Traditional 54 contributory infringement 55 occurs when a party has knowledge of direct infringement and materially contributes to the infringing conduct. 56 The knowledge requirement may be satisfied by 48. See Dane S. Ciolino & Erin A. Donelon, Questioning Strict Liability in Copyright, 54 RUTGERS L. REV. 351, (2002). 49. See Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. 177, (S.D.N.Y. 1976) (finding copyright infringement where the defendant subconsciously copied plaintiff s musical work). 50. See NIMMER & NIMMER, supra note UMG Recordings, Inc. v. Sinnot, 300 F. Supp. 2d 993, 997 (E.D. Cal. 2004). 52. See Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963). 53. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1022 (9th Cir. 2001) (citation omitted). 54. That is, material contribution contributory infringement. 55. As opposed to post-grokster contributory infringement, which has been acknowledged by some courts as including the inducement rule. This is discussed infra in Part II. 56. Gershwin Publ g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971).

9 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 495 evidence of either actual or constructive knowledge. 57 Constructive knowledge has been established by acts of willful blindness, such as choosing not to read cease and desist letters detailing acts of direct infringement. 58 The Ninth Circuit has held that the contribution requirement is satisfied by conduct such as a search engine substantially assisting infringing websites by providing users with links to the infringing websites. 59 While contributory infringement does include a mental state requirement in the form of actual or constructive knowledge, as with direct infringement and vicarious infringement, it does not require any sort of intent 60 on the part of the defendant. On the other hand, inducement liability is proved when the plaintiff establishes that the defendant (1) engaged in purposeful conduct that encouraged copyright infringement, with (2) the intent to encourage such infringement. 61 The plain language of this test makes it clear that only intentional inducers should be liable under this theory. By predicating inducement liability on intentional misconduct, the Supreme Court dramatically departed from 295 years of copyright jurisprudence. 62 Such a significant departure, 63 manifested seven years after the implementation of the DMCA safe harbors, could not have been adequately contemplated by the legislature as the legislative history of the DMCA indicates UMG Recordings, Inc. v. Sinnott, 300 F. Supp. 2d 993, (E.D. Cal. 2004). 58. Id. at ( [Defendant] cannot, however, disavow the knowledge he would have had by reading the letters merely because he chose not to read them. ). 59. Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701, 729 (9th Cir. 2007) (holding that the District Court erred by requiring evidence that defendant Google had substantially promoted or encouraged infringing websites by way of advertising or providing infringers with a revenue stream in order to satisfy the contribution requirement). The traditional illustration of contributory infringement is an owner of a swap meet who is aware of vendors engaged in copyright infringement but nonetheless provides them with, among other things, booth space, advertising, and parking. See Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir. 1996). 60. The relationship and respective culpability of intentional misconduct and misconduct with knowledge is a complex topic that is largely beyond the scope of this Comment. I have limited my discussion to the type of conduct that could potentially result in liability under each standard. See infra Part I.B Arista Records, LLC v. Lime Group LLC, 784 F. Supp. 2d 398, 425 (S.D.N.Y. 2011) (citing Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 937 (2005)). 62. The Statute of Anne, the first copyright law, was enacted in ANN. c.19 (1710) (Eng.). 63. As discussed earlier in this Part, direct infringement and vicarious infringement are strict liability torts. See supra text accompanying notes Contributory infringement has a mental state requirement that can be satisfied with constructive knowledge, or acts of willful blindness. See supra text accompanying notes Inducement liability, by requiring evidence of actual culpable intent, is an inherently higher bar. 64. See H.R. REP. NO , pt. 2, at 23 (1998).

10 496 SOUTHWESTERN LAW REVIEW [Vol The Substantive Requirements of Safe Harbor Protection Indicate That Inducement Was Not Contemplated by the Legislature Because Section 512 Uniformly Demands Good Faith As discussed above, the Grokster holding represents a dramatic departure from traditional notions of secondary copyright infringement. 65 While the court ultimately imposed liability on the defendant, 66 it recognized the challenges confronted by online service providers engaged in legitimate businesses in an ever expanding and constantly changing digital environment. 67 As a result, the inducement rule inherently avoids implicating good faith service providers. 68 While content owners could historically state a claim for contributory or vicarious infringement against a company that marketed an online product or service capable of both infringing and non-infringing uses and who passively allowed its users to participate the in the service or use the product without policing their activity for infringement, 69 such conduct would not likely give rise to a sustainable action for inducing infringement. This passive, good faith conduct (not the culpable conduct of an intentional inducer) is the sort that the legislature sought to insulate from liability by enacting the DMCA safe harbor provisions. This passive, good faith conduct is the sort that the legislature sought to insulate from liability by enacting the DMCA safe harbors, not the culpable conduct of an intentional inducer. While the safe harbors do not require a service provider to police its website for infringement, 70 the service provider is held to a good faith standard as embodied in section 512(i)(1)(A), which serves as a threshold requirement to any claim of safe harbor protection. Under this subsection, service providers retain eligibility for safe harbor only if they have adopted and reasonably implemented a policy for the termination of users who are 65. See supra Part I.B The Court vacated the Ninth Circuit s judgment and remanded the case. Metro- Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 941 (2005). 67. See id. at 928 ( The more artistic protection is favored, the more technological innovation may be discouraged.... The tension between the two values is the subject of this case.... ). 68. So long as it is construed as an appropriately high bar. This is discussed infra in Part III. 69. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, , 439 (1984). While the somewhat complex issue of secondary liability for distributing a product capable of substantial non-infringing uses (including the staple article of commerce defense) was addressed in some detail in the Grokster opinion, it is not the focus of this Comment. 70. Perfect 10, Inc. v. CCBill LLC, 488 F.3d 1102, 1113 (9th Cir. 2007).

11 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 497 repeat infringers. 71 Citing this section of the Act, Judge Posner stated in In re Aimster Copyright Litigation: 72 The common element of [the DMCA] safe harbors is that the service provider must do what it can reasonably be asked to do to prevent the use of its service by repeat infringers. Far from doing anything to discourage repeat infringers of the plaintiffs copyrights, [the defendant] invited them to do so, showed them how they could do so with ease using its system, and by teaching its users how to encrypt their unlawful distribution of copyrighted materials disabled itself from doing anything to prevent infringement. 73 This language was recently cited by the District Court for the Central District of California in the case of Columbia Pictures Indus., Inc. v. Fung 74 in reaching its conclusion that inducement liability and the Digital Millennium Copyright Act safe harbors are inherently contradictory. 75 In Fung, the defendant operated a number of BitTorrent 76 websites that were used to share copyrighted files between the sites users. 77 Upon finding the defendant liable for inducement, the court moved on to consider his claim of safe harbor protection under section 512(d). 78 The court found that the defendant did not satisfy the knowledge requirement of section 512(d)(1)(B) and that furthermore, having been found liable for inducement, the defendant should not qualify for safe harbor ab initio. 79 The court stated that [i]nducement liability is based on active bad faith conduct aimed at promoting infringement; the statutory safe harbors are based on passive good faith conduct aimed at operating a legitimate internet business. Here... Defendants are liable for inducement. There is no safe 71. See 17 U.S.C. 512(i)(1)(A) (2006) F.3d 643 (7th Cir. 2003). 73. Id. at 655 (citation omitted). 74. No. CV SVW (JCx), 2009 U.S. Dist. LEXIS (C.D. Cal. Dec. 21, 2009). 75. Id. at * BitTorrent programs function somewhat differently than standard peer-to-peer clients because the client divides a file (hosted on the user s computer) into multiple smaller files which can then be downloaded by other users simultaneously from multiple different users computers, thereby increasing the speed of the download. See Rebecca Giblin, A Bit Liable? A Guide to Navigating the U.S. Secondary Liability Patchwork, SANTA CLARA COMPUTER & HIGH TECH. L.J. 7, (2009). 77. Fung, 2009 U.S. Dist. LEXIS , at * Id. at * Id. at * The court s reasoning is somewhat unclear here. As Professor Peguera points about in his above mentioned article, the court finds the safe harbors inapplicable on their own terms, but then seemingly goes on to state that inducement liability should preclude safe harbor protection. Peguera, supra note 30, at 24. In light of the court s statement, it is not clear why it nonetheless bothered to parse out the applicable safe harbor requirements.

12 498 SOUTHWESTERN LAW REVIEW [Vol. 41 harbor for such conduct. 80 It is important to keep in mind that by their nature, vicarious and contributory liability could conceivably be imposed on a party acting in passive good faith. 81 As discussed above, vicarious infringement functions in a manner similar to respondeat superior. 82 Failure to exercise a right or ability to control infringement, when coupled with a financial interest in the infringement can, without more, result in secondary liability. 83 The constructive knowledge requirement of contributory infringement is less likely to implicate a good faith actor than vicarious liability, but under this test it is still possible for a passive actor to expose him or herself to liability. 84 On the other hand, inducement liability is premised on active, intentional, bad faith conduct. 85 While the legislative history of the DMCA makes it clear that the safe harbors were intended to limit vicarious and contributory liability (as it existed in 1998) in certain situations, 86 the substantive requirements of safe harbor protection, as acknowledged by the Fung court, 87 indicate that inducement liability is inherently outside the scope of safe harbor protection as it was envisioned in Finally, as further evidence that the DMCA was not intended to protect parties that intentionally induce copyright infringement, it is important to note that another section of the DMCA, the anti-circumvention provisions, 88 contains what has been described as a legislative analog to the inducement rule. 89 Section 1201(a)(2)(C) of the Copyright Act 90 prohibits parties from trafficking in devices that are knowingly marketed for the purpose of circumventing technological safeguards designed to prevent 80. Fung, 2009 U.S. Dist. LEXIS , at * See supra Part I.B See supra text accompanying note See supra text accompanying note See, e.g., UMG Recordings, Inc. v. Sinnot, 300 F. Supp. 2d 993, 1000 (E.D. Cal. 2004) (holding the defendant liable when he failed to read cease and desist letters). 85. See Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 941 (2005). 86. H.R. REP. NO , pt. 2, at 50 (1998) ( The limitations in subsections (a) through (d) protect qualifying service providers from liability for all monetary relief for direct, vicarious, and contributory infringement. ); H.R. REP. NO , at 73 (1998) (Conf. Rep.) ( [T]he limitations of liability apply if the provider is found to be liable under existing principles of law. ). 87. See supra text accompanying note U.S.C (2006). 89. Jacqueline D. Lipton, Solving the Digital Piracy Puzzle: Disaggregating Fair Use from the DMCA s Anti-Device Provisions, 19 HARV. J.L. & TECH. 111, (2005). 90. Section 1201(a)(2)(C) was enacted, along with 512, in 1998 as part of the DMCA. Digital Millennium Copyright Act (DMCA), Pub. L. No , 103, 112 Stat. 2860, (1998) (codified as amended at 17 U.S.C. 1201(a)(2)(C) (2006)).

13 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 499 uncontrolled access to protected works. 91 It is hard to accept that the legislature intended to proscribe the sale of products that are marketed for the purpose of facilitating illegal conduct in one portion of the DMCA, but exempt exceedingly similar conduct from liability under another portion of the Act. II. CASE LAW INVOLVING INDUCEMENT AND THE SAFE HARBOR PROVISIONS IS INCONSISTENT AND OFTEN CONFUSING Part I of this comment explored the problematic nature of the interplay of section 512 and the inducement rule. This Part will show how this problem is playing out in the courts, as illustrated by a few recent contradictory opinions, mostly at the district court level. Specifically, courts have been inconsistent on two issues: first, whether the Grokster case created an independent cause of action or merely added a new prong to the existing theory of contributory infringement, and second, what the appropriate methodology should be for analyzing claims arising from conduct that implicates both the inducement rule and the safe harbor provisions. A. Courts Have Been Inconsistent on Whether Inducement is a Distinct Cause of Action or a Subspecies of Contributory Infringement Until recently, the issue of whether inducement liability is a distinct cause of action or a subspecies of contributory liability was generally regarded as an unimportant, semantic distinction. As the court stated in Arista Records LLC v. Usenet.com, Inc.: 92 [I]t is worth noting that several courts have recently expressed doubt as to whether inducement of infringement states a separate claim for relief, or rather whether it is a species of contributory infringement. However, as one court put it, [i]t is immaterial whether the [inducement] theory of liability is a subspecies of contributory... liability, or whether it is a wholly separate theory based on inducement. The question is whether it applies to defendants in this case. 93 However, the conflicting holdings of the Viacom Int l Inc. v. YouTube, Inc. 94 and Columbia Pictures Indus., Inc. v. Fung 95 courts, discussed in the (a)(2)(C) F. Supp. 2d 124 (S.D.N.Y. 2009). 93. Id. at 150 n.17 (citation omitted) (quoting In re Napster, Inc. Copyright Litig., No. C MDL MHP, 2006 U.S. Dist. LEXIS 30338, at *31 (N.D. Cal. May 17, 2006)) F. Supp. 2d 514 (S.D.N.Y. 2010). 95. No. CV SVW (JCx), 2009 U.S. Dist. LEXIS (C.D. Cal. Dec. 21, 2009).

14 500 SOUTHWESTERN LAW REVIEW [Vol. 41 following Subpart, 96 underscore a very real problem which has been fueled in part by lack of a clear resolution on this issue. In fact, this distinction matters for two practical reasons: conduct giving rise to traditional contributory liability will not necessarily result in inducement liability and vice versa, and it is therefore inefficient and unfair to treat them as one inseparable cause of action; and the safe harbor provisions clearly 97 apply to contributory infringement, but not necessarily to a (as of 1998) yet-to-bediscovered common law cause of action. By treating inducement as an inseparable prong of contributory liability, the court in KBL Corp. v. Arnouts 98 set a potentially troubling precedent by refusing to address the plaintiff s claim of inducement because it had already stated a claim of contributory infringement. 99 In KBL, the plaintiff, a homebuilder, sought contribution against the defendant, an architect, for losses resulting from a series of previous copyright infringement lawsuits against both parties by a third party licensor of home designs, which the plaintiff had settled. 100 The plaintiff s theory for seeking contribution was that the defendant was a contributory infringer that would have been liable to the third party licensor in the previous suit. 101 The plaintiff also stated a separate cause of action against the defendant for inducement. 102 The court disposed of the plaintiff s claim for contribution, holding that neither the Copyright Act nor state common law granted a right of contribution for copyright infringement. 103 Moving on to the plaintiff s claim of inducement, the court refused to address the claim separately from the claim of contributory infringement because plaintiff [had] failed to show that a claim for inducement to infringe can exist separately from a claim for contributory infringement, and a claim for contributory infringement under the Copyright Act cannot lie among co-infringers The court stated that the plaintiff had not provided any legal authority that the Copyright Act provides for a distinct 96. See infra Part II.B. 97. H.R. REP. NO , pt. 2, at 50 (1998) ( The limitations in subsections (a) through (d) protect qualifying service providers from liability for all monetary relief for direct, vicarious, and contributory infringement. ); H.R. REP. NO , at 73 (1998) (Conf. Rep.) ( [T]he limitations of liability apply if the provider is found to be liable under existing principles of law. ) F. Supp. 2d 335 (S.D.N.Y. 2009). 99. See id. at Id. at Id. at Id. at Id. at Id. at 346.

15 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 501 cause of action for inducement, 105 and that the fact that patent law (from which the inducement rule was adopted in Grokster) 106 recognized inducement as being distinct did not imply that the same should be true of copyright law. 107 While the outcome of KBL was likely correct, the reasoning given by the court is troubling for a number of reasons. First, the Copyright Act does not provide for any causes of action for secondary infringement at all, the theories are all court created. 108 Second, the court did not limit its holding to claims for contribution. While the outcome in this case probably would have been the same had the court addressed the inducement claim separately, 109 this is not the case in a standard action by one party against another seeking redress for secondary copyright infringement. As mentioned above, conduct that gives rise to contributory liability 110 will not likely implicate the inducement rule and vice versa. Obviously, it would be unfair to force a plaintiff to choose one claim over the other. The KBL opinion therefore illustrates potential inequities that could result from treating two substantively different causes of action as being inseparable. Other courts have avoided these complications by either treating inducement as an independently viable subspecies of contributory infringement, 111 or by treating it as a separate cause of action altogether. 112 While courts can avoid many of the issues arising from a holding like that of KBL by treating inducement as an independently viable subspecies of contributory infringement, such an approach, as discussed below, is not without its own complications Id. at See supra text accompanying note KBL, 646 F. Supp. 2d at 346 n There is a school of thought that the theories of secondary liability are partially derived from the language in the preamble of section 106 to do and to authorize. 17 U.S.C. 106 (2006) (emphasis added). However, nothing more regarding the doctrines of secondary liability appears in the Copyright Act itself Due to the nature of the action, that is, a plaintiff seeking contribution against a coinfringer Material contribution contributory liability. See supra text accompanying notes See, e.g., Columbia Pictures Indus., Inc. v. Fung, No. CV SVW (JCx), 2009 U.S. Dist. LEXIS , at *25 (C.D. Cal. Dec. 21, 2009) ( The first two theories (material contribution and inducement) are known collectively as contributory liability. ) See Arista Records LLC v. Lime Group LLC, 784 F. Supp. 2d 398, 424 (S.D.N.Y. 2011).

16 502 SOUTHWESTERN LAW REVIEW [Vol. 41 B. Courts Have Been Inconsistent in Adjudicating Claims of Inducement Where the Defendant Asserts a Safe Harbor Defense Because They Have Applied Incompatible Methodologies for Determining Liability While the Fung holding was addressed at some length above, 113 it is worth revisiting it to note that the court s reasoning is somewhat confusing. Although the court stated that the safe harbor provisions and inducement liability are inherently contradictory, the court nonetheless evaluated the application of section 512(d) 114 before determining that the defendant did not qualify for protection. 115 In his above mentioned article, Professor Peguera addresses this inconsistency in the court s reasoning and concludes that the court s statement 116 has no practical meaning if ineligibility for safe harbor rests solely on a defendant s meeting or failing to meet the statute s requirements. 117 Notwithstanding the practical utility of the court s observation, it is significant that the court was uncertain how to tackle the relationship of inducement and section 512. This is because section 512 was calibrated against existing theories of secondary liability and as a practical matter, the court could have avoided some of this confusion by treating inducement as a wholly separate cause of action, rather than an independently viable subspecies of contributory infringement as it did. 118 Either way, the take away from the Fung opinion is further obscured by the slightly more recent opinion in Viacom Int l Inc. v. YouTube, Inc. 119 currently on appeal to the Second Circuit. 120 In YouTube, the plaintiff 113. See supra Part I U.S.C. 512(d) (2006) (providing a safe harbor for information location tools) Fung, 2009 U.S. Dist. LEXIS , at * As it had been repackaged by plaintiff s counsel in the YouTube case. See Peguera, supra note 30, at 24 (noting that Viacom contended that Grokster liability inherently defeats the DMCA. ) Id See Fung, 2009 U.S. Dist. LEXIS , at *25 ( The first two theories (material contribution and inducement) are known collectively as contributory liability. ) F. Supp. 2d 514, 516 (S.D.N.Y. 2010) Following oral argument in October 2011, the Court ordered the parties to submit further briefing. See Letter from Catherine O Hagan Wolfe, Clerk for the United States Court of Appeals for the Second Circuit, to Viacom Int l Inc., YouTube, Inc., & Football Ass n Premiere League Ltd (Oct. 25, 2011), available at chrome=true; Gareth Dickson, UPDATED: Viacom v. YouTube: Second Circuit Asks YouTube To Clarify Its Position On Storage and Red Flags, READ ALL ABOUT IT: IP DEVELOPMENTS FROM THE DIGITAL WORLD (Oct. 26, 2011),

17 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 503 (owner of a number copyrights in works that had been uploaded to the defendant s website) brought an action against the popular video sharing website YouTube and its parent company Google, alleging direct and secondary infringement including inducement contributory liability. 121 The defendants claimed to have complied with the requirements of section 512(c) and were therefore entitled to safe harbor. 122 As discussed above, 123 the critical issue was how the statute s knowledge requirement should be construed. 124 The court held that section 512(c) protection would not be waived without a showing of actual or constructive knowledge of specific and identifiable acts of infringement, 125 and because such evidence was not presented and the defendant otherwise complied with the statute, it was entitled to safe harbor. 126 The court then moved on to consider the plaintiff s claim of inducement, quickly concluding that Grokster s inducement rule was inapplicable. 127 By so holding, the court avoided dealing with the interplay of inducement and the safe harbors altogether. However, the court did little to explain why the inducement rule was not applicable to the YouTube facts. 128 The court simply stated that the plaintiff s argument was strained. 129 In fact, the court seems to imply that one who qualifies for safe harbor cannot be liable for inducement. 130 The court stated: The Grokster model does not comport with that of a service provider who furnishes a platform on which its users post and access all sorts of materials as they wish, while the provider is unaware of its content, but identifies an agent to receive complaints of infringement, and removes identified material when he learns it infringes. To such a provider, the DMCA gives a safe harbor, even if otherwise he would be held as a contributory infringer under the general law. 131 The conduct the court describes is that of a service provider who is 121. YouTube, 718 F. Supp. 2d at Id See supra Part I See YouTube, 718 F. Supp. 2d at See id. at See id. at See id. at See id. The court seems to either be saying that Grokster only applies to peer-to-peer file sharing websites or only to parties that do not comply with the safe harbor provisions. If the court is attempting to relegate inducement exclusively to cases dealing with peer-to-peer file sharing, it is my opinion that such a narrow and counter-intuitive reading of Grokster is not justified by the language of the opinion Id See id. at Id.

18 504 SOUTHWESTERN LAW REVIEW [Vol. 41 directly complying with the requirements of section 512(c), as the court found YouTube to be. 132 But the statement that the Grokster model does not comport with this conduct is troubling. All one need do is imagine a service provider who, in addition to the conduct described in the immediately preceding quotation, is simultaneously advertising that their website is an ideal place to upload and view current box office movies. This conduct would not automatically waive safe harbor protection under the court s interpretation of the section 512(c)(1)(A)(ii) knowledge requirement (constructive knowledge of specific, identifiable instances of infringement). 133 It is therefore unclear what the outcome of an action involving such conduct by a service provider would be under the YouTube holding. It is also worth noting that the YouTube court seemed somewhat perplexed by the Fung opinion. The court stated, Fung was an admitted copyright thief whose DMCA defense under 512(d) was denied on undisputed evidence of purposeful, culpable expression and conduct aimed at promoting infringing uses of the websites. 134 In other words, the defendant in Fung was denied safe harbor because, in effect, he qualified under the Grokster test for inducement. While the Fung court s holding seems to support the notion that inducement and the safe harbors do not comport, the YouTube court s own holding seems incompatible with the statement because, as mentioned above, following the court s interpretation of 512(c) s constructive knowledge requirement, one can induce and retain safe harbor protection. 135 The primary inconsistency between these two opinions is the conflicting methodologies the courts applied to resolve the issue of inducement liability and its relation to safe harbor protection. The YouTube court treated section 512(c) as the threshold issue, and upon finding its requirements satisfied, did not find it necessary to fully address the issue of inducement. 136 The Fung court, on the other hand, started by analyzing the defendant s conduct under the Grokster test, and finding it satisfied, concluded (in admittedly mitigated fashion) 137 that safe harbor protection 132. I do not intend to insinuate that YouTube should be liable for inducement. The point I am making goes to specific portions of the court s reasoning, not the disposition as a whole See supra Part I.A YouTube, 718 F. Supp. 2d at See supra Part I.A See YouTube, 718 F. Supp. 2d at 529 ( Defendants are granted summary judgment that they qualify for the protection of 17 U.S.C. 512(c)... against all of plaintiffs claims for direct and secondary copyright infringement. ) See supra text accompanying notes

19 2012] INDUCEMENT AND THE DMCA SAFE HARBOR S 505 should be precluded. 138 It would seem that courts need to choose a threshold test in cases of inducement; either a defendant meets the Grokster standard and is therefore ineligible for safe harbor, or the defendant qualifies for safe harbor, and therefore cannot be liable for inducement. III. COURTS SHOULD TREAT INDUCEMENT AS A DISTINCT CAUSE OF ACTION THAT FUNCTIONS AS A THRESHOLD TEST FOR LIABILITY IN CASES IMPLICATING SECTION 512 Because inducement and the safe harbors are inherently contradictory, 139 and treating inducement as a subspecies of contributory infringement can lead to unfair and confusing results, 140 courts should treat inducement as an independent cause of action that, if proven, precludes protection under section 512. Whether inducement can be functionally packaged as a subspecies of contributory infringement is no longer a meaningless semantic discussion. In my view, courts that choose to do so create unnecessary analytical complications and run the risk of undermining congressional intent regarding online copyright liability. Both the Fung and the YouTube holdings hinted at this result, though in different and contradictory ways. 141 The Fung court outright stated that inducement and the safe harbors are inherently contradictory but nonetheless seemed to predicate liability on the defendant s failure to meet the statute s requirements, while the YouTube court concluded that one who qualifies for safe harbor is not likely to be inducing copyright infringement. 142 Because a defendant can theoretically 143 induce infringement without forfeiting safe harbor protection, the outcome of a case can be materially affected by which test courts choose to adopt as a threshold. 144 I suggest that courts follow the District Court of the Southern District 138. See Columbia Pictures Indus., Inc. v. Fung, No. CV SVW (JCx), 2009 U.S. Dist. LEXIS , at *67-68 (C.D. Cal. Dec. 21, 2009) See supra Part I.B See supra text accompanying notes See supra Part II.B Id Under the YouTube court s interpretation of 512(c)(1)(A)(ii) In a hypothetical scenario in which a defendant runs a video sharing site similar to YouTube that advertises its site as an ideal place to share current box office movies, but where no evidence of actual or constructive knowledge of specific acts of infringement is found, the defendant would presumably be liable under the Fung court s methodology, but potentially not liable under the YouTube court s methodology.

20 506 SOUTHWESTERN LAW REVIEW [Vol. 41 of New York s example in Arista Records LLC v. Lime Group LLC 145 by treating inducement as a distinct cause of action, 146 and furthermore treat it as threshold issue for liability in cases where the defendant has asserted a claim of safe harbor protection. That is to say, courts should address the issue of inducement first, 147 and move on to consideration of any claim of safe harbor only after finding a lack of inducement. This process would be consistent with the purposes of the DMCA, and the majority of the most recent case law. 148 By doing this, courts may also continue to treat traditional contributory and vicarious infringement in the same manner they have been since 1998, without neglecting the Grokster holding. However, because the safe harbors were intended to afford a high degree of predictability and protection to good faith service providers, the inducement test must be construed as an exceedingly high standard if it is to be treated as a bar to safe harbor protection. Courts should require plaintiffs to present exceedingly strong evidence of culpable intent on the part of the service provider in order to avoid unfairly denying adequate protection to defendants acting in passive good faith. This should not be too difficult, as courts already treat inducement as a fairly high standard. For example, following the Supreme Court s disposition in Grokster, the case was remanded to the court of appeals, 149 which in turn remanded the case to the district court. 150 On the plaintiff s motion for summary judgment on the issue of inducement liability, the court considered the evidence against the defendant StreamCast. 151 In granting the plaintiff s motion, the court identified seven primary facts evidencing StreamCast s unlawful intent. 152 Specifically, the Court focused on the facts that: (1) the defendant s software was used primarily for infringement; (2) the defendant had actively targeted the users of another widely known infringing website (Napster); (3) the defendant had provided technical assistance to its infringing users; (4) the defendant had ensured that its F. Supp. 2d 398 (S.D.N.Y. 2011) See id. at 424 ( In Grokster, the Supreme Court confirmed that inducement of copyright infringement constitutes a distinct cause of action. ) Cf. Viacom Int l Inc. v. YouTube, Inc., 718 F. Supp. 2d 514, 529 (S.D.N.Y. 2010) (using 512(c) as a threshold test for liability) For a discussion of the purposes of the DMCA, see supra Part I.B. For a discussion of recent inducement case law, see supra Part II See Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 941 (2005) See Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 419 F.3d 1005, 1007 (9th Cir. 2005) Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 454 F. Supp. 2d 966, 984 (C.D. Cal. 2006) Id. at