to Individuals and Small Businesses That Operate on the Internet

40 THE Online Copyright Infringement: Minimizing Exposure to Individuals and Small Businesses That Operate on the Internet by Lawrence A. Waks, JeffERy R. Johnson & Emilio B. Nicolas With the advent and rapid global expansion of the Internet, increasingly, individuals and small businesses, knowingly or not, are exposing themselves to potential liability for copyright infringement. 1 This is in spite of the various legal and practical measures potentially available to such individuals and entities for minimizing their exposure to liability, including a decade-old federal statute enacted specifically to address copyright infringement liability online. But for individuals and small businesses to take advantage of these preventative measures, they must first be aware of their risk of exposure to liability for copyright infringement, what legal and practical protections are available, and how best to incorporate those preventative measures into their business plans and online activities on a cost-effective basis. This article explores a few key strategies. 2 I. Copyright Infringement and the Internet It is estimated that the great majority of small businesses in the United States have their own Internet websites. 3 And the vast majority of those small businesses with websites derive at least some portion of their revenues from their online activities. 4 These numbers are certain only to increase in the future. In addition, with faster and easier access to the Internet, individuals have markedly increased the extent of their online presence and have changed the nature of their Internet activities. These varied activities range from email and messaging to running and operating websites and web logs (commonly called blogs ). Individuals are also increasingly becoming creators of uploaded Internet content and not merely consumers of downloadable Internet material. With this ever-growing presence on the Internet and with greater online interaction comes increased (and increasing) potential liability for copyright infringement. And while With this ever-growing presence on the Internet and with greater online interaction comes increased (and increasing) potential liability for copyright infringement. defending a copyright lawsuit can be expensive even for large companies, it can be nothing short of devastating for small businesses and individuals. This fact, combined with the potential for significant damage awards, makes it necessary for these entities to understand fully the risks they face as a result of their online activities and to adopt appropriate measures to protect themselves. 5 A. Direct Copyright Infringement Small businesses and individuals operating on the Internet can be liable for either direct or indirect infringement under certain circumstances. The defenses available to them depend on the type of infringement that is being asserted. Direct copyright infringement arises when a person or entity violates any of the exclusive rights of a copyright owner identified in the 1976 Copyright Act. 6 To prevail on a claim for direct infringement, a plaintiff must prove the following: (1) the plaintiff owns a valid copyright, (2) the defendant factually copied the protected elements of the copyrighted work, and (3) the copyrightable expressions of the copyrighted work and the allegedly infringing work are substantially similar to each other. 7 The first element, ownership of a valid copyright, is established by proving the originality and copyrightability of the material and compliance with the statutory formalities. 8 Factual copying, the next element, can be proved by direct or circumstantial evidence. 9 As direct evidence of copying is rarely available, factual copying may be inferred from (1) proof that the defendant had access to the copyrighted work prior to the creation of the infringing work and (2) probative similarity. 10 Probative similarity refers to a finding of any similarities between the two works (whether substantial or not) that, in the normal course of events, would not be expected to arise

THE 41 independently in the two works and that therefore might suggest that the defendant copied part of the plaintiff s work. 11 And the final element, substantial similarity, requires a showing that, in viewing the two works side-by-side, a layman would find that the copyrightable elements of the two works are sufficiently alike that the copyright to the original work has been infringed. 12 Since direct copyright infringement is a strict liability tort, whether the infringement was intentional (or whether the individual or entity even knew that the infringement was occurring) is irrelevant for purposes of liability. Clearly, as it relates to the Internet, this fact is potentially of huge importance both to those that operate websites or blogs to which others can post content and to those that unknowingly post potentially copyrighted content to the Internet. The bottom line is that, under the Copyright Act, if a website user or blogger posts copyrighted material to a website, the poster and the owner of the site can be liable for copyright infringement. B. Indirect Copyright Infringement Although not the direct infringer, a person or entity who participates in the act of infringement may be held liable for indirect copyright infringement. There are two main theories of indirect infringement liability: contributory and vicarious. 13 1. Contributory Infringement Contributory copyright infringement is the act of participating in, or contributing to, the infringing acts of another. To prevail on a claim for contributory infringement, the plaintiff must prove the defendant (1) knew or had reason to know of a direct infringement and (2) intentionally induc[ed] or encourage[d the] direct infringement. 14 From this, the courts and legal scholars have identified two contexts in which contributory infringement may arise: when the defendant s personal conduct... forms part of or furthers the [direct] infringement, and when the defendant contributes machinery or goods that provide the means to infringe. 15 2. Vicarious Infringement Vicarious copyright infringement allows the imposition of liability when the defendant (1) profits directly from the infringement, and (2) has a right and ability to supervise the direct infringer, but declines to exercise that right and ability to stop or limit the infringement. 16 It is immaterial whether the defendant initially lacks knowledge of the infringement. 17 C. Potential Remedies for Copyright Infringement In the event of a finding of liability for copyright infringement, the prevailing plaintiff may be entitled to substantial relief from the court. In terms of money, the plaintiff may elect to recover (a) actual damages plus any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages or (b) the frequently more appealing statutory damages. 18 If the plaintiff elects to recover statutory damages, then the amount recoverable ranges from $750 to $30,000 for each work that has been infringed, with determination of the amount made at the discretion of the court. 19 Upon a finding that the defendant s infringing conduct was willful, the statutory range increases from a maximum of $30,000 to $150,000. In addition to monetary damages, the prevailing plaintiff may be entitled to reimbursement of its attorneys fees and costs, 20 injunctive relief, 21 as well as the impounding, disposal, seizure and/or destruction of the infringing works and devices. 22 Criminal liability is also a possibility, 23 although the criminal prosecution of a copyright infringer tends to be infrequent, it is certainly not unheard of. 24 D. Placing Personal and Business Relationships in Jeopardy In addition to incurring personal liability, individuals and small businesses may be placed in the uncomfortable position of exposing their own clients and colleagues to liability. Often, the identity of a direct infringer (such as an individual who posts infringing material to a website) is unknown, while the identity of an indirect infringer (such as the owner or operator of the website to which the infringing material was posted) can easily be determined by, for example, conducting a WHOIS search. 25 To identify the direct infringer, the DMCA permits a copyright owner to request the clerk of any United States district court to issue a subpoena to a service provider for identification of an alleged infringer... without having to file a lawsuit. 26 Alternatively, the copyright owner may file an ex parte discovery lawsuit against the indirect copyright infringer (commonly referred to as a John Doe suit ) to obtain the identity of the direct infringer, usually by way of a subpoena issued pursuant to Rule 45 of the Federal Rules of Civil Procedure. 27 But regardless of the means by which it is accomplished, the end result is that individuals and small businesses that fail

42 THE to take preventative measures against copyright infringement liability may compromise their personal and/or business relationships with clients and colleagues who wish to maintain their anonymity. 28 II. Preventative Measures for the Avoidance of Copyright Infringement Liability But while the Internet has brought with it heightened risk of copyright infringement liability, there are protections that small businesses and individuals can employ to help decrease the risk associated with having an online presence. The rapid expansion of the Internet as an important avenue of commerce has also led to significant changes in substantive copyright law. There now exist additional measures that businesses and individuals can take to prevent copyright infringement lawsuits or to ensure that those lawsuits can be resolved more quickly and less expensively. Small businesses and individuals that see the Internet as a potential source of additional revenue and individuals that desire to fully partake in current online capabilities and offerings need to be aware of the risks associated with such activities and the ways in which the law can protect them (and the ways in which it does not). A. Content Rights Clearance Before placing any content on a website (including, without limitation, music, videos, graphics, photographs, text, and the design of the website itself), it should be a standard operating procedure for any small business or individual with an online presence to identify and secure the written permission of the owner of such content. To identify the copyright owner of a particular work, the individual or small business should retain the services of an experienced intellectual property attorney 29 and/or a reputable copyright title search company. If it is not possible or practical to identify and secure the written permission of the owner of certain content, then the individual or small business should reconsider making any use of such content. It is dangerous for a website owner to assume that title to content is free and clear just because the content was created by or at the direction of the website owner. Generally, copyright ownership subsists in the author (or co-authors) of a copyrightable work. 30 However, as with almost any general rule, there is an exception. Under the work-made-for-hire doctrine, copyright ownership in a particular work automatically devolves to the employer (not the actual author of the work) when the work is prepared by an employee within the scope of his or her employment. 31 Similarly, works specially ordered or commissioned for [such limited] use[s] as a contribution to a collective work, [or] as part of a motion picture or other audiovisual work..., the independent contractor (as the actual author of the work), not the principal, is deemed the copyright owner, unless the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. 32 Accordingly, if, for example, an individual or small business contracts with an independent contractor to develop and design its webpage without a signed written agreement, then the independent contractor, not the individual or small business, may own the copyright in and to the design of the webpage. As the copyright owner, the independent contractor could, in his or her sole discretion, limit the individual s or small business s use or control of the webpage. It is also dangerous for a website owner merely to assume that certain content is subject to fair use or the public domain. Fair use is an affirmative defense to copyright infringement that is often reduced to a question of fact. Accordingly, the mere assumption that the use of certain content on a website is fair might only be confirmed after exposure to a costly suit for copyright infringement. Although a certain work may exist in the public domain, the particular version of that work being used in connection with the website may, in fact, be a derivative work that incorporates new elements that do not exist in the public domain. For example, to liven-up his website, the owner of a website dedicated to American politics might upload a recording of Jimi Hendrix s classic Woodstock performance of Francis Scott Key s 1814 musical composition Star Spangled Banner thinking the song exists in the public domain and consequently has no owner. Although the musical composition Star Spangled Banner exists in the public domain and, as a result, is no longer subject to copyright protection, Jimi Hendrix s recorded performance thereof does not exist in the public domain because sound recordings are themselves subject to copyright protection. 33 Accordingly, the use of a work known to exist in the public domain may still be restricted when the particular version of that work being used contains additional material contributed by another author. 34 B. DMCA Compliance In 1998, Congress enacted the Digital Millennium Copyright Act ( DMCA ) to provide immunity to service providers from copyright infringement liability for passive, automatic actions in which a service provider s system engages through a technological process initiated by another without the

THE 43 knowledge of the service provider. 35 Title II of the DMCA added Section 512 to the 1976 Copyright Act, thereby creating four affirmative defenses (or safe harbors ) for qualifying service providers, as that term is defined under 17 U.S.C. 512(k)(1). 36 Although not an absolute defense to copyright infringement, the safe harbors can significantly limit the amount of liability a defendant service provider may incur. 37 Whether a person or small business qualifies as service provider is a question of law. 38 However, at this writing, not enough case law exists to delineate with much precision what does and does not fall within the definition of a service provider. Accordingly, since the cost to comply with the DMCA is generally negligible, a website owner would be wise to comply with it. To take shelter in a DMCA safe harbor, the person or small business must satisfy the threshold conditions of 17 U.S.C. 512(i), as well as the statutory preconditions of each individual safe harbor as provided under 17 U.S.C. 512(a)- (d), respectively. Specifically, a qualifying service provider should satisfy the following statutory measures: Adopt, reasonably implement, and inform subscribers and account holders about a policy that provides for the termination of subscribers and account holders of the service provider s system or network who are repeat infringers whenever the service provider has knowledge of such infringements on its system or network. 39 A service provider may have knowledge of infringing activity when it knows or should know that infringing material exists on its system or network, 40 or when it receives a cease-and-desist letter (or DMCA takedown notice) that substantially complies with the notice and takedown procedures of 17 U.S.C. 512(b)(2)(E), (c)(3) and/or (d)(3). Implement a working DMCA takedown notification system that (1) allows copyright owners to collect information from the service provider that is necessary for the issuance of a statutorily compliant DMCA takedown notice, (2) sets forth a standard internal procedure for receiving and immediately responding to a DMCA takedown notice, regardless of whether the DMCA takedown notice is statutorily compliant, and (3) permits the service provider to identify and track infringers and infringing materials from its system or network. 41 [A]ct[] expeditiously to remove, or disable access to, any infringing material on the service provider s system or network that may be infringing or the subject of an infringing activity. 42 Avoid receiving any financial benefit [that is] directly attributable to the infringing activity.... 43 In other words, the service provider should avoid attracting or otherwise drawing subscribers and account holders to its system or network for the purpose of engaging in infringing activities. 44 Designate an agent to receive DMCA takedown notice (i.e., a DMCA agent), and register said DMCA agent s contact information with the Register of Copyrights. 45 If a DMCA takedown notice does not comply with the statute, then promptly contact and provide the sender with assistance in re-submitting a new, statutorily compliant DMCA takedown notice. 46 In addition to the foregoing statutory requirements, the service provider should also consider taking the following preventative measures: Designate a single individual in house (preferably the service provider s DMCA agent) to handle all DMCA takedown notices. This individual can be an administrative assistant who performs the additional function of receiving DMCA takedown notices and then directs those notices to the service provider s in-house or outside legal counsel for immediate investigation and response. Maintain a paper trail. In other words, keep a standard DMCA log of all matters concerning the receipt and handling of each and every DMCA takedown notice, regardless of whether the notice complies with the statute. Important information may include names, contact information, dates, times, descriptions and locations of infringing activities and materials, mail matter (including envelopes, certificates, and return receipts (or green cards)), and actions taken. Treat each and every DMCA takedown notice with great importance. Failure to respond properly to even one notice could prevent the service provider from taking shelter in a safe harbor and, thus, subject the service provider to monetary damages for copyright infringement. 47

44 THE C. Marketing Many websites that are established and designed for legitimate, lawful purposes are also used, at least to some extent, for unlawful ends (including to infringe copyrights). Such was the case in the U.S. Supreme Court s recent decision, Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005). In Grokster, the distributors of P2P file-sharing networks similar to Napster the notorious file-sharing service... [that] was sued by copyright holders for facilitation of copyright infringement were found liable for indirect copyright infringement because, among other things, they had marketed themselves as the alternatives to Napster. 48 Accordingly, individuals and small businesses alike should heed the following warning: If your website has alternative lawful and unlawful uses, then minimize those illicit uses, to the extent possible, and at the very least, do not market or otherwise draw attention to them. D. Defending Suit in a Foreign Locale Arguably as important as whether a website owner will be subject to copyright infringement liability, is where such liability will be adjudicated. Not only can location impact how a suit for copyright infringement will be adjudicated, 49 but it can also increase the cost of defending suit. Depending on the defense strategy being employed, additional costs to defend suit in a foreign locale may include travel costs for the defendant and testifying witnesses, the cost to retain local counsel, and, as is common in multi-jurisdictional litigation, the additional cost of researching and arguing which jurisdiction s law will apply to any given substantive or procedural issue of law. The issue of where the adjudication of a copyright infringement suit will take place is always a concern when dealing with a website because personal jurisdiction in the context of online activities is generally determined by the level of interactivity and the commercial nature of the exchange of information that occurs on the website [in question]. 50 Accordingly, the more interactive the website, the more likely it will be subject to the personal jurisdiction of a foreign locale. To help reduce the likelihood of being subjected to the personal jurisdiction of a foreign locale, the individual or small business with an interactive website should consider requiring all visitors to accept a click-through agreement containing a forum selection clause before they can access the website. Such red tape, however, may deter individuals from visiting the website and, thus, defeat the need for having a website in the first place. Accordingly, if the idea of a click-through agreement is undesirable, then the only alternative available may be to significantly reduce or otherwise eliminate the interactive component of the website. E. Insurance and Retainers In addition to the foregoing legal measures on can take, to help ease the financial burden of defending a suit for copyright infringement, a website owner or operator should secure an insurance policy that will cover claims of copyright infringement (as well as claims affecting other proprietary and personal rights) arising from or in connection with his website. An insurance provider may provide for such coverage in its standard errors and omissions (or E&O) insurance policy, or it may have a separate policy designed specifically for websites and other online activities. Also, the individual or business should retain the services of an experienced intellectual property attorney preferably a litigator to handle any concerns or disputes that demand immediate attention. That way, time is not wasted searching for and initially consulting with an attorney who will likely need time to become familiar with the website (including its purpose and function) and the other relevant facts. I. Final Thoughts Obviously, the greatest preventative measure for avoiding copyright infringement liability is to not do it in the first place. However, given the ever-increasing flow of content both online and offline, that is easier said than done. Individuals and small businesses must make conscientious decisions about their online activities, and carefully consider all content they place or allow others to place on their websites. Although the preventative measures mentioned herein will not guaranty complete insulation from copyright infringement liability, they will certainly improve those chances of avoiding suit for infringement, minimizing the cost of such actions, and successfully defending against them. Lawrence A. Waks is a partner in the Austin, Texas office of Jackson Walker L.L.P. As both a litigator and transactional attorney, Mr. Waks represents a broad range of domestic and international clients in the entertainment, media, publishing, advertising, communication, high tech, biotech, and energy industries. Jeffery R. Johnson is an intellectual property litigator in the Austin, Texas office of Jackson Walker L.L.P. Emilio B. Nicolas is an entertainment and media law attorney in the Austin, Texas office of Jackson Walker L.L.P. O