Tag: Cox

BMG Settles With Cox as Petitioner Asks Supreme Court to Interpret DMCA

On Saturday, Digital Music News reported that BMG Rights Management has reached a “substantial” settlement agreement with Cox Communications, thus ending a four-year legal battle that was teed up for a retrial in district court before the end of this month. In December of 2105, a jury awarded $25 million plus $8 million in fees to BMG, finding Cox guilty of contributory copyright infringement for the ISP’s role in the infringing activities of its customers.

For detailed discussion of this case, see posts here, here, and here.

Cox appealed to the 4th Circuit where most of its key defenses were rejected by the court with the exception of one procedural technicality—the instruction to the jury regarding the standard for contributory infringement. On that basis, the case was remanded for retrial, and in a new brief, Cox requested that copyright infringement not be referred to as “theft” or “stealing” during opening statements. Judge Liam O’Grady denied the request, writing, “Specifically, the Court does not find it appropriate to bar BMG from referring to copyright infringement as stealing, theft, or some other related term, as such language is not unduly prejudicial to Cox.” That news came on August 15th, nine days before the announced settlement agreement.

This case has been followed closely by both copyright advocates and digital rights groups as a potential landmark for online service providers with regard to their rights and responsibilities under the terms of the DMCA. Although Digital Music News is correct to report that a settlement does not render the force of legal precedent that a final decision in court would have, the fact-pattern and judicial opinions in BMG v. Cox will likely be instructive in future, similar litigation. Suffice to say, the general assumption that ISPs enjoy magical, blanket immunity vis-a-vis copyright infringement took a substantial beating at every phase of this case.

Evidence revealed that, by willfully avoiding any denial of service to repeat infringers, Cox vitiated its safe harbor under the DMCA. Its appeals to the “Sony standard” were rejected. Its attempts to redefine the term “repeat infringer” were rejected. Its claims to having no knowledge of infringing activity were rejected. And amici like EFF filing briefs in the case, asserting that denial of internet service for any reason was equivalent to cutting off someone’s access to water, were not persuasive due to the fact that account termination for repeat copyright infringement—if the ISP wants to be shielded from liability—is mandated by statute.

Most acutely, the facts, allegations, and defenses already presented and opined upon in this case do not bode well for Cox as it now faces a $1.5 billion lawsuit by several of the major record labels, including Sony, UMG, and Warner Music Group for “knowingly profiting from the infringing activity of its users.” It will be very interesting to see whether Cox even tries to fight this larger suit in court after the much smaller case has demonstrated how the narrative is likely to play out—and in the same circuit.

DMCA to SCOTUS?

In related DMCA news, pornographic producer Ventura Content has filed a petition for cert at the Supreme Court after the Ninth Circuit upheld a summary judgment in favor of the website Motherless, despite evidence that the site, like Cox, allegedly engaged in conduct that should have nullified the safe harbor shield. At the heart of the petition is Ventura’s assertion is that the Ninth Circuit in particular fosters “DMCA disarray” among various court interpretations of the statutes. “The result of the DMCA disarray is that abject bootlegging in the offline, brick-and-mortar world remains unlawful, but the same conduct online by and OSP-turned-publisher garners absolute summary judgment immunity,” the petition states.

Ventura alleges, for instance, that a split exists between the Ninth and other circuits with specific regard to the OSP’s requirement to maintain a repeat infringer policy, as was dispositive in Cox. The brief states …

“At root, the Second and Seventh Circuits have disallowed formulaic policies that allow OSPs to run brazen infringement machines and to purposefully engage in conduct to avoid knowledge—that is, behave like ostriches; in stark contrast, the Ninth Circuit in Ventura permitted a brazen infringement machine that is more actively involved in curating infringing content than even the business model this Court outright—and unanimously!—condemned in Grokster.”

Ventura argues that, after 20 years of “court gestation of online copyright standards,” it is time for the Supreme Court to provide guidance with a consistent reading of the statutes and to mitigate the unintended effect of the DMCA, which has too-often provided automatic immunity to online enterprises—an immunity that would never be afforded to organizations or individuals operating in the real world. While it is always a safe bet the Supreme Court will not grant cert, Ventura’s petition summarizes the frustration rightholders of every size have felt, watching some of the largest platforms in the world grow rich on the infringement of their works, all shielded by elastic interpretations of the DMCA.

4th Circuit Remands BMG v. COX, But …

Good news for authors, creators, and sanity was delivered yesterday by the 4th Circuit Court of Appeals. Despite remanding the case back to the district court for retrial on a specific matter of jury instruction, the opinion eviscerates two of COX’s most strained interpretations of copyright law, either of which could have had devastating effects for rights holders. BMG Rights Management sued ISP Cox Communications for contributory infringement in 2014 and was awarded $25 million in damages in December of 2015. Cox appealed, and these posts from January 2017 and November 2017 detail the company’s key defenses with my commentary.

DMCA Safe Harbor Still Doesn’t Apply

In its appeal, Cox argued that the district court erred in denying it the safe harbor defense as provided in the DMCA. As noted many times, despite the rhetoric of “digital rights” activists, the safe harbor is not unconditional; and one of the conditions is that a service provider must have a repeat-infringer policy in place that ultimately leads to account termination. The circuit court agreed with the lower court that Cox’s “thirteen-strike policy,” which only tended to lead to account reinstatement did not fulfill the intent of the DMCA that a policy should act as a deterrent to repeat infringement.

Most bizarrely Cox argued on appeal that the term “repeat infringers” in the statute could only mean people who’ve been held liable for multiple infringements in a court of law. As noted in my January 2017 post, this would be almost nobody since very few individuals are ever defendants in a single copyright infringement case, let alone one that actually goes to trial. The appeals court rejected Cox’s claim in less prosaic terms, including the citation of congressional reports on the drafting of DMCA, which the court summarizes thus:

“The passage does not suggest that they [users] should risk losing Internet access only once they have been sued in court and found liable for multiple instances of infringement. Indeed, the risk of losing one’s Internet access would hardly constitute a ‘realistic threat’ capable of deterring infringement if that punishment applied only to those already subject to civil penalties and legal fees as adjudicated infringers.”

Denied Appeal to Sony

The other extraordinary appeal by Cox was its assertion that the jury in the district court should have been instructed to consider the ISP’s protection under the principle established in the 1984 Sony case, namely that its internet service can be used for substantially non-infringing purposes. As explored at length in my November 2017 post, were Cox to prevail on this point, it would effectively immunize all internet providers against any form of liability for copyright infringement, and this begs the question as to why the ISPs petitioned for the DMCA safe harbors in the late 1990s if Sony had already established this immunity.

The 4th Circuit called Cox’s appeal to Sony “meritless,” stating that in Grokster (2005), the Supreme Court clarified that simply because a product is “capable of substantial lawful use,” this does not preclude the possibility that the producer or provider can never be held liable for contributory infringement. “Because the instruction Cox requested misstates the law, the district court did not err in refusing to give it [instruction to consider Sony],” states the opinion.

Remand for Retrial

Where the appeals court agreed with Cox, and the reason for remanding for retrial, was in regard to the district court’s instructions to the jury on the standard of intent for contributory infringement. Again citing Grokster the opinion quotes, “[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement.” Thus, the word intentionally suggests a distinction between “knowledge” of infringing activity (or any crime for that matter) and “negligence” that may cause a party to inadvertently contribute to criminal activity. Because the district court instructed the jury to consider whether “Cox knew or should have known of such infringing activity,” the circuit court held this to be in error. The term “should have known,” is described in the opinion as equivalent to “negligence,” which is often insufficient to establish secondary liability for criminal conduct.

It will be interesting to see whether Cox opts for a retrial or proposes a settlement. The facts presented have already been viewed by a district court judge, a jury, and now an appeals court panel as compelling evidence that Cox knew about repeat infringers and adopted a policy of avoiding account termination in its own financial interests. In fact, my favorite example cited in the 4th Circuit opinion is this one quoting a company email:

“But when Cox received another complaint, a manager directed the employee not to terminate, but rather to ‘suspend this Customer, one LAST time,’ noting that ‘[t]his customer pays us over $400/month’ and that ‘[e]very terminated Customer becomes lost revenue.’”

So, even with new jury instructions, evidence like this suggests Cox would have a hard time convincing anyone it had no knowledge of infringing activity. But the reason this quote is my favorite is that it’s a twofer—not only implicating an ISPs attempt to stretch the law beyond reason but also giving lie to so many rationalizations for media piracy by users. I mean this dude has the money to pay his ISP about $5,000 a year for bandwidth but won’t pay for music, movies, games, etc.? Damn that’s some big-ticket hypocrisy right there. He could probably pay an ISP about 35% of that total, acquire his entertainment legally, and still save money.

The Internet is Not a VCR

That may seem obvious, but if you’re an internet service provider who fails to uphold your end of the DMCA bargain, you’d sure like the courts to think of your service as analogous to the VCR. Certainly, this is fundamental to the appeal filed in the case of BMG v. Cox Communications, for which oral arguments were heard at the 4th Circuit on October 25.

In December of 2015, a jury awarded BMG $25 million in damages after finding Cox guilty of contributory copyright infringement committed by its customers. As a result of evidence demonstrating that Cox had taken affirmative action to avoid implementing a repeat-infringer policy,* the ISP was deemed to have nullified its “safe harbor” under the DMCA, which broadly protects ISPs against liability for copyright infringements committed by their users. Counsel for Cox has argued on appeal that had the jury been instructed to apply what’s known as the Sony-Betamax standard, the outcome might have been different.

Cox asserts that it cannot be held liable for contributory infringement for the same reasons that Sony Corp could not be held liable in 1984 when it was sued by Universal Studios for the production and sale of the Betamax video tape recorder. Specifically, Cox relies on the Supreme Court holding that because the Betamax could be used for “substantial non-infringing purposes,” Sony could not be held liable for contributory infringement even though the company knew that some customers would inevitably use its product to infringe.

Needless to say, internet access is used substantially for non-infringing purposes by millions of consumers, but that’s more or less where the comparison between the Betamax and an ISP ends. Cox is not the first internet service to try to make the Sony argument, and for good reason: because if it worked, no online service provider could ever be held liable for contributory copyright infringement. What’s funny about this, however, is that it was the ISPs themselves (ATT, Verizon, et al) who in the 1990s fought for the liability shield provisions in the DMCA that are at issue in this case. In other words, by Cox’s logic, those ISPs negotiated a statutory “safe harbor” provision against a liability that allegedly did not exist based on a Supreme Court decision in 1984.

The Sony Standard Has Already Been Defined

Unfortunately for Cox, the Supreme Court has largely answered the interpretation of Sony that they hope to apply in their defense. In MGM Studios v. Grokster (2005), the Court, for instance, clarified that the Sony standard does not preclude consideration of any evidence that may indicate knowledge of, or intent to induce or facilitate, infringement—even if the defendant’s product or service may be used for substantially non-infringing purposes.

In other words, the whole “non-infringing use” thing is not a blanket defense. In Sony, the knowledge of infringement was generalized (i.e. somebody somewhere would use VTRs to infringe); whereas in Grokster and other internet-based circumstances, the knowledge can be both specific and actively ignored or facilitated by the service provider. Hence, an important distinction in the Betamax ruling, which does not apply to ISPs, was that Sony’s relationship with its users ended with the purchase of the video recorder. Sony had no way of knowing, controlling, or influencing the infringing or non-infringing uses made by those customers, and so could not reasonably be held liable for contributory infringement.

But an ISP is exactly the opposite. The relationship with customers is continuous and interactive such that the ISP can know precisely how its service is being used by each individual. Were this not the case, the compromise proposals in the DMCA, which include a provision that ISPs maintain a policy for addressing repeat infringers, would not exist. And I repeat, these provisions were largely proposed by the ISPs themselves.

During oral arguments at the 4th Circuit, Judges Wynn and Shedd did grill BMG counsel rather strenuously on the subject of what defines a “repeat infringer.” In truth, this is a flaw with the DMCA, which actually fails to define a number of its terms, and these ambiguities  have inadvertently resulted in both ISPs and edge providers straining the intent of the law. A major reason for the lack of clarity in the statutes is that, constituent to the passage of the DMCA, Congress ordered both the ISPs and the rights holders to collaborate in good faith to develop technical solutions to mass infringement. That was a year before Napster provided a road map for just how lucrative third-party infringement could be for a platform that learned to exploit the imperfections of the DMCA. Enter YouTube.

As a matter of plain common sense, it ought to be clear to anyone without the slightest knowledge of copyright law that the internet is not a VCR. The Betamax and its subsequent VHS followers were devices with very limited applications, whether infringing or not. By contrast, nearly everyone uses the internet all day long for everything from checking the weather, conducting business, grocery shopping, streaming the news, and talking with friends and family.

Some have argued that our universal dependence on the internet means that nobody should ever be denied service for any reason, including repeat copyright infiringement. This is technically a separate debate which has been attached to the Cox/BMG case and asserted in other contexts by the EFF and similar “digital rights” organizations. Personally, I would argue that, at least in terms of of the DMCA and BMG’s claim, that the omnipresence of the internet only serves to vitiate Cox’s appeal to the very narrow Sony-Betamax standard, which was predicated on the very narrow purpose of that particular technology.

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* §512(i) of the 1998 Digital Millennium Copyright Act (DMCA) requires that ISPs implement policies to address repeat infringement, including account termination in reasonable circumstances.