Class 18 Copyright, Autumn, 2016 Third-Party Liability 9/20/2018 Class 18 Copyright, Autumn, 2016 Third-Party Liability Randal C. Picker James Parker Hall Distinguished Service Professor of Law Ludwig & Hilde Wolfe Teaching Scholar The Law School The University of Chicago

Third Party Liability Relevant Law 9/20/2018 Third Party Liability Relevant Law Two Step Process Establish primary liability Establish secondary liability of third party September 20, 2018

Third Party Liability Relevant Law 9/20/2018 Third Party Liability Relevant Law Copyright Act does not explicitly render anyone liable for infringements committed by another Contrast to Patent Act, which does Common Law in the Copyright Context September 20, 2018

Evaluating Different Uses 9/20/2018 Evaluating Different Uses Time Shifting Private home copying: watch and re-record Librarying Private home copying for repeated viewing Copying Business Copy off the air and rent/sell tapes for home consumption September 20, 2018

Consent to Use How should we evaluate consent to use in this case? 9/20/2018 Consent to Use How should we evaluate consent to use in this case? Mr. Rogers: “You are an important person just the way you are. You can make healthy decisions.” September 20, 2018

Evaluating Fair Use Doing the four factors: 9/20/2018 Evaluating Fair Use Doing the four factors: 1. The purpose and character, including whether the use is commercial 2. Nature of the copyrighted work 3. Amount of the work used in relation to the copyrighted work as a whole 4. The effect on the potential market for or value of the copyrighted work September 20, 2018

Evaluating Fair Use Across the Three Cases 9/20/2018 Evaluating Fair Use Across the Three Cases Factors 2 and 3 will be unchanging 1 and 4 may change from case to case Understanding Commercial Use An effort to make money vs. a transaction that substitutes for a commercial transaction September 20, 2018

Evaluating Fair Use The Potential Market Value of the Copyrighted Work 9/20/2018 Evaluating Fair Use The Potential Market Value of the Copyrighted Work The Broadcast TV Market Fast-forwarding over commercials? Repeats and syndication after first broadcast The Video Rental and Sales Market Doesn’t copying substitute directly for this market? September 20, 2018

Allocating Liability The Role of Third-Party Liability 9/20/2018 Allocating Liability The Role of Third-Party Liability When should we add third-party liability to first-party liability? Does that depend on how we enforce first-party liability? September 20, 2018

Two Theories Vicarious Liability 9/20/2018 Two Theories Vicarious Liability When one party has control over another and also enjoys a direct financial benefit from infringement No knowledge required. Flea market (control: kick them out; benefit: patronage) September 20, 2018

Contributory Copyright Infringement 9/20/2018 Contributory Copyright Infringement Statement of Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971): “[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.” September 20, 2018

9/20/2018 35 USC 271 (a) Except as otherwise provided in this title, whoever without authority makes, uses or sells any patented invention, within the United States during the term of the patent therefor, infringes the patent. September 20, 2018

9/20/2018 35 USC 271 (b) Whoever actively induces infringement of a patent shall be liable as an infringer. September 20, 2018

35 USC 271 (revised since Sony) 9/20/2018 35 USC 271 (revised since Sony) (c) Whoever sells a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer. September 20, 2018

The Sony Test Says the Court 9/20/2018 The Sony Test Says the Court “Accordingly, the sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.” September 20, 2018

9/20/2018 In Sony: Two Key Issues Third party liability, either vicarious or contributory Premised on underlying violation by consumers No underlying violation, as consumers engaged in fair use September 20, 2018

Design Incentives Hypo 9/20/2018 Design Incentives Hypo Suppose Sony could have spent $10 to eliminate all infringing uses of the VCR Under Sony, would it have an incentive to do so? September 20, 2018

The Design of the VCR Consider the design choices for the VCR: 9/20/2018 The Design of the VCR Consider the design choices for the VCR: Recorder rather than just pre-recorded tape player Fast forward button No capability for recognizing “jamming” signals to prevent recording Should Sony have been liable for these design choices? September 20, 2018

Design Incentives Hypo How would we revise Sony to address this? 9/20/2018 Design Incentives Hypo Suppose product generates $10 million in beneficial noninfringing uses and $1000 in infringing uses Suppose producer could spend $5 to eliminate $1000 in infringing uses How would we revise Sony to address this? September 20, 2018

9/20/2018 Use and Design Weak Relationship between Use-Based Tests and Design Incentives Sony: Substantial noninfringing uses So long as you have those, extent of infringing uses irrelevant No incentive to redesign to eliminate infringing uses September 20, 2018

Use and Design Primary Use Test 9/20/2018 Use and Design Primary Use Test Suppose no third-party copyright liability so long as primary use of product is noninfringing What incentives for design to eliminate infringing uses? Only at margin September 20, 2018

Use and Design Bottom Line? Address design duties separately from use 9/20/2018 Use and Design Bottom Line? Address design duties separately from use September 20, 2018

Limits of the Decision Justice Blackmun’s Second Footnote 9/20/2018 Limits of the Decision Justice Blackmun’s Second Footnote “This case involves on the home recording for home use of televisions broadcast free over the airwaves. No issue is raised concerning cable or pay television, or the sharing or trading of tapes.” What turns on the fact the broadcasts are free? September 20, 2018

Implementing Consent Should we implement a consent regime 9/20/2018 Implementing Consent Should we implement a consent regime for copying? for redistribution? Blackmun Again “Sony may be able, for example, to build a VTR that enables broadcasters to scramble the signal of individual programs and ‘jam’ the unauthorized recording of them” September 20, 2018

Copyright © 2005-07 Randal C. Picker 9/20/2018 Old-School Copying Facts A buys CD A plays it and uses a cassette tape recorder, over the air, to copy it on a cassette to listen in his car. What result for A? Copyright infringement? Fair use? Something else? September 20, 2018 Copyright © 2005-07 Randal C. Picker

New-School Copying, Circa 1987 9/20/2018 New-School Copying, Circa 1987 Facts A buys CD A establishes a direction digital connection between CD player and digital audio tape recorder and makes a copy What result for A? September 20, 2018 Copyright © 2005-10 Randal C. Picker

Copyright © 2005 Randal C. Picker 9/20/2018 Screen Capture Slide September 20, 2018 Copyright © 2005 Randal C. Picker

9/20/2018 17 USC 1008: “No action may be brought under this title alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analog recording device, or an analog recording medium, or based on the noncommercial use by a consumer of such a device or medium for making digital musical recordings or analog musical recordings.” September 20, 2018 Audio Home Recording Act of 1992

Copyright © 2005-07 Randal C. Picker 9/20/2018 Copying under the AHRA Three Types Analog Recording The old school original AHRA Digital Recording Recording that tracks the definitions set out in 1001 September 20, 2018 Copyright © 2005-07 Randal C. Picker

Copyright © 2005-07 Randal C. Picker 9/20/2018 Copying under the AHRA Non-AHRA Digital Recording All of the other digital recording September 20, 2018 Copyright © 2005-07 Randal C. Picker

Copyright © 2005-07 Randal C. Picker 9/20/2018 Protection under 1008 For consumers engaging in noncommercial use Of analog recording Of AHRA Digital Recording But No protection for Non-AHRA Digital Recording September 20, 2018 Copyright © 2005-07 Randal C. Picker

Diamond sells the Rio, an early MP3-player 9/20/2018 Diamond sells the Rio, an early MP3-player The RIAA challenges the Rio as violating the Audio Home Recording Act of 1992, which requires certain recording devices to include SCMS, the Serial Copy Management System. The Rio doesn’t include SCMS. The Act imposes a royalty system on targeted devices and copying media. September 20, 2018 RIAA v. Diamond, 180 F.3d 1072 (9th Cir. 1999)

9/20/2018 Diamond wins: “Under the plain meaning of the Act’s definition of digital audio recording devices, computers (and their hard drives) are not digital audio recording devices because their ‘primary purpose’ is not to make digital audio copied recordings.” September 20, 2018 RIAA v. Diamond, 180 F.3d 1072 (9th Cir. 1999)

9/20/2018 “In fact, the Rio’s operation is entirely consistent with the Act’s main purpose—the facilitation of personal use. As the Senate Report explains, “[t]he purpose of [the Act] is to ensure the right of consumers to make analog or digital audio recordings of copyrighted music for their private, noncommercial use.” S. Rep. 102-294, at *86 (emphasis added).” September 20, 2018 RIAA v. Diamond, 180 F.3d 1072 (9th Cir. 1999)

9/20/2018 “The Act does so through its home taping exemption, see 17 U.S.C. § 1008, which “protects all noncommercial copying by consumers of digital and analog musical recordings,” H.R. Rep. 102-873(I).” September 20, 2018 RIAA v. Diamond, 180 F.3d 1072 (9th Cir. 1999)

9/20/2018 “The Rio merely makes copies in order to render portable, or ‘space-shift,’ those files that already reside on a user’s hard drive. Cf Sony Corp. of America v. Universal City Studios, 464 U.S. 417 (1984) (holding that ‘time-shifting’ of copyrighted television shows with VCR’s constitutes fair use under the Copyright Act, and thus is not an infringement). Such copying is paradigmatic noncommercial personal use entirely consistent with the purposes of the Act.” September 20, 2018 RIAA v. Diamond, 180 F.3d 1072 (9th Cir. 1999)

9/20/2018 “For the foregoing reasons, the Rio is not a digital audio recording device subject to the restrictions of the Audio Home Recording Act of 1992. The district court properly denied the motion for a preliminary injunction against the Rio's manufacture and distribution.” September 20, 2018 RIAA v. Diamond, 180 F.3d 1072 (9th Cir. 1999)

9/20/2018 Source: http://www.apple.com/pr/library/2001/10/23Apple-Presents-iPod.html September 20, 2018

9/20/2018 “Napster contends that MP3 file exchange is the type of ‘noncommercial use’ protected from infringement actions by [Section 1008]. Napster asserts it cannot be secondarily liable for users’ nonactionable exchange of copyrighted musical recordings. … We agree with the district court that the Audio Home Recording Act does not cover the downloading of MP3 files to computer hard drives.” September 20, 2018 A&M Records v Napster, 239 F.3d 1004 (9th Cir. 2001)

9/20/2018 “We conclude that the district court did not err when it refused to apply the ‘shifting’ analyses of Sony and Diamond. Both Diamond and Sony are inapposite because the methods of shifting in these cases did not also simultaneously involve distribution of the copyrighted material to the general public; the time or space-shifting of copyrighted material exposed the material only to the original user.” September 20, 2018 A&M Records v Napster, 239 F.3d 1004 (9th Cir. 2001)

9/20/2018 “In Diamond, for example, the copyrighted music was transferred from the user’s computer hard drive to the user’s portable MP3 player. So too Sony, where ‘the majority of VCR purchasers . . . did not distribute taped television broadcasts, but merely enjoyed them at home.” September 20, 2018 A&M Records v Napster, 239 F.3d 1004 (9th Cir. 2001)

9/20/2018 “We find no error in the district court’s determination that plaintiffs will likely succeed in establishing that Napster users do not have a fair use defense.” September 20, 2018 A&M Records v Napster, 239 F.3d 1004 (9th Cir. 2001)

9/20/2018 “The record supports the district court’s finding that Napster has actual knowledge that specific infringing material is available using its system, that it could block access to the system by suppliers of the infringing material, and that it failed to remove the material.” September 20, 2018 A&M Records v Napster, 239 F.3d 1004 (9th Cir. 2001)

9/20/2018 “Here, plaintiffs have demonstrated that Napster retains the right to control access to its system. Napster has an express reservation of rights policy … . To escape imposition of vicarious liability, the reserved right to police must be exercised to its fullest extent. Turning a blind eye to detectable acts of infringement for the sake of profit gives rise to liability. …” September 20, 2018 A&M Records v Napster, 239 F.3d 1004 (9th Cir. 2001)

9/20/2018 “The district court correctly determined that Napster had the right and ability to police its system and failed to exercise that right to prevent the exchange of copyrighted material.” September 20, 2018 A&M Records v Napster, 239 F.3d 1004 (9th Cir. 2001)

9/20/2018 “Even when there are noninfringing uses of an Internet file-sharing service, moreover, if the infringing uses are substantial then to avoid liability as a contributory infringer the provider of the service must show that it would have been disproportionately costly for him to eliminate or at least reduce substantially the infringing uses.” September 20, 2018 In re Aimster Copyright Litigation, 334 F.3d 643 (7th Cir. 2003)

9/20/2018 “This appeal presents the question of whether distributors of peer-to-peer file-sharing computer networking software may be held contributorily or vicariously liable for copyright infringements by users. Under the circumstances presented by this case, we conclude that the defendants are not liable for contributory and vicarious copyright infringement and affirm the district court's partial grant of summary judgment.” September 20, 2018 MGM v Grokster, 380 F.3d 1154 (9th Cir. 2004)

Grokster in the Sup Ct Two Cuts 9/20/2018 Grokster in the Sup Ct Two Cuts Grokster loses 9-0 on an inducement theory We get a 3-3-3 decision on Sony Souter, Thomas & Scalia: 9th Cir wrong on Sony and no more Ginsberg, The Chief Justice & Kennedy: Liable under Sony Breyer, Stevens & O’Connor: Not liable under Sony September 20, 2018

Grokster Key Questions How does Grokster relate to Sony? 9/20/2018 Grokster Key Questions How does Grokster relate to Sony? What does it take to avoid liability under Grokster? September 20, 2018

Three Pieces of Evidence 9/20/2018 Three Pieces of Evidence 1. Satisfying known demand for copyright infringement Trying to get Napster users 2. Business model driven by advertising Turns on infringing high-volume use September 20, 2018

Three Pieces of Evidence 9/20/2018 Three Pieces of Evidence 3. Didn’t try to filter out infringing uses “Underscores … intentional facilitation of their users’ infringement” September 20, 2018

Three Pieces of Evidence 9/20/2018 Three Pieces of Evidence But See Footnote 12 “Of course, in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses. Such a holding would tread too close to the Sony safe harbor.” September 20, 2018