Secondary Liability & ISP Liability Limitations Ben Hardman Attorney - Advisor Office of Intellectual Property Policy & Enforcement USPTO

6/2/20152 Secondary Liability What is secondary liability? –Secondary liability is when one party is held legally responsible for the actions of another party. What is the justification for secondary liability? –When by virtue of their relationship with the actor or their relationship to the harm, a third party benefits from or contributes to the exploitation of a copyrighted work.

6/2/20153 Two Types of Secondary Liability Vicarious Liability (Based on control) –Right and ability to control, and –Direct financial interest Contributory Liability (Based on culpable acts) –Knows or has reason to know of infringement, and –Induces, causes, or materially contributes to the infringing conduct of another.

6/2/20154 Vicarious Liability Two requirements –The right and ability to control Lack of a legal right to control does not defeat liability. Unsuccessful attempts to control do not defeat liability. –A direct financial interest Percentage of profits from infringing sales Infringing goods “draw” customers to a venue.

6/2/20155 Venues that Facilitate Infringement The “Landlord Cases” - The defendant rents space in an apartment or a building to an infringer. –Secondary liability often avoided. –Secondary liability may attach in unusual cases. Defendant received rent based upon a percentage of the infringer’s sales or profits. Infringing goods might have drawn more customers to the defendant’s store.

6/2/20156 Venues that Facilitate Infringement The “Dance Hall” Cases – Defendant owns a facility at which musicians perform protected works for customers. Cases involved dance halls, restaurants, race tracks. Many did not separately charge customers for listening to infringing performances. Vicarious liability was often imposed. Courts often found an ability to control even if musicians were “independent contractors.”

6/2/20157 Venues that Facilitate Infringement The “Swap Meet” Cases – Defendant operated a market at which vendors sell infringing goods. Cases often involved informal “flea markets” that charged vendors a fee to sell goods to customers attracted to the market Vicarious liability was often imposed. –Market operators benefited when infringing goods acted as a “draw” to attract customers to the market (e.g. increases in admission fees, concession stand sales, and parking fees).

6/2/20158 Contributory Liability Two requirements –An act The Defendant’s own act must cause, encourage, or materially contribute to the infringing conduct of another. –A culpable mental state. Intent: The Defendant intended to encourage infringement. Knowledge: The Defendant knew that his act would encourage infringement. Recklessness/Constructive Knowledge: The Defendant should have known that his act would encourage infringement.

6/2/20159 Devices that Facilitate Infringement Devices like photocopiers or VCRs can enable consumers to make infringing copies of protected works. Distributors cannot control how customers will use the devices (Vicarious Liability), but they will know (Contributory Liability) that some users will infringe. –Vicarious liability might be too easy to avoid. –Contributory liability might attach too easily.

6/2/ Devices that Facilitate Infringement Sony – Should distributors of VCRs be held secondarily liability when consumers use VCRs to videotape free over- the-air broadcast television programs for later viewing. The Supreme Court held that the test for secondary liability for distributors of copying devices must “strike a balance.” –It must leave rightsholders with a practical ability to impose secondary liability in appropriate cases. –It must not let rightsholders control commerce “substantially unrelated” to infringement.

6/2/ Devices that Facilitate Infringement Sony tried to strike this balance by importing and modifying the substantial-noninfringing-use rule that Congress had codified in the Patent Act. The Sony test: If a device is capable of “substantial” or “commercially significant” noninfringing uses, knowledge that some of its users will infringe will not subject its distributor to contributory liability.

6/2/ Devices that Facilitate Infringement In MGM v. Grokster, lower courts held that distributors of the Morpheus and Grokster software that used a decentralized file-sharing system could not be held secondarily liable. Vicarious liability could not attach because the distributors did not control a centralized indexing system listing all files available for users. Once the software was distributed, users shared files directly with other users. Contributory liability could not attach because Sony precluded liability if a device was capable of substantial noninfringing use.

6/2/ Devices that Facilitate Infringement The Supreme Court reversed, unanimously: It held that even if devices can pass the Sony test, their distributors will be secondarily liable if they “intentionally induce” infringing use of those devices. Thus, where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, the Sony rule will not preclude liability.

6/2/ Devices that Facilitate Infringement The Supreme Court found “unmistakable” and “unequivocal” evidence that the distributors of Grokster and Morpheus software intended to induce infringement. The Court inferred intent from evidence in the record; three types of evidence of intent were “particularly notable.” –First, they provided former Napster users with software that “functions as Napster did.” –Second, they had not used “filtering tools or other mechanisms to diminish the infringing activity using their software.” –Third, “the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing.”

6/2/ Internet Service Provider Internet Service Provider (ISP) – Includes any entity that provides “online services or network access, or the operator of facilities thereof.” Safe Harbors are only available to ISPs who: –adopt, reasonably implement, and inform subscribers of a policy of terminating service to users who are repeat infringers, and –accommodate and do not interfere with “standard technical measures,” that protect or identify copyrighted works.

6/2/ Safe Harbor – Hosting § 512(c) protects providers that host infringing materials if they: –Host infringing material at the direction of a third party; –Lack knowledge that the material, or uses of it, are infringing, or act expeditiously to remove it after acquiring such knowledge; –Do not receive a financial benefit directly attributable to infringement that the provider has a right and ability to control; and –Respond expeditiously to a notice-and-takedown request.

6/2/ Safe Harbor – Information Location Service § 512(d) protects providers that provide information- location tools that refer or link to infringing materials if they: –Lack knowledge that the material, or uses of it, are infringing, or act expeditiously to remove it upon acquiring such knowledge; –Do not receive a financial benefit directly attributable to infringement that the provider has a right and ability to control; and –Respond expeditiously to a notice-and-takedown request.

6/2/ Notice and Takedown To claim the benefits of most safe-harbors, an ISP must designate an agent to receive notices of alleged infringement and provide contact information to the public and the U.S. Copyright Office. 37 CFR § The designation must include “the name, address, phone number, and electronic mail address of the agent” Examples of agent designations are available from Copyright Office’s listing of designated agents at

6/2/ Notice and Takedown § 512(c)(3) provides that a written communication to a provider’s designated agent triggers notice- and-takedown obligations if it: –Contains a physical or electronic signature of a person who states under penalty of perjury that they are authorized to act on behalf of the relevant copyright holder; –Identifies, or provides a representative list of, the works claimed to have been infringed;

6/2/ Notice and Takedown –Provides “information reasonably sufficient to permit” the provider to locate the material; –Enables the provider to contact the complaining party; and –States that the complaining party has a good- faith belief that the use of the material complained of is not authorized by the rightsholder or the law.

6/2/ Notice and Takedown A notice must “substantially” comply with all of these criteria. An adequate notice or appropriate knowledge triggers a duty to “expeditiously” remove or disable access to infringing materials.

6/2/ Counter-Notice Hosting-service providers receiving a takedown notice must also: –(1) try to notify the subscriber that its hosted materials have been taken down; –(2) provide any counter-notice received from that subscriber to the complaining party and notify it that the disputed materials will be replaced or restored in 10 days; and –(3) replace or restore access to disputed materials no earlier than 10 and no later than 14 days after receiving the counter-notice unless the complaining party notifies the provider that it has sued the allegedly infringing subscriber. Requirements for a valid counter-notice are similar to those for a notice.

6/2/ Liability Limitations No monetary damages for: –Infringement by customer –Take down (or put back up), by ISP Injunctions still available

6/2/ Notice / Counter-Notice Statistics IIPA reports that during the 18-month period including 2001 and the first half of 2002, the four major associations of U.S. rightsholders sent about 158,300 notices of alleged infringement to ISPs. During this period, these rightsholders received only 13 counter-notices, so only 0.008% of notices were contested by the alleged infringer. Notice and Takedown has been very successful at halting infringement and limiting the need for lawsuits against Internet users.

6/2/ The Information-Subpoena Process § 512(h) provides a legal process to require ISPs to identify allegedly infringing users of their networks or services. A U.S. District Court clerk must “expeditiously” issue a subpoena that rightsholders must deliver to an ISP. The subpoena request must include: –A copy of a takedown notice, a proposed subpoena; and –A sworn declaration that the subpoena is to identify an alleged infringer and that any information obtained will be used only for that purpose.

6/2/ Conclusion Laws like the DMCA will only deter piracy and promote cooperation if they operate against a strong, flexible civil-enforcement system. –Rogue ISPs that intend to encourage piracy must still be deterred. –ISP-liability limitations cannot encourage cooperation unless the failure to cooperate has consequences.

6/2/ THANK YOU Ben Hardman Attorney - Advisor Office of Intellectual Property Policy & Enforcement USPTO