“Notes and Questions” About the UMG v. Shelter Capital Case (Excerpt from my Internet Law Reader)

By Eric Goldman

As I previously mentioned, I have posted my Internet Law reader as a $7.50 download. In connection with adding the UMG v. Shelter Capital case, I completely redid the “Notes and Questions” section following the edited case. I’m teaching the materials now in my Internet Law class, and I thought you might be interested in seeing an excerpt of the reader’s discussion about the case and 17 USC 512 generally:

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NOTES AND QUESTIONS

Viacom v. YouTube. After this ruling, the Second Circuit issued its opinion in Viacom v. YouTube, dealing with similar facts. Viacom Intern., Inc. v. YouTube, Inc., 676 F.3d 19 (2d Cir. 2012). The opinion is mostly consistent with the Ninth Circuit’s UMG opinion, but it expressly disagreed with the Ninth Circuit regarding the safe harbor’s meaning of “right and ability to control”—saying the concept “involve[s] a service provider exerting substantial influence on the activities of users, without necessarily—or even frequently—acquiring knowledge of specific infringing activity.” This standard is vague and opaque, leaving lots of room for future arguments. The Second Circuit also more expressly acknowledged that a service provider’s willful blindness could defeat the safe harbor; but as with the “right and ability to control” phrase, the opinion didn’t define what behavior constitutes willful blindness.

In light of the Viacom v. YouTube ruling, the Ninth Circuit asked the litigants in UMG v. Shelter Capital to submit briefs on whether it should modify the opinion you just read. As of August 2, 2012, the Ninth Circuit had not amended its opinion, but that remains a possibility as of press time.

The Viacom v. YouTube litigation is especially puzzling because the litigants have so much incentive to work together rather than fight each other. Indeed, Viacom has acknowledged that it has no objections to YouTube’s practices since May 2008, when YouTube deployed more aggressive technology filters. Indeed, Viacom currently heavily uses YouTube to promote its offerings. So what’s the problem that needs to be resolved in court?

Takedown Notices. Why didn’t UMG just send Veoh proper takedown notices instead of suing it in court? If UMG had sent proper takedown notices, what do you think Veoh would have done with them?

Red Flags of Infringement. What, exactly, constitutes a “red flag” of infringement? If a website provides a tool letting users report problems with content, and one user flags another user’s content item as infringing, does the website have a “red flag” of infringement—and if so, of what?

The Challenges of Determining Infringement. Viacom’s marketing team and affiliates uploaded videos to YouTube for their marketing benefit. In some cases, Viacom deliberately altered clips to look like an unauthorized upload to make it look more interesting to viewers. The Viacom legal team would complain about clips posted by Viacom’s marketing team because they wouldn’t realize the uploads were authorized. If Viacom’s legal team doesn’t know that some clips were authorized by its own marketing department, how is YouTube supposed to know?

Also, Viacom routinely acquiesced to leaving up user-posted video clips, but it constantly changed its acquiescence policy—and never disclosed the policy to YouTube. If Viacom is constantly changing its mind about which user postings it objects to, how is YouTube supposed to know?

Also, Viacom TWICE withdrew clips from its complaint which it subsequently determined weren’t infringing. If Viacom’s litigators can’t figure out which clips are infringing well enough to file an accurate complaint—when they have full access to Viacom’s information and its lawyers are under Rule 11’s investigatory duty—how is YouTube supposed to figure it out?

Willful Blindness. The UMG court hints that a service provider’s willful blindness would disqualify it from the statute. What types of actions on a service provider’s part might satisfy the Ninth Circuit that the service provider engaged in willful blindness? Note the statute and caselaw already cover other scienter standards, including “actual knowledge,” “red flags” and “inducement.” What’s left for “willful blindness” to address?

Copyright Owner Over-Claiming. Does it strike you as odd that UMG took the position that Veoh couldn’t advertise the availability of material from 50 Cent, Avril Lavigne and Britney Spears, even though UMG did not completely control those artists’ catalogs?

Wordsmithing. Does it strike you as odd that the court effectively concludes that the phrase “right and ability to control” means something different depending on whether it’s being used in the common law test for vicarious copyright infringement or in the safe harbor statute?

Investor Liability. Why weren’t the investors automatically protected by the corporate veil? If you were a potential investor in a new user-generated content website, would this ruling deter you from making the investment? See Michael A. Carrier, Copyright and Innovation: The Untold Story, 2012 WISC. L. REV. ___ (forthcoming).

Discovery Implications. Imagine that you are a copyright owner’s counsel. In light of this opinion, what kinds of onerous discovery requests might you legitimately make of a service provider defendant? What kinds of onerous discovery requests might you legitimately make of the service provider’s investors?

Denouement. In this opinion, the Ninth Circuit declares that Veoh properly complied with the legal expectations of Congress. This is great news for Veoh, right? Yes, except that Voeh’s litigation costs for this and other cases (such as Io v. Veoh) drained its bank account, forcing Veoh to shut down—meaning its investors lost their investment, its employees lost their jobs, and users who uploaded videos to Veoh had those videos taken offline. So the case produces an anomaly: the courts gave Veoh a clean bill of health, but getting that clean bill of health killed Veoh.

Indeed, Google has disclosed that it spent $100 million on litigation costs in Viacom v. YouTube up to the point it filed its summary judgment motions. Obviously, it has spent more—much more—on legal fees since making those filings. Google can afford to spend over $100M defending YouTube, but smaller market players—like Veoh—can’t.

What implications might these facts (i.e., Veoh is legal but dead) have for the proper design of immunities and safe harbors? Compare the litigation costs associated with the 47 U.S.C. § 230 immunity discussed later in the casebook.