DMCA Safe Harbor Applies to Some Unfair Competition Claims–Capitol Records v. Vimeo

You probably remember this case. Copyright owners sued the video hosting site Vimeo for third party uploaded videos that allegedly infringed their copyrights. Given this was the paradigmatic situation the DMCA safe harbor was designed to address, you’d think this would result in a quick-and-cheap defense win.

HA! This lawsuit was filed in December 2009, so it’s closing in on its decade anniversary. In 2013, the district court ruled that the DMCA safe harbor did not apply to state copyrighted works, including pre-1972 sound recordings. In an important ruling in 2016, the Second Circuit reversed that ruling, holding that the DMCA safe harbor did apply to state copyrights. The Second Circuit’s ruling had other provisions generally favorable to Vimeo.

On remand, Vimeo invoked the DMCA safe harbor to dismiss the unfair competition claims, which are based on alleged violations of the state copyrights. (Note: the opinion doesn’t mention copyright preemption, which makes sense because the state copyright claims at issue are by definition not preempted by 301). This is a critical issue, because if the DMCA’s safe harbor only applies to state copyright claims but not claims derived from those copyrights, then plaintiffs can easily plead around the DMCA and further undermine the safe harbor’s helpfulness.

The court concludes that a successful DMCA safe harbor means that the defendant did not commit copyright infringement, so it negates any derivative claim that includes copyright infringement as a prima facie element. This wipes out 273 alleged instances of unfair competition where the plaintiffs did not allege that Vimeo had “red flags of infringement.” However, the court does not dismiss 59 alleged instances where the plaintiffs did allege red flags of infringement because the Second Circuit remanded the red flags of infringement question, and the court has a pending summary judgment motion to resolve it. Thus, the 59 instances roll into the pending summary judgment motion.

So, on balance, this is a good ruling for Vimeo and other DMCA safe harbor defendants. The unfair competition claims based on state copyrights get effectively merged with the DMCA safe harbor analysis, so if the DMCA safe harbor applies to the state copyrighted work, it also applies to the associated unfair competition claim.

Still, it’s impossible to ignore how this case hasn’t yet reached summary judgment after 9 years of litigation. As I’ve indicated before, the DMCA safe harbor is a defectively designed safe harbor¬†because it allows for long and expensive litigation that bleeds defendants dry.

Consider this: have you ever pondered why YouTube is the dominant video hosting platform? Here’s one hypothesis to explore. It took YouTube nearly a decade, and well over $100M, to eventually settle its DMCA lawsuit. YouTube’s competitor Veoh won its DMCA safe harbor defense in court but ran out of money and dropped out of the industry along the way. YouTube’s competitor Vimeo has been hemorrhaging cash fighting this litigation since 2009. And what potential video hosting investor wants to shovel the first $100M+ of raised capital into the inevitable DMCA lawfare with the copyright owners–before you even start building a viable or profitable business? I think we can connect the dots between the lack of competition in video hosting and the safe harbor’s (defective) design.

Case citation: Capital Records LLC v. Vimeo LLC,¬†2018 WL 1634123 (SDNY March 31, 2018). [the court caption in this ruling spells it “Capital,” even though the case name is Capitol.]

[Note: Venkat drafted a post on the 9th Circuit’s Ventura Content v. Motherless ruling shortly after it was issued. I’ve been adding/editing it ever since. It will see the light…someday.]