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Copyright

Ninth Circuit Confirms: Fair Use Is an Affirmative Defense to Copyright Infringement

the word "copyright" written on a typewriterThe Ninth Circuit’s recent decision clarifying transformative fair use in Dr. Seuss v. ComicMix gives much to admire (see my deep dive into the opinion here). The court held that a mash-up of plaintiff Seuss’ Oh, the Places You’ll Go! (Go!) with a Star Trek theme—entitled Oh, the Places You’ll Boldly Go (Boldly)—by defendant ComicMix was not fair use since it merely repackaged the original work without new purpose, meaning, message, expression, or character—in other words, it utterly failed to be transformative. That holding should be welcome news for those who are concerned that the rule of the derivative right is being swallowed by the exception of transformativeness.

The Ninth Circuit also addressed another issue of central importance in the fair use doctrine, namely, whether fair use is an affirmative defense such that the burden is on the defendant to demonstrate the absence of likely market harm. That the burden issue even came up is itself remarkable, given the Supreme Court pronouncements and Ninth Circuit precedents on the matter. Nevertheless, this case presented a good vehicle for the Ninth Circuit to confirm that the burden of proving fair use remains with its proponent on each of the factors, including market harm. In this post, I’ll discuss the positions of the parties and the holdings of the courts on this important procedural aspect of fair use.

District Court Holds that Burden Is on Plaintiff to Show Likely Market Harm

One of the issues before the district court was whether Seuss had to show likely market harm under the fourth fair use factor. In its memorandum supporting its summary judgment motion, ComicMix acknowledged that it had the burden of proving fair use: “The proponent of fair use has the burden to show that it applies, because it is an affirmative defense.” However, it argued that, since Boldly is transformative, there is no presumption of market harm, and the “burdens on the fourth factor shift to the plaintiff” to “demonstrate a likelihood of potential harm.” Thus, while acknowledging that it ultimately held the burden of persuasion on market harm, ComicMix argued that Seuss had to produce evidence in order to win on this factor.

The Supreme Court discussed the presumptions and burdens of proof for market harm in Sony and Campbell. In Sony, the Court stated that “every commercial use of copyrighted material is presumptively . . . unfair,” such that, “[i]f the intended use is for commercial gain,” the “likelihood may be presumed” for market harm. And when the use is “for a noncommercial purpose, the likelihood must be demonstrated” with “a showing by a preponderance of the evidence that some meaningful likelihood of future harm exists.” ComicMix latched onto this statement that likely market harm must be demonstrated, despite its use being commercial, to argue that Seuss was required to make a showing on market harm. But that position is inconsistent with what the Court held later in Campbell.

The Supreme Court in Campbell walked things back significantly, explaining that the presumption from Sony only applies in the context of “verbatim copying of the original in its entirety for commercial purposes,” not in “a case involving something beyond mere duplication for commercial purposes.” When “the second use is transformative,” the Court continued, “market substitution is at least less certain, and market harm may not be so readily inferred.” The Court in Campbell thus distinguished verbatim, commercial copies (market harm presumed) and transformative, yet commercial, uses (no such presumption). Importantly, even though there was no presumption of market harm for the transformative use at issue, the Court placed the burden on the defendant to demonstrate an absence of market harm in order to succeed on that factor because “fair use is an affirmative defense.”

This understanding of who has the burden of proof on market harm must be understood in the context of the procedural posture. Fair use is only relevant once the plaintiff has made a prima facie showing of copyright infringement. If both Seuss and ComicMix were to fail in producing evidence on market harm, the factor might be neutral. But that neutrality would only hurt ComicMix—and not Seuss—since ComicMix is trying to overcome Seuss’ prima facie showing of infringement. The Supreme Court in Campbell drove this point home, holding that, in the absence of evidence, “it is impossible to deal with the fourth factor except by recognizing that a silent record on an important factor bearing on fair use disentitled the proponent of the defense . . . to summary judgment.” That “evidentiary hole,” the Court concluded, would need to “be plugged on remand” for the defendant to prevail.

In its opposition memorandum, Seuss started with the premise that ComicMix had the burden of proof on market harm: “As with all affirmative defenses,” ComicMix “bear[s] the burden of proof.” Suess argued that ComicMix could not carry its burden because it did “not offer a shred of admissible evidence about the relevant markets for Go!, derivatives of the [Seuss] Works, and Boldly.” Thus, both parties agreed that fair use is an affirmative defense, with ComicMix bearing the ultimate burden of persuasion on whether its use was fair. The only difference was whether, and to what extent, either party could or should have to demonstrate evidence of likely market harm or its absence.

Despite arguing in its memorandum that the burden of proof was on ComicMix, counsel for Seuss told a different story at the hearing on the motion. The court asked, “What burden, if any, does [Seuss] carry in establishing a likelihood of market harm in this case?” Seuss’ counsel responded that, assuming the use is transformative, there would be no presumption and that Seuss would then have to show market harm. The district court ultimately concluded that Boldly is “highly transformative,” and with Seuss’ concession during oral argument in hand, the court held that Seuss had the burden of introducing “[e]vidence of substantial harm to it . . . by a preponderance of the evidence.” After finding that Seuss “failed to introduce evidence tending to demonstrate that the challenged work will substantially harm the market for its Copyrighted Works,” the court held that the fourth fair use factor was neutral since “the harm to Plaintiff’s market remains speculative.”

Ninth Circuit Holds that Burden Is on Defendant to Show Absence of Market Harm

On appeal to the Ninth Circuit, the parties changed their tune somewhat. In its opening brief, Seuss argued that the district court erred by placing the burden on it to show likely market harm: “fair use is an affirmative defense, and its proponent must show absence of market harm even if the challenged use is transformative.” Moreover, Seuss claimed that since Boldly is nontransformative and commercial, there should be a presumption of market harm. But even if there is no such presumption, Seuss argued that ComicMix had the burden of “offering convincing proof that the plaintiff’s markets will not be harmed by the challenged work.” And, in a footnote, Seuss argued that any concession by its counsel during oral argument before the district court “would not control this Court’s resolution of a purely legal issue: who bears the burden of proof on the fourth factor.”

In its answering brief, ComicMix argued that Seuss’ “failure to present evidence of any negative market effect weighs in favor of fair use.” It contended that there is no presumption of market harm, even though Boldly is commercial, because that presumption does not apply when a work is transformative. As to which party held the burden of proof, ComicMix argued that fair use is not in fact an affirmative defense—a remarkable claim given the holding of Campbell and ComicMix’s contrary position in the district court. To support its argument, ComicMix cited the Ninth Circuit’s decision in Lenz as well as a pair of law review articles to conclude that, “while the proponent of a true affirmative defense generally bears the burden of proof as to all elements, for a standard defense like fair use, it suffices to show that the plaintiff failed to overcome it.”

The citation to Lenz is a puzzling one. The issue there was whether a copyright owner must consider fair use before sending a takedown notice under the Digital Millennium Copyright Act (DMCA). The copyright owner argued that fair use is not “authorized by the law” under the DMCA since it is an affirmative defense excusing conduct that would otherwise infringe. The Ninth Circuit disagreed, finding that this view conflates “an affirmative defense that is labeled as such due to the procedural posture of the case, and an affirmative defense that excuses impermissible conduct.” The court ultimately decided that fair use is “authorized by the law” as a statutory matter, even if it’s an affirmative defense as a procedural one. However, the court said nothing to the contrary about who bears the burden of proof on likely market harm in a context outside of the DMCA—like in overcoming a prima facie case of infringement in litigation over whether a use is fair.

The cites to the law review articles are equally perplexing as they both explicitly acknowledge that the burden of proof rests with the party claiming fair use. The first, Proving Fair Use: Burden of Proof as Burden of Speech by Ned Snow, acknowledges that, “[a]s an affirmative defense, fair use places the burden of proof on its proponent.” The thrust of the article is that, while “the defendant bears the burden of proof” for fair use, it would be better to shift that burden to the copyright owner because of free speech concerns. The second article, Fair Use: An Affirmative Defense? by Lydia Loren, likewise concedes that Campbell “[c]learly . . . placed the burden of producing evidence to support fair use on the defendant.” The article then argues that, as a normative matter, we should put that burden on the copyright owner. Neither of these articles provides any support for the point ComicMix sought to establish, i.e., that the burden of proof is on Seuss.

In assessing the fourth fair use factor, the unanimous Ninth Circuit panel sided with Seuss: “Having found that Boldly was transformative—a conclusion with which we disagree—the district court . . . erred in shifting the burden to Seuss with respect to market harm. That shifting, which is contrary to Campbell and our precedent, led to a skewed analysis of the fourth factor.” The court declined to hold that ComicMix’s nontransformative, commercial use raised a presumption of market harm, though it did recognize that market harm could be inferred from the circumstances. The court made quick work of ComicMix’s argument that fair use is not an affirmative defense and that the burden is on Seuss to show likely market harm: “Not much about the fair use doctrine lends itself to absolute statements, but the Supreme Court and our circuit have unequivocally placed the burden of proof on the proponent of the affirmative defense of fair use.” ComicMix’s argument went nowhere because “Campbell squarely forecloses” it.

To ComicMix’s argument that Lenz compels placing the burden of proving market harm on Seuss, the Ninth Circuit pointed out that Lenz “involved fair use in a different corner of the copyright law,” namely, the safe harbors under the DMCA. The question there was of statutory interpretation under the DMCA, and the analysis was explicitly limited to “that context.” Lenz changed nothing about the procedural burdens in other contexts: “In no way did we deviate from our characterization of fair use as an affirmative defense under § 107. To the contrary, in addition to clarifying that, unlike copyright misuse and laches, fair use is not an excuse to copyright infringement, we reiterated that ‘the burden of proving fair use is always on the putative infringer.’”

Turning to the merits, the Ninth Circuit held that it was ComicMix, “as the proponent of the affirmative defense of fair use,” that “must bring forward favorable evidence about relevant markets.” Given that ComicMix chose to argue instead that it didn’t have the burden of proof, there was only “scant evidence” to consider. ComicMix’s principal evidence was an expert report, but the court found that the “entire report is premised on Boldly being transformative, which it is not, and on the expert’s misunderstanding about fair use and U.S. copyright law.” But even accepting the report’s “methodology and conclusions,” the court found that it still “fails to account for key fourth-factor considerations,” including the fact that Boldly was “intentionally targeted and aimed to capitalize on the same graduation market as Go!” and that “Boldly would curtail Go!’s potential market for derivative works.” Having found that ComicMix failed to carry its burden, the court held that ComicMix’s fair use defense failed as a matter of law.

Conclusion

In Dr. Seuss v. ComicMix, the Ninth Circuit addressed important aspects of the fair use doctrine—and some novel arguments that flew in the face of settled precedent. Not only did the court rein in various overly broad notions of transformative use urged by ComicMix and its amici that would have further eroded a copyright owner’s exclusive right to make derivative works, but it also confirmed the fundamental holding of Campbell that fair use is an affirmative defense, with the burden of proof to show an absence of market harm falling squarely on the party claiming fair use. ComicMix attempted to sidestep its duty by claiming that there was none; it wanted the benefit of fair use without its burden. Thankfully, the Ninth Circuit emphatically rejected this approach as one that would “‘create incentives to pirate intellectual property’ and disincentivize the creation of illustrated books,” contrary to copyright’s constitutional goals.

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Copyright

Publishers v. Audible: An Army of Red Herrings

a gavel lying on a desk in front of booksAudible has now filed its response to the publishers’ request for a preliminary injunction—twice. It filed the exact same brief to argue that it shouldn’t be preliminarily enjoined (Dkt. 34) and to argue that the complaint should be dismissed for failure to state a claim (Dkt. 41). Unfortunately for Audible, the repetition of fallacious arguments doesn’t make them true. You may have heard that a group of geese is a “gaggle” and that a group of crows is a “murder.” Groups of animals are often known by somewhat peculiar collective nouns. Perhaps less well-known is that a group of herrings—those foraging fish that favor shallow, temperate seas—is called an “army.” Audible’s response includes so many irrelevant distractions that it can accurately be described as an army of red herrings.

Audible argues that this should be a contract dispute, not a copyright case, and that Captions is nevertheless fair use—no matter who is doing the copying. Indeed, the one thing that Audible apparently wants to avoid discussing in detail is the one thing that I find interesting in this case, namely, who directly causes the various prima facie infringements of the publishers’ rights to occur. Audible’s response makes clear that it would rather jump straight to the fair use analysis without first analyzing exactly who is causing what to occur. But that fair use analysis only makes sense if we know who is doing the copying. The factors would be applied differently to Amazon, Audible, or its users, and Audible’s response elides such distinctions even though they are crucial.

In my last post about this case, I discussed how Audible was likely to cite cases such as Sony and Cablevision in arguing that it doesn’t make the copy, the user does, and that’s fair use. Remarkably, Audible does suggest that the user makes the copy, but it relegates this claim to the preliminary, factual background section of the brief—it’s not actually part of its main argument section. But this does give us some idea of what Audible will argue once it’s forced to clarify its theory of the case. Perhaps most interesting of all, Audible explains how the third-party Amazon Transcribe feature operates within Captions, and it’s less favorable to Audible than I had originally suggested.

Audible explicitly states that “a listener generates Audible Captions.” So that tells us who Audible thinks is doing the copying—and it’s not Audible. There are no citations to any case law, and there’s no explanation of why it’s the user doing the copying. Just the ipse dixit that it’s so. Audible then explains that the transcriptions are not, as I suggested in my last post, simply done in real time via Amazon Transcribe. That may be true in part, but the entire audiobook file is also sent to Amazon where it is converted into text and then sent back to the user. And that entire transcription is then stored on the user’s device, albeit in an encrypted file. Moreover, once one user requests a transcription, a cached copy of the file is then stored for 90 days on the server, and any subsequent user requesting a transcription of the same work in that time frame will get the cached copy—not a new transcription.

This business with the cached copy opens up another can of copyright worms, one that Audible presumably is not looking forward to discussing. Not only is there a full copy of the text on the user’s device, but there’s also another copy on the server. And there’s no doubt that both copies are fixed since there’s no argument that they exist for a mere transitory duration. Furthermore, the fact that the same source copy is being sent to different users destroys any claim under Cablevision that Audible might make that these are not public distributions. The Second Circuit there held that the transmissions weren’t public since there was a unique source copy that was used for each transmission to an individual user. While I don’t see how that holding survives Aereo, the cached copy here takes that argument off of the table.

Audible spills much ink arguing that Captions is not a replacement for the text of the underlying book since the experience with the same text of the transcription is different. For example, unlike an e-book, Captions displays at most 20 words at a time that is synchronized to the audio. And this “audio-first experience” has different punctuation, there are no page numbers, and the user can only scroll through the text by first scrolling through the audio. Of course, it’s true that there are differences between the user experience with Captions and an e-book, but these differences are irrelevant to the publishers’ prima facie copyright claims. Just because the user experiences the work differently doesn’t mean that there hasn’t been all sorts of actionable copying enabling that experience. These differences may be relevant to fair use, but not one of them matters for determining who is doing what.

After throwing its users under the bus by claiming that they make the copies with Captions, Audible sidesteps any actual analysis of that issue by arguing instead that the publishers failed to properly plead their copyright claims. The crux of Audible’s argument is that, since it has license agreements with the publishers to sell and produce audiobooks, the publishers have waived their right to sue for copyright infringement to the extent Audible’s conduct is licensed. Audible then argues that the burden is on the publishers to plead the licenses and conduct that exceeds their scope (or a violation of their conditions precedent) in order to state a copyright claim. And since the publishers didn’t plead any reason why the licenses wouldn’t permit Audible’s copying of the audiobooks, Audible argues that the case against it should be dismissed.

Audible correctly states the law, but not its application here. When the existence of a license is not in question, the copyright owner bears the burden of proving that the alleged infringer exceeded its scope or breached its condition. And Audible is certainly correct in arguing that it is a “licensed, paying user of the audiobooks from and for which it created Audible Captions.” Audible has licenses for the audiobooks, and the publishers didn’t plead them. The fallacy of this argument, however, is that the publishers’ copyright claims are not directed to those audiobook licenses—or even to those audiobooks. The publishers only claim infringement of the underlying works, that is, the literary works from which the sound recordings of the audiobooks are derived. Audible is probably violating various rights in the audiobooks as well, but the publishers have not brought those claims.

That the publishers are suing over the original books, and not the derivative audiobooks, is clear from the face of the complaint. The publishers charge Audible with “unlawfully creating derivative works of, reproducing, distributing, and publicly displaying unauthorized copies of the Works,” and the works identified are the registered, literary works of which the publishers are legal or beneficial owners. The complaint explicitly alleges that “Audible did not seek a license for the creation and provision of the transcriptions provided to consumers” and that “it has only been authorized to deliver the work in audiobook format.” If Audible turned an audiobook into a movie, the publishers would not have to plead that Audible thus exceeded the scope of its license for the simple reason that there was no such license to create the derivative movie in the first place.

The fact that the allegedly infringing transcriptions have as their source the licensed audiobooks doesn’t matter; what matters is that the transcriptions violate the publishers’ rights in the underlying literary works. For the bulk of audiobooks at issue that Audible didn’t create, i.e., the ones that were provided by the publishers or third parties, Audible had no license to create derivative works of any kind. And for the few audiobooks that Audible itself may have created under license—though Audible noticeably doesn’t claim to have a license to create derivatives of any of the specific works-in-suit—it only had a license to create the derivative sound recordings embodied in the audiobooks. Audible’s hand-waving about licenses is easily dismissed because, quite simply, there was never any license to create the derivative literary works over which it is being sued.

Despite the army of red herrings summoned to obfuscate its theory of exactly who is doing the copying in this case, the burden falls squarely on Audible to establish the existence of any license that may justify its actions. And the fact that Audible failed to mention any such license speaks volumes. Audible instead jumps straight to fair use, making the incredible claim that providing the text of the audiobook is somehow completely different than providing the text of the underlying book itself because the former allows users to “understand and engage with the audiobook they purchased.” I’ll leave the absurdity of Audible’s fair use argument for another day, but for now I’d like the court to sort out the preliminary issue of who is doing what. And that appears to be a conversation that Audible would rather not have.

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Copyright Internet Uncategorized

BMG v. Cox: ISP Liability and the Power of Inference

Cross-posted from the Law Theories blog.

As readers are likely aware, the jury verdict in BMG v. Cox was handed down on December 17th. The jury found that BMG had proved by a preponderance of the evidence that Cox’s users were direct infringers and that Cox is contributorily liable for that infringement. The interesting thing, to me at least, about these findings is that they were both proved by circumstantial evidence. That is, the jury inferred that Cox’s users were direct infringers and that Cox had the requisite knowledge to make it a contributory infringer. Despite all the headlines about smoking-gun emails from Cox’s abuse team, the case really came down a matter of inference.

Direct Infringement of the Public Distribution Right

Section 106(3) grants copyright owners the exclusive right “to distribute copies . . . of the copyrighted work to the public[.]” In the analog days, a copy had to first be made before it could be distributed, and this led to much of the case law focusing on the reproduction right. However, in the digital age, the public distribution usually occurs before the reproduction. In an upload-download scenario, the uploader publicly distributes the work and then the downloader makes the copy. This has brought much more attention to the contours of the public distribution right, and there are some interesting splits in the case law looking at online infringement.

Though from the analog world, there is one case that is potentially binding authority here: Hotaling v. Church of Jesus Christ of Latter-Day Saints. Handed down by the Fourth Circuit in 1997, Hotaling held that “a library distributes a published work . . . when it places an unauthorized copy of the work in its collection, includes the copy in its catalog or index system, and makes the copy available to the public.” The copies at issue in Hotaling were in microfiche form, and they could not be checked out by patrons. This meant that the plaintiff could not prove that the library actually disseminated the work to any member of the public. Guided by equitable concerns, the Fourth Circuit held that “a copyright holder would be prejudiced by a library that does not keep records of public use,” thus allowing the library to “unjustly profit by its own omission.”

Whether this aspect of Hotaling applies in the digital realm has been a point of contention, and the courts have been split on whether a violation of the public distribution right requires actual dissemination. As I’ve written about before, the Nimmer on Copyright treatise now takes the position that “[n]o consummated act of actual distribution need be demonstrated in order to implicate the copyright owner’s distribution right,” but that view has yet to be universally adopted. Regardless, even if actual dissemination is required, Hotaling can be read to stand for the proposition that it can be proved by circumstantial evidence. As one court put it, “Hotaling seems to suggest” that “evidence that a defendant made a copy of a work available to the public might, in conjunction with other circumstantial evidence, support an inference that the copy was likely transferred to a member of the public.”

The arguments made by BMG and Cox hashed out this now-familiar landscape. Cox argued that merely offering a work to the public is not enough: “Section 106(3) makes clear that Congress intended not to include unconsummated transactions.” It then distinguished Hotaling on its facts, suggesting that, unlike the plaintiff there, BMG was “in a position to gather information about alleged infringement, even if [it] chose not to.” In opposition, BMG pointed to district court cases citing Hotaling, as well as to the Nimmer treatise, for the proposition that making available is public distribution simpliciter.

As to Cox’s attempt to distinguish Hotaling on the facts, BMG argued that Cox was the one that failed “to record actual transmissions of infringing works by its subscribers over its network.” Furthermore, BMG argued that “a factfinder can infer that the works at issue were actually shared from the evidence that they were made available,” and it noted that cases Cox had relied on “permit the inference that dissemination actually took place.” In its reply brief, Cox faulted BMG for reading Hotaling so broadly, but it noticeably had nothing to say about the propriety of inferring that dissemination had actually taken place.

In his memorandum opinion issued on December 1st, District Judge Liam O’Grady sided with Cox on the making available issue and with BMG on the permissibility of inference. Reading Hotaling narrowly, Judge O’Grady held that the Fourth Circuit merely “articulated a principle that applies only in cases where it is impossible for a copyright owner to produce proof of actual distribution.” And without the making available theory on the table, “BMG must show an actual dissemination of a copyrighted work.” Nonetheless, Judge O’Grady held that the jury could infer actual dissemination based on the circumstantial evidence collected by BMG’s agent, Rightscorp:

Cox’s argument ignores the fact that BMG may establish direct infringement using circumstantial evidence that gives rise to an inference that Cox account holders or other authorized users accessed its service to directly infringe. . . . Rightscorp claims to have identified 2.5 million instances of Cox users making BMG’s copyrighted works available for download, and Rightscorp itself downloaded approximately 100,000 full copies of BMG’s works using Cox’s service. BMG has presented more than enough evidence to raise a genuine issue of material fact as to whether Cox account holders directly infringed its exclusive rights.

The jury was ultimately swayed by this circumstantial evidence, inferring that BMG had proved that it was more likely than not that Cox’s users had actually disseminated BMG’s copyrighted works. But proving direct infringement is only the first step, and BMG next had to demonstrate that Cox is contributorily liable for that infringement. As we’ll see, this too was proved by inference.

Contributory Infringement of the Public Distribution Right

While the Patent Act explicitly provides circumstances in which someone “shall be liable as a contributory infringer,” the Copyright Act’s approach is much less direct. As I’ve written about before, the entire body of judge-made law concerning secondary liability was imported into the 1976 Act via the phrase “to authorize” in Section 106. Despite missing this flimsy textual hook, the Supreme Court held in Sony that nothing precludes “the imposition of liability for copyright infringements on certain parties who have not themselves engaged in the infringing activity.” Indeed, the Court noted that “the concept of contributory infringement is merely a species of the broader problem of identifying the circumstances in which it is just to hold one individual accountable for the actions of another.”

Arguments about when it’s “just” to hold someone responsible for the infringement committed by another have kept lawyers busy for well over a century. The Second Circuit’s formulation of the contributory liability test in Gershwin has proved particularly influential over the past four decades: “[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.” This test has two elements: (1) knowledge, and (2) induce, cause, or materially contribute. Of course, going after the service provider, as opposed to going after the individual direct infringers, often makes sense. The Supreme Court noted this truism in Grokster:

When a widely shared service or product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, the only practical alternative being to go against the distributor of the copying device for secondary liability on a theory of contributory or vicarious infringement.

And this is what BMG has done here by suing Cox instead of Cox’s users. The Supreme Court in Grokster also introduced a bit of confusion into the contributory infringement analysis. The theory at issue there was inducement—the plaintiffs argued that Grokster induced its users to infringe. Citing Gershwin, the Supreme Court stated this test: “One infringes contributorily by intentionally inducing or encouraging direct infringement[.]” Note how this is narrower than the test in Gershwin, which for the second element also permits causation or material contribution. While, on its face, this can plausibly be read to imply a narrowing of the traditional test for contributory infringement, the better read is that the Court merely mentioned the part of the test (inducement) that it was applying.

Nevertheless, Cox argued here that Grokster jettisoned a century’s worth of the material contribution flavor of contributory infringement: “While some interpret Grokster as creating a distinct inducement theory, the Court was clear: Grokster is the contributory standard.” Cox wanted the narrower inducement test to apply here because BMG would have a much harder time proving inducement over material contribution. As such, Cox focused on its lack of inducing behavior, noting that it did not take “any active steps to foster infringement.”

Despite its insistence that “Grokster supplanted the earlier Gershwin formulation,” Cox nevertheless argued that BMG’s anticipated material contribution claim “fails as a matter of law” since the knowledge element could not be proved. According to Cox, “Rightscorp’s notices do not establish Cox’s actual knowledge of any alleged infringement because notices are merely allegations of infringement[.]” Nor does the fact that it refused to receive notices from Rightscorp make it “willfully blind to copyright infringement on its network.” Cox didn’t argue that its service did not materially contribute to the infringement, and rightfully so—the material contribution element here is a no-brainer.

In opposition, BMG focused on Gershwin, declaring it to be “the controlling test for contributory infringement.” BMG noted that “Cox is unable to cite a single case adopting” its narrow “reading of Grokster, under which it would have silently overruled forty years of contributory infringement case law” applying Gershwin. (Indeed, I have yet to see a single court adopt Cox’s restrictive read of Grokster. This hasn’t stopped defendants from trying, though.) Turning to the material contribution element, BMG pointed out that “Cox does not dispute that it materially contributed to copyright infringement by its subscribers.” Again, Cox didn’t deny material contribution because it couldn’t win on this argument—the dispositive issue here is knowledge.

On the knowledge element, BMG proffered two theories. The first was that Cox is deemed “to have knowledge of infringement on its system where it knows or has reason to know of the infringing activity.” Here, BMG had sent Cox “millions of notices of infringement,” and it argued that Cox could not “avoid knowledge by blacklisting, deleting, or refusing” to accept its notices. Moreover, BMG noted that “Cox’s employees repeatedly acknowledged that they were aware of widespread infringement on Cox’s system.” BMG additionally argued that Cox was willfully blind since it “blacklisted or blocked every single notice of copyright infringement sent by Rightscorp on behalf of Plaintiffs, in an attempt to avoid specific knowledge of any infringement.”

In reply, Cox cited Sony for the rule that “a provider of a technology could not be liable for contributory infringement arising from misuse if the technology is capable of substantial noninfringing uses.” And since Cox’s service “is capable of substantial noninfringing users,” it claimed that it “cannot be liable under Sony.” Of course, as the Supreme Court clarified in Grokster, that is not the proper way to read Sony. Sony merely says that knowledge cannot be imputed because a service has some infringing uses. But BMG here is not asking for knowledge to be imputed based on the design of Cox’s service. It’s asking for knowledge to be inferred from the notices that Cox refused to receive.

Judge O’Grady made short work of Cox’s arguments. He cited Gershwin as the controlling law and rejected Cox’s argument vis-à-vis Grokster: “The Court finds no support for Cox’s reading of Grokster.” In a footnote, he brushed aside any discussion of whether Cox materially contributed to the infringement since Cox failed to raise the point in its initial memorandum. Judge O’Grady then turned to the knowledge element, stating the test as this: “The knowledge requirement is met by a showing of actual or constructive knowledge or by evidence that a defendant took deliberate actions to willfully blind itself to specific infringing activity.” In a footnote, he declined to follow the narrower rule in the Ninth Circuit from Napster that requires the plaintiff to establish “actual knowledge of specific acts of infringement.”

Thus, Judge O’Grady held that three types of knowledge were permissible to establish contributory infringement: (1) actual knowledge (“knew”), (2) constructive knowledge (“had reason to know”), or (3) willful blindness. Rejecting Cox’s theory to the contrary, he held that “DMCA-compliant notices are evidence of knowledge.” The catch here was that Cox refused to receive them, and it even ignored follow-up emails from BMG. And this is where inference came into play: Judge O’Grady held that Cox could have constructive knowledge since “a reasonable jury could conclude that Cox’s refusal to accept Rightscorp’s notices was unreasonable and that additional notice provided to Cox gave it reason to know of the allegedly infringing activity on its network.”

Turning to willful blindness, Judge O’Grady stated that it “requires more than negligence or recklessness.” Citing Global-Tech, he noted that BMG must prove that Cox “took ‘deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts.’” The issue here was clouded by the fact that Cox didn’t simply refuse to accept BMG’s notices from Rightscorp, but instead it offered to receive them if certain language offering settlements to Cox’s users was removed. While it would be reasonable to infer that Cox was not “deliberately avoiding knowledge of illegal activity,” Judge O’Grady held that “it is not the only inference available.” As such, he left it for the jury to decide as a question of fact which inference was better.

The jury verdict is now in, and we don’t know whether the jury found for BMG on the constructive knowledge theory or the willful blindness theory—or perhaps even both. Either way, the question boiled down to one of inference, and the jury was able to infer knowledge on Cox’s part. And this brings us back to the power of inference. Cox ended up being found liable as a contributory infringer for its users’ direct infringement of BMG’s public distribution rights, and both of these verdicts were established with nothing more than circumstantial evidence. That’s the power of inference when it comes to ISP liability.