Judge Tosses DMCA Defenses, Creating Unexpected Copyright Liability For Web Services In New York

Posted: May 12, 2013 in Column, GT

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A New York appellate court has recently ruled in UMG Recordings v. Escape Media Group that the safe harbor protections that Congress designed for Internet
companies do not cover sound recordings made
before 1972. The decision is a new and unexpected
break with earlier decisions by state and federal trial
courts. As a result, Internet companies that host or transmit
songs before 1972, including hits from The Beatles,
The Rolling Stones, and Elvis Presley, may no longer
rely upon the DMCA’s safe harbors to insulate them
from potentially crippling legal liability as a result of
copyright infringement that arises from downloading, hosting or transmitting copyrighted sound recordings. The Decision Escape Media Group, which owns the Grooveshark
music hosting site, was sued by Universal Music
Group, a major rights-holder, in New York state court
for infringing UMG copyrights in pre-1972 works.
Grooveshark permits users to upload recordings to its
servers and lets other users stream that music. UMG sued Grooveshark for hosting UMG-owned
copyrighted songs from prior to 1972 without a
license. Grooveshark argued in the trial court that its services
were protected by the DMCA safe harbors,
specifically Section 512(c). As we’ve discussed
before, this safe harbor immunizes service providers
that host user uploaded content so long as the
service provider posts a DMCA policy, adheres to DMCA notice and takedown provisions, and complies
with other formalities. The trial court agreed with
Grooveshark (as well as an earlier federal court
decision) and found that Grooveshark’s hosting of
pre-1972 songs was protectable under the DMCA.
UMG appealed, and on April 23, this decision was reversed by a New York appellate judge that found
the DMCA safe harbors inapplicable to copyright
infringement of sound recordings created before 1972. Why does 1972 matter? In 1971, Congress amended
the U.S. Copyright Act to include federal protection
for sound recordings “fixed” on February 15, 1972. At
the same time, Congress included in Section 301(c)
of the Copyright Act that “any rights or remedies
under the common law or statutes of any State shall not be annulled or limited” by the Copyright Act until
2067. UMG argued that it had common law rights in
sound recordings fixed before February 15, 1972 and
its rights could not be annulled by the DMCA safe
harbors. Grooveshark countered with a public policy point,
arguing that Congress could not have intended the
Copyright Act to be read in this way, as it would
“eviscerate the DMCA.” Unluckily for Grooveshark,
shortly before this decision was issued, the U.S.
Copyright Office sent a letter to Congress stating that the DMCA did not cover pre-1972 sound recordings,
and urged Congress to fix the issue. At the end of the
day, the appellate court rejected Grooveshark’s
position and held that pre-1972 sound recordings were
not covered based on the text of Section 301(c) and
the legislative history. The court punted the issue back to Congress, stating “it would be far more
appropriate for Congress, if necessary, to amend the
DMCA to clarify its intent, than for this Court to do so
by fiat.” The Aftermath Though it has its critics, the DMCA provides Internet
services, including content-hosting sites, certain peer-
to-peer services, search engines and ISPs with
defined protections from copyright infringement
claims based on the transmission, downloading,
uploading, caching, or linking to digital copyrighted content. Under Section 512, the DMCA protects four
types of Internet services — called “service
providers” under the Act: 1) conduits, like ISPs, that
transmit material through a network; 2) caching
services; 3) service providers like YouTube or Veoh
that store user uploaded content; and 4) information location tools, like search engines. The DMCA also
exempts nonprofit educational institutions from
liability. With this decision, those protections may have gone
up in smoke. Therefore, Internet companies hosting
pre-1972 sound recordings can face claims for actual
damages and injunctions under common law. Actual
damages can be substantial. For example,
BlueBeat.com settled a lawsuit for approximately $1 million for claims to streaming and selling Beatles
songs, many of which were recorded prior to 1972. On
the flip side, since this decision applies to state
common-law copyright protections, it means that
service providers may be clear of the worst penalties
for copyright infringement for infringement of pre-1972 sound recordings. Under federal law, which would be
subject to the DMCA, a service provider can face
“statutory damages” that can range from $750 to
$30,000 per work (meaning that, for example, a service that is found to host 1,000 infringing
copyrighted songs could be hit with a $30 million
award). Further, though UMG has won the day in New York,
there remain a lot of uncertainties regarding its claim.
The copyright rules of the road that have developed in
cases involving Internet companies have developed
in connection with claims arising under the federal
law. It is uncertain how legal issues, like the determination of indirect liability, the evaluation of
affirmative defenses (such as fair use and “Betamax
defense”), and the calculation of damages will occur
under New York common law. As a result of this case, Internet companies with a
presence in New York (and perhaps other states,
should this decision prove persuasive in other states)
are now facing a two-regime copyright system and will
face increased regulatory costs as a result. Going
forward, these companies should take a hard look at what content is hosted, transmitted or cached through
their services using, for example, logging techniques
or third-party systems, such as the Content
ID systems employed by sites like YouTube, to audit
content on their service. This can inform appropriate
action—either identifying a need for content licenses or a need to engage in increased technical self-help
measures to curb infringement. These costs are obviously unwelcome for technology
companies, and we expect that this decision may fuel
the drumbeat for Congress to act to amend the
Copyright Act to correct this statutory loophole.

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