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Fourth Circuit Decision in Cox v. BMG Provides Some Clarity on Contributory Infringement

· February 5, 2018

Last week, the U.S. Court of Appeals for the Fourth Circuit issued a decision in BMG Rights Management v. Cox Communications that provided some clarity to the complicated state of the law relating to Internet service provider liability. This result emerged from a decision that affirmed the district court’s holding that Cox was not eligible for the DMCA’s safe harbor, but granted Cox a new trial on the jury’s finding of contributory infringement.

Cox provides Internet access to 4.5 million subscribers. Music publisher BMG hired Rightscorp to monitor BitTorrent to detect infringing activity. After detecting infringing activity by Cox subscribers, Rightscorp sent notices to Cox identifying the allegedly infringing activity, and requested that Cox forward these notices to the allegedly infringing subscribers. The notices contained a settlement offer, allowing the subscriber to pay $30 for a release of liability. Cox notified Rightscorp that it would not process any notices that contained settlement language. Rightscorp continued to send Cox notices containing the settlement offer, leading Cox to block all of the millions of notices Rightscorp sent on BMG’s behalf.

BMG sued Cox for contributory copyright infringement. Cox argued that it qualified for the Digital Millennium Copyright Act’s safe harbor for Internet service providers. The district court held that Cox was not eligible for the DMCA’s protection because it had not met the DMCA’s requirement of adopting and reasonably implementing a policy for terminating the accounts of repeat infringers in appropriate circumstances. After a trial, the jury found Cox contributorily liable for copyright infringement, and assessed $25 million in damages. Cox appealed to the Fourth Circuit.

DMCA Safe Harbors

The Fourth Circuit first considered Cox’s eligibility for the DMCA safe harbors. Cox argued that it only needed to terminate the accounts of subscribers who had been adjudicated to be infringers, not merely alleged to have been infringers. Because none of its subscribers had been adjudicated to have infringed copyright, Cox asserted that it had no obligation to terminate any of their accounts.

It appears that no appellate court had previously considered this question directly. After examining the text of the DMCA and its legislative history, the Fourth Circuit rejected Cox’s argument that the term“repeat infringers” was limited to adjudicated infringers. Accordingly, at least in the Fourth Circuit, a repeat infringer policy must be applied against an individual engaged in infringing activity even if a court had not adjudicated him to be infringing. The court made clear, however, that the service provider need not apply the policy against a person who is merely alleged to have infringed; rather, the service provider must apply the policy against an actual infringer, as is apparent from facts and circumstances. In other words, a repeat infringer policy would still be compliant if the service provider conducts its own review of the subscriber’s conduct before terminating his account, as opposed to simply relying on the rightsholder’s allegations.

The Fourth Circuit then considered whether Cox had reasonably implemented a policy that provides for the termination of subscribers’ accounts in appropriate circumstances. I had filed an amicus brief on behalf of education and library associations urging the court not to impose a uniform standard for repeat infringer termination policies. The brief argued that a wide variety of service providers fell within the scope of the DMCA, and they should be allowed the flexibility to adopt repeat infringer policies appropriate to their circumstances. The court appeared to acknowledge this concern, stated that “we are mindful of the need to afford ISPs flexibility in crafting repeat infringer policies, and of the difficulty of determining when it is ‘appropriate’ to terminate a person’s access to the Internet.” Here, however, although Cox adopted a repeat infringer policy, the court found that it “made every effort to avoid reasonably implementing that policy.” The court then adduced evidence from the record demonstrating that Cox failed “to enforce the terms of its policy in any meaningful fashion.” Thus, it did not qualify for the DMCA safe harbor.

Contributory Infringement

Next, the Fourth Circuit considered the district court’s instructions to the jury concerning contributory infringement. Cox argued that the district court’s instructions were erroneous, and that there was a reasonable probability that the error had affected the jury’s verdict. The appellate court agreed with Cox in a discussion that underscores the confusion in other circuits on this issue.

Unlike the Patent Act, the Copyright Act does not expressly establish secondary liability. Instead, courts have developed secondary copyright liability principles, often borrowing from the Patent Act and other areas of the law. Two theories of liability have emerged: contributory infringement and vicarious liability. This case concerns only the contributory infringement theory.

The Second Circuit in 1971 in Gershwin Publishing v. Columbia Artists articulated the traditional standard for contributory infringement: “one who, with knowledge of the infringing activity, induces, causes, or makes a material contribution to the infringing conduct of another.” And the knowledge prong of the test was satisfied if the defendant had actual or constructive knowledge of the infringement—if he knew or should have known of the infringing activity.

Almost 35 years later, the Supreme Court in MGM Studios v. Grokster announced the standard for contributory copyright infringement as: “one infringes contributorily by intentionally inducing or encouraging direct infringement.” Significantly, this formulation is narrower than the Gershwin formulation; it requires intent, not just knowledge. Thus, Grokster changed the test for contributory infringement from one based on knowledge to one based on intent. To be sure, in some cases, a court might have to presume the defendant’s intent based on his knowledge, but the focus of the inquiry must be the defendant’s intent.

Rather than just accept that the Supreme Court in Grokster had adopted a new standard for contributory infringement, some lower courts (particularly in the Ninth Circuit) attempted to reconcile their earlier decisions with Grokster. These courts appeared to treat “intentional inducement” as a new species of contributory infringement that existed alongside the traditional, knowledge-based contributory infringement. In essence, the district court in this case did this when instructing the jury that it could impose contributory infringement liability if it found that “Cox knew or should have known” of the infringing activity of its subscribers. Indeed, as pointed out in an amicus brief filed by CCIA, the district court wrongly found that Grokster was irrelevant.

The Fourth Circuit emphatically rejected this pre-Grokster approach. It recited the Grokster standard, emphasizing the requirement of intent. It added that intent “may be presumed according to the rules of fault-based liability derived from the common law.” In particular, the Fourth Circuit pointed to the common law rule that if a person “knows that the consequences are certain, or substantially certain, to result from his act, and still goes ahead, he is treated by the law as if he in fact desired to produce the result.”

The Fourth Circuit then considered various scenarios. Where an article can be used only for infringing purposes, the Grokster court had stated that “there is no injustice in presuming or imputing an intent to infringe” based on its sale. Where an article is capable of substantial noninfringing use, as in Sony v. Universal, intent to infringe should not be presumed from the simple sale of the article, even when the seller understands that some of his products will be misused. “More is needed” to establish intent. For example, “when a person sells a product that has lawful uses, but with knowledge that the buyer will in fact use the product to infringe copyright,” intent can be presumed. In that situation, “the seller knows that infringement is substantially certain to result from the sale; consequently, the seller intends to cause infringement just as much as a seller who provides a product that has exclusively unlawful uses.”  

In addition to actual knowledge, the Fourth Circuit noted that another, slightly less demanding mental state establishes the requisite intent for contributory infringement: willful blindness. In support, the Fourth Circuit cited a Supreme Court patent decision, Global-Tech v. SEB.

The Fourth Circuit turned to the “constructive knowledge” or “should have known” mental state. The Fourth Circuit stated that a “constructive knowledge” standard is in fact a negligence standard. The court provided three reasons for concluding that “negligence does not suffice to prove contributory infringement” First, the Fourth Circuit found that Groskter’s reference to “intentionally inducing or encouraging direct infringement “is on its face difficult to reconcile with a negligence standard.”

Second, in Supreme Court patent decisions such as Global-Tech and Commil USA v. Cisco, “it is clear that contributory infringement cannot be based on a finding that a defendant ‘should have known’ of infringement.” The Fourth Circuit believed this patent standard “is a sensible one in the copyright context.” Basing liability on actual knowledge or willful blindness, but not on recklessness or negligence, “appropriately target culpable conduct without unduly burdening technological development.”

Third, the law of aiding and abetting also “militates against adoption of a negligence standard.” Likewise, the concert of action principle under tort law points away from a negligence standard for contributory infringement liability.

Guidance on Remand

The Fourth Circuit provided the district court with guidance on how to apply the standard of actual knowledge of or willful blindness to specific acts of infringement. Generalized knowledge that infringement is occurring somewhere on Cox’s network does not meet these standards. Rather, Cox had to have “knowledge that infringement is substantially certain to result from Cox’s continued provision of Internet access to particular subscribers.” In other words, in order to be contributorily liable, Cox had to know which specific subscribers were substantially certain to infringe if it continued to provide them with Internet access.

With respect to willful blindness, the Fourth Circuit stated that the district court’s willful blindness instruction should “require a conclusion that Cox consciously avoided learning about specific instances of infringement, not merely that Cox avoided confirming the fact that ‘Cox users were infringing BMG’s copyrights’ in general.”

Is There a Circuit Split?

Some observers have suggested that the Fourth Circuit’s rejection of constructive knowledge indicates a circuit split, particularly with the Ninth Circuit. The Fourth Circuit attempted to minimize the appearance of a split by highlighting its consistency with a post-Grokster Ninth Circuit decision, Ludvarts v. AT&T Mobility, while distinguishing a pre-Grokster Ninth Circuit decision, Ellison v. Robertson. However, the Ninth Circuit’s contributory infringement decisions post-Grokster are a muddle of different standards. The Supreme Court may wait to see whether other circuits, including the Ninth, follow the Fourth Circuit’s decision in Cox before jumping in to instruct courts to just follow Grokster.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.