IP Law Daily Appeal of adverse judgment favors music companies in music-locker case
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Wednesday, October 26, 2016

Appeal of adverse judgment favors music companies in music-locker case

By Mark Engstrom, J.D.

Record companies and music publishers successfully challenged a district court’s ruling that the operators of the music-locker service MP3tunes.com had reasonably implemented a "repeat infringer" policy and thus qualified for the safe harbor protections of the Digital Millennium Copyright Act, the U.S. Court of Appeals in New York City has ruled. Because the district court’s definition of "repeat infringer" was too narrow, its grant of partial summary judgment to MP3tunes was vacated and remanded. The plaintiffs were also successful in challenging the lower court’s ruling that a jury verdict was wrong, as a matter of law, about the defendants’ red-flag knowledge or willful blindness regarding pre-2007 MP3s and Beatles songs. The ruling, which precluded a finding of infringement as to those songs, was reversed. Finally, the plain text and legislative history of the Copyright Act allowed the district court to grant a single award for statutory damages when the copyrights to a musical composition and corresponding sound recording were owned by different plaintiffs. That portion of the district court’s judgment was affirmed (EMI Christian Music Group, Inc. v. MP3tunes, LLC, October 25, 2016, Lohier, R.).

Repeat infringer liability. The DMCA shielded service providers from liability for the infringing acts of its users if the providers adopted and reasonably implemented a policy that "provides for the termination in appropriate circumstances of subscribers and account holders of the service provider’s system or network who are repeat infringers" (17 U.S.C. §512(i)(1)(A)).

The plaintiffs argued that MP3tunes failed to reasonably implement a repeat-infringer policy because it did not track users who: (1) repeatedly created links to infringing content in the index of sideload.com—an MP3tunes website that allowed users to search for free music on the Internet—or (2) copied files from those links (files that were mentioned in multiple takedown notices to MP3tunes).

The district court defined a "repeat infringer" as a user who posts or uploads infringing content to the Internet, for the world to experience or copy, knowing that the conduct infringes another’s copyright. The definition was thus limited to willful infringers. The district court believed that users who downloaded or copied songs from third-party websites, for their personal entertainment, could not be repeat infringers. The lower court concluded that only users who uploaded infringing content were "blatant infringers that internet service providers [we]re obligated to ban from their websites."

The Second Circuit rejected the district court’s definition of a "repeat infringer" because the text, structure, and legislative history of the DMCA did not support that definition. In addition, the plaintiffs had shown that MP3tunes "did not even try to connect known infringing activity of which it became aware through takedown notices to users who repeatedly created links to that infringing content in the sideload.com index or who copied files from those links." Moreover, the plaintiffs proffered evidence showing that MP3tunes executives were encouraged to—and did—personally sideload songs from blatantly infringing websites, and then made the songs available to the users of sideload.com.

In the Second Circuit’s view, a jury could reasonably infer from the record evidence that MP3tunes knew about specific repeat infringers and failed to take action. Alternatively, a reasonable jury could have determined that MP3tunes consciously avoided knowledge about specific repeat infringers who used its services, even though infringement was "rampant and obvious."

Accordingly, the plaintiffs could have prevailed at trial by proving that the failure of MP3tunes to track users who created links to the infringing content that was identified on takedown notices, or to track users who copied files from those links, indicated a willful blindness to the repeated infringements of its users. The Second Circuit thus vacated the district court’s grant of summary judgment and remanded the case for further proceedings the issue of repeat-infringer liability.

Willful blindness. The district court set aside the jury’s findings and granted judgment as a matter of law to the defendants regarding two categories of songs: MP3s from major labels issued before 2007 and all songs by the Beatles.

The Second Circuit concluded that the trial evidence showed that MP3tunes and its founder, Michael Robertson, knew that major music labels generally had not authorized their music to be distributed or shared in the format that was most widely available on sideload.com. For that reason, the jury could have reasonable concluded that MP3tunes and its founder were aware of facts and circumstances that made infringement obvious.

Significantly, the jury could have found that, based on the record evidence, MP3tunes had the ability to search sideload.com for MP3s that were sideloaded before a certain date. Moreover, the jury received clear instructions—and the appellate court presumed that the jury understood—that MP3tunes had no continuing, affirmative duty to monitor its servers for infringement activity.

According to the court, the jury could comply with that instruction and still find that MP3tunes was required to disable access to pre-2007 songs by acting expeditiously to remove, or disable access to, the pre-2007 songs when it obtaining that knowledge or awareness. Ultimately, the jury was permitted to conclude that a time-limited, targeted duty—even if it encompassed a large number of songs—did not create an "amorphous" duty to monitor, in contravention of the DMCA. The same was true of the Beatles songs.

Finally, the jury could have reasonably found that MP3tunes had conceived of—and was designed to facilitate—copyright infringement, based in part on trial evidence that MP3tunes had actively encouraged infringement, and that the company’s founder and executives had personally used sideload.com to download infringing material. Although that evidence might not, by itself, support a separate finding of red-flag knowledge or willful blindness as to users, the jury could nevertheless rely on it in deciding whether MP3tunes was entitled to the DMCA safe harbor.

For those reasons, the Second Circuit reversed the portion of district court’s ruling that vacated the jury verdict on red-flag knowledge and willful blindness for pre-2007 MP3s and all Beatles songs.

Single award for statutory damages. The district court ruled that the plaintiffs could recover just one statutory damages award for a musical composition and its corresponding sound recording, even if the composition and recording were owned by separate plaintiffs. In doing so, it agreed with other district courts that similarly concluded that the infringement of a musical composition and its corresponding sound recording entitled a plaintiff to a single award of statutory damages.

The Second Circuit agreed with the district court, whose conclusion was supported by a plain reading of the Copyright Act. Moreover, both the House Report and the Senate Report that accompanied the Act reinforced that conclusion. In the appellate court’s view, Congress did not intend to authorize separate statutory damages awards for derivative works such as sound recordings, even if the copyright owner of the sound recording was not the copyright owner of the musical composition.

Because the plain text and legislative history of the Copyright Act supported the district court’s decision to permit only one award of statutory damages for a musical composition and its corresponding sound recording, that part of the district court’s judgment was affirmed.

Appeal of MP3tunes founder. The founder of MP3tunes—Michael Robertson—challenged several ruling of the district court. Some of those rulings involved the liability of MP3tunes and some involved his own liability.

Liability of MP3tunes. Robertson unsuccessfully argued that the district court had erred in upholding the jury’s verdict of red-flag knowledge and willful blindness with respect to songs that were sideloaded from personal-file storage sites and student-run college webpages from "obviously infringing" URLs. The Second Circuit thus affirmed the district court’s order denying judgment as a matter of law with respect to that category of songs.

Robertson also challenged the jury’s finding that MP3tunes was liable for directly and willfully infringing all 296 works of cover art that were associated with the plaintiffs’ songs and albums. According to Robertson, the entire verdict on cover art infringement should have been vacated.

The Second Circuit disagreed. All of Robertson’s arguments—that the cover-art copyrights were invalid, that MP3tunes could not have engaged in a "volitional act" with respect to the cover-art infringement because the art was obtained from Amazon.com at the direction of the user, etc.—were rejected by the court.

Finally, the jury held MP3tunes liable, under a theory of respondeat superior, for the sideloading activity of three corporate executives. Robertson argued the evidence was insufficient to show that the executives had acted within the scope of their authority—and in furtherance of MP3tunes’s business—when they downloaded the songs at issue. The appellate court disagreed and found that the evidence was sufficient to allow a rational jury to conclude that MP3tunes was liable under respondeat superior.

Liability of Robertson. After affirming the district court’s finding of personal jurisdiction over Robertson, the Second Circuit addressed Robertson’s challenges to personal liability and damages.

Robertson argued that the record evidence was insufficient to support the finding that he was vicariously or contributorily liable for the actions of MP3tunes. However, the appellate court found that ample evidence supported the jury’s finding, aided by a proper instruction, that Robertson was vicariously and contributorily liable for copyright infringement.

Significantly, Robertson had encouraged his employees to sideload songs to add to the index for sideload.com, and many of those sideloaded songs were from websites that contained pirated material. In the appellate court’s view, Robertson’s conduct aided and abetted the infringement of sideload.com users.

Finally, the Second Circuit was not persuaded by Robertson’s argument that the district court should have instructed the jury that, to be liable for contributory infringement, his participation had to be substantial and had to have had a direct relationship to the infringements at issue.

Damages. The appellate court ruled that the district court had properly allowed separate statutory damages awards for songs that the plaintiffs had issued as singles, even if the same songs were issued on albums. The district court’s award of statutory damages was therefore affirmed.

In addition to statutory damages, the jury awarded $7.5 million in punitive damages—against Robertson—on the plaintiffs’ common law claims. Robertson argued that the district court’s reduced award of $750,000 violated his due process rights. The appellate court disagreed.

In granting remittitur, the district court properly analyzed the factors that were enumerated in State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003). Those factors included the degree of reprehensibility of Robertson’s misconduct; the actual or potential harm that was suffered by the plaintiffs, compared to the punitive damages award; and the difference between the punitive damages that were awarded by the jury and the civil penalties that were authorized or imposed in comparable cases. The grant of remittitur was therefore affirmed.

The case is Nos. 14-4369-cv(L) and 14-4509-cv(XAP).

Attorneys: Andrew H. Bart (Jenner & Block LLP) for EMI Christian Music Group Inc. and Priority Records LLC. Ross McClintic Bagley (Pryor Cashman LLP) for Beechwood Music Corp. and Colgems-EMI Music, Inc. Andrew H. Bart (Jenner & Block LLP) for EMI AL Gallico Music Corp.; EMI Algee Music Corp.; EMI Feist Catalog, Inc.; EMI Gold Horizon Music Corp.; EMI Grove Park Music, Inc.; EMI Hastings Catalog, Inc.; EMI Mills Music, Inc.; EMI Miller Catalog, Inc.; EMI Robbins Catalog, Inc.; EMI U Catalog, Inc.; EMI Unart Catalog Inc.; Jobete Music Company, Inc., Screen Gems-EMI Music, Inc., Stone Agate Music; and Stone Diamond Music Corp. Vanessa Claire Hew (Duane Morris LLP) for MP3Tunes, LLC. Ira S. Sacks (Akerman LLP) for Michael Robertson.

Companies: EMI Christian Music Group, Inc.; Priority Records, LLC; Beechwood Music Corp.; Colgems-EMI Music, Inc.; EMI April Music, Inc.; EMI Blackwood Music, Inc.; EMI Full Keel Music, Inc.; EMI Golden Torch Music Corp.; EMI Longitude Music; EMI Virgin Music, Inc.; EMI Virgin Songs, Inc.; Capitol Records, LLC; EMI AL Gallico Music Corp.; EMI Algee Music Corp.; EMI Feist Catalog, Inc.; EMI Gold Horizon Music Corp.; EMI Grove Park Music, Inc.; EMI Hastings Catalog, Inc.; EMI Mills Music, Inc.; EMI Miller Catalog, Inc.; EMI Robbins Catalog, Inc.; EMI U Catalog, Inc.; EMI Unart Catalog Inc.; Jobete Music Company, Inc., Screen Gems-EMI Music, Inc., Stone Agate Music; Stone Diamond Music Corp.; MP3tunes, LLC

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