IP Law Daily Broadband provider Cox not entitled to DMCA ‘safe harbor,’ but jury’s contributory infringement verdict and $25 million award vacated
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Friday, February 2, 2018

Broadband provider Cox not entitled to DMCA ‘safe harbor,’ but jury’s contributory infringement verdict and $25 million award vacated

By Lynn Stanton,TR Daily

The U.S. Court of Appeals for the Fourth Circuit (Richmond) has ruled that broadband Internet access service providers Cox Communications, Inc., and CoxCom LLC were not entitled to the "safe harbor" in the Digital Millennium Copyright Act in an infringement action brought music publisher BMG Rights Management because Cox’s policy and practices for dealing with infringing subscribers were not reasonable. However, a jury verdict finding Cox liable for willful contributory copyright infringement, and awards of $25 million in statutory damage, and $8.3 million in attorney fees have been vacated because of errors in the court’s jury instructions. Proving contributory infringement requires proof of at least willful blindness, negligence is insufficient, the court opined (BMG Rights Management v. Cox (US) LLC v. Cox Communications, Inc., February 1, 2018, Motz, D.).

In 2014, BMG Rights Management (US) LLC ("BMG"), which owns copyrights in musical compositions, filed suit alleging copyright infringement against Cox Communications, Inc. and CoxCom, LLC (collectively, "Cox"). BMG sought to hold Cox contributorily liable for its subscribers’ infringement of BMG’s copyrights. In 2015, the district court ruled on summary judgment that Cox was not entitled to safe harbor protection under the Digital Millennium Copyright Act("DMCA") because it had not produced evidence that it had reasonably implemented a policy to terminate the accounts of repeat infringers, as required for safe harbor protection. After a two-week trial, a jury found Cox liable for willful contributory infringement and awarded BMG $25 million in statutory damages. The district court subsequently awarded Cox attorney fees of over $8.3 million and additional costs of over $140,000 under the Copyright Act’s fee-shifting provision.

Cox appealed, asserting that the district court erred in denying it the safe harbor defense and incorrectly instructed the jury. The Fourth Circuit affirmed the district court’s summary judgment ruling that Cox was not entitled to the safe harbor defense, but reversed the jury verdict, damages award, and the award of attorney fees to BMG because of certain errors in the jury instructions.

DMCA safe harbor. The DMCA created a safe harbor for Internet service providers, websites, and other Internet ecosystem players that host third-party content, so long as they adopt and reasonably implement "a policy that provides for the termination in appropriate circumstances of subscribers . . . who are repeat infringers," the court noted.

As described by the court, Cox’s policy allows for 13 "strikes" or instances of copyright infringement by any given subscriber before they would be considered for termination. "Cox never automatically terminates a subscriber," the court noted.

Writing for the unanimous three-judge panel, Circuit Judge Diana Gribbon Motz said, "The district court agreed with BMG and held that no reasonable jury could find that Cox implemented a policy that entitled it to that DMCA safe harbor. The court explained that BMG had offered evidence that ‘Cox knew accounts were being used repeatedly for infringing activity yet failed to terminate’ those accounts and that Cox did ‘not come forward with any evidence’ to the contrary. Accordingly, the court granted summary judgment to BMG on Cox’s safe harbor defense."

The appellate panel agreed that "Cox is not entitled to the safe harbor defense and affirm the district court’s denial of it, but we reverse in part, vacate in part, and remand for a new trial because of certain errors in the jury instructions."

The appeals court rejected Cox’s argument that "because the repeat infringer provision uses the term ‘infringer’ without modifiers such as ‘alleged’ or ‘claimed’ that appear elsewhere in the DMCA, ‘infringer’ must mean ‘adjudicated infringer,’" that is, "people who have been held liable by a court for multiple instances of copyright infringement."

"But the DMCA’s use of phrases like ‘alleged infringer’ in other portions of the statute indicates only that the term ‘infringer’ alone must mean something different than ‘alleged infringer,’ otherwise, the word ‘alleged’ would be superfluous. Using the ordinary meaning of ‘infringer,’ however, fully accords with this principle: someone who actually infringes a copyright differs from someone who has merely allegedly infringed a copyright, because an allegation could be false," the appeals court said.

"Cox nonetheless contends that it lacked ‘actual knowledge’ of its subscribers’ infringement and therefore did not have to terminate them. That argument misses the mark. The evidence shows that Cox always reactivated subscribers after termination, regardless of its knowledge of the subscriber’s infringement. Cox did not, for example, advise employees not to reactivate a subscriber if the employees had reliable information regarding the subscriber’s repeat infringement. An ISP cannot claim the protections of the DMCA safe harbor provisions merely by terminating customers as a symbolic gesture before indiscriminately reactivating them within a short timeframe," Judge Motz wrote for the court.

"In September 2012, Cox abandoned its practice of routine reactivation. An internal email advised a new customer service representative that ‘we now terminate, for real.’ BMG argues, however, that this was a change in form rather than substance, because instead of terminating and then reactivating subscribers, Cox simply stopped terminating them in the first place. The record evidence supports this view. Before September 2012, Cox was terminating (and reactivating) 15.5 subscribers per month on average; after September 2012, Cox abruptly began terminating less than one subscriber per month on average," she added.

"Moreover, Cox dispensed with terminating subscribers who repeatedly infringed BMG’s copyrights in particular when it decided to delete automatically all infringement notices received from BMG’s agent, Rightscorp. As a result, Cox received none of the millions of infringement notices that Rightscorp sent to Cox on BMG’s behalf during the relevant period. Although our inquiry concerns Cox’s policy toward all of its repeatedly infringing subscribers, not just those who infringed BMG’s copyrights, Cox’s decision to categorically disregard all notices from Rightscorp provides further evidence that Cox did not reasonably implement a repeat infringer policy," the court continued.

Jury instructions. However, the court agreed with Cox on one of its arguments about the district judge’s instructions to the jury.

"Cox contends that the court erred in charging the jury as to the intent necessary to prove contributory infringement. Specifically, Cox challenges the district court’s instructions that the jury could impose liability for contributory infringement if the jury found ‘Cox knew or should have known of such infringing activity.’ We agree that in so instructing the jury, the court erred," Judge Motz wrote.

"The notion that contributory liability could be imposed based on something less than actual knowledge, or its equivalent, willful blindness, is not without support," she noted. However, she said the Supreme Court in its Grokster and Sony cases on contributory copyright infringement "adopted now-codified patent law doctrines — the staple article doctrine and the inducement rule. … We are persuaded that the Global-Tech rule developed in the patent law context, which held that contributory liability can be based on willful blindness but not on recklessness or negligence, is a sensible one in the copyright context. It appropriately targets culpable conduct without unduly burdening technological development."

"We therefore hold that proving contributory infringement requires proof of at least willful blindness; negligence is insufficient," the court concluded.

Judge Motz was joined in the opinion by Circuit Judge James A. Wynn Jr. and Senior Circuit Judge Dennis W. Shedd.

The case is No. 16-1972.

Attorneys: Michael J. Allan (Steptoe & Johnson PLLC) for BMG Rights Management [US] LLC. Scott R. Hunsaker (Tucker Ellis LLP) for Cox Communications, Inc.

Companies: BMG Rights Management [US] LLC; Cox Communications, Inc.

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