IP Law Daily Cox cannot avoid $25 million verdict for subscribers’ music piracy
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Monday, August 15, 2016

Cox cannot avoid $25 million verdict for subscribers’ music piracy

By Cheryl Beise, J.D.

Substantial evidence at trial supported a jury’s determination that Internet service provider Cox Communications was contributorily liable for acts of direct copyright infringement committed by subscribers who illegally downloaded 1,397 songs, the federal district court in Alexandria, Virginia, has ruled. In addition, the jury’s finding of willful infringement and its award of $25 million in statutory damages to music publisher BMG were supported by the record. The court denied Cox’s renewed motion for judgment notwithstanding the verdict (JNOV) or a new trial. The court also denied BMG’s motion for JNOV on its vicarious infringement claim, as well as its request for a permanent injunction (BMG Rights Management (US) LLC v. Cox Communications, Inc., August 8, 2016, O’Grady, L.).

In December 2015, following a two-week trial, the jury concluded that Cox Communications, Inc., and CoxCom, LLC (collectively, “Cox”) willfully contributed to copyright infringement committed by Cox subscribers who used the BitTorrent file-sharing protocol between February 2012 and November 2014 to download 1,397 copyrighted musical compositions owned or managed by BMG Rights Management (US) LLC (“BMG”) without the permission of rights holders. The jury awarded BMG $25 million in statutory damages. The jury, however, found that BMG failed to prove that Cox was vicariously liable for the infringement.

Prior to trial, the court ruled that Cox was not entitled to Internet service provider safe harbor protection under the Digital Millennium Copyright Act (DMCA) as a matter of law in this case because it did not meet the statute’s threshold requirement that ISPs adopt and “reasonably implement” a policy to terminate the accounts of repeat infringers. The court determined that the record—including emails between members of Cox’s management—conclusively established that before the fall of 2012 Cox failed to implement its repeat infringer policy.

In December 2011, BMG engaged third-party company Rightscorp, Inc., to identify infringing uses of their copyrighted works over BitTorrent sites. By that time, Cox, already had refused to process DMCA take-down notices from Rightscorp because they contained what Cox viewed as unreasonable settlement demands asking users to pay $10-$30 per alleged infringement before liability was established. As a result, Cox did not receive any of the approximately1.8 million notices Rightscorp sent to Cox on BMG's behalf during the relevant period.

Cox’s Motion for JNOV

Direct infringement. BMG contended that Cox's subscribers violated its exclusive rights of reproduction and distribution by uploading and downloading BMG’s works using BitTorrent. Cox argued that BMG failed to prove distribution because the only evidence of downloaded songs involved Rightscorp representatives. According to the court, however, the fact that that users of Cox IP addresses had uploaded and made available over 100,000 copies of BMG's works sufficed to form the basis of a distribution claim.

Cox also argued that BMG's evidence of reproduction failed because while BMG established that Cox users possessed BMG works, there was no evidence as to how those works were acquired, much less that they were acquired by download over Cox's network. The court did not disagree, but nevertheless concluded that there was adequate evidence from which a reasonable jury could find Cox users violated BMG's reproduction right.

Contributory infringement. Cox contended that there were two possible avenues to contributory liability and BMG did not establish either one. First, Cox maintained the evidence at trial established that Cox's Internet service was capable of substantial noninfringing uses, which immunized Cox from liability for contributory infringement under the Supreme Court's decision in Sony Corporation of America v. Universal City Studios, Inc., 464 U.S. 417 (1987). The court disagreed. “BMG's claim goes beyond design choice or the mere provision of a service and therefore it goes beyond Sony,” the court said. Unlike Sony, whose only contact with purchasers was at the point of sale of its accused Betamax video recorders, Cox maintained an ongoing relationship with its users. BMG claimed that Cox ignored specific notices of infringing activity and continued to provide material support to its users’ infringement of BMG works “despite its ability to suspend or terminate customers with the push of a button.”

Cox additionally argued that if Sony did not provide immunity, the Supreme Court’s decision in Metro-Goldwyn­ Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005) made clear that liability required proof of induced infringement. BMG had abandoned its claim that Cox induced its users to commit infringe. The court again disagreed. In Cox’s view, the Sony safe harbor is removed for only defendants who actively induce infringement. “But that framework cuts contributory liability too drastically and is beyond the Supreme Court's instruction,” the court opined.

The court permitted Sony to pursue a theory of contributory liability based on knowledge of infringing activity and material contribution to that infringement. The court instructed the jury that BMG could prove the “knowledge” element by showing that Cox knew or should have known about its user’s infringement or was “willfully blind” to it, i.e., “it was aware of a high probability that Cox users were infringing BMG's copyrights but consciously avoided confirming that fact.” According to the court, the jury could reasonably have concluded that Rightscorp captured infringing activity on Cox's network, and that had Cox received the notices they would have satisfied the knowledge requirement. As to material contribution, the jury could have found that Cox’s provision of high-speed internet service materially contributed to infringement via BitTorrent and that Cox had the means to withhold that assistance upon learning of specific infringing activity.

In reaching its conclusion, the court acknowledged that its “application of traditional contributory infringement to large intermediaries like Cox magnifies the uncertainties in this area of the law and raises the specter of undesirable consequences that may follow. This case may provide the vehicle for consideration of those questions.”

Willfulness. To prove “willfulness” under the Copyright Act, BMG had to show (1) that Cox was actually aware of the infringing activity, or (2) that Cox’s actions were the result of “reckless disregard” for, or “willful blindness'” to, BMG’s rights. The evidence at trial supported the jury’s finding of willfulness. Cox provided no argument for what additional evidence should have been required, the court said.

Cox’s Alternative Motion for a New Trial.

Cox’s alternative motion for a new trial cited numerous grounds of potential error committed by the court in its evidentiary rulings and jury instructions. The court rejected Cox’s assertion that the court erred in its jury’s instructions on direct infringement, contributory infringement, statutory damages, and BMG’s spoliation of evidence showing how Righstcorp operated during the relevant period.

Damages instruction. As to damages, the court instructed the jury, “The amount awarded must be between [$]750 and $30,000 for each copyrighted work that you found to be infringed.” Cox asserted that the evidence established that “multiple works BMG asserted were parts of a compilation,” and that the court erred by refusing Cox’s request to include an instruction on compilations. The court acknowledged that the circuits are split as to how to determine what constitutes “one work” for purposes of statutory damages calculation in cases where the copyright registration covers a compilation of works, such as musical works published as an album. However, BMG’s evidence at trial showed that it had offered all of the works at issue individually available for download by consumers.

BMG’s spoliation instruction. On the issue of Rightscorp’s destruction of evidence before trial, Cox objected to the court’s “anemic” spoliation instruction and its failure to impose an additional evidentiary sanction, such as dismissal or the preclusion of evidence, in response to BMG's failure to preserve evidence of how Rightscorp's system operated prior to July 2015. Prior to trial, a magistrate judge had determined that the manner in which Rightscorp identified suspected infringement was material evidence, that, since at least early 2013, BMG had a duty to preserve that evidence, and that such evidence was intentionally destroyed by the deliberate alteration, deletion, and overwriting of portions of the source code supporting Rightscorp’s system. The court decided that BMG should be allowed to present evidence about how the Rightscorp system functioned in 2015 to identify infringement. The court also declined to adopt the magistrate judge’s finding of intentionality in its jury instructions; instead, the court permitted Cox to identify the spoliation issue in its opening statement and instructed the jury that it may, but was not required to, consider the absence of evidence of earlier versions of Rightscorp’s software code.

Exclusion of evidence about Rightscorp. Most notably with regard to evidence, Cox took issue with the court’s exclusion of evidence supporting Cox’s objection to Rightscorp's business practices supporting its defense of unclean hands, including: (1) expert testimony about Rightcorp’s notices as outside the DMCA, and referring to Rightcorp as a “copyright troll,” “extortionist, blackmailer,” (2) a recording of a Rightscorp employee, (3) letters from other ISPs to Rightscorp, (4) letters from the offices of state attorneys general to Rightscorp, and (5) a phone script purportedly used by Rightscorp agents when collecting settlement payments.

The court noted that Cox's unclean hands defense was rejected on summary judgment, making it irrelevant at trial. Moreover, according to the court, the probative or impeachment value of such evidence was marginal compared to the significant danger of unfair prejudice and jury confusion.

BMG’s Motions for JNOV and a Permanent Injunction

Vicarious infringement. BMG sought judgment as a matter of law on its claim that Cox was liable for vicarious infringement. To prove vicarious infringement, BMG had to show that Cox had “the right and ability to supervise” it users’ infringing activity and “an obvious and direct financial interest” in their infringing activity.

At trial, the jury could have relied on evidence rebutting BMG's assertion of a direct financial interest, including: Cox's use of a flat monthly fee, the impact of infringement on Cox's ability to sell licensed content, Rightscorp’s repeated assertions that infringement on the network financially harmed Cox, testimony from Cox’s marketing director, and Cox’s internal marketing research. The jury also was properly instructed to give little or no weight to certain evidence, including a survey purportedly showing that nearly ten percent of Cox subscribers subscribed to Cox in order to use BitTorrent sites.

Permanent injunction. In moving for permanent injunction, BMG alleged that Cox had continued to ignore Rightscorp's notices of its detection of “massive infringement” of BMG’s works on its network. However, Cox provided notice to BMG shortly after trial that Rightscorp was no longer blacklisted. Yet, despite this notice, neither Rightscorp nor BMG actually submitted any infringement notifications to Cox. When challenged, BMG’s said it did not know that Rightscorp had suspended sending notices to Cox. To the court, this highlighted the difficulty of fashioning an injunction in which Rightscorp was an essential entity.

In addition, BMG’s proposed injunction was overboard, “severely lacking in conduct-based instruction,” and could not reasonably be implemented without requiring the oversight of Rightscorp as well. For example, there was evidence that Rightscorp sent duplicative notices sometimes in the thousands and the injunction would seem to require Cox to take immediate action on each one. The court also saw no need for Cox to provide detailed customer identifying information for each IP address identified in the notices. Injunctions issued in other peer-to-peer file sharing cases were not relevant because they involved individuals, closed systems, or other systems that were not analogous to Cox’s position as a general provider of Internet access services.

In addition, the substantial burden the injunction would impose on Cox outweighed the benefit to BMG. For its part, BMG lived with the status quo for years before filing suit. Finally, BMG failed to show that the injunction would not infringe on the public’s important interests in privacy and access to the Internet.

The case is No. 1:14-cv-1611(LO/JFA).

Attorneys: Jeremy David Engle (Steptoe & Johnson LLP) for BMG Rights Management [US] LLC. Craig Crandall Reilly (Law Office of Craig C. Reilly) for Cox Enterprises, Inc., Cox Communications, Inc. and CoxCom, LLC.

Companies: BMG Rights Management [US] LLC; Cox Enterprises, Inc.; Cox Communications, Inc.; CoxCom, Inc. d/b/a Cox Communications of Northern Virginia; CoxCom, LLC

MainStory: TopStory Copyright TechnologyInternet VirginiaNews

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