# Presentation: 190296

## Secondary Liability & ISP Liability Limitations

- Ben Hardman
- Attorney - Advisor
- Office of Intellectual Property Policy & Enforcement
- USPTO

## Secondary Liability

- What is secondary liability?
- Secondary liability is when one party is held legally responsible for the actions of another party.
- What is the justification for secondary liability?
- When by virtue of their relationship with the actor or their relationship to the harm, a third party benefits from or contributes to the exploitation of a copyrighted work.

**Notes:**
the exclusive right to AUTHORIZE OTHERS to exploit the exclusive rights of ownership 

## Two Types of Secondary Liability

- Vicarious Liability (Based on control)
- Right and ability to control, and
- Direct financial interest
- Contributory Liability (Based on culpable acts)
- Knows or has reason to know of infringement, and
- Induces, causes, or materially contributes to the infringing conduct of another.

## Vicarious Liability

- Two requirements
- The right and ability to control
- Lack of a legal right to control does not defeat liability.
- Unsuccessful attempts to control do not defeat liability.
- A direct financial interest
- Percentage of profits from infringing sales
- Infringing goods “draw” customers to a venue.

## Venues that Facilitate Infringement

- The “**Landlord Cases**” - The defendant rents space in an apartment or a building to an infringer.
- Secondary liability often avoided.
- Secondary liability may attach in unusual cases.
- Defendant received rent based upon a percentage of the infringer’s sales or profits.
- Infringing goods might have drawn more customers to the defendant’s store.

## Venues that Facilitate Infringement

- The “**Dance Hall**” Cases – Defendant owns a facility at which musicians perform protected works for customers.
- Cases involved dance halls, restaurants, race tracks.
- Many did not separately charge customers for listening to infringing performances.
- Vicarious liability was often imposed.
- Courts often found an ability to control even if musicians were “independent contractors.”

## Venues that Facilitate Infringement

- The “**Swap Meet**” Cases – Defendant operated a market at which vendors sell infringing goods.
- Cases often involved informal “flea markets” that charged vendors a fee to sell goods to customers attracted to the market
- Vicarious liability was often imposed.
- Market operators benefited when infringing goods acted as a “draw” to attract customers to the market (e.g. increases in admission fees, concession stand sales, and parking fees).

## Contributory Liability

- Two requirements
- An act
- The Defendant’s own act must cause, encourage, or materially contribute to the infringing conduct of another.
- A culpable mental state.
- Intent: The Defendant intended to encourage infringement.
- Knowledge: The Defendant knew that his act would encourage infringement.
- Recklessness/Constructive Knowledge: The Defendant should have known that his act would encourage infringement.

## Devices that Facilitate Infringement

- Devices like photocopiers or VCRs can enable consumers to make infringing copies of protected works.
- Distributors cannot control how customers will use the devices (Vicarious Liability), but they will know (Contributory Liability) that some users will infringe.
- Vicarious liability might be too easy to avoid.
- Contributory liability might attach too easily.

## Devices that Facilitate Infringement

*Sony* – Should distributors of VCRs be held secondarily liability when consumers use VCRs to videotape free over-the-air broadcast television programs for later viewing.
- The Supreme Court held that the test for secondary liability for distributors of copying devices must “strike a balance.”
- It must leave rightsholders with a practical ability to impose secondary liability in appropriate cases.
- It must not let rightsholders control commerce “substantially unrelated” to infringement.

## Devices that Facilitate Infringement

- Sony tried to strike this balance by importing and modifying the substantial-noninfringing-use rule that Congress had codified in the Patent Act.
- The Sony test: If a device is capable of “substantial” or “commercially significant” noninfringing uses, knowledge that some of its users will infringe will not subject its distributor to contributory liability.

## Devices that Facilitate Infringement

- In MGM v. Grokster, lower courts held that distributors of the Morpheus and Grokster software that used a decentralized file-sharing system could not be held secondarily liable.
- Vicarious liability could not attach because the distributors did not control a centralized indexing system listing all files available for users.  Once the software was distributed, users shared files directly with other users.
- Contributory liability could not attach because Sony precluded liability if a device was capable of substantial noninfringing use.

## Devices that Facilitate Infringement

- The Supreme Court reversed, unanimously: It held that even if devices can pass the Sony test, their distributors will be secondarily liable if they “intentionally induce” infringing use of those devices.
- Thus, where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, the Sony rule will not preclude liability.

## Devices that Facilitate Infringement

- The Supreme Court found “unmistakable” and “unequivocal” evidence that the distributors of Grokster and Morpheus software intended to induce infringement.
- The Court inferred intent from evidence in the record; three types of evidence of intent were “particularly notable.”
- First, they provided former Napster users with software that “functions as Napster did.”
- Second, they had not used “filtering tools or other mechanisms to diminish the infringing activity using their software.”
- Third, “the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing.”

## Internet Service Provider

- Internet Service Provider (ISP) – Includes any entity that provides “online services or network access, or the operator of facilities thereof.”
- Safe Harbors are only available to ISPs who:
- adopt, reasonably implement, and inform subscribers of a policy of terminating service to users who are repeat infringers, and
- accommodate and do not interfere with “standard technical measures,” that protect or identify copyrighted works.

## Safe Harbor – Hosting

- § 512(c) protects providers that host infringing materials if they:
- Host infringing material at the direction of a third party;
- Lack knowledge that the material, or uses of it, are infringing, or act expeditiously to remove it after acquiring such knowledge;
- Do not receive a financial benefit directly attributable to infringement that the provider has a right and ability to control; and
- Respond expeditiously to a notice-and-takedown request.

## Safe Harbor – Information Location Service

- § 512(d) protects providers that provide information-location tools that refer or link to infringing materials if they:
- Lack knowledge that the material, or uses of it, are infringing, or act expeditiously to remove it upon acquiring such knowledge;
- Do not receive a financial benefit directly attributable to infringement that the provider has a right and ability to control; and
- Respond expeditiously to a notice-and-takedown request.

## Notice and Takedown

- To claim the benefits of most safe-harbors, an ISP must designate an agent to receive notices of alleged infringement and provide contact information to the public and the U.S. Copyright Office.  37 CFR § 201.38
- The designation must include “the name, address, phone number, and electronic mail address of the agent”
- Examples of agent designations are available from Copyright Office’s listing of designated agents at http://www.copyright.gov/onlinesp/list/x_agents.html.

## Notice and Takedown

- § 512(c)(3) provides that a written communication to a provider’s designated agent triggers notice-and-takedown obligations if it:
- Contains a physical or electronic signature of a person who states under penalty of perjury that they are authorized to act on behalf of the relevant copyright holder;
- Identifies, or provides a representative list of, the works claimed to have been infringed;

## Notice and Takedown

- Provides “information reasonably sufficient to permit” the provider to locate the material;
- Enables the provider to contact the complaining party; and
- States that the complaining party has a good-faith belief that the use of the material complained of is not authorized by the rightsholder or the law.

## Notice and Takedown

- A notice must “substantially” comply with all of these criteria.
- An adequate notice or appropriate knowledge triggers a duty to “expeditiously” remove or disable access to infringing materials.

## Counter-Notice

- Hosting-service providers receiving a takedown notice must also:
- (1) try to notify the subscriber that its hosted materials have been taken down;
- (2) provide any counter-notice received from that subscriber to the complaining party and notify it that the disputed materials will be replaced or restored in 10 days; and
- (3) replace or restore access to disputed materials no earlier than 10 and no later than 14 days after receiving the counter-notice unless the complaining party notifies the provider that it has sued the allegedly infringing subscriber.
- Requirements for a valid counter-notice are similar to those for a notice.

## Liability Limitations

- No monetary damages for:
- Infringement by customer
- Take down (or put back up), by ISP
- Injunctions still available

## Notice / Counter-Notice Statistics

- IIPA reports that during the 18-month period including 2001 and the first half of 2002, the four major associations of U.S. rightsholders sent about 158,300 notices of alleged infringement to ISPs.
- During this period, these rightsholders received only 13 counter-notices, so only 0.008% of notices were contested by the alleged infringer.
- Notice and Takedown has been very successful at halting infringement and limiting the need for lawsuits against Internet users.

## The Information-Subpoena Process

- § 512(h) provides a legal process to require ISPs to identify allegedly infringing users of their networks or services.
- A U.S. District Court clerk must “expeditiously” issue a subpoena that rightsholders must deliver to an ISP.  The subpoena request must include:
- A copy of a takedown notice, a proposed subpoena; and
- A sworn declaration that the subpoena is to identify an alleged infringer and that any information obtained will be used only for that purpose.

## Conclusion

- Laws like the DMCA will only deter piracy and promote cooperation if they operate against a strong, flexible civil-enforcement system.
- Rogue ISPs that intend to encourage piracy must still be deterred.
- ISP-liability limitations cannot encourage cooperation unless the failure to cooperate has consequences.

## THANK YOU

- Ben Hardman
- Attorney - Advisor
- Office of Intellectual Property Policy & Enforcement
- USPTO
- _[Benjamin.Hardman@USPTO.gov](mailto:Benjamin.Hardman@USPTO.gov)_