noncommercial use.” Diamond Multimedia, 180 F.3d at 1079 (quoting S. Rep. 102-294 (1992) reprinted
in 1992 WL 133198).

According to Defendants, the AHRA shields them from liability because the AHRA was
intended to immunize from liability personal use of copyrighted material by “protecting all
noncommercial copying by consumers of digital and analog musical recordings.” Def. Brief at 8, citing
Diamond Multimedia, 180 F.3d at 1079. While Defendants do not elucidate this argument in their brief,
they apparently believe that the ongoing, massive, and unauthorized distribution and copying of
Plaintiffs’ copyrighted works by Aimster's end users somehow constitutes “personal use.” This
contention is specious and unsupported by the very case on which Defendants rely.

In Diamond MultiMedia the Ninth Circuit affirmed the denial ofa preliminary injunction against
the manufacturer ofa hand held device, called the Rio, capable of receiving, storing, and re-playing MP3
music files. 180 F.3d 1072. Users of the Rio were able to transfer MP3 files already located on their
computer to the Rio so that the songs could then be played elsewhere without the need for the computer.
The Rio was not capable of further distributing the music to other computers. Rather, it was solely used
as a means by which a user of MP3 files could make further private and personal use of those files away
from his or her computer. The RIAA brought suit to enjoin the Rio, claiming it did not meet the
requirements of the AHRA. Specifically, the RIAA wanted to prevent the sale of the Rio because it did
not employ a Serial Copyright Management System as required by the AHRA. In finding that the RIAA
did not have a likelihood of success on the merits, the Ninth Circuit found, inter alia, that the Rio was
not a “digital audio recording device” under subject to the AHRA.

The facts of the instant case and Diamond Multimedia are markedly different. The activity at
issue in the present case is the copying of MP3 files from one user's hard drive onto the hard drive of

another user. The Rio in Diamond Multimedia, by contrast, “merely [made] copies in order to render

19



73

pointer, or hypertext link,” if the service provider meets three other specified conditions. 17 U.S.C. §
512(d).

Defendants fail to meet the conditions outlined by the Information Location Tools Safe Harbor.
First, a service provider cannot have actual knowledge of the infringing material or activity, or, in the
absence of actual knowledge, the service provider cannot be aware of facts or circumstances from which
the infringing activity is apparent. 17 U.S.C. § 512(d)(1). In the alternative, if a service provider does
have actual or constructive knowledge, the service provider must “act[] expeditiously to remove, or
disable access to, the material.” 17 U.S.C. § 512(d)(1)(C). As described in Section III.B.2.a, however,
Defendants do have actual and constructive knowledge of the infringing activity. Furthermore, there is
no evidence whatsoever that Defendants have taken steps to remove or disable access to infringing
material.

Second, a service provider cannot “receive a financial benefit directly attributable to the
infringing activity, in a case in which the service provider has the right and ability to control such
activity.” 17 U.S.C. § 512(d)(2). As more fully described in Section III.B.3, however, we find that
Defendants do receive the sort of financial benefit described by this condition and Defendants do have
the right and ability to control the infringing activity (even if they purposely avoid such ability through

a self-imposed encryption scheme).”*

“The third condition of the Information Location Tools Safe Harbor requires the expeditious
take-down of infringing material after the service provider receives proper notice from the copyright
holder that complies with § 512(c)(3). Because Defendants do not meet the first two conditions,
however, we find it unnecessary to delve into this third condition. We note in passing, however, that the
notice requirements of § 512(c)(3) probably have not been met by Plaintiffs. The RIAA sent its notice
of infringement and cease and desist letters to Deep personally. However, the DMCA contains a
technical requirement that such notice be sent to a service provider's designated agent. See 17 U.S.C.
§ 512(c)(2) & (3). Defendants' designated agent to receive such notification appears to be Melissa Fass
of AbovePeer, not Deep. See Forrest Decl. Ex. 8 (screen shot of Aimster Copyright Notice page
providing contact information for designated agent Melissa Fass).

40



The problem, Plaintiffs and Defendants agree, is in the method the repeat infringer policy is
implemented — that is to say, the policy is not implemented. Where the parties differ is as to what
significance we should attach to this lack of implementation. Defendants point out, and we are inclined
to believe them, that the policy is not implemented because it cannot be implemented. As described in
Section IIL.B.2.a, supra, the encryption on Aimster renders it impossible to ascertain which users are
transferring which files. Thus, while Plaintiffs have identified many Aimster users who may have
copyrighted works residing on their individual hard drives (itself probably not an infringing activity),
Plaintiffs cannot demonstrate that any particular user is actually transferring any of those files (which
would be an infringing activity). Defendants point out that the Plaintiffs have yet to identify a single
repeat infringer whose access should be terminated. Indeed, say Defendants, once they “are notified that
a particular internet protocol address is identified with any infringing use, Defendants will notify the
primary internet service provider to terminate their access.” Def. Brief at 16. This statement is not
nearly so helpful and agreeable as it seems, however, because, according to Defendants themselves, such
identification would be impossible.

Weare not convinced by Defendants’ arguments on this issue for two reasons. First, we note that
the repeat infringer language of §512(i) does not require a copyright holder to provide the sort of notice
sought by Defendants. Nowhere in that subsection is there the requirement that a copyright holder
provide the Defendants with the internet protocol address of a particular copyright infringer on the
Aimster system. Rather, the statute merely provides that the service provider implement a policy that
provides for the termination of access to repeat infringers in “appropriate circumstances.” 17 U.S.C.
§ 512(). Second, as noted previously in this opinion, we remain nonplused with Defendants’ argument
that the Aimster encryption scheme absolves them of responsibility when that scheme is voluntarily

instituted by the Defendants themselves. Adopting a repeat infringer policy and then purposely

36



cm —~

copyrighted works, nor was the advertisement a reasonable indication to Defendants that they were safe
from liability.*

Finally, Defendants have repeatedly referred to a newspaper quotation in which Barry Schuler,
chairman and Chief Executive of America Online Inc., says that Aimster is “not doing anything illegal.”
Deep Decl. Ex. D. Defendants imply that this assertion contributed to their false sense of security and
indicates Plaintiffs' full knowledge of Aimster activities as early as February 2001. Deep Decl. {26 and
Oral Argument Tr. 25. Assuming for a moment that the quotation attributed to AOL (which is not
directly a party to this action) is both relevant and admissible, it is taken grossly out of context.
Defendants would have us believe that AOL's chairman was explicitly condoning the illegal distribution
of copyrighted music over the Internet through the Aimster system. However, it is quite clear from the
context of the Washington Post article at issue that Mr. Schuler was referring specifically to Aimster's
activity of piggybacking onto the AOL IM network and noting that the piggybacking practice was not
itself illegal.* The mischaracterization of Mr. Schuler's words does not help Defendants' cause.

Plaintiffs’ delay in bringing the motion for preliminary injunction was not unreasonable and is
not enough the rebut the presumption of irreparable harm. Furthermore, there is insufficient affirmative
evidence that Defendants were lulled into a false sense of security or that they reasonably relied on

Plaintiffs' delay in assuming that a day of legal reckoning would somehow never come. In short, it is

*4Indeed, Ted Cohen, Vice-President for New Media for EMI, had filed a declaration further
describing the relationship between EMI and Defendants. He recounts a meeting with Deep at which
Deep sought business from the record companies by trumping up Aimster's ability to protect copyrights.
The agreement reached between EMI and Defendants as a result of this meeting was a mere linking
arrangement in which no money changed hands. See Cohen Decl. {{ 2-4.

>This obvious interpretation is supported by Mr. Shuler himself. See Shuler Decl. 3 (“This
statement simply meant that the act of piggybacking on the AOL IM service did not appear to constitute
a trespass of the AOL network.”).

45


services provided through Club Aimster, which accounts for a very small portion of the traffic on
Defendants’ service, there is not money exchanged for any service and there is no paid advertising on
the site.” Deep Decl. | 20. This description of Aimster's commercial aspect is inaccurate.

In the time since the filing of Deep's original Declaration, it appears that Club Aimster now
accounts for significantly more than “a very small portion of the traffic on Defendants' service.” On the
contrary, any attempt to download the Aimster software now requires that a prospective user join Club
Aimster and pay the $4.95 monthly membership fee. This limitation exists despite text on the Aimster
homepage stating that one need not be an Aimster member to download and use Classic Aimster. See
Farmer Supp. Decl. {| 9, Ex. | (including description of thwarted attempt to download the Aimster
software for free and appropriate screen shots). As such, it now appears that every user of the Aimster
system is required to join Club Aimster and pay the monthly fee. Aimster is very much a commercial
enterprise. Users are expected to pay $4.95 per month for the privilege of “hours of entertainment every
day.” Forrest Decl. Ex. 19.

As further evidence of Aimster's commercial nature, Plaintiffs also attach screen shots from the
Aimster web page offering various merchandise for sale. This merchandise includes Aimster Jeans,
Designer Fragrance, Nutritional Supplements, and bottles of “Fat Mctabolizer.” See Creighton Decl.
Ex. 23 (attaching screen shots).

There is another, if minor, commercial aspect to Aimster. Defendants' website actively solicits
for $10 “voluntary payments” to benefit Aimster's “Fight For Freedom” against “the Recording Industry,
the Motion Picture Association and America Online in court to protect [Aimster users’] rights to privacy
and free speech.” In return for their $10 payment, contributors were to receive an Aimster “Fight for

Freedom” poster. See Forrest Decl. Ex. 2 (screen shot of the “Fight For Freedom” web page).


cr rN

identify the individual users (“buddies”) who possess the offending files. Jd, Each of these individually
identified users must log on to the Aimster system with a password and user name provided by Aimster.
Forrest Decl. Ex. 19 (screen shot of the Aimster login screen). While it may be true that the actual
transfers between users are unknown to Defendants due to Aimster's encryption scheme, it is
disingenuous of Defendants to suggest that it is unaware of which users are using its system and what
files those users are offering up for other users to download at their whim. It is also disingenuous of
Defendants to suggest that they lack the requisite level of knowledge when their putative ignorance is
due entirely to an encryption scheme that they themselves put in place.

Even if we were to agree that the encryption on Defendants’ system prevents them from having
actual knowledge of infringement, the encryption scheme would not prevent Defendants from having
constructive knowledge. Constructive knowledge may also meet the knowledge requirement of a
contributory infringement claim. See Gershwin Publ'g Corp., 443 F.2d at 1162. Here, given the facts
described above, Defendants clearly should have been aware of the infringing activity. Such
constructive knowledge suffices for our purposes.

b. Induce, Cause, or Materially Contribute To The Infringing Activity of Another

Plaintiffs have also successfully shown that Defendants materially contribute to the underlying
infringement by Aimster’s users. Here, the Ninth Circuit's reasoning in Fonovisa, 76 F.3d 259, is
illustrative. In that case, the court held that the owners of a swap meet or flea market could be held
contributorily liable for the infringement of individual vendors in the swap meet when those vendors
were trafficking in counterfeit musical recordings. In finding that the swap meet organizers materially
contributed to the infringing activity of the vendors, the court reasoned that “it would be difficult for the
infringing activity to take place in the massive quantities alleged without the support services provided

by the swap meet.” Jd. at 264. Those services included “the provision of space, utilities, parking,

23



7 43 oc r~

Cc. No Adequate Remedy at Law and Irreparable Harm

In the context ofa preliminary injunction, we must consider the equitable defense of laches as
a mitigating factor with regard to Plaintiffs’ claim of irreparable harm. While irreparable harm may
normally be presumed in the copyright infringement context, Atari, Inc. v. North Am. Phillips Consumer
Elec. Corp., 672 F.2d 607, 620 (7th Cir. 1982) , that presumption can be overcome when the Plaintiff
is inexcusably tardy in seeking relief and such tardiness weighs against the Plaintiffs' claim of irreparable
harm. See, e.g., Ideal Industries, Inc. v. Gardner Bender, Inc., 612 F.2d 1018, 1025 (7th Cir. 1979), cert.
denied, 447 U.S. 924 (1980).

In assessing the excusability of delay in seeking a preliminary injunction, the relevant issue is
whether a defendant has been “lulled into a false sense of security or had acted in reliance on the
plaintiff's delay.” Ty, Inc., 237 F.3d at 903. In Ty, the manufacturer of the popular “Beanie Babies” toys
sought to preliminarily enjoin the manufacture and marketing of confusingly similar “Beanie Racers”
toys. In addressing the defendant's argument that the plaintiffs waited too long to bring their motion,
the Seventh Circuit affirmed the magistrate judge's decision that “it cannot be said that this minimal
(eight month] delay lulied Defendant into a false sense of security, nor that the delay was unreasonable.”
Id. Of note was the dearth of “affirmative evidence that [Plaintiff's] delay... caused [Defendant] to be
lulled into a false sense of security or that [Defendant] in any way relied on [Plaintiff's] delay.” Id.

We are therefore instructed to search the record before us for any affirmative evidence that the
Defendants in this case were lulled into a false sense of security or relied on Plaintiff's delay in
continuing their operations. Like the court in 7y, we find such evidence to be wholly lacking.

The parties agree that Plaintiffs became aware of the Aimster system around August or
September 2000. The present motion for preliminary injunction was filed with this court on December

21, 2001, about sixteen or seventeen months later, Such a lengthy delay, however, is not dispositive in

41



ae)

or Reno v. American Civil Liberties Union, 521 U.S. 844 (1997).

Before delving into a full description of the Aimster service, it is useful to describe some
underlying concepts and technology. The first of such concepts is instant messaging. Instant messaging
(“IM”) is a way for people to communicate instantly over the computer to one or more ‘buddies’ that
they specify. See generally, Mujica Decl. {{5-7. There are several different IM networks, including
America Online's Instant Messenger (“AOL IM”), ICQ, and Yahoo IM. Instant Messaging works
through the use of a computer program that each individual user downloads to his or her machine. With
the program installed, the computer connects to the IM network and the user can specify friends that also
have the IM program installed on their computers. The system then alerts the user in real time whenever
those friends are online. When a friend is online, the user can send that person an instant message that
will pop up on their screen. The users can then chat back and forth in real time using their keyboards.
As such, instant messaging is much faster than e-mail. An instant message pops up on the screen
unbidden as soon as it is sent from a friend's computer.

AOL IM also has a feature that allows buddies to transfer files to each other.’ There are two
ways a AOL IM user can transfer files: by using a file transfer or AOL IM's “get file” functionality. A
simple file transfer on AOL IM requires a user to specify a file on his hard drive to send to one of his
IM buddies. The buddy, after signaling his acceptance of the transfer, would then receive the file onto
his hard drive. This method of file transfer can be used to send any kind of files over the AOL IM

network, including documents, digital pictures, and MP3 music.

need not rest on the legal reasoning or factual findings of the Napster courts.

‘The file transfer functionality of AOL IM service is relevant only insofar as it relates to
Defendants' argument that AOL has unclean hands and shouldn't be able to pursue a preliminary
injunction. The crux of Defendants' argument is that AOL IM allows for substantially the same file
transfer abilities of which the Plaintiffs now complain about Aimster. As explain in Section II1.B.4,
herein however, this claim is a red herring.



is at issue. For the purpose of the Transitory Communication Safe Harbor, “service provider” is defined
as “an entity offering the transmission, routing, or providing of connections for digital online
communications, between or among parties specified by a user, of material of the user's choosing,
without modification of the content of the material as sent or received.” 17 U.S.C. § 512(k)(1)(A). For
the purposes of the remaining safe harbors, the “service provider” definition is even more broad: a
service provider is “a provider of online services or network access, or the operator of facilities therefor.”
17 U.S.C. § 512(k)(1)(B). The second definition further provides that it includes any entity that qualifies
under the first definition. Jd.

A plain reading of both definitions reveals that “service provider” is defined so broadly that we
have trouble imagining the existence of an online service that would not fall under the definitions,
particularly the second. In any event, Aimster certainly qualifies under the first version (and, by
extension, the second). As described by Defendants,

Aimster connects digital signals from one user to another so that they may identify each

other as “buddies” or for the purpose of sending information and data from one user to

another. The material to be sent and the “buddies” are chosen wholly by the user

without modification by Defendants. ... Aimster operates in the standard way that many
infrastructure providers do, such as providers of email gateways, instant messaging and
caching servers, by providing a backbone or infrastructure through a contractual
relationship with other intermediate service providers, who in turn have commercial
relationships with other infrastructure providers on down the line to the provider that has
a relationship with the end user.
Def. Briefat 14. This description (uncontroverted by Plaintiffs) plainly shows that Aimster is a service
provider under the DMCA's definition in that it provides the routing of digital communication between
its users. Plaintiffs retort that internet service providers “generally provide a way to connect to the
Internet (e.g., phone or cable modem) as well as a mechanism that tells a computer how and where to

access information on the Internet,” and that Aimster provides none of these services. Farmer Decl. J

28. Plaintiffs are probably correct that Aimster would not be considered an internet service provider

34



portable, or 'space shift,’ those files that already reside on a user's hard drive.” 180 F.3d at 1079. The
difference is akin to a owner of a compact disc making a copy of the music onto a tape for that owner's
sole use while away from home versus the owner making thousands of copies of the compact disk onto
a tape for distribution to all of his friends. Furthermore, Diamond Multimedia had nothing whatsoever
to do with whether the MP3 files on the owner's computers themselves infringed copyrights. Rather, the
decision was limited solely to the infringement issue regarding the act of shifting files from a computer
to a personal device and whether that copying was subject to the particular requirements of the AHRA.
In short, Defendant's reliance on Diamond Multimedia is entirely misplaced.

2. Contributory Infringement by Aimster

Having shown direct infringement by Aimster users, Plaintiffs must next demonstrate a
likelihood of success on their contributory infringement claim. A party can be liable for contributory
infringement where the party “with knowledge of the infringing activity, induces, causes, or materially
contributes to the infringing conduct of another.” Design Craft Fabric Corp. v. K-Mart Corp., 98 C
5698, 1999 WL 1256258, at *4 (N.D. Ill. 1999) (quoting Gershwin Publ'g Corp. v. Columbia Artists
Megt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971)).

a. Knowledge of Infringing Activity

The imposition of contributory liability requires that the secondary infringer know or have reason
to know of the direct infringement. See A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1020 (9th
Cir. 2001)(“Napster IT’); Cable/Home Comm. v. Network Prods., Inc., 902 F.2d 829, 846 (11th Cir.
1990).

There is no doubt that Defendants either know or should know of the direct infringement
occurring on the Aimster system. Plaintiffs have sent repeated notices to Defendants of the obvious

infringing activity on Aimster. On April 3, 2000, Frank Creighton of the RIAA sent a cease-and-desist

20



users with similar interests, share information, and develop clubs. Def. Brief at 9. In addition,
businesses without a network administrator may use Aimster to exchange business records securely and
efficiently. Deep Decl. 16-18.

Sony is plainly distinguishable from the present case. First, in Sony, the court found that the
principal use of video recorders was non-infringing (mere “time shifting”). 464 U.S. at 421. By
contrast, Defendants here have provided no evidence whatsoever (besides the unsupported declaration
of Deep) that Aimster is actually used for any of the stated non-infringing purposes. Absent is any
indication from real-life Aimster users that their primary use of the system is to transfer non-copyrighted
files to their friends or identify users of similar interests and share information. Absent is any indication
that even a single business without a network administrator uses Aimster to exchange business records
as Deep suggests. Indeed, the mere inclusion of such evidence would not suffice unless it tended to
show that such use constituted Aimster's primary use. Instead, the evidence leads to the inescapable
conclusion that the primary use of Aimster is the transfer of copyrighted material among its users.

Second, Sony applied only to a “staple article of commerce.” 464 U.S. at 442. The Court opined
that copyright law must look beyond actual duplication of a publication and look also to “the products
or activities that make such duplication possible.” Jd. “Accordingly,” said the Court, “the sale of
copying equipment, like the sale of other articles of commerce, does not constitute contributory
infringement if the product is widely used for legitimate, unobjectionable purposes.” Jd. The Court
noted that contributory infringement is usually reserved for cases “involving an ongoing relationship
between the direct infringer and the contributory infringer at the time the infringing conduct occurred,”
and observed that the Betamax VCR “plainly does not fall into that category.” /d. at 437-8 (“[T]he only
contact between Sony and the users of the Betamax . . . occurred at the moment of sale.”). Here,

Aimster cannot be said to be sucha staple article of commerce. It is not discrete product, like a Betamax

26



a oN

In short, the letters to Defendants by the RIAA, the existence of the Guardian Tutorial, the
activity on Aimster's chat rooms and bulletin boards, and the operation of Club Aimster all demonstrate
that Defendants have actual knowledge of the infringing activity.

Despite this overwhelming evidence, Defendants point to a technical attribute of the Aimster
system that, they say, prevents them from having such knowledge. According to Deep, the Aimster
system encrypts the data sent between the users’ computers such that Defendants are never aware of
which users are actually transferring which files. Defendants argue that, “every communication between
and among users is encrypted. Just like an electronic bank or financial transaction, only the parties to
the transaction have access to the transmission.” Def. Briefat 10. The crux this argument is that, while
Plaintiffs may be able to point to specific users on the Aimster system that have copyrighted material
available on their individual hard drives, Plaintiff cannot show, nor can Defendants actually be aware
of, specific transfers of such material between Aimster's users. This limitation exists because Aimster
itself encrypts the communications between its users so that no one but those users are aware of what
files are being transferred. Thus, according to Deep, “Defendants have no knowledge of when an
exchange takes place, who is exchanging information[,] or what information is being exchanged.” Deep.
Decl. 44.

Defendants' encryption argument, clever though it may be, does not convince us that they lack
actual knowledge of infringement. It may be true that, due to Aimster's encryption scheme, Defendants
are unaware of the actual specific transfers of specific copyrighted music between specific users of the
Aimster system. However, there is absolutely no indication in the precedential authority that such
specificity of knowledge is required in the contributory infringement context. Plaintiffs have provided
defendants with screen shots of the Aimster system showing the availability of Plaintiffs’ copyrighted

sound recordings on those users' hard drives. Forrest Decl. Ex. 20. The screen shots unequivocally

22



‘ cTM om

under the commonly accepted usage of that term. However, the DMCA has provided two specific
definitions of “service provider” and those broad definitions must control.
b. Repeat Infringer Policy

The second threshold determination of an entity's eligibility for the DMCA's safe harbors is the
adoption and reasonable implementation ofa policy to disable the access of repeat infringers. 17 U.S.C.
§ 512(i)(1)(A) states in part that the DMCA's liability limitations shall apply to a service provider only
if the provider “has adopted and reasonably implemented, and informs subscribers and account holders
of the service provider's system or network of, 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.” Defendants cannot jump this hurdle.

Aimster has adopted a repeat infringer policy. The copyright notice on the Aimster site informs
users that they “respect copyright law and expects our users to do the same.” Forrest Decl. Ex. 8 (screen
shot of Aimster copyright notice). The copyright notice goes on to provide a detailed form that an
aggrieved copyright owner can fill out to identify the work that is being infringed and the “user name
under which such material is available through the AbovePeer service, and the path and the file name.”
Jd. The notice goes on to explain the procedure for taking down or disabling access to the infringing
material and the procedure for reestablishing access in the event of a mistake.'’ Finally, the notice
provides that “uses who are found to repeatedly violate copyright rights of others may have their access
toall services terminated.” Jd. These facts support a finding that Aimster has adopted a repeat infringer

policy.'é

"The copyright notice appears to track the irrelevant (for our purposes) notice, take-down, and
counter notice procedures of § 512(g).

‘Sit is, as we shall see, an absolute mirage, but it is a stated policy nonetheless.

35



rm

The Copyright Act authorizes injunctive relief in situations where it is reasonable for the
purposes of restraining or preventing infringement of copyright. 17 U.S.C. § 502(a). Irreparable injury
may normally be presumed from a showing of copyright infringement. Atari Inc. v. North Am. Phillips
Consumer Elec. Corp., 672 F.2d 607, 620 (7th Cir.), cert. denied, 459 U.S. 880 (1982). In addition, the
public interest may favor the grant of a preliminary injunction because copyright laws embody a policy
of encouraging creativity. See, e.g., ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F.Supp. 1310, 1333
(N.D. Iil 1990) citing Atari, 672 F.2d at 620.

B. Likelihood of Success on the Merits

Musical compositions and sound recordings are protected by the Copyright Act. 17 U.S.C.
§102(a)(2); Goldstein v. California, 412 U.S. 546,552 (1973). Copyright owners, by definition, have
the exclusive rights to copy and distribute their copyrighted works. 17 U.S.C. § 106(1) & (3). To
establish direct copyright infringement, a plaintiff must prove two elements: (1) ownership in the
applicable copyright(s) and (2) unauthorized copying by the defendant of the constituent elements of the
work that are original. Feist Pub., Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 361 (1991).
Contributory copyright infringement, by contrast, stems from the notion that one who contributes to
another's direct infringement should be held accountable. Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d
259, 264 (9th Cir. 1995). As such, the first step in assessing the existence of contributory infringement
is determining the existence of the underlying and direct infringing activity by a third party —in this case,
Aimster's users.

1 The Existence of Direct Infringement

As a threshold matter, Plaintiffs must demonstrate that Aimster's end users are themselves
engaged in direct copyright infringement. Copyright infringement, as noted above, requires a showing

by the Plaintiffs that (1) they own the applicable copyrights and (2) there was unauthorized copying of

V7



While any Aimster user is on the Aimster system, the files that that user previously designated
as available for transfer are available for searching and downloading by any other Aimster users. Thus,
while an Aimster user is searching for files to transfer into his or her harddrive, other Aimster users are
able to search for and download files from that user's harddrive. In this way, an Aimster user with
copyrighted music files on his harddrive available for download can thereafter become an unauthorized
distributor of that copyrighted music as soon as another Aimster user initiates a transfer of that file. All
of the searching for and transfers of files on the Aimster system is accomplished without a searching user
needing to know the location or identity of any other individual or specific Aimster users.

In addition, Aimster provides the ability to automatically resume transfers of files that, for
whatever reason, are interrupted. For example, in a transfer between two Aimster users of the Paula
Cole song described above, it is a requirement that both users remain online during the entire transfer.
The transfer is interrupted if the source user goes offline or otherwise terminates the transfer at any time
before its completion. Aimster solves this problem by automatically reconnecting the searching user to
aidentical song or file located elsewhere on the hard drive of a different Aimster user and automatically
resuming the transfer at the point at which it was previously terminated.

After a file transfer is completed, the transferred song or file is copied to the retrieving user's
hard drive. At that point, both the retrieving user and the source user have a copy of the file that is
thereafter further available for searching and transfer by other Aimster users.

2. Guardian Tutorial

Also located for a time on Aimster's website was a feature or utility called “‘Aimster's Guardian

Tutorial.”? This tutorial, located on (but since removed from) Defendants' web site, methodically

°lt is unctear from both parties' submissions whether “Guardian” was another version of the
Aimster software, or merely a separate feature of the existing code.

9



Furthermore, even assuming arguendo that AOL did have unclean hands and did have some
significant relationship with some of the Plaintiffs, we fail to see how that relationship would be the least
bit relevant vis-a-vis all of the other Plaintiffs currently seeking a preliminary injunction in this case.
We can find no authority to suggest that where multiple plaintiffs are seeking equitable relief, the
unclean hands of one plaintiff should serve to prevent all of the other plaintiffs from receiving their due
relief.

5. DMCA

Defendants next argue that they are eligible for the liability limitations found in the Digital
Millennium Copyright Act (“DMCA”), 17 U.S.C. § 512, enacted in 1998. The DMCA was “enacted
both to preserve copyright enforcement on the Internet and to provide immunity to service providers
from copyright infringement liability for ‘passive,’ 'automatic' actions in which a service provider's
system engages through a technological process initiated by another without the knowledge of the
service provider.” ALS Scan, Inc. v. RemarQ Communities, Inc., 239 F.3d 619, 625 (4th Cir. 2001)
(citing H.R. Conf. Rep. No. 105-796, at 72 (1998)).'® This immunity is not presumptive, but granted
only to “innocent” service providers who can show that they do not have a defined level of knowledge
regarding the infringement on their system. /d. The DMCA's protection of an innocent service provider
disappears “at the moment the service provider loses its innocence, i.c. at the moment it becomes aware
that a third party is using its system to infringe.” Jd. Liability protection under the DMCA is an
affirmative defense and, as such, Defendants bear the burden of establishing its applicability.

The DMCA provides internet service providers with four possible safe harbors from liability for

direct, vicarious, and contributory copyright infringement. The first safe harbor, § 512(a) (the

‘Given the DMCA's relatively recent enactment, there is a dearth of Seventh Circuit precedent
interpreting its provisions.

32


f a

swap meet organizers had the right and ability to control the infringing activities of the vendors. Jd. at
263.

Here, Defendants have largely the same abilities as the defendants in Fonovisa. Defendants,
according to their own posted Terms of Service, have the right to terminate individual users. The Terms
of Service state that Aimster will “take down” “infringing material” and that repeat violators of
copyright law “may have their access to all services terminated.” Forrest Decl. Ex. 8. Furthermore,
Defendants control the access of Aimster's users. Users of the system are required to log on after paying
their monthly fee to join Club Aimster. This log in requires the user to supply a “Member Name” and
password. Forrest Decl. Ex. 19.

We are not convinced by Defendants' argument that, due to the encryption on the Aimster
system, they do not have the ability to block user's access to the service without shutting the whole
system down. Def. Brief at 11. This argument, even if it were true, would not prove that Defendants
did not have the right and ability to supervise. The fact that users must log in to the system in order to
use it also demonstrates that Defendants know full well who their users are. Defendants argue that
Aimster's architecture prevents them from discovering the “physical internet address” of their users.
Def. Brief at 11. Yet, there is nothing about the right and ability to control which requires Defendants
to have such precise identifying knowledge.

b. Direct Financial Interest

Defendants' direct financial interest in the infringing activities of its users is without question.
Each Club Aimster user must pay $4.95 per month to use the service. Credible evidence (described in
Section 1.D.5) even suggests that every Aimster user must now pay this fee. Defendants solicit monetary
contributions on the Aimster site to help fund their involvement in this litigation. Defendants sell

various Aimster-related merchandise on their site, including Aimster “Fight For Justice” posters

29



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be used to transfer musical works (just as it can be used to transfer any other information or data) from
one user to another, the subject matter of the transfer and the recipient are determined entirely by the
users themselves. Deep Decl. § 10. In short, Defendants go to great pains to characterize the Aimster
service as merely an innocent provider of “infrastructure services” to end users, /d., with the implication
being that Aimster is not and should not be held responsible for the malfeasance, if any, of its end users.

According to Deep, virtually all “of the copyrighted musical works that Plaintiffs claim are being
infringed by Defendants are songs that are transferred by individual users from one hard drive to another
using Aimster solely as an internet service provider, in much the same way that such files can be and
are transferred on AOL and other internet service providers.” Deep Decl. § 22.

Aimster's second fundamental function, according to Deep, is to allow users to identify other
“buddies” who have similar interests and who may wish to correspond and exchange files. Deep Decl.
4/5. Users of the Aimster system locate buddies by searching the user profiles on the system. The user
profile identifies other users by subject matter of interest or “‘by the name of the file or files that user has
available on his or her hard drive.” Id.

If Deep's declaration were the only means by which we could evaluate the Aimster system, we
might be convinced that it is as innocent as Defendants claim. Unfortunately for Defendants, however,
Plaintiffs have submitted numerous declarations to demonstrate that Deep's description of the Aimster
service is less than complete.

Plaintiffs’ characterization of the Aimster service is understandably more sinister than Deep's:
“Aimster is a highly integrated system that connects people throughout the world (who otherwise would
likely have no contact with one another) and encourages and enables them to make their music files,

among other copyrighted works, available for copying and distribution in a single database index.”



Another aspect of AOL IM's file transfer feature is the “get file” functionality. This function is
the ability of a user to specify certain files or directories that are available for other users to freely take
at their leisure. So, for instance, if an AOL IM user wanted to allow his friends to download any of the
pictures located on his computer, he would simply specifiy to the AOL IM program that those buddies
have access to those files. Anytime thereafter, the buddies could retrieve those files. That is, the user
does not have to actually send those files to his buddies; the buddies could, rather, retrieve the files for
themselves. According to Raul Mujica, Vice President and General Manager of the AOL service, AOL
IM's “get file” functionality is limited in two respects. First, an AOL IM user can only access the files
of an AOL IM user whose identity (or unique screen name) is already known to that user. Second, since
AOL IM has no capability to search the files of other users, the user must know the particular file that
is being sought from the other user's hard drive before that file can be fetched. Mujica Decl. 410. There
is dispute between the parties as to the real differences between AOL IM's file transfer functionality and
the functionality of Aimster. An analysis of that dispute can be found in Section UII.B.4 below.

D. The Aimster Service

1, Basic Operations

According to Deep, Aimster performs two fundamental functions. See generally, Deep Decl.
49 4-6. First, it allows its users to send messages or transfer files to other users by facilitating the
creation of direct user-to-user (or peer-to-peer) networks. Through the use of encryption technology
contained within the Aimster software, the individual users are assured of complete privacy in their
online transaction. In particular, Deep claims that Defendants have no knowledge whatsoever of when
its users are exchanging files, who are exchanging files, or what files are being exchanged. Deep Decl.
44. Aimster encrypts all the information that is transferred between its users on their private networks.

Even the identities of such users are encrypted. Deep Decl. 18. While Deep admits that Aimster can



oTM

the elements of the work that are original. Feist Pub., 499 U.S. at 361. Furthermore, there is no doubt
that input of a copyrighted work onto a computer constitutes the making of a copy under the Copyright
Act. NLFC, Inc. vy. Devcom Mid-America, Inc., 45 F.3d 231, 235 (7th Cir), cert. denied, 515 U.S. 1104
(1995).

Plaintiffs have unequivocally established that Aimster's users are engaged in direct copyright
infringement. Plaintiffs have submitted convincing evidence that they own or control the copyrights for
works copied and distributed using the Aimster system. Plaintiffs' declarants have attached copyright
registration certificates demonstrating their ownership or control of the copyrights for hundreds of works
found to be available through the Aimster system. See Agnew Decl. 43; Cottrell Decl. §9]3-6; Eisenberg
Decl. ff 3-6; Leak Decl. §{] 3-5; Ostroff Decl. {f{] 3-6; Seklir Decl. {{{| 3-7.

Defendants, in their brief and at oral argument, do not dispute that unauthorized copying of
copyrighted works occurs on the Aimster system by Aimster's end users. Indeed, during oral argument,
Defendants’ counsel, George Carpinello, admitted several times that the Aimster system is used to
transfer music. See, e.g., Oral Argument Tr. at 32 (“Granted, [Aimster is] also being used to transfer
music. There's no question about that. Again, like any other peer-to-peer system, it's being used for
that.”).

Instead of disputing the existence of direct infringement by Aimster's users, Defendants assert
that the provisions of the Audio Home Recording Act of 1992 (the “AHRA”) act as an affirmative
defense.

The AHRA forbids actions based on the non-commercial use of a device to record digital or
analog music recordings. 17 U.S.C. § 1008. The main purpose of the AHRA was “to ensure the right

of consumers to make analog or digital audio recordings of copyrighted music for their private,

18



of Service, to which every Aimster user putatively agrees before using Aimster. The Terms of Service
specifically state that Aimster will disable the access of users who repeatedly violate copyright law. See
Forrest Dec]. Ex. 19 (screen shot of Copyright Notice).

The method by which Aimster accomplishes its purpose is quite simple. Once logged onto the
Aimster system, a user need only type in a file search to be presented with a list of all Aimster users
currently online (up to 500) who have files meeting the search criteria on their hard drive available for
download. For example, a user seeking an MP3 of Paula Cole's “I Don't Want to Wait” (a song whose
copyright is owned or controlled by Plaintiffs, see Cheng Decl. Ex. 1) need only type in “I Don't Want
To Wait” into the Aimster search field to be presented with all buddies online that currently offer that
song for download. See Cheng Decl. Ex. 2 (showing screenshot of the “I Don't Want To Wait” search
and a listing of available files for download). Users also have the ability to do more advanced searches.
The Aimster software allows searching to be restricted by file type and bit rate. The search results
provided by the Aimster software show the file name and other file characteristics directly pertinent to
the distribution of MP3 files (such as file size, bit rate, frequency, and song length). Notably, the
software also provides the unique screenname of the buddy who currently possesses the file.*

Once the search for a suitable file is complete, a user need only click on the file name title and
then click on the “Download” button to obtain a copy of the song. At that moment, the Aimster system.
facilitates the connection of its two users through a private, encrypted network and the file is transferred
between them. During the copying of a file, the Aimster system provides a constant update about the

status (including the progress, the rate of transfer, the time remaining) of each download or upload.

8It is important to remember throughout this discussion that Aimster does not itself store all of
the music (or other) files made available through a search on its system. Rather, each file is stored on
the individual hard drive of the Aimster user's computer itself. There is, however, some question as to
the amount of file “caching” (or temporary storage of material to facilitate further distribution) on the
Aimster system. This activity, to the extent it is relevant, is described below in Section IILB.5.d.

8



advertising, plumbing, and customers.” /d. Relying on Fonavisa, the district court in Napster I (dealing
with a file sharing service, Napster, markedly similar to the Aimster service) found that the provision
of services by Napster were analogous to the provision of services in Fonovisa. Napster I, 114
F.Supp.2d at 919. Such services provided by Napster included supplying “the proprietary software,
search engine, servers, and means of establishing a connection between users' computers.” Jd.
Furthermore, without the support services offered by Napster, its users “could not find and download
the music they want.” Jd.

Here, too, we rely on Fonovisa to support our finding that Defendants have materially
contributed to infringing activities. Instead of parking spaces, advertisement, and plumbing, Defendants
in this case have provided the software and the support services necessary for individual Aimster users
to connect with each other. Without Aimster's services, Aimster's infringing users would need to find
some other way to connect. We need not solely rely on such “but for” causation, however, for
Defendants go much further. The very existence of Club Aimster demonstrates the extent to which
Defendants contribute to infringing activity. The Aimster Top 40 catalogues and presents for Aimster
users the top copyrighted music that they may wish to transfer. It comments upon that music and, in
some cases, even suggests that the user should have it. See, e.g., Forrest Decl. Ex. 19C (““Aimster Sayz
(sic): Anybody that oWns this, maybe you could be my hero...”). What's more, users wishing to
download music using Club Aimster need merely click on a play button and the Aimster software
automatically creates a connection with another users' computer to facilitate the transfer. As stated by
Plaintiffs in their brief, “Aimster predicates its entire service upon furnishing a 'road map' for users to
find, copy, and distribute copyrighted music.” Pla. Brief at 13. We agree. Defendants manage to do

everything but actually steal the music off the store shelf and hand it to Aimster’s users.

24



4
* ;

Mine Order Form (06/97)
° a a oN

a = United S.ates District Court, Northern District of Dlinois
Name of Assign: 7 Sitting Judge if O
or Magistrate Judge Marvin Aspen than Assigned Judge
CASE NUMBER 01 C 8933 DATE 9/4/2002
CASE In Re: Aimster Copyright Litigation
TITLE

{In the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (b) ste bre thenature
of the motion being presented. ]

MOTION:

DOCKET ENTRY:

qd) Oo Filed motion of [ use listing in “Motion” box above.]

(2) oO Brief in support of motion due

(3) oO Answer brief to motion due___. Reply to answer brief due

(4) o Ruling/Hearingon__setfor___at

(5) oO Status hearing[held/continued to] [set for/re-set for]on___setfor__— at

(6) Oo Pretrial conference[held/continued to] [set for/re-setfor]on__—ssetfor__——sat__—
(7) o Trial(set for/re-set for]on__—_at

(8) oO {Bench/Jury trial] [Hearing] held/continued to at

(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

COFRCP4(m) Ci Local Rule 41.1. CFRCP41(a)(1) C1 FRCP41(a)(2).

ao) [Other docket entry] _ Enter Memorandum Opinion and Order: Plaintiffs’ motion for preliminary
injunction is granted. Plaintiffs are hereby ordered to submit proposed language for the preliminary
injunction within 5 business days of this opinion. Defendants thereafter have two business days with
which to submit any response to the proposed language. Pursuant to Rule 65(c), we also order plaintiffs
to post a bond for the sum of $500,000 to compensate defendants for their losses in the event this
injunction is reversed or vacated.

ai) [For further detail see order attached to the original minute order.]

No notices required, advised in open court.

No notices required.

o | Notices maited by judge’s staff.

Notified counsel by telephone.

Docketing to mail notices.

Mail AO 450 form.

Copy to judge/magistrate judge. : “7

courtroom < a aT
GL deputy’s ,
initials

Date/tirhe received in ;
central Clerk’s Office mailing deputy inivials



cTM an

t

be harmed “by the overextension of copyright laws.” Def. Brief at 20. However, given our finding
regarding Plaintiffs likelihood of success of the merits, we do not agree that a preliminary injunction in
this case will result in such an overextension. To the contrary, the public interest is served by upholding
copyright protections against those who would seek to misappropriate protected works.
IV. CONCLUSION

For the foregoing reasons, we grant the Plaintiffs’ motion for preliminary injunction. Plaintiffs
are hereby ordered to submit proposed language for the preliminary injunction within 5 business days
of this opinion. Defendants thereafter have two business days with which to submit any response to the
proposed language. Plaintiffs' submission should be narrowly tailored, to the extent possible, to achieve
the primary goal of preventing Defendants’ continuing contributory infringement of Plaintiffs’
copyrighted works while allowing non-infringing uses of the Aimster system, if any, to continue. To
this end, and by way of example, we invite the parties to study the Ninth Circuit's reasoning and
proposed modifications to the injunction in the Napster case, Napster II, 239 F.3d at 1027-1028 (Section
VIID, and the resulting modified injunction from the district court. A&M Records, Inc. v. Napster, Inc.,
No. C 99-05183, 00-1369, 2001 WL 227083 (N.D. Cal. March 5, 2001). Like Napster, Aimster presents
a unique problem with regard to the identification of infringing material and the transitory nature of its
end-users. Plaintiffs! submission should reflect a sensitivity to these issues by including a practical
method by which they can be overcome.

Pursuant to Rule 65(c), we also order Plaintiffs to post a bond for the sum of $500,000 to

compensate Defendants for their losses in the event this injunction is reversed or vacated.

MARVIN E. ASPEN

United States District Judge
Dated: 6

It is so ordered.

47



the illegality of sharing copyrighted music files (“What you have with Aimster is a way to share, copy,
listen to, and basically in a nutshell break the law using files from other people's computers... I suggest
you accept aimster for what it is, an unrestricted music file sharing database” (posted by zhardoum, May
18, 2001)); and (5) bashing of the music industry and the RIAA (“LET'S ALL FUCK OVER THE
MUSIC INDUSTRY. . . LETS CHEAT THE VERY ARTISTS WE LISTEN TO” (posted by
poiuytrewqm May 20, 2001), “I AM NOT GOING TO BUY CDS ANYMORE!” (posted by OKOK,
October 9, 2001)). See, generally, Schafer Decl. Ex. 1 (attaching screen shots).

In addition, Aimster allows for real-time chatting between buddies on online chat rooms in the
Aimster system. Screen shots of the conversations in these chat rooms reveal that a frequent discussion
among the users is the exchange of music files. See Schafer Decl. Ex. 2.

4. Club Aimster

Around November 2001, Aimster launched a new service called Club Aimster. Club Aimster
is a repackaged version of the basic Aimster service that great enhances the ability of its members to
locate and download copyrighted music. It accomplishes this goal by providing, for a $4.95 monthly
fee), “All the Hot New Releases All The Time.” Forrest Decl. Ex. 18 (screen shot of Club Aimster
introductory page).

To use Club Aimster, members must pay their monthly fee, download the Club Aimster
software, and log-on to the site with a unique member name and password. Forrest Dect. Ex. 19 (screen
shots of the log-in page and download page). Users are thereafter presented with a list of “The Aimster
Top-40" — a list of the 40 “hot new releases” most frequently downloaded by Aimster users, virtually
all of which are owned by Plaintiffs. Creighton Decl. { 14 and Ex. 13. See also Forrest Decl. Ex. 19
(screen shots of the Aimster Top 40). The Aimster Top 40 includes the song and artist name of each

selection, a review of the selection (apparently written by Defendants), the Aimster ranking, and the

11

/



’

demonstrated how to transfer and copy copyrighted works over the Aimster system. It accomplished
this goal by using, as illustrative on-screen examples, some of the very copyrighted works that
Defendants had previously been informed were being infringed on the Aimster system. See Creighton
Decl. { 13, Ex. 12 (including screen shots of the Guardian tutorial printed from the Aimster web page);
Farmer Decl. § 25.'°

3. Chat Rooms and Bulletin Boards

Aimster's service includes message (or bulletin) boards on which Aimster users would regularly
post messages to each other. Schafer Decl. { 3, Ex. 1 (containing screen shots of bulletin board
messages). The discussions on these bulletin boards generally fell into a range of particular topics,
including: (1) Aimster users seeking to download copyrighted recordings (“I'm trying to find downloads
from the Purafunalia album. Specifically the song Blast” (posted by SeanKoury, July 4, 2001)); (2)
Aimster users offering recordings for download (“I have a lot of hip hop shared at all times when I'm on,
usually over 500 MP3s... [FJeel free to get whatever you want” (posted by biggvince, July 17, 2001));
(3) Aimster as an alternative to Napster (“I'm a long time Napster user, with about 900 MP3s...like
everyone else, the RIAA has forced me to try other mp3 websites, so here I am” (posted by honey,

March 17, 2001), “Use Aimster like Napster” (posted by Marcella42, May 27, 2001)); (4) comments on

‘In a declaration filed by Deep subsequent to oral argument on this motion, he has reiterated his
position that the “Guardian Tutorial” was not prepared or placed on the Aimster website by any
Defendant or their agents, Rather, the “Guardian Tutorial,” according to Deep, appeared on a website
called “Our Aimster” created by an individual who was not an employee or agent of Defendants. Deep
claims that the creators of “Our Aimster” asked, and Defendants agreed, that the “Our Aimster” site
contents would be cached onto the Aimster web site. But, claims Deep, it was not until Plaintiffs
submitted their papers on this motion that he was aware of the contents of that site. Upon becoming so
aware, he immediately disabled access to the “Our Aimster” material through the Aimster website. But
Plaintiffs, in their response to Deep's additional declaration, point out the Guardian Tutorial was
accessible from and existed on the Aimster system from at least August 16, 2001 until at least January
2002. Moreover, the screen shots of the “Guardian Tutorial” unequivocally show that it was accessible
from, and was a part of, Aimster's web page. We find Deep's contention that the Defendants “were
unaware of the content of the tutorial” (Deep 7/25/02 Supp. Decl. { 6) simply unbelievable.

10



co a

major recora companies. Deep Decl. 4 29. On April 3, 2001, the RIAA sent its first of two cease and
desist letters to Defendants threatening legal action unless Defendants took steps to eliminate the
yampant copyright infringement on Aimster system. Thereafter, Defendants commenced their own
declaratory judgment actions in the Northern District of NewY ork and the procedural history of this case
commenced in manner outlined above in Section I culminating, in November 2001, with all actions
consolidated and transferred to this court for pretrial proceedings. Even fully accepting Defendants’
recitation of events, it is obvious that the actual relevant period in our analysis of the Plaintiff's delay is
from August 2000 to April 3, 2001 — eight months rather than seventeen. Defendants could not and
cannot claim that they were lulled into a false sense of security or reasonably relied upon Plaintiff's delay
after April 3, 2001 because it is on that date that they definitively became aware of Plaintiff's intentions.
After all, the April 3, 2001 cease and desist letter specifically notified Defendants that continued
infringing activities on the Aimster system may force the RIAA to “seek additional legal remedies.”
Creighton Decl., Ex. 8. Such additional legal remedies undoubtedly included, in due course of time, a
motion for preliminary injunction or other equitable relief. See, e.g., Ty, Inc. v. Softbelly’s, Inc., No. 00-
C-5230, 2001 WL 125321 *8 (N.D. Ill. 2001) (Norgle, J.) (“[T]Jhe very fact that Ty sent a cease and
desist letter should have placed Softbelly on notice that the instant action and motion could result.”).
Therefore, the time period between April 3, 2001 and the eventual filing of the preliminary injunction
is simply not relevant to our analysis of the appropriateness of Plaintiffs’ delay in secking the preliminary
injunction.

In assessing whether Defendants were lulled into a false sense of security, we therefore need only
focus on the happenings in the time period between August 2000 and Apri! 3, 2001. For their part,
Plaintiffs contend that until March 2001 the Aimster system was difficult to ascertain because it was

prone to technical problems and frequently inaccessible for lengthy periods. Pla. Reply at 11. Ina

43


ha cTMN rN

we have wide discretion to refuse to aid an unclean litigant, Zd., “the doctrine is not to be used as a loose
cannon, depriving a plaintiff of an equitable remedy to which he is otherwise entitled merely because
he is guilty of unrelated misconduct.” Am. Hosp. Supply Corp. v. Hosp. Prods. Ltd., 780 F.2d 589, 601
(7th Cir. 1986).

Deep's declaration provides a detailed account (including a series of screen shots) of the means
by which one can download and transfer copyrighted music through AOL's service. In addition, Deep
filed a supplemental declaration on this issue after the Time Warner Music Group Plaintiffs filed a
separate reply brief dealing specifically with differences between AOL IM and Aimster.

These materials convince us unequivocally that Aimster and AOL IM are quite different in the
means by which they allow file transfers between users. In short, Aimster's system makes the process
of locating and copying an infringing file extremely easy while the file transfer capabilities of AOL's
system are clearly of secondary importance. Even more important than the mere functionality ofthe two
systems is the fact that Aimster clearly encourages, entices, and contributes to the infringement of its
users (witness, for example, Club Aimster and the 'Fight for Freedom' posters), while AOL's service does
nothing of the sort.

Putting aside the differences or similarities of Aimster versus AOL IM, however, there is a more
important issue. Defendants go to great pains to describe the conduct of AOL, but AOL is not even a
party to this case. At best, AOL can be described as having a tenuous relationship with only one group
of Plaintiffs — the Warner Music Group Plaintiffs. As described by counsel to the Warner Music Group
Plaintiffs at oral argument, “Time Warner, the AOL Time Warner parent, owns AOL” and AOL is the
Internet Service Provider that owns AOL IM. Oral Arg. at 37 & Warner Reply Brief at 9. AOL, in turn,
is not the owner of the Warner Music Group plaintiffs. Indeed, the only relationship between AOL and

some of the Plaintiffs in this case is that some of them share a common corporate parent. Id.

31



apparently intended as a rallying call for the free availability of copyrighted music. In short, Aimster
is very much a commercial enterprise and Defendants have a direct financial interest in the infringement
by its users.

The financial benefit element is also satisfied where, as here, the existence of infringing activities
act as a draw for potential customers. See, e.g., Napster II, 239 F.3d at 1023 (‘Financial benefit exists
where the availability of infringing material ‘acts as a draw’ for customers.” (quoting Fonovisa, 76 F.3d
at 263-264)). The facts demonstrate that Aimster's users were drawn to the service in this manner.
Aimster’s bulletin boards and chat rooms are replete with examples of users drawn there simply because
they know it is a place where they can obtain infringing material.

Plaintiffs have thus shown a reasonable likelihood of success on the vicarious infringement
claim.

4, Unclean Hands

Defendants next contend that the preliminary injunction should be denied due to AOL's unclean
hands. AOL, claim Defendants, “engages in the same conduct that it and the other Plaintiffs rail against
here.” Def. Brief at 6. Defendants argue that AOL, through AOL IM, “has now become one of the
largest purveyors of file sharing in the entire world” and “provides the exact same service as
Defendants.” Jd. at 7 (emphasis supplied). Defendants are mistaken that unclean hands should prevent
injunctive relief, however, because AOL's conduct simply is not relevant to this case.

The doctrine of unclean hands prevents plaintiffs from obtaining relief for conduct in which they
themselves participated. Precision Instrument Mfg. Co. v. Automotive Maint. Mach. Co., 324 U.S. 806,
814-15 (1945). The maxim applies “to one tainted with inequitableness or bad faith relative to the
matter in which he seeks relief, however improper may have been the behavior of the defendant.”

Packers Trading Co. v. Commodity Futures Trading Comm'n, 972 F.2d 144,148 (7th Cir. 1992). While

30



aa a a

Creighton Decl. | 3 (emphasis supplied).? The following description of the Aimster system (from
Plaintiffs' perspective) is culled from the declarations of several individuals. See Creighton Decl. (from
the RIAA); Farmer Decl. (Plaintiffs' independent computer expert); Forrest Decl, (Plaintiffs' attorney
attaching hundreds of pages of screen shots from the Aimster system in action); Schafer Decl. (Plaintiff
paralegal attaching screen shots of Aimster message boards and chat rooms); Cheng Decl. (Plaintiffs'
attomey attaching Certificates of Copyright Registration and Aimster screen shots showing each
corresponding copyrighted song available for download).

In order to use Aimster, prospective users must download the Aimster software from its website.
Downloading and using the software (known as Classic Aimster) is free.” Once the software is installed
and executed, Aimster piggybacks onto America Online's IM network and allows its users to
communicate and share files with any other Aimster user currently online. Essentially, Aimster greatly
expands the file transferring capability of AOL IM described above by designating every Aimster user
as the “buddy” of every other Aimster user. In this way, every Aimster user has the ability to search for
and download files contained on the hard drives of any other Aimster user (provided that the user has

previously designated those files to be available for searching). The Aimster website also posts Terms

‘The concept that Aimster catalogues all available files for download in a single, centralized
database is hotly contested by the parties. The reason for this debate is that a critical aspect of the
Napster decision was that Napster operated a central directory of all the files available on its system.
According to Deep, “Aimster contains no such central database.” Deep Decl. (15. Plaintiffs disagree.
See Creighton Decl. § 3, Farmer Decl. { 21-22. In the absence of an evidentiary hearing (which, as
described below, we were precluded from holding by the Bankruptcy Court), we find that there is
insufficient evidence to resolve this conflict. However, our decision today can be and is based upon
considerations independent of this evidentiary insufficiency. In other words, the reasoning in this
opinion would hold regardless of whether or not Aimster maintains a central database of files available
for transfer.

7Bvidence suggests, however, that this is no longer the case. Efforts to download the software
for free now bring a user to a page requiring registration with Club Aimster (described below) and the
payment of a $4.95 fee. See Farmer Supp. Decl. 9.

7



cr
an

letter to Defendants in which he detailed the availability of copyrighted works on Aimster. Creighton
Decl. 4/7, Ex. 8. Again, on May 9, 2001, Mr. Creighton sent a cease-and-desist letter to Defendants, this
time including screen shots showing approximately 2900 sound recordings owned or controlled by RIAA
members available for download through Aimster. Creighton Decl. 4 10, Ex. 11. On November 26,
2001, Mr. Creighton sent a third letter to Defendants again demonstrating the existence of unauthorized
sound recordings available through Aimster and specifically mentioning Club Aimster. Creighton Decl.
q 14, Ex. 13.

Aimster’s Guardian Tutorial is further evidence of Defendants' knowledge of infringing activity.
The Tutorial was available on the Aimster web site and methodically demonstrated how to infringe
Plaintiff's copyrights by using specific copyrighted titles as pedagogical examples. Defendants' service,
moreover, included online chat rooms and bulletin board systems in which Aimster users openly
discussed trafficking in copyrighted material and “screwing” the RIAA. Each of these elements, taken
together or even individually, would conclusively demonstrate Defendants’ knowledge of the infringing
activity taking place on the Aimster system. See, e.g., Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d
259, 261 (9th Cir. 1996) (“no question” that plaintiff adequately alleged the element of knowledge in
contributory copyright infringement claim where the sheriff had sent letters notifying the defendant that
infringing materials were being sold at defendant's swap meet).

Club Aimster provides further evidence of Defendant's knowledge of infringement. With Club
Aimster, Defendants actually comment upon and track the top copyrighted sound recordings available
on Aimster. The “Aimster Top 40,” available to users through Club Aimster, not only provides users
with an easy way to locate and download copyrighted material, but it even makes reference to where
each particular song is ranked on the Aimster list vis-a-vis the music jabels' lists. See Forrest Decl. Ex

19.

21



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Defendants, in their brief, do not directly disagree with Plaintiffs' argument that material does
not pass through Aimster's own servers. Instead, Defendants argue that “through” should be given a
broader meaning, such as “be means of” or “by the help or agency of.” Def. Brief at 14. Defendants!
brief tacitly accepts that Aimster could qualify for the Transitory Communications Safe Harbor only if
we were apply these broader definitions of “through.” The legislative history, however, reveals that
Plaintiffs' interpretation is correct: the Transitory Communications Safe Harbor is limited to situations
“in which a service provider plays the role of a ‘conduit! for the communications of others." H.R. Rep.
No. 105-551 (Il) (1998), reprinted in 1998 WL 414916, *130. Aimster cannot fairly be said to be a mere
“conduit” of the information transferred between its users. The system provides broad search
capabilities to its users, allows for the automatic resumption of interrupted downloads, provides for easy
one-click downloading of the system's most popular titles, and offers editorial comment on popular titles.
These features do not a mere conduit make.'?

d. System Caching Safe Harbor

The System Caching Safe Harbor holds that a service provider shall not be liable for copyright
infringement “by reason of the intermediate and temporary storage of material on a system or network
controlled or operated by or for the service provider.” 17 U.S.C. § 512(b)(1). Defendants provide ample
explanation of how and why certain information is cached on their system. See Deep Decl. ¥] 14.”°

However, Defendants' brief reveals a fundamental misunderstanding of the nature of the System Caching

‘Defendants would not be eligible for the Transitory Communications Safe Harbor for an
additional reason. § 512(a)(5) requires that material be “transmitted through the system or network
without modification of its content.” However, by Defendants' own admission, Aimster does modify the
content: “Aimster encrypts all the information that is transferred between users.” Deep Decl. 4/8. This
modification further belies the notion of Aimster as a mere conduit.

2°Notably, however, Deep's declaration is careful to avoid claiming that Aimster ever caches the
actual infringing files. He instead refers to “data,” “messages,” and “attributes.” Deep Decl. 14.

38



Safe Harbor. Defendants assert that the System Caching Safe Harbor “provides a safe harbor to service
providers that temporarily store material on a system and meet certain other conditions.” Def. Brief at
16. Apparently, Defendants believe that the safe harbor protects service providers from liability for
copyright infringement so long as the material in question is cached on the system. Yet, the language
of the safe harbor is quite clear that the liability limitation applies to liability that may arise “by reason
of” the caching of material. 17 U.S.C. § 512(b)(1) (emphasis supplied).

The difference between these two interpretations is substantial. By Defendants’ reading of the
safe harbor, a service provider is cleansed of liability for infringing material whenever, during a transfer
of material between its users, the material in question happens to be cached on the service provider's
system. That reading is an impossibly broad interpretation of the safe harbor. Instead, the plain
language of the safe harbor provides that a service provider, having met the other requirements of the
safe harbor, is safe from liability when that liability results from the act of caching itself.

Here, Plaintiffs do not assert that Defendants are liable as a result of the caching of material of
their system. Rather, Defendants' putative liability is a result of their material contribution to the
infringing activities of others. The System Caching Safe Harbor is simply not applicable in this case.?!

e. Information Location Tools Safe Harbor

The Information Location Tools Safe Harbor provides that a service provider shall not be liable
“by reason of the provider referring or linking users to an online location containing infringing material

or infringing activity, by using information location tools, including a directory, index, reference,

*\Defendants would not be eligible for the System Caching Safe Harbor for two additional
reasons. First, just like the Transitory Communications Safe Harbor, the System Caching Safe Harbor
requires that the material in question be transmitted “through” the Aimster system, § 512(b)(1)(B), when
itis not. Second, the material must be transmitted without modification to its content. § 512(b)(2)(A).
As noted above in footnote 19, however, Aimster's encryption scheme belies this assumption.

39



VCR, to be sold to customers who thereafter use the machine as they sec fit. Instead, Aimster is a
service more closely akin to the swap meet in Fonavisa. Like the swap meet organizers in Fonavisa,
Defendants provide an ongoing service to their users, including the provision of software, the
maintenance of the Aimster system, and the continuing control of editorial content (ie. Club Aimster).
Unlike the case in Sony, the instant case involves an ongoing relationship between the direct infringers
(the users) and the contributory infringers (the Defendants).

Third, there is nothing to suggest that Sony extends to protect the unauthorized and widespread
distribution of infringing works. The conduct of the Betamax users at issue was the “private, home use
of VTR's for recording programs broadcast on the public airwaves without charge to the viewer.” Sony,
464 U.S. at 425. There was simply “{n]o issue concerning the transfer of tapes to other persons.” Jd.
By stark contrast, Aimster has virtually nothing to do with private, home use copying (or time shifting).
Instead, Aimster makes each ofits users a global distributor of Plaintiff's copyrighted music for copying
by any number of other Aimster users. Much like the AHRA argument discussed above, Defendants
cannot successfully contend that Aimster involves merely private, home use.

Fourth, there is authority to suggest that Sony's protection is not available when the products at
issue are specifically manufactured for infringing activity, even if those products have substantial non-
infringing uses. See, e.g., Cable/Home Comm., 902 F.2d at 846 (even though “other uses” existed,
defendants liable where they “utilized and advertised these devices primarily as infringement aids and
not for legitimate, noninfringing uses.”); A&M Records, Inc. v. Abdallah. 948 F.Supp. 1449, 1456 (C.D.
Cal. 1996). Here, it is our finding that Aimster is a service specifically designed to aid the infringing
activities of its users and, on that basis alone, should not be eligible for Sony's protections.

Finally, the court in Sony approvingly cited the district court's finding that Sony had not

“influenced or encouraged” the unlawful copies. Sony, 464 U.S. at 438. Aimster does not fall into this

27



2

to some very recognizable musical compositions, including “Jailhouse Rock,” “My Favorite Things,”
and “Moon River.”?

Together, the Music Publisher Plaintiffs and the Record Company Plaintiffs own or license the
copyrights to a vast repository of music, including hit music by hugely popular artists like Madonna,
Garth Brooks, the Backstrect Boys, the Beatles and Bob Dylan. Pla. Brief at 2. See, e.g., Cotrell Decl.
{{ 3-6 (attaching many examples of Certificates of Copyright Registration on behalf of EMI Music
Distribution); Eisenberg Decl. {3-6 (attaching many examples of Certificates of Copyright Registration
on behalf of Sony Music); Ostroff Decl. {3-6 (attaching many examples of Certificates of Copyright
Registration on behalf of Universal Music Group). According to Plaintiffs, the vast majority of their
copyrighted musical works are available on the Aimster system for unauthorized transfer among its users
in the manner described below. The Music Publisher Plaintiffs bring suit based upon the alleged
infringement of underlying music and lyrics of their copyrighted songs. The Record Company Plaintiffs
bring suit based upon their copyrighted sound recordings.

C. General Background

Some of the basic technology underlying the present dispute is a matter of common knowledge
and has been the subject of extensive factual findings by other courts. As such, it is not necessary to go
into a detailed explanation of the nature and inner workings of the Internet, the World Wide Web, and
digital compression technology (such as the widely used MP3 format). A full description can be found,
by way of example, in A&M Records, Inc. v. Napster, Inc., 114 F. Supp.2d 896 (N.D. Ca. 2000)(“Napster

I’), RIAA v. Diamond Multimedia Systems, Inc., 180 F.34 1072 (9th Cir. 1999)(“Diamond Multimedia”)

3See Complaint, Jerry Lieber et al. v. AbovePeer et al., No. 01 ¢ 8942.

*We note in passing that the Napster decision, while certainly persuasive on some points, is
simply not precedential authority in this circuit. The parties expend a great deal of time and effort to
convince us as to Aimster's similarities or differences vis-a-vis Napster. However, our decision today

3



inconceivable that Defendants' had any reasonable belief that Plaintiffs’ would not take all appropriate
action to protect their intellectual property.
D. Balance of Hardships and Public Interest

The next step in the preliminary injunction analysis is to “consider the irreparable harm that the
nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable
harm the moving party will suffer if relief is denied.” Ty, Inc., 237 F.3d at 895. This step requires us
to engage in a “sliding scale approach; the more likely the plaintiff will succeed on the merits, the less
the balance of irreparable harms need favor the plaintiff's position.” Jd.

Defendants urge that the balance of hardships tips in their favor because a preliminary injunction
would preemptively destroy their business before they had the opportunity for a full hearing on the
merits. Defendants' argument, however, distorts the meaning of the balance of hardships test. If we
were to accept the going-out-of-business argument, a blatant copyright infringer “would be encouraged
to go into an infringing business because it can later argue to a court that enjoining the blatant
infringement would sink the business.” See Horn Abbott Ltd. v. Sarsaparilla Ltd., 601 F.Supp. 360, 369-
70 (N.D. Ill. 1984) (Aspen, J.). We do not accept such reasoning. Defendants further argue that,
because Aimster represents such a small portion of the total amount of the file sharing traffic on the
Internet, Plaintiffs would not suffer any hardship without an injunction. This argument is specious,
however, given our (here unrebutted) presumption of irreparable harm.

Using the sliding scale approach, therefore, we find that the balance of hardships tips in favor
of Plaintiffs. This finding is especially apt considering our belief that Plaintiffs have an exceptionally
strong likelihood of success on the merits of their contributory infringement claim.

The preliminary injunction analysis also requires us to “consider the public interest (non-parties)

in denying or granting the injunction.” Ty, Znc., 237 F.3d at 895. Defendants urge that the public will

46


aa
4

oN lan

supplemental declaration, Frank Creighton, Executive Vice President and Director of Anti-Piracy for
the RIAA, states that during the months following September 2000 when his staff became aware of the
Aimster system, their attempts to monitor the system were thwarted by Aimster's technical problems.
In fact, he says, “there were days (and even weeks) during which we could not log on to the system.”
Creighton Supp. Decl. 3. Screen shots of the Aimster web page during this time support Plaintiffs’
contention that the service was prone to technical problems. Dated news updates on the web site
specifically refer to “connection hassles and download glitches” on October 17,2000 and promising that
“a new version of Aimster is on the way.” Forrest Decl. Ex. 3. The web page further notified Aimster
users on November 17, 2000 that service would be suspended pending the release of a new version of
the software. Jd. According to the screen shots of Aimster's own web page, that new version was not
released until February 2, 2001. Jd. (“Long Awaited AIMSTER 3 Debuts!”).

Defendants reject the notion that Plaintiffs were unaware of the Aimster system prior to March
2001. They point to the many contacts and meetings (described above) they had with various
representatives of the Plaintiffs. But the contacts that Defendants describe are not evidence that
Plaintiffs were fully aware of the Aimster system or what it would become nor are they evidence that
Plaintiffs were implicitly condoning Defendants' activities. At best, it seems clear that Plaintiffs, prior
to April 3, 2001, were intrigued by Aimster and trying learn more about it. See, e.g., Mujica Decl. § 23.
Discussions of possible investment, even iftrue, are not, by themselves, sufficient to lull Defendants into
a false sense of security. Deep furthermore makes much of the business relationship between Aimster
and EMI/Capital Records. This “relationship,” however, consisted solely of an agreement to place an
advertisement for Radiohead on the Aimster web page and a hyperlink to the EMI web page. Deep Decl.
427. Despite what Defendants may argue, this “relationship” as such was hardly a definitive indication

that EMI/Capital Records knew about and condoned the wide scale unauthorized transfer of Plaintiffs’

44


ns ~

6. Availability of Music on Aimster

Plaintiffs have provided abundant documentary evidence of the vast amounts of copyrighted
music available on Aimster system. By way of example, Plaintiffs' representatives on the Aimster
system conducted searches for and downloaded the music of every single recording on the November
3, 2001 Billboard Hot 100. Creighton 4 18, Ex. 19. Plaintiffs also searched for and downloaded every
single Top 10 recording from the period between November 5, 2000 and November 3, 2001. Creighton
4 18, Ex. 20. Furthermore, Plaintiffs demonstrate that at least one recording from every album certified
as Gold or Diamond between November 1, 2000 and October 31, 2001 was available on the Aimster
system. Creighton § 18, Exs, 21-22. Virtually all of the referenced recordings are owned or controlled
by Plaintiffs. Jd.

II], PROCEDURAL BACKGROUND

Following threatened legal action by the RIAA against Defendants for the rampant copyright
infringement on the Aimster system, Defendants AbovePeer and BuddyUSA each filed separate
complaints for declaratory relief against the RIAA in the United States District Court for the Northern
District of New York on April 30, 2001. Thereafter, between May 24, 2001 and November 2001,
numerous additional actions were commenced in the Southern District of New York, the Central District
of California, the Middle District of Tennessee, and the Southern District of Florida. In July 2001,
Plaintiffs, according to Deep, moved to consolidate and coordinate for pretrial proceedings all of the
actions regarding Aimster before the Judicial Panel on Multidistrict Litigation (“MDL Panel”). On
November 16, 2001, the MDL Panel found that consolidation of the cases would “serve the convenience
of the parties and witnesses and promote the just and efficient conduct of [the Aimster litigation].”
Transfer Order at 2. The MDL Panel further concluded that this court would be a convenient, central

forum given that the forums for the underlying cases were scattered throughout the country.

14


be a co

Seizing on this language, Defendants, on June 21, 2002, moved that we refer the motion for
preliminary injunction back to the Bankruptcy Court in the Northern District of New York. The basis
for Defendants’ motion to transfer was that the preliminary injunction could not be decided without an
evidentiary hearing to better determine the facts of the case and that such an evidentiary hearing was
specifically prohibited by the Bankruptcy Court. On July 18, 2002, however, we denied Defendants'
motion to transfer finding that the “evidence presently before us is sufficient at this preliminary stage
of the proceedings.” In short, we felt that, given the length and comprehensive nature of the partics'
submissions, an evidentiary hearing was unnecessary. In fact, we would likely have decided the present
motion without an evidentiary hearing even in the absence of Judge Littlefield's limiting order.

On July 24, 2002, the parties presented oral argument on the motion for preliminary injunction.
All that remains is a decision by this court on the motion and the parties can return to the Bankruptcy
Court for further proceedings.

Ill. ANALYSIS
A. Preliminary Injunction Standard

A preliminary injunction “is an extraordinary and drastic remedy.” Mazurek v. Armstrong, 520
U.S. 968, 972 (1997). Its purpose is to minimize the hardship to the parties pending the ultimate
resolution of their lawsuit. Anderson v. U.S.F. Logistics, Inc., 274 F.3d 470, 474 (2001). Generally, a
party moving for a preliminary injunction must show that (1) its case has some likelihood of success on
the merits; (2) that no adequate remedy at law exists; and (3) it will suffer irreparable harm if the
injunction is not granted. Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 895 (7th Cir. 2001). Ifall three
conditions have been met, we must balance the harms the non-moving party will suffer if the injunction
is granted against the irreparable harm the moving party will suffer if the injunctive reliefis denied. Jd.

Finally, we must consider whether granting or denying the injunction will harm the public interest. Jd.

16



is the brain child of Defendant John A. Deep, who also founded Defendant BuddyUSA, Inc.
(“BuddyUSA”) to develop the software and Defendant AbovePeer, Inc. (“AbovePeer”) to operate the
system (collectively, “Defendants”). Deep Decl. 4] 2, n.1’; Pla. Brief at 3. Deep is the President and
Chief Executive Officer of AbovePeer. Deep Decl. { 1.
B. Plaintiffs

The instant joint motion for preliminary injunction was filed by three sets of plaintiffs from three
of the eleven cases currently pending under this multidistrict litigation. Most of the plaintiffs can be
grouped into two broad categories. First, a number of plaintiffs representing various record companies
(the “Record Company Plaintiffs”) have invested substantial time, money, and resources to create,
produce, manufacture, and sell recorded music. The myriad Record Company Plaintiffs (including, inter
alia, BMG Music, Capitol Records, Inc., and New Line Cinema Corporation) own or control the
copyrights in their sound recordings and are listed in an Appendix attached to Plaintiffs’ Brief. Pla. Brief
at 2. The Record Company Plaintiffs are each a member of the Recording Industry Association of
America, Inc. (“RIAA”), a trade organization whose members account for approximately 90% of the
sound recordings produced, manufactured, or distributed in the United States. Creighton Decl. ]2. The
second broad group of plaintiffs includes a number of songwriters and music publishers (the “Music
Publisher Plaintiffs,” including, inter alia, Jerry Lieber Music, Mike Stoller Music, and Famous Music
Corporation) who compose and publish musical compositions and own the copyrights to the underlying

music and lyrics of those musical works. The Music Publisher Plaintiffs own or control the copyrights

Deep has filed a detailed declaration describing the Aimster system and various other facts
pertinent to this case. Similarly, Plaintiffs have filed many (some quite lengthy) declarations with
exhibits setting forth additional relevant facts. Throughout this opinion, declarations will be cited with
the last name of the declarant followed by “Decl.” and the paragraph or exhibit number. In some
instances, declarants have filed supplemental declarations. Those supplemental declarations are cited
with a “Supp.”



eviscerating any hope that such a policy could ever be carried out is not an “implementation” as required
by § 512(i).

Defendants’ failure to comply with § 512(i) renders them ineligible for any of the DMCA's safe
harbor protections. Nonetheless and for the sake of completeness, we will briefly address the relevant
safe harbors arguments and Defendants' ineligibility for each.

c. Transitory Communications Safe Harbor

The Transitory Communications Safe Harbor holds that a service provider shall not be liable for
copyright infringement by “reason of the provider's transmitting, routing, or providing connections for,
materials through a system or network controlled or operated by or for the service provider...” provided
a number of conditions are satisfied. 17 U.S.C. § 512(a) (emphasis supplied). Noting that the safe
harbor specifically requires the putatively infringing material be routed or transmitted through the
Aimster system, Plaintiffs argue that Aimster would not qualify. We agree. According to Deep, the
Aimster system works by allowing users to communicate and transfer files via “privately created
network{s.]” See Deep Decl. 4. Aimster is a “peer-to-peer service,” Oral Arg. Tr. at 18, that is, it
allows for the transfer of information directly between one user and another user through the Internet.
If the transaction between the users is truly peer-to-peer, then the information transferred between
individual users does not pass “through” Aimster's system at all. See, e.g., A&M Records v. Napster,
No. C 99-05183, 2000 WL 573136 (N.D. Cal. 2000) (“even if each user's Napster browser is part of the
system, the transmission goes from one part of the system zo another, or between parts of the system, but
not 'through’ the system.”), Farmer Decl {| 28 (“Aimster has been designed so that the download itself
does not pass through Aimster's own servers.”). In this way, Plaintiffs urge that the word “through” in

the statute should be read to mean “as a conduit.”

37



i Unintended Effect
Instead of directly arguing against this point, Defendants urge us to consider that Plaintiffs
reasoning would have the collateral, unintended effect of making liable every Internet service provider
as long as the provider's service could be said to be the “but for” cause of the infringing activity of some
of its users. “If Aimster were held to materially cause infringement,” say Defendants, “so would every
scarch engine, instant messenger|,} and internet service provider.” Def. Brief at 11. Yet this argument
ignores the reality of Defendants’ service as compared to the search engines and instant messengers to
which they claim such similarity. A search engine does not entice its users to infringe others' copyrights.
Instant Messaging programs (like AOL IM) do not index, rank, and comment upon MP3 music for its
users to browse and copy. Aimster is different."?
ii, Substantial Non-Infringing Uses
As another defense to the contributory infringement claim, Defendants argue that Aimster is
capable of “substantial non-infringing uses” as identified by the Supreme Court in Sony Corp. of Am.
v. Universal City Studios, 464 U.S. 417 (1984). In Sony, the Supreme Court rejected the efforts of the
entertainment industry to enjoin the sale and distribution of Betamax video cassette recorders that were
being used by their users to record copyrighted television broadcasts. Finding that the video recorders
were capable of substantial non-infringing uses, the Court declined to extend contributory liability to the
recorders' manufacturer. Defendants argue that, like the betamax video recorder, Aimster is capable of
substantial non-infringing uses. Such uses include the ability of Aimster users to transfer any number

and type of non-copyrighted files and messages to other users,'4 and the ability of users to identify other

‘Nonetheless, Defendants persist in their argument that AOL IM allows for the transfer of
copyrighted music just as Aimster does. This argument is more fully discussed below in Section I1I.B.4.

“Jn fact, during oral argument Defendants’ counsel contended that a large number of the files
transferred through Aimster are adult photographs rather than copyrighted music. Oral Arg. at 21.

25



ab

~_

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
} SEP 6 § 2002
In Re: Aimster Copyright Litigation ) Master File
) No. 01 ¢ 8933
)
) Multi District Litigation #1425
)

MEMORANDUM OPINION AND ORDER

MARVIN E. ASPEN, Chief Judge:

On November 17 , 2001, the Judicial Panel on Multidistrict Litigation consolidated eleven cases
in this court for pretrial proceedings under Multi-District Litigation number 1425 (master file 01-c-
8933). Presently before us is a joint motion for preliminary injunction filed by several of those Plaintiffs
(from cases 01-c-8940, 01-c-8941, and 01-c-8942) against the owner and operator of an Internet file
sharing service called Aimster.’ At issue is a service whose very raison d'etre appears to be the
facilitation of and contribution to copyright infringement on a massive scale. Plaintiffs seek an
injunction to prevent the contributory and vicarious infringement of their copyrighted works on
Defendants’ system and, for the following reasons, we grant their motion.

1. FACTUAL BACKGROUND

A. Defendants

Aimster is a file sharing service that allows its members to identify large numbers of similarly

situated users with whom they can transfer files in encrypted form and send instant messages. Aimster

'The Aimster software and service, which used to be provided through its website at
www.aimster.com, has now been renamed “Madster,” and is located at www.madster.com. To avoid
confusion, however, this opinion will continue to refer to the software and system as Aimster.

1

Ly



oh rN cTM

“Transitory Communication Safe Harbor”), applies in certain situations where liability would otherwise
be predicated on the service provider's providing connections for infringing material through its network.
The second safe harbor, § 512(b) (the “System Caching Safe Harbor”), provides a limitation on liability
in certain circumstances for the intermediate and temporary storage (or caching) of material on the
service provider's system. Both parties agree that the third safe harbor, § 512(c), is not relevant in this
case. The fourth safe harbor under the DMCA, § 512(d) (the “Information Location Tools Safe Harbor”),
provides for a limitation on the liability of service providers who, under certain circumstances, refer or
link users to infringing material or infringing activity.

The applicability (or inapplicability) of the DMCA's safe harbor provisions does not affect the
availability of any other defense under the Copyright Act, such that service providers are free to establish
defenses in addition to, and independent from, the DMCA provisions. 17 U.S.C. § 512(l). Furthermore,
the DMCA specifically sets forth that the applicability of its safe harbor provisions are not conditioned
upon a service provider “monitoring its service or affirmatively secking facts indicating infringing
activity.” 17 U.S.C. § 512(m). In this way, the DMCA represents a legislative determination that
copyright owners must themselves bear the burden of policing for infringing activity — service providers
are under no such duty.

Before a service provider can take advantage of the safe harbor provisions, it must satisfy two
threshold determinations. First, the potential defendant must mect the DMCA's definition of “service
provider.” Second, the potential defendant must adopt and reasonably implement a policy which
terminates the access of users who are identified as repeat infringers. Each of these threshold
determinations are examined in turn.

a. Service Provider

The DMCA defines “service provider” in two different ways, depending upon which safe harbor

33



+4 a lan

and of itself because the issue is not merely the exact number of days between an injury and a motion.
Rather, the delay must be assessed in the context of the parties' situation and in its affect on the
Defendants.

Examined in the context of the parties’ situation, the delay suddenly seems less objectionable.
In his declaration, Deep catalogues various contacts he had with some of the record company plaintiffs
in the months following Aimster's release. He asserts that he met with several product managers of AOL
on September 3, 2000 to discuss the possibility of a business relationship between Aimster and AOL.
Deep Decl. | 26. On October 2000, Aimster formed a business relationship with EMI/Capital Records
(one of the Plaintiffs) to market the copyrighted work “Radiohead — Kid A.” Furthermore, Deep alleges
that representatives of Aimster held at least four separate meetings with representatives of Bertelsmann
AG (a RIAA member) to discuss possible investments in Aimster.* Deep claims that in these
discussions he explained in detail how Aimster worked and how music could be distributed in encrypted
form over the Aimster system. Deep Decl. 28. During this entire period from approximately August
2000 to March 2001, according to Deep, neither the RIAA nor any of its members raised any issues with
regard to the Aimster's alleged copyright infringement. Deep Decl. 29. The rattling of legal sabers
began on April 3, 2001, according to Deep, two weeks after a senior executive for Transworld
Entertainment Corp., a retailer of musical recordings, contacted Edgar Bronfman of Vivendi/Universal

about the possibility of Transworld selling musical recordings through Aimster under a license from the

2There is dispute as to whether these meetings took place. Plaintiffs have filed a Declaration
by Deirdre McDonald, Vice President of Legal and Business Affairs for BMG Music in which Ms.
McDonald refutes Deeps assertion that anyone from the Bertelmann New Media Group or Bertelsmann
Random House New Media Group ever met with Aimster to discuss possible investment. McDonald
Decl. | 2. Deep thereafter filed a supplemental declaration further describing his meetings with
members of Bertelsmann and Random House staff and attaching various e-mails that appear to discuss
the scheduling of meetings between Aimster and Bertelsmann. Notwithstanding Ms. McDonald's
declaration, we have little doubt that Deep met with some if not all of the parties as he has described.
We do doubt, however, that these meetings have any relevance vis-a-vis Plaintiffs’ delay.

42



cTM o

category of innocent enabler. Indeed, our factual findings demonstrate that Aimster actually goes to
great lengths to both influence and encourage the direct infringement among its users.

Weare convinced that Defendants had knowledge of and materially contributed to the infringing
activity of Aimster's users. We are further convinced that the protections of Sony are simply not
applicable to the instant case. As such, Plaintiffs have adequately demonstrated a likelihood of success
on the merits for the contributory infringement claim.

3. Vicarious Infringement

Even if we were to find that Plaintiffs did not have a likelihood of success on the contributory
infringement claim, we would, as an alternative, find a likelihood of success on the vicarious
infringement claim. Vicarious copyright infringement is established when a defendant has "the right and
ability to supervise infringing activity and also has direct financial interest in such activities." Hard
Rock Café Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143,1150 (7th Cir. 1992) (citing
Gershwin Publ'g Corp., 443 F.2d at 1162). Unlike contributory liability, one can be liable for vicarious
copyright infringement even without knowledge of the infringement. F.E.L. Pub., Ltd. v. Nat'l
Conference of Catholic Bishops, 466 F.Supp. 1034, 1040 (N.D. Ill. 1978) (citing Dreamland Ball Room,
Inc. v. Shapiro, Bernstein & Co., 36 F.2d 354 (7th Cir. 1929)).

a. Right and Ability to Supervise

Defendants have the right and ability to supervise Aimster's users. On this point, the Ninth
Circuit's reasoning in Fonovisa is again instructive.'’ In Fonovisa, 76 F.3d at 262, the swap meet
organizers had the right to terminate individual vendors at any time and controlled the access of

customers to the swap meet area. These facts, among others, were integral to the court's finding that the

‘The court in Fonovisa addressed both contributory and vicarious infringement.

28



cTM

current “Labels” ranking.'' Finally, each Aimster Top 40 selection includes a “Play” button that a user
can click to automatically begin the copying and transfer of that particular song to the member's
computer. In this way, Club Aimster seamlessly allows for the distribution of copyrighted music without
even the inconvenience of having to type in an Aimster search request — Club Aimster, in short, “takes
the search out of searching.” Farmer Decl. 26.

Several screen shots from the Club Aimster service are found in the Forrest Declaration at
Exhibit 19. The number one selection on the Aimster Top 40 on the date listed (October 25, 2001) is
the song “Hero,” by Enrique Iglesias. The current “Label” ranking of the song is listed as number nine
but the written review of the song states that “This song will be #1 on the Labels' Chart in about 2-4
weeks.” Forrest Decl. Ex. 19. To download “Hero,” a user need only click on the Play button situated
next to the listing. Other songs available through one-click downloading on Club Aimster (as of October
25, 2001) include “I am a Slave 4 U,” by Britney Spears, “Family Affair,” by Mary J. Blige, “Turn Off
the Light,” by Nelly Fertado, and “You Rock my World” by Michael Jackson.

The vast majority, if not all of the music available for copying on Club Aimster is owned by
Plaintiffs and is listed in the Billboard Hot 100. Creighton Decl. § 14.

5. Commercial Aspects

Defendants, according to Deep, “do not sell anything on or through their service. Except for the

"Presumably, the “Labels” ranking is based upon the song's current ranking on the Billboard Hot
100. Billboard is a leading periodical in the music field, is widely available, and is used by music
professionals worldwide. On a weekly basis, Billboard prepares a list of 100 recordings receiving the
most radio air play and retail sales. See Creighton Decl. § 18.

By stark contrast, Deep's description of Club Aimster leaves out these most egregious details
and describes the service in purely innocuous terms. While “Plaintiffs make much of the existence of
Club Aimster,” he says, it is “merely reporting to Aimster users the popularity of individual songs. . .
Those individuals who wish to listen to songs listed on Club Aimster must still click onto a search
request for the song title.” Deep. Decl. 21.

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On December 21, 2001, Plaintiffs filed the instant motion for preliminary injunction. Defendants
filed their opposition to the preliminary injunction on January 22, 2002. Both parties thereafter filed
numerous pleadings and supporting material. The motion for preliminary injunction and Defendants!
opposition has now been fully briefed since March 2002.

A status conference was set in this court for March 19, 2002 to discuss the parties' proposals for
acase management plan and schedule a date for oral argument on the preliminary injunction. On March
11, 2002, however, prior to the status conference, Defendant John Deep filed for bankruptcy protection
under Chapter 13 of the United States Bankruptcy Code. Thereafter, both corporate Defendants filed
for bankruptcy under Chapter 11. With all Defendants in bankruptcy proceedings, these proceedings
were stayed under the automatic stay provisions of the Bankruptcy Code pending a determination of
Debtors' rights in the Bankruptcy Court for the Northern District of New York.

On May 1, 2002, Plaintiffs herein filed a motion with the Bankruptcy Court for relief from the
automatic stay provisions to the extent necessary to allow our court to rule on the pending and fully
briefed motion for preliminary injunction. On May 23, 2002, the Bankruptcy Court, Judge Littlefield,
held a hearing on the motion and, on June 18, 2002, granted the motion by written opinion and order.

Bankruptcy Judge Littlefield's order lifting the automatic stay limits us in the manner we are
permitted to proceed. His order specifies that the automatic stay is lifted “for the limited purpose of
permitting [the movants, Plaintiffs herein] to request the MDL Court to issue its decision on the pending
preliminary injunction motion, without any further hearings other than oral argument of or conferences
regarding the merits of the motion.” Jn Re John A. Deep, In Re AbovePeer, Inc., In Re BuddyUSA, Inc.,
Nos, 02-11552, 02-11745, 02-11755, slip op. at 12 (Bankr. N.D.N.Y. June 18, 2002). As such, by the
very terms of Judge Littlefield's order we were precluded from holding any evidentiary hearings on the

pending motion.

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