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Timestamp: 2018-12-14 22:00:14
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Supreme Court Denies Certiorari in Montz v. Pilgrim Ghost Hunters Lawsuit
Posted by Daniel Diskin in Uncategorized
In an earlier post, I wrote about the Ninth Circuit’s decision in Montz v. Pilgrim Films and Television, Inc. that a screenwriter’s claim for an implied contract was not preempted by the Copyright Act. Because this is a decision of the Ninth Circuit, which decides cases that originate from California, the case is of tremendous significance to Hollywood movie studios. It has the potential to subject them to liability under California law when they use an idea from a script, even if they do not commit copyright infringement, if there is an implied contract that will compensate the writer if they use the writer’s ideas. Such claims are known as “Desney claims,” based on the California Supreme Court’s decision in Desny v. Wilder, 299 P.2d 257 (Cal. 1956).
Of course, Desny predates the enactment of the Copyright Act of 1976, which expressly precludes the states from regulating the same exclusive rights that the Copyright Act regulates. In Montz, A Ninth Circuit en banc panel was divided on the issue whether the implied contractual claim of the screenwriter survived a preemption challenge, with the majority reasoning that it did because the plaintiff’s implied contractual claim rested on “a bilateral expectation that he would be compensated for use of the idea, the essential element of a Desny claim that separates it from preempted claims for the use of copyrighted material.” The Ninth Circuit concluded that Pilgrim Films and NBC were potentially liable for using material submitted in a screenplay by Montz in the sci-fi television show Ghost Hunters. The Ninth Circuit also ruled that a breach of confidence claim under California law was not preempted.
Defendants asked the Supreme Court to hear the case, but today the Supreme Court declined to do so. The Petition for Certiorari is available at the SCOTUSblog. The defendants argued that the causes of action that the Ninth Circuit decision upheld under California law “would have been preempted in the Second and Fourth Circuits.” While appellate experts thought there was a reasonable chance that the Supreme Court would take the case, its decision not to do so is not that surprising. The Supreme Court only grants a very small percentage of the cases it is asked to hear, and sometimes makes the decision to hold off deciding an issue until there is a very clear Circuit split. While the defendants argued in asking for Supreme Court review of Montz that the Second and Fourth Circuits would have reached a different result based on differing copyright preemption jurisprudence, they could not show a split on the precise issue the Court addressed in Montz. This probably explains why the Supreme Court denied certiorari. It does not mean that the Court necessarily will agree with the Ninth Circuit’s analysis, should it take a future case in this area.
Google’s Post Argument Letter Brief to the Second Circuit Discusses DMCA Red Flags and “Syndication”
The Second Circuit heard oral argument on October 18 in the landmark litigation between Viacom and Google over whether the latter is liable for alleged copyright infringement of Viacom content on YouTube. Google has now submitted a post argument letter brief to the Second Circuit following an unusual order from the Court to both parties following oral argument. Viacom’s response is due by November 8.
The Second Circuit has asked that the parties address the issue of “red flag” awareness under the Digital Millennium Copyright Act (DMCA) and whether Google can claim the protection of the DMCA safe harbor provision, which immunizes service providers from copyright liability, given its “syndication” of YouTube content to third parties. The second question refers to YouTube’s practice of reformatting YouTube content so that it is available not just on personal computers but also on other platforms, including mobile phones, table devices, and Internet-connected televisions. The two questions asked by the Second Circuit are in full:
1. whether and how the red-flag knowledge provision [§ 512(c)(1)(A)(ii)] would apply under the Defendants’ “specific” knowledge construction of § 512(c)(1)(A); and
2.whether YouTube’s “syndication” of videos to third parties falls outside the scope of safe harbor protection for activities that occur “by reason of . . . storage at the direction of a user” under § 512(c)(1).
Viacom owns the rights to such popular shows as South Park and the Daily Show with John Stewart, clips of which it claims were uploaded to YouTube without its authorization. Its lawsuit focuses primarily on YouTube’s early years, before Google’s October 2006 $1.6 billion stock acquisition of the popular startup, when Viacom alleges that copyright infringement was rampant and known to YouTube’s founders. Google counters that under the DMCA, when a hosting website such as YouTube has general knowledge that there is some amount of infringing activity on its site, that is insufficient to subject it to secondary liability for the copyright infringement. Rather, Google argues that a “service provider” (as YouTube is under the definition given in the DMCA) can only be subjected to liability when it has specific knowledge of activity that is clearly copyright infringement.
The argument before the Second Circuit concerned whether the District Court judge was correct in his ruling that YouTube is shielded from liability by the safe harbor provision of the DMCA. Under the DMCA, a service provider that establishes a notice and take down scheme, which includes providing an agent to receive notices of copyright infringing activities, and otherwise complies with the DMCA, is shielded from liability. Much of the recent Second Circuit oral argument reportedly focused on whether, in granting summary judgment, the District Court erred by discounting some factual evidence that might lead a jury to conclude that YouTube’s founders had knowledge of copyright-infringing activity. Viacom has pointed to various emails that it claims provide evidence that YouTube’s founders knew that copyright infringement on YouTube in its early years was wide-spread.
The DMCA precludes liability against a service provider, so long as the service provider has neither “actual knowledge” or what may be called “red flag” knowledge, and upon obtaining actual or red flag knowledge promptly removes or disables access to the copyright-infringing material. The statute describes actual knowledge and red flag knowledge in § 512(c)(1)(A)(i) and 512(c)(1)(A)(ii), respectively, specifying that a service provider is not liable for copyright infringement when the service provider:
(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing; [and]
(ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent.
The Second Circuit is clearly concerned with how to articulate a legal standard for liability that leaves room for both subsections (i) and (ii) above to operate independently of each other. Since Google has argued that knowledge of specific infringing activities is necessary to preclude application of the safe harbor, the Second Circuit query to Google asks it to explain how a service provider could be liable under subsection (i) and not (ii), and vice versa.
Google argues that red flag liability could attach under the DMCA in a case in which the service provider knew of facts or circumstances that would have made it apparent to a reasonable person that specific content constituted copyright infringement, even if the service provider lacked the subjective awareness that there was copyright infringement. As Google articulates the standard for liability it has urged upon the Second Circuit:
Google then argues that Congress evinced an intent to set a high bar before red flag liability could attach under the DMCA. The brief argues that the copyright infringement must be so blatant that it should have been immediately apparent to the service provider. To the extent that any independent investigation is required to verify that the content is actually copyright infringement, Google argues that the situation is not what Congress had in mind.
Google goes to some length to address the core of the concern the Second Circuit clearly had, which is the possibility that Google’s interpretation might render subsections (i) and (ii) redundant. A standard tenet of statutory construction is that each section of a statute should retain independent significance. Google’s brief argues that its interpretation of § 512(c)(1)(A)(ii), which it describes as “well established,”
in no way renders the actual-knowledge provision superfluous or eliminates a service provider’s obligation to respond to genuine “red flags.” Instead, the knowledge provision and the awareness provision establish alternative ways for a plaintiff to show that a service provider was required—without receiving a takedown notice—to “expeditiously” remove “the material” that the plaintiff alleges was infringing (§ 512(c)(1)(A)(iii)). A service provider might have “actual knowledge” even in the absence of facts or circumstances from which that infringement would be apparent to an objective observer. Alternatively, a service provider, even if lacking subjective knowledge that the material was infringing, might have been aware of facts or circumstances that, by any objective measure, made that infringement apparent. H.R. Rep. 105-551, at 53; S. Rep. 105-190, at 44.
Google’s brief argues that its interpretation is consistent with the DMCA’s overall scheme, which does not place the burden on service providers to investigate and remove infringing material, but places that burden on copyright holders. Google notes that § 512(m) states that “affirmatively seeking facts indicating infringing activity” is not a responsibility that falls to service providers. Google argues that Viacom’s interpretation would upend “carefully wrought notice-and-takedown regime, which worked so well in this case.”
§ 512(c)(1) also specifies that the DMCA immunity is only applicable to cases in which “by reason of the storage at the direction of a user” there is “material that resides on a system or network controlled or operated by or for the service provider.” Viacom argues that because YouTube reformulates user-submitted content so that it is available on a wide variety of platforms, the videos cannot be said to be stored solely “at the direction of a user.”
In its brief, Google argues that Viacom’s argument on this point “is contrary to all the case law and would undermine the basic purpose of the DMCA.” Google argues that case law protects a service provider that uses “software functions” to make user-submitted content accessible. Google warns that any ruling that would create liability for service providers that used software to reformat user submissions would have severe negative consequences. It raises the specter that “[s]ervice providers would be frozen in time, unable to make their services compatible with a new generation of hardware, lest they lose DMCA protection by trying to keep pace with technological change.”
Google also addresses a separate argument made by Viacom, which is that YouTube entered into a contractual relationship with Verizon under which it manually provided approximately 2,000 videos to Verizon. Google argues that Viacom has not demonstrated that any of this content contained copyright-infringing material and that it is “totally irrelevant to this case” since none of Viacom’s videos were provided to Verizon.
It will be interesting to see how Viacom responds to Google’s arguments in its forthcoming brief. I’ll provide a post next week summarizing Viacom’s response.
Questions Regarding Copyright Preemption and the Constitutionality of the California Resale Royalty Act
The New York Times has an article reporting on three class action lawsuits based upon the California Resale Royalty Act, which name as defendants the well-known auction houses Sothebys and Christies, as well as eBay. Separately, the Los Angeles Times reports that the California law is also the basis for class action lawsuits against nine California art galleries, variously located in Los Angeles and San Francisco. The California Resale Royalty Act, uniquely within the U.S., entitles artists to a resale royalty of five percent on sales of fine art in California, or by persons who have been California residents for at least two years, when the the gross resale price is equal to or greater than $1000. The California Arts Council provides some of the details about how the law works in practice. Questions that have lurked for years regarding whether the California law can coexist with the federal Copyright Act, as well as whether it violates the Constitution, are sure to come to the fore as the litigation in these cases runs its course.
The immediate impetus for passage of the California Resale Royalty Act was a 1973 New York auction in which taxi baron Robert Scull sold a painting that he had acquired for $900 fifteen years prior for $85,000–a handsome profit indeed, but one which drew the fierce ire of Robert Rauschenberg, the painter that produced the work. An engraged Rauschenberg, upon seeing his 1958 painting “Thaw” sell for this rather large sum, without any of the proceeds going to him, reportedly shoved Scull following the close of the auction and declared that he had not invested so much hard work into his painting “just for you to make that profit.” He believed that, as a matter of basic fairness, that as the artist he was entitled to a portion of the auction proceeds. In California, the legislature agreed with Rauschenberg’s sentiment and enacted the law at issue in the current class action cases. It was signed by governor Jerry Brown in 1976, with Rauschenberg appearing at the signing ceremony, and went into effect in 1977.
California’s law is in keeping with the philosophical concept of artist’ moral rights, or “droit de suitel,” as they would say in France. One tenet of moral rights laws is that authors should be able to exercise a degree of control over how their artwork, even following the initial sale. In comparison to continental Europe, the U.S. has never been firmly committed to the basic ideas of moral rights in copyright law. Although Congress passed a law in 1990 entitled the Visual Artists Rights Act of 1990 (VARA) that gives artists certain moral rights to proper attribution and protects the integrity of their original work, neither Congress or any state other than California has seen fit to mandate resale royalty payments. In France, legislation giving artists royalties in resales was enacted in 1920. Apparently, the law was inspired by sympathy for the plight of the painter Millet’s granddaughter, who was selling flowers on the street at the time one of Millet’s paintings sold for one million francs. The UK changed its laws in 2005 to give artists royalties from resales. It is interesting to note that in the UK, art dealers and auction houses made the argument that art sales would simply shift to Switzerland and the U.S., given the absence (with the exception of California’s law) of mandatory resale laws in either country.
While there is not a great deal of case law on the validity of California’s law, as noted by the Los Angeles Times, this is not the first time that the enforceability of the law has been at issue. More specifically, in 1977, a legal action brought by Los Angeles art dealer Howard Morseburg argued that the law was unconstitutional. Morseburg argued that the law was preempted by the 1909 Copyright Act. In addition, he argued that it violated the Constitution’s Contract Clause, because the state was interfering with his ability to freely negotiate contracts, and violated the due process clause by depriving him of a fundamental property right. The District Court ruled against Morseburg and the case went up to the Ninth Circuit, which also rejected Morseburg’s arguments that the statute was invalid. The Court ruled that any interference with Morseburg’s right to contract was based in legislation that “serves a public purpose and is not severe.” It found that the California legislature had a rational basis to pass legislation designed to support artists and fairly quickly rejected the argument that the law violated the due process clause.
Of potentially critical importance with respect to the current round of class action lawsuits, at the time when Morseburg filed his test case, the federal Copyright Act of 1976 had not yet gone into effect; it passed in 1976, but went into effect in 1978. There is a major, unresolved legal issue as to whether the Copyright Act preempts the California Resale Royalty Act, since Congress in passing the Copyright Act expressly stated that it was occupying the field and insofar as state laws regulate the same subject matter, it is the Copyright Act, and not the state laws, which are applicable. In the lawsuits described above, the defendants can be expected to argue that the Copyright Act’s first sale doctrine preempts the legislative scheme in California. In addition, they may attempt to argue that the California law is unconstitutional as a Fifth Amendment taking of property without compensation, an issue raised in academic writing on the California Resale Royalty Act.
Copyright preemption cases can be quite tricky. Section 301 of the Copyright Act contains the preemption language of the Copyright Act. Section 301(a) provides:
Reviewing courts have typically required state laws to have an extra element that goes beyond the exclusive rights set forth in the Copyright Act before finding that the laws survive preemption. But applying this test has created some sharp differences of opinion on the preemption question, with a good example being the Ninth Circuit’s decision in the recent case Montz v. Pilgrim Films & Television, Inc. I have previously blogged about the preemption issue that the Ninth Circuit faced in that case.
One argument for preemption is based on the interaction between Sections 106 and 109 of the Copyright Act. Section 106 of the Copyright Act gives the copyright holder an exclusive right of initial distribution, but makes clear–by stating that the exclusive rights granted in Section 106 are subject to Sections 107-122–that this exclusive right can only be understood in conjunction with the first sale exception in Section 109. Section 109(a) provides in relevant part:
The auction houses will no doubt argue that their business model is based upon the copyright law’s first sale doctrine, and that the California law interferes with the careful balance struck by the Copyright Act. Because the exclusive right to distribute the copyrighted work is not unlimited, as Section 109(a) creates an important exception, the argument goes that it regulates an area that is well within the subject matter of the Copyright Act. On the other side, California will argue that the law is fully consistent with the Copyright Act because it does not bar resales of works, nor does it empower copyright holders to bar resale of works or bargain for the terms of resale. Rather, from California’s perspective it is better thought of as state regulation of private contracts. While courts have held that contractual terms in end user agreements are enforceable and are not preempted by the Copyright Act, they may view a state regulation of contracts that overlaps with the Copyright Act as being more vulnerable to a preemption challenge.
There is yet another preemption issue that may be raised in the class action lawsuits concerning the California Resale Royalty Act. This is whether Section 106A, which contains the text of the Visual Artists Right Act of 1990, preempts state laws, such as that of California, which address moral rights. Section 301(f)(1) provides:
While this issue may come up in the litigation, I do not think the preemption argument here is persuasive. VARA, as noted above, addresses artists’ rights to attribution and the integrity of their work, but does not have anything to say about other aspects of “droit de suite.” I find it hard to believe that California’s creation of a right to royalties from resales of artwork is “equivalent” to any of the rights that VARA bestows upon visual artists.
The takings clause issue is another legal issue that is likely to feature in the class action lawsuits brought under the California Resale Royalty Act. Emily Eschenbach Barker addresses this issue in a recent article entitled “The California Resale Royalty Act: Droit de (not so) suite,” 38 Hastings Const. L. Q. 387 (Winter 2011). The question is whether, in enacting legislation that mandates that a five percent royalty rate be paid to visual artists from the resale of their artwork the state is taking property without just compensation, in violation of the Constitution. My own intuition, without having fully researched this issue, is that courts are unlikely to find this is an unconstitutional taking under various precedents in the field of regulatory takings law.
To be sure, the class action lawsuits regarding the California Resale Royalty Act raise some interesting legal questions. I’ll keep my eyes open for future developments.
Recap of Supreme Court Oral Argument in Golan v. Holder
Yesterday the Supreme Court heard from both sides in Golan v. Holder, a case that involves a dispute over whether Congress can grant retroactive copyright protection to foreign authors. Congress did so in passing Section 514 of the Uruguay Round Agreements Act, which “restored” copyright protection to foreign authors who were previously ineligible for copyright protection or failed to comply with copyright formalities. Petitioners argue that taking works from the public domain and restoring their copyright protection–examples include works by Shostakovich and Stravinsky–is not authorized by the Progress Clause, which authorizes Congress to set limited terms of copyright protection to promote progress in science and the useful arts. Petitioners further argue that even if Congress had authority to pass the legislation at issue that it infringes upon their First Amendment rights to free expression. Prior to the legislation, all members of the public could perform works that they believed were in the public domain.
As the attorney for the petitioners, Anthony Falzone, presented his argument he faced the most intense questioning from Justice Ginsburg. Justice Ginsburg is the author of the Court’s most analogous precedent, Eldred v. Ashcroft, in which the Court ruled that Congress had the authority to extend existing terms of copyright to, in most cases, the life of the author plus seventy years. Justice Ginsburg that this case involved a situation in which whole categories of work were deemed ineligible for a term of protection and now the U.S. was granting them protection in order to meet its obligations under the Berne Convention. Justice Ginsburg opined: “We are not talking about a case where you’ve had the protection, enjoyed it and then it expired.” Mr. Falzone, however, did not concede the point but repeatedly argued that when Congress determines that a work should receive “zero” protection it still qualifies as a “limited time” for purposes of the Progress Clause.
The Court did not delve too deeply into the dispute between the petitioners and the government over whether the First Congress, in the original Copyright Act of 1790, granted copyright protection to works in the public domain. This historical question is potentially significant insofar as it would set a precedent of Congress restoring works in the public domain. The issue came up in an exchange between Justice Sotomayor and Mr. Falzone. Later in the argument, when the government was presenting its case, Justice Alito suggested that, even if it is true that the Act of 1790 removed some works from the public domain, it “show[s] at most that retroactive protection can be granted when there is an enormous interest in doing so, namely, the establishment of the uniform copyright system at the beginning of the country.”
Another issue that some of the Justices were interested in is whether Congress’s decision to remove works from the public domain furthers progress in science and the useful arts, the basis for Congress’s authority to enact copyright term limits. Mr. Falzone argued that “a statute that does nothing, like this one, but take old works out the public domain without any impact on prospective incentives, cannot stimulate the creation of anything.” This was argument was met with some skepticism from Justice Sotomayor, who argued that the law Congress passed create an incentive for foreign authors to promote their works in the U.S. Chief Justice Roberts joined in, suggesting that the law does create at least some benefit for American authors abroad. He noted that the Court of Appeals described the incentive as “meager,” but said “we haven’t really required much more than that.” Justice Scalia seemed most open to the argument that this law does not further any progress in science or the useful arts.
While Mr. Falzone conceded that copyright laws in general are in some tension with the First Amendment right of expression insofar as some works cannot be reproduced by the public or performed publicly, he argued that this situation was unique. Mr. Falzone stated that “An ordinary copyright statute does not revoke the public’s Federal right to copy and use works in the public domain.” The effect of the legislative scheme at issue here was to take speech away from the public and convert it into private property, which he argued should trigger heightened First Amendment scrutiny. In answering a question from Justice Kennedy about the nature of the public domain, Mr. Falzone stated that “the public domain is owned collectively by the public, and in fact, decisions of this Court going back to the 19th century refer to it as public property.”
Solicitor General Donal Verrilli argued the case on behalf of the government. He argued that rather than set a term limit of zero, Congress had simply not entered into treaties with certain countries, meaning that their nationals were denied copyright protection in the U.S. He went on to state that the law at issue simply grants them the term they would have received had they been eligible for copyright protection when they published their works, or complied with copyright formalities that the U.S. no longer requires.
Justice Alito then asked what would happen in a case in which Congress provided copyright protection to works that had a definite term of years that had expired. Mr. Verrilli urged the Court to hold off on deciding that issue, but stated that Congress may be able to plausibly do so, subject to the limit that any grant of copyright would necessarily have to go to an author.
Justice Alito how that limit applied in this case, in which Congress restored copyrights to numerous authors who long ago passed away. Mr. Verrilli answered by noting that the legislation at issue only applies to works that are still under copyright protection in the authors’ own country and highlighting the importance to the U.S. of unambigously complying with the Berne Convention. This answer was plainly unsatisfactory from the viewpoint of Justice Scalia, who told Mr. Verrilli that “this is either okay under the copyright clause or it isn’t” and that any treaty obligations were irrelevant to that threshold inquiry. Mr. Verrilli insisted that there were not any textual limitations in the text of the Constitution that precluded Section 514.
Justice Breyer and Mr. Verilli had a rather lengthy dialogue in which Justice Breyer was openly skeptical that Section 514 was doing anything to lead to the creation of new copyrightable works but was only burdening consumers who will now be forced to pay higher prices to acquire works that were previously in the public domain. Justice Breyer described the effects of the law as creating a situation in which “libraries, music lovers, book buyers will either pay more for things already in existence or will simply be unable to get them if they are orphans [works for which the copyright holder is unknown], so that other countries will impose similar kinds of restrictions.” Justice Breyer echoed Justice Scalia’s earlier comments in questioning whether Section 514 promotes any progress in science or the useful arts.
Mr. Verilli argued that Section 514 should not be subject to heightened First Amendment scrutiny. He raised the specter of any future adjustments by Congress of existing copyright laws being subject to First Amendment challenges. The Chief Justice asked whether if the national anthem were suddenly to receive copyright protection, Jimmy Hendrix’s unique rendition would be possible? Mr. Verilli noted that Section 514 contains some protection for derivative works and further emphasized the traditional ways in which copyright laws have been seen to be harmonious with the First Amendment: the idea/expression dichotomy and the fair use exception.
On the First Amendment issued, Mr. Verrilli emphasized the U.S. interest in demomstrating compliance with the Berne Convention. He commented that “Congress enacted section 514 at the urging of executive branch officials who were charged with trying to ensure that we could integrate ourselves into the international system of copyright protection.” He argued that even if intermediate scrutiny applied in the First Amendment analysis, the law at issue would pass muster given the strong U.S. interest in being seen as in compliance with the Berne Convention. Justice Breyer was unpersuaded by this argument, noting that the briefs in the case argued that the U.S. could have passed legislation that was less restrictive of First Amendment rights in order to meet its obligations under Berne.
There were obviously some divergent views at oral argument, and I will update this blog when the Court gets around to issuing its opinion in the case.
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