Court Opinion

ID: 4158821
Source: CourtListenerOpinion
Date Created: 2017-04-07 17:00:44.788875+00
Date Added: 2024-06-11T14:22:50.736066
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

MAVRIX PHOTOGRAPHS,                       No. 14-56596
LLC, a California limited
liability company,                        D.C. No.
            Plaintiff-Appellant,   8:13-cv-00517-CJC-JPR

              v.
                                           OPINION
LIVEJOURNAL, INC.,
        Defendant-Appellee.

       Appeal from the United States District Court
          for the Central District of California
       Cormac J. Carney, District Judge, Presiding

            Argued Submitted October 7, 2016
                  Pasadena, California

                    Filed April 7, 2017

        Before: Harry Pregerson, Richard A. Paez,
          and Morgan Christen, Circuit Judges.

                   Opinion by Judge Paez
2          MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

                            SUMMARY*

              Digital Millennium Copyright Act

    The panel (1) reversed the district court’s holding, on
summary judgment, that the defendant was protected by the
safe harbor of the Digital Millennium Copyright Act from
liability for posting the plaintiff’s photographs online and
(2) vacated a discovery order.

    The panel held that the safe harbor set forth in 17 U.S.C.
§ 512(c) would apply if the photographs were posted at the
direction of users. The defendant, a social media platform,
posted the photographs after a team of volunteer moderators,
led by an employee of the defendant, reviewed and approved
them. The panel held that whether the photographs were
posted at the direction of users depended on whether the acts
of the moderators could be attributed to the defendant.
Disagreeing with the district court, the panel held that the
common law of agency applied to the defendant’s safe
harbor defense. Because there were genuine factual disputes
regarding whether the moderators were the defendant’s
agents, the panel reversed the district court’s summary
judgment and remanded the case for trial.

    The panel also discussed the remaining elements of the
safe harbor affirmative defense. If an internet service
provider shows that the infringing material was posted “at
the direction of the user,” it must then also show that (1) it
lacked actual or red flag knowledge of the infringing

    *
      This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                   3

material; and (2) it did not financially benefit from
infringements that it had the right and ability to control. The
panel held that to fully assess actual knowledge, the fact
finder must consider not only whether the copyright holder
has given notice of the infringement, but also the service
provider’s subjective knowledge of the infringing nature of
the posts. The panel held that to determine whether the
defendant had red flag knowledge, the fact finder would need
to assess whether it would be objectively obvious to a
reasonable person that material bearing a generic watermark
or a watermark referring to the plaintiff’s website was
infringing. When assessing the service provider’s right and
ability to control the infringements, the fact finder should
consider the service provider’s procedures that existed at the
time of the infringements and whether the service provider
had “something more” than the ability to remove or block
access to posted materials.

   Finally, the panel vacated the district court’s order
denying discovery of the moderators’ identities.

                         COUNSEL

Peter Afrasiabi (argued), Christopher W. Arledge, and John
Tehranian, One LLP, Newport Beach, California, for
Plaintiff-Appellant.

Wayne Mitchell Barsky (argued), Blaine H. Evanson, and
Brandon J. Stoker, Gibson Dunn & Crutcher LLP, Los
Angeles, California, for Defendant-Appellee.
4        MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

                         OPINION

PAEZ, Circuit Judge:

     Plaintiff Mavrix Photographs (“Mavrix”) appeals the
district court’s summary judgment in favor of Defendant
LiveJournal. Mavrix sued LiveJournal for posting twenty of
its copyrighted photographs online. The district court held
that the Digital Millennium Copyright Act’s (“DMCA”)
§ 512(c) safe harbor protected LiveJournal from liability
because Mavrix’s photographs were posted at the direction of
the user. 17 U.S.C. § 512(c).

    To be eligible at the threshold for the § 512(c) safe
harbor, LiveJournal must show that the photographs were
posted at the direction of the user. Although users submitted
Mavrix’s photographs to LiveJournal, LiveJournal posted the
photographs after a team of volunteer moderators led by a
LiveJournal employee reviewed and approved them.
Whether these photographs were truly “posted at the direction
of the user,” or instead whether LiveJournal itself posted the
photographs, depends on whether the acts of the moderators
can be attributed to LiveJournal. The issue we must decide
is whether the common law of agency applies to
LiveJournal’s safe harbor defense. The district court ruled
that the common law of agency does not apply to this
analysis. We disagree and conclude that it does. As there are
genuine factual disputes regarding whether the moderators
are LiveJournal’s agents, we reverse the district court’s
summary judgment and remand for trial.

    Because the district court ruled on the remaining elements
of the safe harbor, we also proceed to discuss those elements
in order to provide guidance to the district court and parties
             MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                        5

on remand. Finally, we vacate the district court’s order
denying discovery of the moderators’ identities because the
agency determination may affect this analysis.

                                    I.

LiveJournal1

    LiveJournal is a social media platform. Among other
services, it allows users to create and run thematic
“communities” in which they post and comment on content
related to the theme. LiveJournal communities can create
their own rules for submitting and commenting on posts.

    LiveJournal set up three types of unpaid administrator
roles to run its communities. “Moderators” review posts
submitted by users to ensure compliance with the rules.2
“Maintainers” review and delete posts and have the authority
to remove moderators and users from the community. Each
community also has one “owner” who has the authority of a
maintainer, but can also remove maintainers.

    LiveJournal protects against copyright infringement in its
communities through various mechanisms. LiveJournal
follows the formal notice and takedown procedures outlined
in the DMCA by designating an agent and form to report
infringement, and by promptly removing infringing posts and
prohibiting repeat abusers from the community. 17 U.S.C.

    1
        The facts are undisputed unless otherwise noted.
    2
       Because moderators, maintainers, and owners all can review posts,
we refer to all three as moderators when discussing the act of reviewing
posts.
6          MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

§ 512(c)(1)(C). LiveJournal’s Terms of Service instructs
users not to “[u]pload, post or otherwise transmit any Content
that infringes any patent, trademark, trade secret, copyright or
other proprietary rights.”

Oh No They Didn’t! (“ONTD”)

    ONTD is a popular LiveJournal community which
features up-to-date celebrity news. Users submit posts
containing photographs, videos, links, and gossip about
celebrities’ lives. ONTD moderators review and publicly
post some of the submissions. Other users engage in
conversations about the celebrity news in the comments
section of each post. For example, one of the ONTD posts at
issue contained photographs that Mavrix had taken which
appeared to show that super-celebrity Beyoncé was pregnant.
Users speculated in the comments section of that post that
Beyoncé was indeed pregnant.3

    Like other LiveJournal communities, ONTD created rules
for submitting and commenting on posts. ONTD’s rules
pertain to both potential copyright infringement and
substantive guidance for users. For example, one rule
instructs users to “[i]nclude the article and picture(s) in your
post, do not simply refer us off to another site for the goods.”
Another rule provides “Keep it recent. We don’t need a post
in 2010 about Britney Spears shaving her head.” ONTD’s

    3
       In a more recent post about Beyoncé, a user speculated that she
would perform her song “Formation” at the 2016 Super Bowl. Other users
commented on the post, debating how Beyoncé might incorporate feminist
and racial justice themes into her performance. XOXOBLISS, Beyoncé
Is Performing Formation at the Super Bowl + Celebrities React to
Formation, ONTD (Feb. 6, 2016, 05:49 PM),
http://ohnotheydidnt.livejournal.com/100179096.html.
           MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                        7

rules also include a list of sources from which users should
not copy material. The sources on the list have informally
requested that ONTD stop posting infringing material.
ONTD has also automatically blocked all material from one
source that sent ONTD a cease and desist letter.

    ONTD has nine moderators, six maintainers, and one
owner. ONTD users submit proposed posts containing
celebrity news to an internal queue. Moderators review the
submissions and publicly post approximately one-third of
them. Moderators review for substance, approving only those
submissions relevant to new and exciting celebrity news.
Moderators also review for copyright infringement,
pornography, and harassment.

    When ONTD was created, like other LiveJournal
communities, it was operated exclusively by volunteer
moderators. LiveJournal was not involved in the day-to-day
operation of the site. ONTD, however, grew in popularity to
52 million page views per month in 2010 and attracted
LiveJournal’s attention. By a significant margin, ONTD is
LiveJournal’s most popular community and is the only
community with a “household name.” In 2010, LiveJournal
sought to exercise more control over ONTD so that it could
generate advertising revenue from the popular community.
LiveJournal hired a then active moderator, Brendan Delzer,
to serve as the community’s full time “primary leader.” By
hiring Delzer, LiveJournal intended to “take over” ONTD,
grow the site, and run ads on it.4

    4
    When Delzer was hired in 2010, LiveJournal had not yet created the
owner administrator position. In 2011, when LiveJournal created the
owner position, Delzer was elected by the community and became the
8         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

    As the “primary leader,” Delzer instructs ONTD
moderators on the content they should approve and selects
and removes moderators on the basis of their performance.
Delzer also continues to perform moderator work, reviewing
and approving posts alongside the other moderators whom he
oversees. While Delzer is paid and expected to work full
time, the other moderators are “free to leave and go and
volunteer their time in any way they see fit.” In his
deposition, Mark Ferrell, the General Manager of
LiveJournal’s U.S. office, explained that Delzer “acts in some
capacities as a sort of head maintainer” and serves in an
“elevated status” to the other moderators. Delzer, on the
other hand, testified at his deposition that he does not serve as
head moderator and that ONTD has no “primary leader.”

Mavrix

    Mavrix is a celebrity photography company specializing
in candid photographs of celebrities in tropical locations. The
company sells its photographs to celebrity magazines.
According to Mavrix, infringement of its photographs is
particularly devastating to its business model. Since
Mavrix’s photographs break celebrity news, such as the
pregnancy of Beyoncé, infringing posts on sites like ONTD
prevent Mavrix from profiting from the sale of the
photographs to celebrity magazines.

Procedural History

   Mavrix filed an action for damages and injunctive relief
against LiveJournal alleging copyright infringement on the

owner. After this lawsuit was filed, LiveJournal’s parent company
became the owner.
          MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                     9

basis of twenty Mavrix photographs posted on ONTD.
ONTD posted the photographs in seven separate posts
between 2010 and 2014. Some of these photographs
contained either a generic watermark or a specific watermark
featuring Mavrix’s website “Mavrixonline.com.” To the best
of his recollection, Delzer did not personally approve the
seven posts. LiveJournal has no technological means of
determining which moderator approved any given post.
Mavrix did not utilize LiveJournal’s notice and takedown
procedure to notify LiveJournal of the infringements. When
Mavrix filed this lawsuit, LiveJournal removed the posts.5

    During discovery, Mavrix filed two motions to compel
responses to its interrogatories seeking the identity of the
ONTD moderators. The magistrate judge denied the first
motion, finding that Mavrix had not met and conferred with
LiveJournal in good faith. The magistrate judge denied the
second motion to compel because Mavrix failed to notify the
anonymous parties of the pending motion. Mavrix moved the
district court for review of the magistrate judge’s order,
which the district court denied on the basis of the moderators’
First Amendment right to anonymous internet speech.

    LiveJournal moved for summary judgment on the basis of
the § 512(c) safe harbor. The district court granted
LiveJournal’s motion and denied Mavrix’s cross-motion for
partial summary judgment, concluding that the § 512(c) safe
harbor shielded LiveJournal from liability for copyright
infringement. Mavrix timely appealed.

     5
       Because LiveJournal removed the posts, Mavrix’s request for
injunctive relief is likely moot.
10       MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

                              II.

    We review de novo a district court’s grant of summary
judgment. Curley v. City of N. Las Vegas, 772 F.3d 629, 631
(9th Cir. 2014) (citing Smith v. Clark Cnty. Sch. Dist.,
727 F.3d 950, 954 (9th Cir.2013)). We must determine,
“viewing the evidence in the light most favorable to the
nonmoving party, whether there are any genuine issues of
material fact and whether the district court correctly applied
the substantive law.” Id.

    The district court’s denial of a motion to reconsider a
magistrate judge’s pretrial discovery order under Federal
Rule of Civil Procedure 72(a) will be reversed only if “clearly
erroneous or contrary to law.” Rivera v. NIBCO, Inc.,
364 F.3d 1057, 1063 (9th Cir. 2004) (citing Osband v.
Woodford, 290 F.3d 1036, 1041 (9th Cir.2002)).

                             III.

                              A.

    The DMCA strikes a balance between the interests of
“copyright holders in benefitting from their labor; . . .
entrepreneurs in having the latitude to invent new
technologies without fear of being held liable if their
innovations are used by others in unintended infringing ways;
and those of the public in having access [to] both . . . .”
Columbia Pictures Indus., Inc. v. Fung, 710 F.3d 1020, 1037
(9th Cir. 2013). The DMCA balances these interests by
requiring service providers to take down infringing materials
when copyright holders notify them of the infringement and
by limiting service providers’ liability for unintentional
            MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                      11

infringement through several safe harbors. Ellison v.
Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004).

    The DMCA established four safe harbors to “provide
protection from liability for: (1) transitory digital network
communications; (2) system caching; (3) information residing
on systems or networks at the direction of users; and
(4) information location tools.” Id. at 1076–77 (citing
17 U.S.C. § 512(a)–(d)). LiveJournal claimed protection
from damages under the § 512(c) safe harbor for
“infringement of copyright by reason of the storage [of
material] at the direction of a user.” 17 U.S.C. § 512(c)(1).
To be eligible at the threshold for the § 512(c) safe harbor, a
service provider must show that the infringing material was
posted “at the direction of the user.” 17 U.S.C. § 512(c)(1).6

   6
       Section 512(c)(1) provides in relevant part:

          A service provider shall not be liable . . . for
          infringement of copyright by reason of the storage at
          the direction of a user of material that resides on a
          system or network controlled or operated by or for the
          service provider, if the service provider–

              (A)(i) does not have actual knowledge that the
              material or an activity using the material on the
              system or network is infringing;

                   (ii) in the absence of such actual knowledge,
                   is not aware of facts or circumstances from
                   which infringing activity is apparent; or

                   (iii) upon obtaining such knowledge or
                   awareness, acts expeditiously to remove, or
                   disable access to, the material;
12         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

If it meets that threshold requirement, the service provider
must then show that (1) it lacked actual or red flag knowledge
of the infringing material; and (2) it did not 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.” Id.7 Because the
§ 512(c) safe harbor is an affirmative defense, LiveJournal
must establish “beyond controversy every essential element,”
and failure to do so will render LiveJournal ineligible for the
§ 512(c) safe harbor’s protection. See S. Cal. Gas Co. v. City
of Santa Ana, 336 F.3d 885, 888 (9th Cir. 2003); see also
UMG Recordings, Inc. v. Shelter Capital Partners LLC,
718 F.3d 1006, 1013 (9th Cir. 2013).

                                   B.

                                   1.

    LiveJournal must make a threshold showing that Mavrix’s
photographs were posted on ONTD at the direction of the
user. The district court held that although moderators

             (B) does not 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; and

             (C) upon notification of claimed infringement . . . ,
             responds expeditiously to remove, or disable
             access to, the material that is claimed to be
             infringing . . . .

17 U.S.C. § 512(c)(1).
    7
      LiveJournal must also show that it complied with § 512(c)’s notice
and takedown procedure, but that issue is not contested in this case.
          MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                    13

screened and publicly posted all of the ONTD posts, the posts
were at the direction of the user. The district court focused
on the users’ submission of infringing photographs to
LiveJournal rather than LiveJournal’s screening and public
posting of the photographs. A different safe harbor, § 512(a),
protects service providers from liability for the passive role
they play when users submit infringing material to them.
17 U.S.C. § 512(a); see, e.g., Perfect 10, Inc. v. CCBill LLC,
488 F.3d 1102, 1116 (9th Cir. 2007) (describing infringing
material passively and temporarily placed on a computer
server as within the § 512(a) safe harbor). The § 512(c) safe
harbor, however, focuses on the service provider’s role in
publicly posting infringing material on its site. See Shelter
Capital, 718 F.3d at 1018; S. Rep. No. 105-190, at 43–44
(1998). Contrary to the district court’s view, posting rather
than submission is the critical inquiry. See Perfect 10, Inc. v.
Giganews, Inc., 847 F.3d 657, 668–69 (9th Cir. 2017)
(distinguishing between the service provider’s passive role
when users “upload[] infringing content onto [] servers” and
“any sort of active role” on the basis of who “caused the
images to be displayed”). In the context of this case, that
inquiry turns on the role of the moderators in screening and
posting users’ submissions and whether their acts may be
attributed to LiveJournal.

                               2.

    Mavrix, relying on the common law of agency, argues
that the moderators are LiveJournal’s agents, making
LiveJournal liable for the moderators’ acts. The district court
erred in rejecting this argument.

    “[S]tatutes are presumed not to disturb the common law,
‘unless the language of a statute [is] clear and explicit for this
14         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

purpose.’” State Eng’r of Nev. v. S. Fork Band of Te-Moak
Tribe of W. Shoshone Indians of Nev., 339 F.3d 804, 814 (9th
Cir. 2003) (quoting Norfolk Redevelopment & Hous. Auth. v.
Chesapeake & Potomac Tel. Co. of Va., 464 U.S. 30, 35
(1983)). Pursuant to this principle, the Supreme Court and
this court have applied common law in cases involving
federal copyright law, including the DMCA. The Supreme
Court has applied the common law of agency in interpreting
the Copyright Act. Cmty. for Creative Non-Violence v. Reid,
490 U.S. 730, 751–52 (1989). We have applied the common
law of vicarious liability in analyzing the DMCA, reasoning
that Congress intended that the DMCA’s “limitations of
liability” be interpreted “under existing principles of law.”
Ellison, 357 F.3d at 1076–77 (quoting S. Rep. 105-190, at 19
(1998)). We have also applied the common law of agency to
determine a service provider’s intent to infringe under the
DMCA. Fung, 710 F.3d at 1038.

    Along with other courts, we have applied agency law to
questions much like the question of LiveJournal’s liability for
the moderators’ acts. We applied agency law to determine
whether a service provider was responsible under the DMCA
for copyright infringement by its employees. Fung, 710 F.3d
at 1038. The Tenth Circuit applied agency law to determine
whether a service provider was responsible under the DMCA
for copyright infringement by its contractors. See BWP
Media USA, Inc. v. Clarity Dig. Grp., LLC, 820 F.3d 1175,
1180 (10th Cir. 2016).8 Finally, a district court applied

     8
      The Tenth Circuit held that the service provider’s contractors were
“users” rather than agents under the DMCA. BWP, 820 F.3d at 1180. The
court also held that even if the contractors were agents, they were not
employees. Id. at 1181. Finally, the court held that even if the contractors
were employees, they could still be users. Id. To the extent that BWP’s
            MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                             15

agency law to determine whether a service provider was
responsible under the DMCA for the acts of moderators.
Columbia Pictures Indus., Inc. v. Fung, No. CV 06-5578
SVW(JCx), 2009 WL 6355911, at *13 n.21 (C.D. Cal. Dec.
21, 2009), aff’d in part, 710 F.3d 1020 (9th Cir. 2013).9 We
therefore have little difficulty holding that common law
agency principles apply to the analysis of whether a service
provider like LiveJournal is liable for the acts of the ONTD
moderators.

                                     3.

    In light of the summary judgment record, we conclude
that there are genuine issues of material fact as to whether the
moderators are LiveJournal’s agents. The factual dispute is
evident when we apply common law agency principles to the
evidentiary record.

holding contradicts our case law that common law principles of agency
apply to the DMCA such that a service provider is liable for the acts of its
agents, including its employees, we reject it. See, e.g., Fung, 710 F.3d at
1038 (“When dealing with corporate or entity defendants, . . . the relevant
intent must be that of the entity itself, as defined by traditional agency law
principles . . . .”).
    9
       Although the district court’s order does not specify whether the
moderators were paid, the parties’ filings before the district court make
clear that the moderators were unpaid. See Defendant’s Memorandum of
Points and Authorities in Opposition to Plaintiff’s Motion for Summary
Judgment on Liability at 2, Columbia Pictures Indus., Inc. v. Fung, No.
CV 06-5578 SVW(JCx) (C.D. Cal. Dec. 21, 2009), 2009 WL 6355911;
Plaintiff’s Reply Statement of Uncontroverted Facts in Support of
Plaintiff’s Motion for Summary Judgment on Liability at 6, Columbia
Pictures Indus., Inc. v. Fung, No. CV 06-5578 SVW(JCx) (C.D. Cal. Dec.
21, 2009), 2009 WL 6355911.
16         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

    “Agency is the fiduciary relationship that arises when one
person (a ‘principal’) manifests assent to another person (an
‘agent’) that the agent shall act on the principal’s behalf and
subject to the principal’s control, and the agent manifests
assent or otherwise consents so to act.” Restatement (Third)
Of Agency § 1.01 (Am. Law Inst. 2006). For an agency
relationship to exist, an agent must have authority to act on
behalf of the principal and “[t]he person represented [must
have] a right to control the actions of the agent.” Restatement
(Third) Of Agency § 1.01, cmt. c (Am. Law Inst. 2006).

    An agency relationship may be created through actual or
apparent authority. Gomez v. Campbell-Ewald Co., 768 F.3d
871, 878 (9th Cir. 2014) (citing Restatement (Third) of
Agency §§ 2.01, 2.03, 4.01 (Am. Law Inst. 2006)), cert.
granted, 135 S. Ct. 2311, (2015), and aff’d, 136 S. Ct. 663
(2016). Actual authority arises through “the principal’s
assent that the agent take action on the principal’s behalf.”
Restatement (Third) of Agency § 3.01 (Am. Law Inst. 2006).
LiveJournal argues that it did not assent to the moderators
acting on its behalf. Mavrix, however, presented evidence
that LiveJournal gave its moderators explicit and varying
levels of authority to screen posts. Although LiveJournal
calls the moderators “volunteers,” the moderators performed
a vital function in LiveJournal’s business model.10 There is
evidence in the record that LiveJournal gave moderators
express directions about their screening functions, including
criteria for accepting or rejecting posts. Unlike other sites

     10
      Agents need not receive payment from their principal to be agents.
Restatement (Third) of Agency § 1.01 cmt. d (Am. Law Inst. 2006)
(“Many agents act or promise to act gratuitously.”); Model Civ. Jury Instr.
9th Cir. 4.4 (2007) (“One may be an agent without receiving
compensation for services.”).
         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                  17

where users may independently post content, LiveJournal
relies on moderators as an integral part of its screening and
posting business model. LiveJournal also provides three
different levels of authority: moderators review posts to
ensure they contain celebrity gossip and not pornography or
harassment, maintainers delete posts and can remove
moderators, and owners can remove maintainers. Genuine
issues of material fact therefore exist regarding whether the
moderators had actual authority.

     Apparent authority arises by “a person’s manifestation
that another has authority to act with legal consequences for
the person who makes the manifestation, when a third party
reasonably believes the actor to be authorized and the belief
is traceable to the manifestation.” Restatement (Third) of
Agency § 3.03 (Am. Law Inst. 2006); see also Hawaiian
Paradise Park Corp. v. Friendly Broad. Co., 414 F.2d 750,
756 (9th Cir. 1969). “The principal’s manifestations giving
rise to apparent authority may consist of direct statements to
the third person, directions to the agent to tell something to
the third person, or the granting of permission to the agent to
perform acts . . . under circumstances which create in him a
reputation of authority. . . .” Hawaiian Paradise Park,
414 F.2d at 756.

    LiveJournal selected moderators and provided them with
specific directions.     Mavrix presented evidence that
LiveJournal users may have reasonably believed that the
moderators had authority to act for LiveJournal. One user
whose post was removed pursuant to a DMCA notice
complained to LiveJournal “I’m sure my entry does not
violate any sort of copyright law. . . . I followed [ONTD’s]
formatting standards and the moderators checked and
approved my post.” The user relied on the moderators’
18         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

approval as a manifestation that the post complied with
copyright law, and the user appeared to believe the
moderators acted on behalf of LiveJournal. Such reliance is
likely traceable to LiveJournal’s policy of providing explicit
roles and authority to the moderators. Accordingly, genuine
issues of material fact exist regarding whether there was an
apparent authority relationship.

    Whether an agency relationship exists also depends on the
level of control a principal exerts over the agent. See
Hollingsworth v. Perry, 133 S. Ct. 2652, 2657–58 (2013)
(referring to control as one of “the basic features of an agency
relationship”); United States v. Bonds, 608 F.3d 495, 505 (9th
Cir. 2010) (explaining that the “the extent of control
exercised by the employer” is the “essential ingredient” in
determining an agency relationship) (quoting NLRB v.
Friendly Cab Co., 512 F.3d 1090, 1096 (9th Cir. 2008).
Evidence presented by Mavrix shows that LiveJournal
maintains significant control over ONTD and its moderators.
Delzer gives the moderators substantive supervision and
selects and removes moderators on the basis of their
performance, thus demonstrating control. Delzer also
exercises control over the moderators’ work schedule. For
example, he added a moderator from Europe so that there
would be a moderator who could work while other
moderators slept. Further demonstrating LiveJournal’s
control over the moderators, the moderators’ screening
criteria derive from rules ratified by LiveJournal.11

     11
        LiveJournal ratified the ONTD rules when Ferrell discussed
changing the rules with Delzer and declined to do so. See United States
v. Alaska S.S. Co., 491 F.2d 1147, 1155 (9th Cir.1974) (“Ratification is
the affirmance by a person of a prior act which did not bind him but which
was done or professedly done on his account. . . .”) (quoting Restatement
          MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                  19

    On the other hand, ONTD moderators “are free to leave
and go and volunteer their time in any way they see fit.” In
addition, the moderators can reject submissions for reasons
other than those provided by the rules, which calls into
question the level of control that LiveJournal exerts over their
conduct. This evidence raises genuine issues of material fact
regarding the level of control LiveJournal exercised over the
moderators. From the evidence currently in the record,
reasonable jurors could conclude that an agency relationship
existed.

                               4.

    We turn briefly to a related issue that the fact finder must
resolve in the event there is a finding that the moderators are
agents of LiveJournal. In that event, the fact finder must
assess whether Mavrix’s photographs were indeed posted at
the direction of the users in light of the moderators’ role in
screening and posting the photographs. Posts are at the
direction of the user if the service provider played no role in
posting them on its site or if the service provider carried out
activities that were “narrowly directed” towards enhancing
the accessibility of the posts. See UMG Recordings, Inc. v.
Veoh Networks, Inc., 620 F. Supp. 2d 1081, 1092 (C.D. Cal.
2008); see also Shelter Capital, 718 F.3d at 1018.
Accessibility-enhancing activities include automatic
processes, for example, to reformat posts or perform some
technological change. Shelter Capital, 718 F.3d at 1020
(referring to accessibility-enhancing activities as those where
the service provider did “not actively participate in or
supervise file uploading”). Some manual service provider

(Second) of Agency § 82 (Am. Law Inst. 1958)); see also Gomez,
768 F.3d at 878.
20         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

activities that screen for infringement or other harmful
material like pornography can also be accessibility-
enhancing. Id. at 1012 n.2. Indeed, § 512(m) of the DMCA
provides that no liability will arise from “a service provider
monitoring its service or affirmatively seeking facts
indicating infringing activity.” Id. at 1022 (quoting 17 U.S.C.
§ 512(m)).12

    The ONTD moderators manually review submissions and
publicly post only about one-third of submissions. The
moderators review the substance of posts; only those posts
relevant to new and exciting celebrity gossip are approved.
The question for the fact finder is whether the moderators’
acts were merely accessibility-enhancing activities or whether
instead their extensive, manual, and substantive activities

     12
       The district court did not assess whether the moderators’ review of
posts exceeded accessibility-enhancing activities because it focused on
submission rather than posting and did not determine whether the
moderators were agents. In Shelter Capital, we suggested that
accessibility-enhancing activities have a limit when we approved software
“processes that automatically occur when a user uploads” materials as
within accessibility-enhancing activities. 718 F.3d at 1016, 1020. Other
circuits have more squarely faced the outer edges of this limit. The
Second Circuit found it a close call and remanded when YouTube
manually selected videos for front page syndication on the basis of
substance. Viacom Int’l, Inc. v. YouTube, Inc., 676 F.3d 19, 40 (2d Cir.
2012). The district court on remand held that only those processes
“without manual intervention” satisfied the § 512(c) safe harbor. Viacom
Int’l Inc. v. YouTube, Inc., 940 F. Supp. 2d 110, 123 (S.D.N.Y. 2013).
The Fourth Circuit extended accessibility-enhancing activities to include
a real estate website’s “cursory” manual screening to determine whether
photographs indeed depicted real estate. CoStar Grp., Inc. v. LoopNet,
Inc., 373 F.3d 544, 556 (4th Cir. 2004). The fact finder should determine
whether LiveJournal’s manual, substantive review process went beyond
the automatic processes we have approved as accessibility-enhancing
activities such that the posts were still at the direction of the user.
         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                21

went beyond the automatic and limited manual activities we
have approved as accessibility-enhancing.

                           ***

    Because the district court focused on the users’
submission of Mavrix’s photographs rather than on ONTD’s
posting of those photographs and rejected Mavrix’s argument
that unpaid moderators could be agents of LiveJournal, the
district court erred in granting summary judgment to
LiveJournal. Genuine issues of material fact exist as to
whether the moderators were LiveJournal’s agents.
Accordingly, remand is warranted.             In assessing
LiveJournal’s threshold eligibility for the § 512(c) safe
harbor, the fact finder must resolve the factual dispute
regarding the moderators’ status as LiveJournal’s agents and
in light of that determination, whether LiveJournal showed
that Mavrix’s photographs were posted at the direction of the
users.

                             C.

    Once the district court concluded that the moderators
were not LiveJournal’s agents (except for its employee
Delzer), it proceeded to address the two remaining disputed
requirements for establishing the § 512(c) safe harbor
defense–lack of knowledge of infringements and lack of any
financial benefit from infringement that it had the right and
ability to control. Because these issues may be contested on
remand, we proceed to address them to provide guidance to
the district court.
22       MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

                             1.

    If LiveJournal shows that it meets the threshold
requirement for the § 512(c) safe harbor because the
photographs were posted at the direction of the user,
LiveJournal must then show that it lacked both actual and red
flag knowledge of the infringements. See 17 U.S.C.
§ 512(c)(1)(A). Actual knowledge refers to whether the
service provider had subjective knowledge while red flag
knowledge turns on whether a reasonable person would
objectively know of the infringements. Shelter Capital,
718 F.3d at 1025 (quoting YouTube, Inc., 676 F.3d at 31).
Both actual and red flag knowledge refer to knowledge of the
specific infringement alleged. Id. at 1023, 1025.

    On remand, the fact finder must first determine whether
LiveJournal had actual knowledge of the infringements. A
copyright holder’s failure to notify the service provider of
infringement through the notice and takedown procedure, as
Mavrix failed to do here, “strip[s] it of the most powerful
evidence of [actual] knowledge.” Id. at 1020 (quoting Corbis
Corp. v. Amazon.com, Inc., 351 F. Supp. 2d 1090, 1107
(W.D. Wash. 2004)). Such evidence is powerful, but not
conclusive, towards showing that a service provider lacked
actual knowledge. Id. at 1021. The district court held that
LiveJournal lacked actual knowledge of the infringing nature
of Mavrix’s photographs solely on the basis of Mavrix’s
failure to notify LiveJournal of the infringements. This was
an incomplete assessment of the issue. To fully assess actual
knowledge, the fact finder should also assess a service
provider’s subjective knowledge of the infringing nature of
the posts. See, e.g., id. at 1025 (continuing to assess
knowledge). Although Delzer does not remember approving
the posts and for this reason can be said to lack actual
           MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                            23

knowledge, Mavrix has not had the opportunity to depose the
moderators to determine their subjective knowledge. On
remand, the fact finder should determine whether
LiveJournal, through its agents, had actual knowledge of the
infringing nature of the posts.

    In the event the fact finder determines that LiveJournal
lacked actual knowledge of the infringements, it must then
assess whether LiveJournal lacked red flag knowledge. Red
flag knowledge arises when a service provider is “aware of
facts that would have made the specific infringement
‘objectively’ obvious to a reasonable person.” Fung,
710 F.3d at 1043 (quoting YouTube, 676 F.3d at 31); see also
UMG Recordings, Inc. v. Veoh Networks Inc., 665 F. Supp.
2d 1099, 1111 (C.D. Cal. 2009) (describing red flag
knowledge as a “high bar”). The infringement must be
immediately apparent to a non-expert. See Veoh Networks
Inc., 665 F. Supp. 2d at 1108; H.R. Rep. 105-551, pt. 2 at 58
(1998) (explaining that infringements must be “apparent
from even a brief and casual viewing”). Some of the
photographs at issue in this case contained either a generic
watermark13 or a watermark containing Mavrix’s website,
“Mavrixonline.com.”14 To determine whether LiveJournal

    13
       Congress explained that red flag knowledge includes “customary
indicia . . . such as a standard and accepted digital watermark.” H.R. Rep.
105-55, pt. 1, at 25 (1998). But see Veoh Networks Inc., 665 F. Supp. 2d
at 1115 (declining to rely on this report because it addressed a “version of
the DMCA that is significantly different in its text and structure than the
version that Congress ultimately adopted”).
    14
       The district court stated that Delzer was unaware that Mavrix had
a website so photographs containing a “Mavrixonline.com” watermark did
not differ from the other photographs with a more generic watermark. To
the extent that the district court relied on Delzer’s purported lack of
24        MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

had red flag knowledge, the fact finder should assess if it
would be objectively obvious to a reasonable person that
material bearing a generic watermark or a watermark
referring to a service provider’s website was infringing.

                                2.

    Finally, if the fact finder determines that LiveJournal met
the § 512(c) safe harbor threshold requirement (i.e., that the
photographs were posted at the direction of the user, see
17 U.S.C. § 512(c)(1)), and that LiveJournal lacked
knowledge of the infringements (see 17 U.S.C.
§ 512(c)(1)(A)), then the fact finder should determine
whether LiveJournal showed that it did not financially benefit
from infringements that it had the right and ability to control.
See 17 U.S.C. § 512(c)(1)(B).

    We agree with the district court in Io Group, Inc. v. Veoh
Networks, Inc. that the fact finder should consider the service
provider’s procedures that existed at the time of the
infringements when assessing the service provider’s right and
ability to control the infringements. 586 F. Supp. 2d 1132,
1153 (N.D. Cal. 2008). The fact finder should consider the
service provider’s general practices, not its conduct with

knowledge that Mavrix had a website to suggest that Delzer lacked
knowledge of the infringements, this was error. The existence of a
watermark, and particularly this watermark with a company name, is
relevant to the knowledge inquiry.
            MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                            25

respect to the specific infringements.15 See Shelter Capital,
718 F.3d at 1023, 1030.

    “Right and ability to control” involves “something more
than the ability to remove or block access to materials posted
on a service provider’s website.” Id. (quoting YouTube, Inc.,
676 F.3d at 38). The service provider does “something more”
when it exerts “high levels of control over activities of users.”
Id. The service provider exerts “high levels of control,” for
example, when it, “prescreens sites, gives them extensive
advice, prohibits the proliferation of identical sites,” provides
“detailed instructions regard[ing] issues of layout,
appearance, and content,” and ensures “that celebrity images
do not oversaturate the content.” Perfect 10, Inc. v. Cybernet
Ventures, Inc., 213 F. Supp. 2d 1146, 1173, 1182 (C.D. Cal.
2002); see also Shelter Capital, 718 F.3d at 1030, cited with
approval in Perfect 10, 213 F. Supp. 2d 1146.16

    The district court concluded that LiveJournal did not have
high levels of control such that it had “something more” than
the right and ability to remove or block access to material
posted on ONTD. LiveJournal’s rules instruct users on the
substance and infringement of their posts. The moderators

    15
       This inquiry is different from both the threshold determination (i.e.,
whether the infringing material was posted at the direction of the user, see
17 U.S.C. § 512(c)(1)), and the knowledge showing (i.e., whether the
service provider had knowledge of the infringing material, see 17 U.S.C.
§ 512(c)(1)(A)), where the fact finder should focus on the specific
infringements, rather than on the service provider’s general practices and
procedures.
    16
      “Right and ability to control” may also be shown by intentional
inducement of infringement, but we agree with the district court that
inducement is not at issue here. Shelter Capital, 718 F.3d at 1030.
26        MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

screen for content and other guidelines such as infringement.
Nearly two-thirds of submitted posts are rejected, including
on substantive grounds. ONTD maintains a list of sources
that have complained about infringement from which users
should not submit posts. LiveJournal went so far as to use a
tool to automatically block any posts from one source. In
determining whether LiveJournal had the right and ability to
control infringements, the fact finder must assess whether
LiveJournal’s extensive review process, infringement list, and
blocker tool constituted high levels of control to show
“something more.”

     LiveJournal must also show that it did not derive a
financial benefit from infringement that it had the right and
ability to control. See 17 U.S.C. § 512(c)(1)(B). “In
determining whether the financial benefit criterion is
satisfied, courts should take a common-sense, fact-based
approach, not a formalistic one.” S. Rep. No. 105-190, at 44
(1998). The financial benefit need not be substantial or a
large proportion of the service provider’s revenue. Ellison,
357 F.3d at 1079. In Fung, we held that a financial benefit
was shown when “there was a vast amount of infringing
material on [the service provider’s] websites . . . supporting
an inference that [the service provider’s] revenue stream is
predicated on the broad availability of infringing materials for
[its] users, thereby attracting advertisers.” 710 F.3d at 1045.
On the other hand, the service provider in that case
“promoted advertising by pointing to infringing activity” and
“attracted primarily visitors who were seeking to engage in
infringing activity, as that is mostly what occurred on [the
service provider’s] sites.” Id.

    LiveJournal derives revenue from advertising based on
the number of views ONTD receives. Mavrix presented
         MAVRIX PHOTOGRAPHS V. LIVEJOURNAL                 27

evidence showing that approximately 84% of posts on ONTD
contain infringing material, although LiveJournal contested
the validity of this evidence. The fact finder should
determine whether LiveJournal financially benefitted from
infringement that it had the right and ability to control.

                             D.

    Mavrix also challenges the denial of its motions to
compel responses to interrogatories seeking the identities of
the moderators. The magistrate judge denied both of
Mavrix’s motions, and on review, the district court upheld the
denial, reasoning that the moderators had a First Amendment
interest in internet anonymity. When a district court denies
reconsideration of a pretrial discovery order under Federal
Rules of Civil Procedure 72(a), our review is deferential.
Upon review of such a ruling we will disturb it only if the
complaining party shows clear legal error and actual and
substantial prejudice. See Arizona v. City of Tucson, 761 F.3d
1005, 1009 n.2 (9th Cir. 2014); In re Anonymous Online
Speakers, 661 F.3d 1168, 1177 (9th Cir. 2011) (describing the
standard as “highly deferential”). In determining whether
First Amendment protections for anonymous speech
outweigh the need for discovery, we have applied a multi-
factor balancing test. See, e.g., In re Anonymous Online
Speakers, 661 F.3d at 1174–76 (describing balancing factors).

    Notwithstanding the deferential standard of review and
complex issues of law that govern this discovery ruling, we
vacate the district court’s order denying the motion and
remand for further consideration. Whether the moderators
are agents should inform the district court’s analysis of
whether Mavrix’s need for discovery outweighs the
moderators’ interest in anonymous internet speech. Given the
28       MAVRIX PHOTOGRAPHS V. LIVEJOURNAL

importance of the agency analysis to the ultimate outcome of
the case, and the importance of discovering the moderators’
roles to that agency analysis, the district court should also
consider alternative means by which Mavrix could formally
notify or serve the moderators with process requesting that
they appear for their deposition at a date and time certain.

                            IV.

   For the foregoing reasons, we reverse the district court’s
grant of summary judgment to LiveJournal, vacate its order
denying discovery, and remand for further proceedings
consistent with this opinion.

     REVERSED, VACATED and REMANDED.