Primer on Direct, Contributory and Vicarious Liability Infringers face direct and secondary liability under § 106 of the Copyright Act,.
Direct liability arises when defendant personally violates one or more of a copyright owner’s rights to reproduce, distribute, perform, display and prepare derivative works.
Infringers also face secondary liability for contributory and vicarious infringement. Although secondary liability is not expressly provided in the Copyright Act, contributory and vicarious liability “emerged from common law principles and are well established in the law,” Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930 (2005).
Contributory liability arises where defendant intentionally and knowingly induces or encourages direct infringement. Vicarious liability arises where the defendant profits from direct infringement while declining to exercise a right to stop or limit it.
These two forms of secondary liability, although sometimes conflated, are distinguishable. “‘[C]ontributory liability is based on the defendant’s failure to stop its own actions which facilitate third-party infringement, while vicarious liability is based on the defendant’s failure to cause a third party to stop its directly infringing activities,’” Luvdarts, LLC v. AT&T Mobility, LLC, 710 F.3d 1068, 1071, (9th Cir. 2013). Further, liability for contributory infringement rests on defendant’s relationship with the infringement. In contrast, liability for vicarious infringement rests on defendant’s relationship, not with the infringement, but the infringer.
Importance of Secondary Liability
Contributory and vicarious liability increasingly have become important in copyright enforcement. That is because of the difficulties in holding direct infringers accountable in a digital age. Direct infringers sometimes set up shop in foreign jurisdictions far removed from the reach of our copyright laws. Other times, for example in the music downloading cases, a plaintiff finds it impossible and impracticable to join the thousands of direct infringers in one or several litigations. Many infringers are anonymous; others lack the financial ability to pay any judgments against them. As a result, a plaintiff is forced to rely on claims for secondary liability. See Frackman & Goldman, Back to the Future, 2 Sedona Conf. J. at 33-34 (2001) (“Frackman”). Further, although secondary liability claims are triggered by direct infringement, direct infringers do not have to be joined in actions against secondary infringers.
Each of these forms of liability are now discussed.
I. DIRECT INFRINGEMENT
A. Direct Infringement Is a Strict Liability Offense
Direct liability is strict liability. See CoStar Grp., Inc. v. LoopNet, Inc., 373 F.3d 544, 549 (4th Cir. 2004) (“[T]he Copyright Act does not require that the infringer know that he is infringing or that his conduct amount to a willful violation of the copyright owner’s rights.”); EMI Christian Music Grp., Inc. v. MP3tunes, LLC, 840 F.3d 69, 89 (2d Cir. 2016) (“Copyright infringement is a strict liability offense in the sense that a plaintiff is
not required to prove unlawful intent or culpability[.]” ). As a result, innocence is no defense. See Lipton v. Nature Co., 71 F.3d 464, 471 (2d Cir. 1995) (“‘[I]nnocent infringement,’ … does not absolve a defendant of liability for copyright infringement.”).
II. SECONDARY LIABILITY
Secondary liability is a means of holding defendants responsible for infringement by third parties, even when the defendants “have not themselves engaged in the infringing activity,” Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 435 (1984).
A. Criteria for Contributory Liability
Contributory infringement originated from enterprise liability in tort law and stems from the notion that one who directly contributes to another’s infringement should be held accountable. See Demetriades v. Kaufman, 690 F. Supp. 289, 292 (S.D.N.Y. 1988). Contributory liability will be established where a third party:
a. knew, or in some circuits, had reason to know of the infringement; and
b. induced, caused or materially contributed to the infringement.
See Gershwin Publishing Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162, (2d Cir. 1971). Thus, “knowledge and participation [are] the touchstones of contributory infringement,” Demetriades, supra,, 690 F. Supp. at 293.
B. The Knowledge Requirement
A defendant’s “[g]eneralized knowledge … about the possibility of infringement” by another entity is not enough, Luvdarts, supra, 710 F.3d at 1072. See also Livnat v. Lavi, 46 U.S.P.Q. 2d 1300, 1303 (S.D.N.Y. 1998) (“One who furnishes a copyrighted work to another but is innocent of any knowledge of the other party’s intended illegitimate use will not be liable” as a contributory infringer).
Knowledge is more easily established the closer defendant’s relationship is with the infringing activity. See Leonard v. Stemtech Int’l Inc., 834 F.3d 376, 387 (3d Cir. 2016), cert den., 138 S. Ct. 975 (2018) (“Stemtech itself created the [infringing] materials containing Leonard’s images, provided the materials to its distributors, and required the distributors to use the materials. Thus, Stemtech knew of its distributors’ infringing activities and plainly took ‘steps that [we]re substantially certain to result in such direct infringement.’”).
Courts have found the knowledge requirement satisfied where:
a. the contributory infringer had specific notice of infringing activity at a flea market it ran and operated, Fonovisa, Inc. v. Cherry Auction, Inc. 76 F.3d 259, 264 (9th Cir. 1996);
b. the infringing goods in the illicit operation were sold at a suspiciously low price, Screen Gems-Columbia Music, Inc. v. Mark-Fi Records, Inc., 256 F. Supp. 399, 404 (S.D.N.Y. 1966);
c. the contributory infringer received $500,000 for merely advising a direct infringer of a popular product who then copied it, in the absence of a written agreement between the parties regarding the payment or cover letter accompanying the check, R&R Recreation Products, Inc. v. Joan Cook Inc., 25 U.S.P.Q.2d 1781, 1784-85 (S.D.N.Y. 1992);
d. the contributory infringer tracked or at least had the ability to track the illegal uploading and downloading of songs, Sega Enters. Ltd. v. MAPHIA, 948 F. Supp. 923 (N.D. Cal. 1996); and
e. the “predominant use” of the infringing goods was in “trafficking in illicit audio recordings,” Recording Industry Ass’n of America, Inc. v. Diamond Multimedia Sys., Inc., 180 F.3d 1072, 1074 (9th Cir. 1999). See also Frackman, 2 Sedona Conf. J. at 35 (2001).
C. The Required Conduct
Two types of conduct may result in contributory liability: (i) contributing labor or services that assists or encourages the infringement; and (ii) providing machinery or goods that provides the means to infringe. “In both cases, contribution of labor or services or of equipment or materials an element of inducement will also be present, with the contributory act effectively inducing the infringement as well as aiding it,” Goldstein, Goldstein on Copyright, §8.1 (2017-2 Supplement) (“Goldstein”).
D. The Contribution Must Be Substantial
Further, although the amount of the contribution cannot be objectively quantifiable, it must “substantially” contribute to the direct infringement; and the assistance must bear a direct relationship to the infringer’s acts, Demetriades, supra, 690 F. Supp. at 294 (No contributory infringement were defendant’s calls to the infringers where not for the purpose of providing any “direct assistance in expediting” the infringement; nor did defendants provide the “means or facilities to infringe”).
See also, Religious Tech. Ctr. v. Netcom On-Line Communication Servs., Inc., 907 F. Supp. 1361, 1375 (N.D. Cal. 1995) (“[P]articipation [by defendant] must be substantial.”); A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1022 (9th Cir. 2001) (“‘Without the support services defendant provides, Napster users could not find and download the [infringing] music they want with the ease of which defendant boasts.’”). See also Clarida, Copyright Law Deskbook, Ch. 5.IVA. 2 (2nd Edition).
Courts will find no contributory liability if defendant’s conduct is an immaterial element of the direct infringement. Thus in Perfect 10, Inc. v. Visa Int’l Serv., Ass’n, 494 F.3d 788 (9th Cir. 2007), the Ninth Circuit held that credit card companies were not contributorily liable for processing credit card payments to internet sites that continued to infringe plaintiff’s copyrights, even after the companies had received repeated notices of infringement. The court stated that “Perfect 10 has not alleged that any infringing material passes over Defendants’ payment networks or through their payment processing systems, or that Defendants’ systems are used to alter or display the infringing images,” Id. at 796.
Judge Kozinski, in dissent, argued otherwise, “material assistance does not depend on physical contact with the infringing activity. If you lend money to a drug dealer knowing he will use it to finance a drug deal, you materially assist the transaction, even if you never see the drugs. Or, if you knowingly drive a principal to the scene of the crime, you provide material assistance, even if nothing happens during the ride,” Id. at 815.
E. Where the Product Is Capable of Substantial Non-Infringing Uses
Further, as a result of the holding in Sony, supra, courts will likely find no contributory infringement when a product is capable of substantial non-infringing uses and its makers have not attempted to encourage or promote infringing uses of the product.
The movie studios sought to impose contributory liability on Sony because owners of its Betamax videocassette recorder (“VCR”) used it to illegally copy copyrighted programs and Sony had constructive knowledge of that activity. In finding no liability, the Court drew an analogy to the staple article of commerce doctrine from patent law. This doctrine precludes contributory patent infringement based on “the sale of a staple article or commodity of commerce suitable for noninfringing use,” Id. at 440. Applying that staple-article doctrine to copyright, the Court held, “the sale of copying equipment … does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.” Id. at 442.The Court found the VCR met that standard. That was because most owners of the VCR used it principally for noncommercial time-shifting of television programs (recording a TV program for later personal viewing), which was either authorized by the copyright holder or qualified as a fair use, Id. at 443-447.
But the Supreme Court in Grokster, supra, later clarified that Sony’s staple-article rule will not preclude liability “where evidence goes beyond a product’s characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions [by defendant] directed to promoting infringement,” 545 U.S. at 935.
F. Criteria for Vicarious Infringement
Vicarious copyright infringement is an outgrowth of respondeat superior, placing responsibility on those who have profited from the infringement and had the ability to control it. See Napster, supra, 239 F.3d at 1022; Frackman, supra, 2 Sedona Conf. J at 37. Vicarious infringement is also an exception to the corporate veil. In most cases, the veil shields private assets of corporate officers, directors and investors from liability incurred by the corporation. But vicarious infringement will pierce the veil.
Liability for vicarious infringement will be found if defendant has the “right and ability to supervise the infringing activity” and “a direct financial interest in the infringing activity,” Napster, supra, 239 F.3d at 1022. See C.S.B. Commodities, Inc. v. Urban Trend (HK) Ltd., 626 F. Supp. 2d 837, 858-59 (N.D. Ill. 2009) (Corporate officers liable as vicarious infringers for acts of their corporation where they personally participated and supervised the infringing conduct).
The right and ability to supervise requires “‘both a legal right to stop or limit the directly infringing conduct, as well as the practical ability to do so.’” Zillow, supra, 918 F.3d at 746. Zillow dismissed a vicarious infringement claim because defendant lacked the practical ability to police its users’ infringing conduct on defendant’s website, Id. Similarly, Luvdarts, supra, 710 F3d at 1071-72, dismissed a vicarious claim because the mobile wireless carriers defendants had no “capacity” to supervise their networks to deter copyright infringement.
G. Intent is Not Required
Vicarious liability (like direct liability) is a strict liability offense. Therefore, defendant does not have to know of the infringing conduct or have the intent to facilitate it. See Playboy Enters., Inc. v. Webbworld, Inc., 991 F. Supp. 543, 553-54 (N.D. Tex. 1997). See also Star Pac. Corp. v. Star Atl. Corp., 574 Fed. Appx. 225, 231 (3d Cir. 2014) (“We agree with the District Court that Lu’s assertions that he did not have knowledge of SAC’s infringing activities are unavailing. On its own, the defendant’s testimony is insufficient to create a genuine issue of material fact in the face of the abundant objective evidence of Lu’s position of authority within SAC.”); Peer Intl. Corp. v. Luna Records, Inc., 887 F. Supp. 560, 565 (S.D.N.Y. 1995) (Defendants “are not shielded from liability even though they have no actual knowledge of the infringement”).
It is also no defense to vicarious liability that defendant was unable to stop the direct infringement, Warner Bros. v. Lobster Pot, Inc., 582 F. Supp. 478, 483 (N.D. Ohio 1984).
H. Mere Ability v. Actual Control
The courts are split whether mere ability to exercise the power of control or actual control is enough to sustain a vicarious infringement claim. Some courts have found that the right and ability to supervise is enough. See Webbworld, supra, 991 F. Supp. at 554 (Ownership of 100% of the business gave the shareholder the right and ability to supervise even though he declined to do so). See also Motorvations Inc. v. M&M Inc., 59 U.S.P.Q.2d 1847, 1851 (D. Utah 2001) (“A defendant cannot escape vicarious liability simply by neglecting what would otherwise be its ability to supervise infringing conduct by a third party.”).
Other courts, including the Second Circuit in Sygma Photo News, Inc. v. High Society Magazine, Inc., 778 F.2d 89, 92 (2d Cir. 1985), require actual control over the infringing activity. Simply being a corporate director was not enough in Burdick v. Koerner, 988 F. Supp. 1206 (E.D. Wis. 1998). Instead, Burdick stated only those directors “sufficiently involved in the day-to-day operation of the company” had the right and ability to control the actions of the corporation, Id. at 1210. Actual control was found in Klein & Heuchan, Inc. v. CoStar Realty Info., Inc., 707 F. Supp. 2d 1287, 1297 (M.D. Fla. 2010), where defendant provided the infringing independent contractor with “office space,” held “weekly sales meetings” with the contractor and oversaw the contractor’s real estate “listings.”
But the power to control need not be a “formal” power “where a direct infringer depend[s] upon [the defendant] for direction. Rather, ‘[t]he ability to block infringers’ access to a particular environment for any reason whatsoever is evidence of the right and ability to supervise.” Arista Records LLC v. Usenet.com, Inc., 633 F. Supp. 2d 124, 157 (S.D.N.Y. 2009) (internal citations and quotes omitted).
I. Direct Financial Interest in the Infringing Activity
A direct financial interest will be found where there is a causal relationship between the infringing activity and the financial benefit defendant receives. See Arista Records LLC v. Lime Grp. LLC, 784 F. Supp. 2d 398, 435 (S.D.N.Y. 2011).
A benefit will be found where defendant’s revenue grows as infringement increases. See Arista Records, supra, 633 F. Supp. 2d at 156(“Here, it is apparent from the record that Defendants earn a direct financial benefit from infringement. First, Defendants’ revenues increased depending on their users’ volume of downloads; thus, the greater the volume of downloads (the majority of which has been shown to be infringing), the greater the Defendants’ income.”).
J. The Financial Benefit May Be Indirect
But the financial benefit need not be tied directly to the sale of infringing goods. For example, in Fonovisa, supra, defendant operated a flea market where vendors sold infringing sound recordings. Although defendant received no portion of the revenue from the counterfeits, the Ninth Circuit held defendant nevertheless reaped a substantial financial benefit “from admission fees, concession stand sales and parking fees, all of which flow directly from customers who want to buy the counterfeit recordings at bargain basement prices,” Fonovisa, 76 F.3d at 263. The court concluded that the financial benefit resulted because the infringing material acts as a “‘draw’” for customers, Id. at 263-64.
Similarly in Napster, supra, 239 F.3d at 1023, a financial benefit was found in the absence of defendant’s direct receipt of revenue from the infringing uploading and downloading of sound recordings on its platform. Instead, it was enough that the increased “quality and quantity of available music” acted “as a ‘draw’ for customers,” increasing Napster’s “userbase” and therefore its “future revenue,” Id.
See also Rams v. Def Jam Recordings, Inc., 202 F. Supp. 3d 376 (S.D.N.Y. 2016), where the court held plaintiffs sufficiently alleged that a recording artist benefited financially from the use of a copyrighted photograph on various marketing and advertising materials, including the album cover of a hit single and its remixes. The court found this conduct played “a role in the song’s, and therefore, [defendant’s] marketability, reaping him direct financial benefits in the form of album sales,” Id. at 385.
K. The Financial Benefit Does Not Have to Be Substantial
Although there must be a financial benefit, it does not have to be “substantial.” See, e.g., Ellison v. Robertson, 357 F.3d 1072, 1079 (9th Cir. 2004); Stemtech, supra, 834 F.3d at 389; Parker v. Google, Inc., 242 Fed. Appx. 833, 837 (3d Cir. 2007).
In sum, understanding the elements for claims of direct and secondary liability will significantly add to a copyright holder’s enforcement arsenal.