Written by Marc E. Mayer, Leo M. Lichtman, and Orly Ravid

Last week, the music industry enjoyed a high profile victory in its efforts to combat music piracy allegedly facilitated by Internet service providers (ISPs), including cable and telecommunications companies that provide Internet access to members of the public.  In Warner Records Inc. et al. v. Charter Comm’ns, Inc., No. 1:19-cv-00874, Judge R. Brook Jackson in the U.S. District Court of Colorado adopted a Magistrate’s Judge’s ruling from October 2019 allowing claims of vicarious copyright infringement against Charter Communications, one of this country’s largest ISPs, to proceed beyond the pleading stage.

The Charter Communications lawsuit was initiated last year by Warner Records and a group of several dozen record companies and music publishers, who collectively have produced or control the rights to millions of sound recordings and musical compositions.  In their Complaint, the plaintiffs allege that Charter is contributorily and vicariously liable for the infringement of thousands of copyrighted works that were unlawfully reproduced and distributed by its subscribers via peer-to-peer (P2P) file sharing programs such as BitTorrent.  According to the Complaint, Charter has known for years that subscribers were using its network to pirate music—including particular customers that were repeatedly infringing the plaintiffs’ copyrights—by virtue of the thousands of infringement notices that were sent to Charter detailing specific instances of infringement on its network.  The plaintiffs claim that despite those notices, Charter nonetheless failed to take appropriate action to curb the infringement in order to avoid the loss of subscriber revenue.

Charter filed a motion to dismiss the Complaint, arguing that the allegations were insufficient to support a claim of vicarious copyright infringement.   Like contributory infringement, vicarious copyright infringement stems from common law doctrines spanning nearly a century.  The doctrine originated in cases from the 1930s and 40s holding dance hall proprietors liable “for the infringement of copyright resulting from the performance of a musical composition by a band or orchestra whose activities provide the proprietor with a source of customers and enhanced income.”  See, e.g., Shapiro, Bernstein & Co. v. HL Green Co., 316 F.2d 304, 307 (2d Cir. 1963).  Since then, the doctrine has evolved to apply to a variety of services and facilities, such as flea markets, online chat rooms, and peer-to-peer file-sharing networks.  Courts have explained that it arises when a defendant has incurred a direct financial benefit from, and has the right and ability to supervise, the alleged infringement.  Because of the limited precedent on the issue in the Tenth Circuit, Judge Jackson primarily looked to authority in the Ninth Circuit.

On the first prong (direct financial benefit), Judge Jackson explained that the infringing activity need not be “the attracting factor,” as Charter argued, so long as it is “an attracting factor.”  In other words, it is sufficient to show that subscribers are attracted to the defendant’s service in part because of the ability to infringe plaintiff’s copyrighted materials on that service.  This finding is significant, because Charter argued that infringing activity must be the attracting factor to subscribers, and not merely “an added benefit” to subscribers.  Judge Jackson characterized this as a “false dichotomy”: infringing activity can be both an added benefit and the attracting factor, or even an attracting factor among several; and the first prong requires only the infringing activity be one among several draws to the defendant’s service.  On this basis, the court held that the plaintiffs sufficiently alleged a direct financial benefit where Charter subscribers were motived to subscribe by Charter’s advertisement of features attractive to those who infringe, such as fast download speeds, and where Charter’s “failure to stop or take other action in response to notices of infringement” served as a “draw to current and prospective subscribers.”  This latter allegation in particular set it apart from UMG Recordings, Inc. v. Grande, a similar case pending in the Western District of Texas in which vicarious liability claims were dismissed.

On the second prong (right and ability to supervise), Judge Jackson explained that the defendant need only exercise the ability “to stop or limit the directly infringing conduct,” citing to Perfect 10 v. Amazon.com, 508 F.3d 1146 (9th Cir. 2007).  Plaintiffs easily met this prong, alleging that Charter can terminate its users’ ability to access the Internet through Charter.  Notably, Judge Jackson rejected Charter’s argument that it cannot control the infringing activity because it cannot stop subscribers from using other forms of internet access to infringe.  Thus, under Judge Jackson’s interpretation of the doctrine, the defendant need not control the direct infringer, only the ability of the direct infringer to use the plaintiff’s system to infringe.  Because plaintiffs sought to hold Charter liable for infringement that occurs on its own service, not all infringement on the Internet, its allegations were sufficient.

The case is still at the motion to dismiss stage, meaning that the record companies and music publishers still have a long road ahead.  In particular, Charter has raised, and may try to later argue, that it is entitled to the safe harbor of the Digital Millennium Copyright Act (DMCA).  These provisions can shield complying ISPs from liability, even where the tests for contributory and vicarious liability under common law are otherwise met.  Recent holdings against other major ISPs suggest that this will ultimately come down to whether Charter can prove that it has adopted and reasonably implemented a policy to terminate repeat infringers pursuant to 17 U.S.C. § 512(i), which plaintiffs allege Charter did not do.  This is a threshold requirement under the DMCA, and an ISP’s failure to comply strips it of the safe harbor protections.  Furthermore, Charter has in fact raised its own claim under the DMCA, namely, a violation of section § 512(f), which subjects copyright owners who knowingly send materially inaccurate infringement notices to liability.

Notwithstanding these hurdles, Judge Jackson’s ruling further clarifying the legal standard for vicarious liability is a favorable ruling for the music industry because it provides useful guidance to copyright owners on the allegations that are required to sufficiently plead vicarious liability, and importantly, the allegations that will not meet those standards.  While prior cases against similar ISPs have resulted in dismissal of vicarious liability claims, this new decision, which comes only months after the major labels and publishers won a historic jury verdict finding another major ISP, Cox Communications liable for both contributory and vicarious infringement, suggests that vicarious liability will continue to be a viable theory for holding these ISPs liable for their users’ infringement.  Together, these developments may serve to place ISPs on notice that they must take more active measures to prevent the misuse of their system to facilitate massive copyright infringement on the Internet.