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Dealing with the DMCA - August 28, 2008

Live by the sword, die by the sword: If you accept the premise that much of the litigation brought by copyright owners against online service providers in recent years is at least partly about gaining leverage for the inevitable business negotiations to come, two recent DMCA cases could have the paradoxical effect of actually weakening content owners' hands. Last week, a judge in the U.S. District Court for Northern California ruled in a case brought by Universal Music Group against a woman who had posted a 29-second video on YouTube of her toddler dancing while Prince's "Let's Go Crazy" is heard (barely) in the background that copyright owners must consider fair use before sending a DMCA takedown notice. And on Wednesday, another judge in the same court dismissed a lawsuit filed by porn producer IO Group Inc. against Veoh over user postings of IO content on the video sharing site.

Together, the two cases could significantly complicate the media companies' strategies for bringing user-generated content sites under some sort of favorable licensing scheme.

In the first case, Lenz v. Universal, judge Jeremy Fogel noted that the procedure spelled out in the DMCA for issuing takedown notices requires that copyright owners have "a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law."

Since the fair use doctrine is an express element of the copyright statute, he ruled, fair uses are, by definition, "authorized by law," and therefore must be considered in order for a copyright owner for form the required good-faith belief:

An activity or behavior “authorized by law” is one permitted by law or not contrary to law. Though Congress did not expressly mention the fair use doctrine in the DMCA, the Copyright Act provides explicitly that “the fair use of a copyrighted work . . . is not an infringement of copyright.” (17 U.S.C. § 107). Even if Universal is correct that fair use only excuses infringement, the fact remains that fair use is a lawful use of a copyright. Accordingly, in order for a copyright owner to proceed under the DMCA with “a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law,” the owner must evaluate whether the material makes fair use of the copyright.

Although the facts of the underlying case are such that Lenz could still lose her suit (she must prove actual bad faith on the part of Universal to sustain her claim of misrepresentation, a difficult legal threshold) the judge's ruling on fair use would still stand. While not binding on courts in other federal circuits, the judge noted that his ruling is a "case of first impression," meaning it's the first published ruling to directly address the issue. As such, it is likely to be picked up on by defendants in other cases involving DMCA takedown notices.

While the ruling is certain to complicate (and add expense to) copyright owners' efforts to automate the policing of user-generated sites, its biggest impact could ultimately be on attempts to build automated content filtering systems that look for and identify copyrighted material online. If the same logic were to apply to an automated ID system as to an automated takedown system, some kind of non-machine based determination would likely have to be made regarding fair use before the ID system could trigger the blocking of content or subjecting it to some licensing scheme, such as adding advertising.

Insofar as both content owners and UGC sites view automated content ID as the most promising foundation for an orderly licensing and monetization system for user-created videos, the implications of Judge Fogel's ruling could severely complicate those plans.

Wednesday's ruling could have more immediate impact. According to judge Howard Lloyd, Veoh qualifies for the safe-harbor provisions of the DMCA shielding online service providers from liability because it does not actively participate in the uploading of content. Instead, the process of uploading and transcoding content is fully automated and initiated by the user. Further, Veoh prominently and conspicuously displayed Terms of Use explicitly prohibit copyright infringement.

The ever expanding realm of the Internet provides many new ways for people to connect
with one another. This court appreciates that these new opportunities also present new
challenges to the protection of copyright in the online world; and, the decision rendered here is
confined to the particular combination of facts in this case and is not intended to push the
bounds of the safe harbor so wide that less than scrupulous service providers may claim its
protection. Nevertheless, the court does not find that the DMCA was intended to have Veoh
shoulder the entire burden of policing third-party copyrights on its website (at the cost of losing
its business if it cannot). Rather, the issue is whether Veoh takes appropriate steps to deal with
copyright infringement that takes place. The record presented demonstrates that, far from
encouraging copyright infringement, Veoh has a strong DMCA policy, takes active steps to
limit incidents of infringement on its website and works diligently to keep unauthorized works off its website. In sum, Veoh has met its burden in establishing its entitlement to safe harbor for
the alleged infringements here.

Although the facts of the Veoh case are not exactly parallel to Viacom's pending $1 billion lawsuit against YouTube (and in any case not binding in another circuit), they're close enough that YouTube's lawyers are sure to make the most of Judge Lloyd's ruling.

"It is great to see the Court confirm that the DMCA protects services like YouTube that follow the law and respect copyrights," YouTube Chief Counsel Zahavah Levine said in a statement. "YouTube has gone above and beyond the law to protect content owners while empowering people to communicate and share their experiences online."

As a practical business matter, moreover, anything that seems to bolster the DMCA safe harbors for online service providers works to their advantage in setting the terms of any future revenue-sharing based monetization scheme.  Business deals reflect the balancing of risks and rewards by the respective parties. For YouTube (or Veoh) potential copyright liability is one of the risks to be weighed in putting a price on a licensing agreement with copyright owners. Anything that reduces (or appears to reduce) that liability risk also reduces the price.

The problem with negotiation by litigation is that litigation is unpredictable. And judges have no fiduciary responsibility to shareholders.

The judge's full opinion in the Lenz case can be found here.

The full ruling in the Veoh case can be found here.

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