UMG Recordings, Inc., et al. v. Veoh Networks, Inc., et al.

The district court dismissed claims of contributory and vicarious copyright infringement and inducement to infringe as to defendants who were investors in Veoh Networks.

Plaintiffs sued Veoh Networks, a video hosting web site, for direct copyright infringement and amended their complaint to include claims against investors in Veoh (the “Investor Defendants”) for secondary copyright infringement. Plaintiffs asserted that the Investor Defendants controlled Veoh through their investments and Board of Director positions and that they made decisions regarding what content was allowed on Veoh, whether filters would be used to block copyrighted content, and “how to monetize Veoh’s business, including its substantial use of infringing content.”

In granting the motion to dismiss, the court held that the plaintiffs’ complaint did not adequately allege that the Investor Defendants provided material assistance to the alleged infringers, a required element in a contributory infringement claim. The court noted that two Board seats did not constitute actual control and that membership on a Board of Directors necessarily involves making almost all of the decisions the plaintiffs described. According to the court, “merely exercising ownership power to select members for a Board of Directors cannot invite derivative liability for infringement.” The court also reasoned that there is no common law duty for investors to remove copyrighted content and an investor’s goal of increasing ownership value is not a sufficiently “direct” benefit within the meaning of derivative liability for infringement.

The court distinguished this case from UMG Recordings, Inc. v. Bertelsmann AG, et al., 222 F.R.D. 408 (N.D. Cal. 2004), in which the court found that the complaint sufficiently alleged that the corporate owners of Napster “specifically ordered” Napster to continue to engage in infringing conduct, and that Napster had already been found to be engaging in infringing conduct.

In dismissing the vicarious copyright infringement claim, the court held that the plaintiffs’ complaint did not adequately allege that the Investor Defendants had a direct financial interest in the allegedly infringing activity, a required element in a vicarious infringement claim. (The court declined to discuss whether the complaint sufficiently alleged that the Investor Defendants had the right and ability to supervise Veoh’s directly infringing conduct.) The court distinguished this case from one in which the owner of a flea market where pirated sound recordings were sold was found to have a direct financial benefit because the owner received entrance fees directly from those attending the flea market. In this case, the court explained that the alleged financial benefit that the Investor Defendants might some day enjoy will not come directly from Veoh’s users or from Veoh’s advertisers, and that an increase in the value of the Investor Defendants’ investments is “too far removed from the alleged infringement to be considered a ‘direct’ financial interest.”

Finally, the court held that the plaintiffs’ complaint failed to sufficiently allege that the Investor Defendants promoted the use of Veoh’s services, a required element in an inducement claim. The court wrote that the complaint “does not allege that the Investor Defendants encouraged any users to infringe, thereby distinguishing this case from Grokster.”