UMG Recordings, Inc. v. Veoh Networks Inc.

District court denies Veoh Networks’ motion for attorney’s fees in DMCA safe harbor litigation, holding, inter alia, that Veoh failed to demonstrate that UMG acted in bad faith by failing to use DMCA’s notice and takedown procedure before filing suit and that UMG’s claims were not objectively unreasonable.

In September 2009, the court granted partial summary judgment to Veoh, holding that Veoh was immune from liability because Veoh satisfied all the requirements for the DMCA Section 512(c) safe harbor. Thus, according to the court, Veoh was the prevailing party on the core issue in the litigation, which was its right to immunity under the DMCA. However, under § 505 of the Copyright Act, a court has discretion to award attorney’s fees to the prevailing party. As the court noted, the Copyright Act itself does not specify under what circumstances a court should award fees to the prevailing party; instead, the factors that courts should consider have been developed through case law, including the U.S. Supreme Court’s ruling Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994).

The court applied the Fogerty factors and held that Veoh was not entitled to attorney’s fees. Regarding UMG’s motivation, the court held that Veoh failed to demonstrate that UMG acted improperly or in bad faith by filing suit against Veoh without first taking advantage of the DMCA’s notice and takedown procedures.

The court also held that UMG’s claims were not objectively unreasonable, noting the absence of case law on the issue of when a website operator qualifies for the DMCA safe harbor. “Veoh and UMG each had a different interpretation of the phrase ‘by reason of storage,’ and the Court ultimately found Veoh’s interpretation ‘more persuasive.’ The Court noted, however, that in the context of Veoh’s software and technology, the phrase ‘by reason of storage’ had ‘not previously been addressed judicially.’” (citations omitted)

Furthermore, according to the court, although summary judgment was granted in favor of Veoh on the issue of whether it satisfied the remaining requirements of section 512(c), the issues on which that ruling hinged had not been definitively addressed by an appellate court. The court stated that those issues included “the extent to which the DMCA obligates internet-based services like Veoh, which rely on content contributed by users, to police their systems to prevent all copyright infringement” and “whether Veoh had ‘adopted and reasonably implemented . . . a policy that provides for the termination in appropriate circumstances of subscribers and account holders of the service provider’s system or network who are repeat infringers,’ as it was required to do under 17 U.S.C. § 512(i) in order to qualify for the safe harbor.” Acknowledging that there has not been a great deal of case law interpreting these issues, the court held that UMG’s claims were not objectively unreasonable.

Finally, the court held that Veoh is not entitled to attorney’s fees under Rule 68, rejecting Veoh’s argument that Rule 68 provides an independent basis for the court to grant Veoh fees and costs incurred since the time when Veoh made its Rule 68 offer. Citing Ninth Circuit precedent, the court held that Rule 68 is not intended to expand the bases for recovery of attorney’s fees and a party is entitled to attorney’s fees under Rule 68 only if the fees are properly awarded pursuant to the relevant statute. Because the court concluded that Veoh was not entitled to attorney’s fees under the Copyright Act, it held that Veoh was not entitled to attorney’s fees under Rule 68.