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IP/Entertainment Case Law Updates

Warner Records Inc. v. Charter Communications, Inc.

District court denies internet service provider’s motion to dismiss record labels’ claims of vicarious copyright infringement for illegal downloading by ISP’s subscribers, finding plaintiffs’ allegations of direct financial benefit and ability to supervise infringing activities were sufficient to state claim.

Plaintiffs, record labels Universal Music Group, Sony Music Entertainment and Warner Music, sued internet service provider (ISP) Charter Communications Inc. for vicarious copyright infringement, alleging that the ISP incurred a direct financial benefit from its subscribers’ infringement of the record labels’ sound recording and musical composition copyrights, and that it had the right and ability to supervise its subscribers’ infringing activities. Defendant moved to dismiss the record labels’ claims, arguing that it does not receive a financial benefit from subscriber infringement and that it lacks the ability to supervise all users who infringe the labels’ copyrights. The magistrate judge assigned to the case issued a report and recommendation denying defendant’s motion to dismiss. After considering defendant’s objections and the record labels’ response, the district court adopted the magistrate judge’s recommendation and denied defendant’s motion to dismiss.

Acknowledging that the Tenth Circuit has limited precedent on the issues of vicarious and contributory liability, the court acknowledged that the magistrate judge appropriately relied on “persuasive precedents” from other federal courts, in particular Ninth Circuit. 

Defendant argued under the Ninth Circuit’s 2017 decision in Perfect 10, Inc. v. Giganews, Inc. that the question of direct financial benefit turned on whether the ability to engage in infringing conduct with respect to plaintiffs’ works was the “the draw” (the sole motivating factor) for its subscribers, rather than merely “a draw.” The district court concluded that “[i]f subscribers are attracted to Charter’s services in part because of the ability to infringe on plaintiffs’ copyrighted materials in particular, this is sufficient to show that the materials were ‘a draw.’”

Defendant argued that the infringing activity must be more than an added benefit, and that under Perfect 10, “infringing activity is either the attracting factor for a subscriber or merely an added benefit.” The district court again disagreed, reasoning that the discussion in Perfect 10 centered on “whether plaintiffs’ works in particular served as a draw.” Unlike the plaintiffs in Perfect 10, who alleged only that the defendant service provider incurred a financial benefit because some subscribers joined to access infringing material generally, here, plaintiffs alleged that their own copyrighted works—as opposed to others’ works—served as a draw.

The district court also rejected defendant’s argument that it does not receive a financial benefit from infringement because it doesn’t affect the ISP’s revenues whether a subscriber uses the internet either to infringe copyrights or for legitimate purposes. The court found no precedent to support the ISP’s position that it “must have benefited more from infringing subscribers than from non-infringing subscribers, or that the infringing subscribers paid more than non-infringing subscribers.” The district court explained that this logic not only would add an element to the direct financial benefit inquiry that is not supported by case law, but also would contradict existing case law holding that the proportion of a defendant’s business that comes from infringing use is not relevant in determining whether a defendant received a direct financial benefit.  

Finally, the district court rejected defendant’s efforts to analogize its situation to earlier vicarious liability cases involving flea markets, swap meets, landlords and dance halls, distinguishing these cases on their facts and concluding defendant’s reliance on these cases was “misplaced given that more recent and more applicable ISP, website host, and downloading service cases are available.”

The district court concluded that the record labels had sufficiently alleged direct financial benefit (that infringing activity was “a draw”) because they pleaded that the ISP’s subscribers are motivated to subscribe by defendant’s advertisement of features attractive to those who seek to infringe, such as fast download speeds. Plaintiffs cited “hundreds of thousands of specific instances” of infringement and alleged that infringing activity accounted for 11% of all internet traffic. The district court reasoned “the volume and popularity of plaintiffs’ copyrighted works, the commonality of infringing downloading, and the frequency that plaintiffs’ works in particular are downloaded allow for the reasonable inference that at least some of [defendant’s] subscribers were drawn by the ability to infringe on plaintiffs’ works.”  

The district court also found that the record labels had sufficiently alleged that defendant’s failure “to adequately police their infringing subscribers is a draw to subscribers to purchase its services” by virtue of factual allegations that plaintiffs notified the ISP of infringers, including the most egregious abusers; that defendant took no steps to intervene; and that the ISP failed to police subscribers who were motivated to join or purchase more bandwidth in order to infringe on plaintiffs’ works.

With respect to defendant’s alleged ability to supervise infringing activities, the district court held that even if the ISP lacks the ability to identify and terminate the accounts of all users who infringe on the record labels’ copyrighted materials, its ability to terminate some users, such as those identified in the labels’ infringement notices, is sufficient. Defendant argued that it did not have control, analogizing to the Ninth Circuit’s 2007 decision in Perfect 10 v. Amazon.com, holding that Google was not liable for copyright infringement by third-party websites with which it had advertising partnerships. The district court rejected this comparison, concluding that while Google lacked control over third-party websites, defendant can terminate its subscribers’ ability to access the internet through its service. The district court noted that this conclusion “comports with a variety of cases in which ISPs were found to have the practical ability to stop or limit infringement.” Finally, the court rejected the ISP’s argument that its inability to control infringement through other services used by its subscribers is pertinent to the analysis.

Summary prepared by Melanie Howard and Nathalie Russell