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IP/Entertainment Case Law Updates

BMG Rights Management v. Cox Communications

Fourth Circuit affirms ruling that internet service provider is not entitled to DMCA safe harbor defense because it failed to reasonably implement its own policy to terminate accounts of repeat copyright infringers, but remands for new trial, finding district court improperly instructed jury that contributory infringement could be based on negligence standard of culpability.

BMG Rights Management, a music publishing company that owns copyrights in musical compositions, filed suit in 2014 against internet service provider Cox Communications for contributory copyright infringement, based on Cox’s subscribers’ use of peer-to-peer file sharing technology BitTorrent to unlawfully share and download BMG’s music. After a two-week trial, the jury found Cox liable for willful contributory infringement and awarded BMG $25 million. Cox appealed to the Fourth Circuit, arguing that the district court erred (1) by ruling on summary judgment that Cox was not entitled to the safe harbor defense under the Digital Millennium Copyright Act for failing to reasonably implement a policy to terminate repeat infringers and (2) by incorrectly instructing the jury that Cox could be held contributorily liable if it “knew or should have known” of the infringing activity on its system. 

In the district court, Cox had argued that it was entitled to a safe harbor defense under Section 512(a) of the DMCA, and BMG moved for summary judgment, arguing that Cox did not qualify for the defense. To be protected by the safe harbor, an ISP, like Cox, must have “adopted and reasonably implemented … a policy that provides for the termination in appropriate circumstances of subscribers … who are repeat infringers.” While Cox retained the right to suspend or terminate the accounts of subscribers who use its service to infringe on others’ copyrights, Cox did not reasonably implement even its liberal 13-strike policy.

Cox’s 13-strike policy provided for escalating restrictions on an infringing subscriber’s account, including warning emails, mandatory click-thru acknowledgments of warnings of infringing activity and service suspensions that could be lifted by simply contacting Cox technicians. After the 13th notice of infringement, the subscriber is considered for termination, though Cox never automatically terminated any subscribers. The Fourth Circuit noted other limitations in Cox’s policy, including limitations on the number of infringement notices that would be processed in a given day from a given source and the number of notices each subscriber could receive per day, as well as the fact that Cox’s 13-strike counter reset every six months. BMG had also hired Rightscorp Inc. to monitor BitTorrent activity and to send notices to ISPs like Cox when BMG’s works were being unlawfully shared, but due to a dispute over the content of those notices, Cox eventually “blacklisted” Rightscorp, ignoring millions of notices sent to Cox on BMG’s behalf.

The Fourth Circuit found that Cox had not “reasonably implemented” its own repeat infringer policy because it failed “to enforce the terms of its policy in any meaningful fashion.” A number of internal Cox emails showed that Cox repeatedly reactivated accounts of terminated subscribers in order to collect more revenue from the subscribers. Cox argued that it did not have actual knowledge of its subscribers’ infringements and therefore was not required to terminate the subscribers, but the court rejected this argument after finding that for much of the time period in question, Cox had never terminated subscribers without subsequently reactivating them, indicating that reactivation would occur regardless of whether or not Cox had actual knowledge of the infringements. While Cox’s policy changed such that it would “now terminate, for real” without subsequent reactivation of the subscriber’s account, the evidence showed that Cox virtually stopped terminating accounts in the first place. The internal Cox emails showed specific examples where employees had determined they would terminate the accounts of infringing subscribers if they were to receive one more strike, but when given notice of new infringing activity, they did not terminate the subscribers’ accounts, because of the amount of revenue the accounts generated for Cox. Finding that this evidence, along with Cox’s disregard for the millions of infringement notices sent to it by Rightscorp, indicated that Cox had not reasonably implemented a repeat infringer policy, the Fourth Circuit affirmed the district court’s ruling that Cox was not entitled to the DMCA safe harbor defense. 

Cox also argued that “repeat infringers” under the DMCA meant individuals who had been found liable in a court for repeated copyright infringement. The Fourth Circuit rejected this argument, based on an analysis of other statutory language contained in the Copyright Act and DMCA, which does not limit “infringers” to those that have been held liable for copyright infringement in a court of law.

The court next turned to Cox’s argument that the district court gave erroneous jury instructions. The court first addressed Cox’s argument that the district court erred by not instructing the jury that Cox could not be held liable for contributory copyright infringement because its technology is capable of substantial noninfringing uses. Though Cox cited the Supreme Court’s 1984 decision in Sony Corp. of Am. v. Universal City Studios, Inc., for the proposition that liability could not be premised on selling a device that was “capable of commercially significant noninfringing uses,” the Fourth Circuit explained that the Supreme Court later clarified that view in 2005, in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., which held that while the mere act of offering a product or service that has substantial noninfringing uses is not alone enough to find liability, offering the product or service with knowledge or intent that it will be used for infringement may support liability. 

The Fourth Circuit, however, accepted Cox’s argument that the district court erred by instructing the jury that it could find Cox liable for contributory infringement if it found that Cox “knew or should have known” of the infringing activity. As the Supreme Court’s Grokster case states that “[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement,” a question arises as to what standard of intent is required. The Fourth Circuit noted that actual knowledge of infringement, or willful blindness to it, can establish the requisite intent for contributory infringement, but that negligence (which the court equated to the “knew or should have known” language of the jury instruction) does not meet that standard. Therefore, the Fourth Circuit held that contributory liability in the copyright context can be based on willful blindness to the infringing activity but not on recklessness or negligence. As the district court incorrectly instructed the jury that Cox could be found liable if it knew or should have known of the infringing activity of its subscribers, reflecting a negligence standard, the Fourth Circuit remanded the case for a new trial.

The court also found fault with the jury instruction that Cox could be liable if it knew that its network was being used to infringe BMG’s copyrights, holding that the seller of a product with both lawful and unlawful uses must have knowledge of (or willfully blinded itself to) specific instances of infringement in order to be held contributorily liable. 

In summary, and after having rejected other jury instruction arguments put forth by Cox, the Fourth Circuit affirmed the district court’s grant of summary judgment in favor of BMG, concluding that Cox is not entitled to the DMCA safe harbor protection, but it reversed and remanded the case for a new trial in light of the erroneous jury instructions.

Summary prepared by Tal Dickstein and Kyle Petersen