Supreme Court has chance to clarify copyright law

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Cox Communications was sued for copyright infringement by Sony Music and other labels on behalf of their artists. The 4th U.S. Circuit Court of Appeals struck down the $1 billion judgment against Cox, sent the case back for retrial, and Cox appealed to the Supreme Court which granted cert. It heard the case last week and should render a decision before August. Quite a bit is at stake for Cox and other internet service providers, as well as for the copyright holders.

Much of the award was due to the trial court’s instruction to the jury that Cox had willfully infringed the copyrights because it was aware of its customers’ infringements. This raised considerably the level of statutory damages, which can run between zero and $150,000 for each infringed work. Here, the jury awarded a shade under $100,000 for each infringed song.

Cox is an internet service provider and some of its customers infringed the copyright to music by downloading and distributing copyrighted songs, depriving the artists of royalties. The number of customers who infringed, Cox claimed, is less than 1% of its total customer base.

There are two questions presented to the Supreme Court. The first is whether an internet service provider, such as Cox, that continues to provide internet access to particular subscribers after being told that their accounts have been used to infringe copyrights, is contributorily liable for the direct infringement of their customers. The second question presented is whether Cox, if it is a contributory infringer, violates copyright laws when it acts with knowledge that the direct infringers, its customers, actions are illegal, but it has acted in good faith under the belief that the services it supplies are legal.

The Copyright Act does not provide for secondary liability of those who contribute the means to directly infringe, but the Supreme Court and other courts have long recognized this concept of secondary liability. Secondary or contributory liability can arise when a provider sells an article that lacks a significant non-infringing use or when the goods are suitable for both infringing and non-infringing use, but the seller urges or encourages its customer to commit infringement. For example, years back, the Supreme Court refused to hold Sony liable for infringement because its Beta Max machines were used for copyright infringement by some people, although these machines were used by most people simply to set or shift the timing for their in-home, non-infringing, movie watching.

In affirming liability, the court of appeals relied on neither rationale to hold Cox liable as a contributory infringer. Instead, it held that a culpable intent to infringe can be inferred when a seller, like Cox, continues to provide lawful services to specific customers that Cox knows will use the services to commit direct infringement.

The federal government filed an amicus brief, asserting that the appellate court’s holding was wrong because it is well established that mere knowledge of actual infringing uses is insufficient to impose contributory liability on a seller of goods that are used to commit infringement. Even knowledge that a customer intends to misuse the product alone does not demonstrate intent to participate or to encourage that misuse for copyright infringement purposes.

Cox became aware of the infringing activities of some of his customers through the efforts of an anti-piracy firm engaged by the music labels to notify internet service providers of their subscribers’ infringing activities. During a 22-month period, Cox received 163,148 notices of misuse. That is over 200 notices every day.

Cox did take some action in response to these notices. But as to first-time infringers, it took no action. It did escalated actions against recurrent infringers, including in some instances terminating their accounts.

This case and the arguments raised in support of Cox pave an interesting crossroads. Cox, an internet service provider, is aware that some of its customers engage in copyright infringement; without Cox’s services or those of another internet service provider, no infringement would occur. Still, Cox is providing a fully lawful service that has many more non-infringing uses than infringing uses. Before notification of infringement, Cox clearly has no obligation to take any steps to protect anyone’s copyright.

I suppose the question should be whether, and at what point, does Cox have an obligation to police how its services are used by its customers. How should the court balance the rights of copyright holders to stop infringement against the rights of Cox and other internet service providers to provide a service that might infringe?

Is it too harsh to impose on Cox an obligation to notify and warn any customer who has infringed once following notification by an agent of the copyright holder? Probably not. Once on notice, and having notified a customer of its infringing activity, why shouldn’t Cox be obligated to terminate that customer, subject to a right on the part of that customer to appeal? That’s probably what it should do. All of this can be set forth in the terms and conditions of providing services.

That would create an administrative expense for Cox, but its customers are paying for services and Cox could raise fees or cut into its profits to set up this notification and termination process in as much as it is providing the mechanism of infringement. In other words, it should not be proper to enable Cox to evade all liability for the use of its services that infringe once it has been notified of a particular customer’s unlawful activity. There seems to be a need for some balance without hammering an internet service provider in the manner Cox was punished by the trial court.

The appellate court struck the verdict because it was in part based on vicarious liability. But it would be good if the Supreme Court would act to create a mechanism, at least until Congress can step in, if it wishes to do so, by amending the Copyright Act. That mechanism would provide some liability for an internet service provider for the acts of infringement of its customers once it has received notice of infringement, has warned the customer and the internet service provider has failed to terminate the customer after a second notice of infringement.

This mechanism would allow the internet service provider to decide whether keeping the customer is more financially beneficial than termination to avoid liability. No doubt in each case, it would terminate the offending customer. For the copyright holders, infringement on the internet often represents bootlegged music, taking sales away from the labels and royalties away from the copyright holders. The problem is serious, but so is a judgment that is so large that it could break the backs of some internet service providers.

There ought to be some way to work this problem out and this sort of mechanism would probably work as it would place a burden on both the copyright holder and the Internet service provider, protect each against excessive harm and likely satisfy each party’s needs.

Jim Astrachan is a counsel to Corey Tepe LLC and has taught intellectual property law in the two Maryland law schools since 1999.