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A recent 9th Circuit decision, issued Dec. 20, 2011, more clearly outlines what is expected of online service providers in order for them to be eligible for protection under the Digital Millennium Copyright Act (DMCA) section 512(c) safe harbor, which limits service providers’ liability for “infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider.”

In UMG Recordings, Inc. et al. v. Veoh Networks, Universal Music Group (UMG), the world’s largest music content company, accused Veoh, an online video service, of violating copyright laws by allowing users to upload videos, some of which contained UMG’s songs. After a district court issued summary judgment in Veoh’s favor, granting the company safe harbor protection under 512(c), UMG appealed the ruling to the 9th Circuit.

While there is no doubt that copyright infringement does occur on Veoh, the company has several measures in place to swiftly deal with the problem when it arises. A user must agree to terms of use that which state that he has the necessary permissions to upload content, and each time a user attempts to post a video, a reminder appears, warning the user not to upload videos that infringe copyrights. In addition, whenever Veoh receives notice of an infringing video, its “hash filtering” software automatically detects and disables access to identical videos on the website.

On appeal, UMG claimed that Veoh’s allegedly infringing activities did not meet the requirements of the safe harbor provision, namely because the activities were more than mere “storage at the direction of a user,” that Veoh had actual knowledge of infringement and that it financially benefitted from the activity.

The 9th Circuit disagreed on all counts, and unanimously affirmed the district court’s ruling. The decision quotes Title II of the DMCA, saying that Congress made a point of limiting service providers’ liability because it would “ensure that the efficiency of the Internet will continue to improve and that the variety and quality of services on the Internet will continue to expand.”

Specifying Storage

When a video is uploaded to Veoh, several things happen. First, Veoh’s software breaks down the video file into 256-kilobyte chunks and then automatically converts the file into Flash format. The system then makes the video available for streaming or download by other users. UMG argued that none of that was envisioned in 512(c), and that facilitating access to materials goes beyond the definition of storage.

Michael Elkin, a partner at Winston & Strawn, was lead counsel for Veoh in the case. When arguing this point, he noted that one of the requirements for laying claim to the safe harbor is that the service provider has to expeditiously disable access to allegedly infringing works upon receiving notice. “If the statute required you, in order to claim safe harbor, to disable access, it presupposed, as we argued, that access was to be permitted,” Elkin says.

The court agreed, saying UMG’s interpretation of 512(c) meant that storage would be considered infringement, rather than “by reason of the storage,” as the provision states. It deemed UMG’s interpretation too narrow and wrote that the “by reason of” language is “clearly meant to cover more than mere electronic storage lockers” and “the reason one has a website is so that others may view it.”

This is good news for online service providers, which now have a solid precedent to refer to when claiming that the automatic processing of files is part of storage, and shouldn’t make them liable for copyright infringement.

“Any provider, like Veoh Networks or YouTube … that receives uploads from users and then does something with that material, any kind of processing to then facilitate its access by the public … is very likely to fall within that language,” says Barry Shelton, a partner at Bracewell & Giuliani. “It’s now quite broad, that language for the safe harbor.”

Placing Burden

Of course, a broad definition of storage wouldn’t be enough to absolve Veoh if UMG could prove that the online video service had actual knowledge of infringing activity that was taking place on its site. But UMG came to this argument at a disadvantage because prior to filing the lawsuit, it had never sent a DMCA takedown notice to Veoh identifying any specific infringing videos. Had UMG done so, and Veoh had not expeditiously taken down the videos in question, that would have been powerful evidence of actual knowledge.

Instead, UMG pointed to the fact that Veoh allowed users to upload music, as a general category. Because Veoh had general knowledge that its services could be used for infringement, UMG argued that it must have known that some of that music content was unauthorized and that this amounted to knowledge of “facts or circumstances from which infringing activity is apparent,” which can also disqualify a company from safe harbor, even in the absence of “actual knowledge.”

However, some of the music videos hosted on Veoh were authorized, as Veoh had agreements with some copyright holders, such as SonyBMG. In order to determine which videos were infringing and which were not, Veoh would have to monitor all music video submissions, a duty the court deemed too harsh to place on service providers.

Cullen Pendleton, a partner at Marshall, Gerstein & Borun, agrees that the burden should rest on the copyright holder to locate infringing content. “UMG, the lazy copyright holder, doesn’t send any DMCA takedown notices and wants to just saddle Veoh with the knowledge of everything that its users are doing when it didn’t participate in or monitor the uploading process,” Pendleton says.

The court asserted that Veoh does not actively supervise the files that are being uploaded, and that when it was alerted to the presence of infringing videos, it promptly disabled access to them. It would be unreasonable to expect Veoh to do more, the court wrote: “It is a practical impossibility for Veoh to ensure that no infringing material is ever uploaded to its site, or to remove unauthorized material that has not yet been identified to Veoh as infringing.”

In light of this ruling, Pendleton says that it would behoove copyright holders to “dust off their typewriters and start sending out DMCA takedown notices.” Online service providers should, as always, promptly take down infringing content when notified, but it doesn’t hurt to put additional procedures in places, as Veoh has, as it will put you in a good light.