The Universal Music case against Veoh is quite incredible on many layers. Universal Music sued Veoh, a YouTube-like company, despite the fact that Veoh was quite careful in abiding by the DMCA's safe harbor rules. Universal Music has lost at every single level, though the costs of the lawsuit put Veoh out of business (someone else bought up the domain and continues to run a site, but it's not the original Veoh). Despite losing, and losing badly, Universal Music keeps pumping huge sums of money into the law firms it hired to continually appeal the rulings against it, despite them being overwhelmingly against Universal Music. Back in March, the appeals court, once again sided with Veoh, but Universal Music asked for the court to rehear the case.
The panel has voted to deny Appellant's petition for rehearing. Judges
Pregerson and Berzon have voted to deny the petition for rehearing en banc and
Judge Fisher so recommends.
The full court has been advised of the petition for rehearing en banc and no
judge has requested a vote on whether to rehear the matter en banc.
Basically, not a single judge on the court thinks there's any issue here at all. Universal Music lost. It lost big. It lost clearly and with little question to whether or not it should have lost. Not a single judge on the court thought that it's even worth bothering exploring this issue again since the issues and the decision were so clear.
Of course, given that Universal Music's lawyers seem to be running the show, I fully expect them to ask the Supreme Court to review the case as well (rack up those billing hours!). Chances are the Supreme Court will deny cert (what's the issue to review here?), but if they actually take the case, it could lead to a clear decision on how Universal Music's warped interpretation of the DMCA, that it requires filters, is obviously incorrect.
"Justice prevails" is often declared when a court case ends, honoring a system that produces the right result. Right, however, is not always just. The judicial system needs to address the exorbitant costs that accompany litigation, or a situation can happen when a company is sued by a deeper pocket plaintiff, wins the case, but has to shut down because the cost of litigation has exhausted its financial capital.
Last month, in a unanimous decision, the Ninth Circuit affirmed, once again, a judgment
in favor of Veoh Networks in a widely followed copyright case brought six years ago by
Universal Music Group. Veoh, the court held, was entitled to rely on the safe harbors of the Digital Millennium Copyright Act, and was not liable for copyright infringement for user-uploaded videos that Universal alleged contained their copyrights, an important precedent that benefits YouTube and others. Veoh, the company I joined during the early stages of the digital video revolution in 2006, which pioneered long form viewing on user generated content sites, and was the first site to offer premium content from major networks like ABC and CBS, is not around anymore to capitalize on its victory. Three years ago, a few months after Veoh's win at the district court, its leadership surveyed the war torn company, wounded from a litigation battle designed to inflict the very damage the lawsuit had wrought, wondered, at what price victory and decided to sell the assets and closed the doors. Universal Music lost the case, but achieved victory, shutting down an innovative company that threatened their static business model.
From the outset of the case, Universal Music Group made sure Veoh would suffer financially. They issued many discovery requests, doing their best to make sure Veoh spent money to defend itself. Savvy plaintiffs know how to exert pressure by exploiting our judicial system's liberal rules regarding discovery. In this regard, advances in technology have not produced economic efficiencies. Millions of documents and casual conversations are stored on computers, readily accessible. These petabytes of data need to be prepared and reviewed by lawyers before being produced in response to a discovery request. The lawyers' bill increases very rapidly when an army of attorneys is reviewing all this data. Because the bulk of documents and discovery often lie with the defendant, plaintiffs can inflict maximum financial pain on a defendant, while producing relatively few documents themselves. This tilted playing field gives plaintiffs an unfair advantage. In the Veoh case, legal fees on discovery alone were enormous, exacerbated by the magistrate's decisions to compel the company at its own cost to store every single video on our system, and to even produce Skype conversations. Who suffers? The defendant. Recourse? None.
The company quickly recognized the economics of litigation and the lack of upside to being a defendant and offered to settle. However, Veoh never had meaningful settlement discussions; Veoh did not have the cash to pay the amount Universal was seeking. The company was left with no choice but to litigate, and spend money.
To counter the ticking clock and register, Veoh hoped for a quick resolution to lift the dark cloud Universal had placed on the company that handcuffed it from raising the additional funds the company needed to grow. The case, however, was not resolved in the district court for over two years and is now approaching the six-year anniversary.
Defendants need an option other than to just play defense and wait. It was well documented in the case that Universal never even sent Veoh any takedown notice for their content and was similarly undisputed that every time Veoh received a takedown notice from every other content owner, that Veoh took the content down. Universal could have achieved its goal of having its alleged content removed from Veoh's website by merely sending the company a letter. Our judicial system gave Universal the right to sue. Shouldn't Veoh have any rights or recourse, especially when a mere letter could have avoided an entire litigation?
Unfortunately, the only option available to Veoh was to file a motion to recover fees after it won the case, even though this avenue was too little too late; the mortal damage was already inflicted. Six years of combative litigation cannot be undone entirely by recovering legal fees. Yet, the standard for recovering fees is very high and Veoh was not successful. Despite its favorable decision on the merits of the case, the Ninth Circuit denied awarding Veoh its fees, instead remanding to the District Court to consider awarding Veoh its much lower court costs. The Ninth Circuit's ruling on this point only further weakens an already poor option for innocent companies.
Our judicial system needs a solution to rectify the devastation that unfounded litigation causes companies ultimately proven innocent. Courts need to be sensitive to the new entrant and pay respect to the scales of justice when a deep pocket plaintiff goes after a financially weaker opponent. Instituting "loser pays" into the concept of commercial litigation in appropriate situations improves the chances for defendants, and could reduce meritless litigation. While this concept has been debated for decades, another standard needs to be introduced, one that holds plaintiffs and their lawyers equally accountable. Plaintiffs' lawyers should be compelled to pay any 'loser pays' fee along with their clients.
In a world where plaintiffs' lawyers share in multi-billion dollar settlements, it seems only fair that if they lose a case they should pay. This will force lawyers to think twice about the merits of their clients' case, as opposed to what strong-armed litigation tactic they can use to extract a settlement. If lawyers are held accountable for their - and their client's - actions in a manner never before applied, we will see what everyone wants: a precipitous drop in the number of cases in our judicial system. We can even adopt a three strikes policy and ban law firms and their clients for twelve months if they are found guilty of such abusive behavior on more than two occasions. How refreshing that would be.
Fewer litigations will reduce the dockets of federal and state courts, reducing the need for our government to increase the number of judges and court staff, thereby saving taxpayers' money. Plaintiffs will pay more attention to increasing defendant's legal fees lest they lose. Legal fees and costs will decline, which will lead to a downward pressure on insurance premiums. Most importantly, productivity will increase. Companies will spend
previously allocated monies to litigation on research, development, hiring, and expansion of operations.
Veoh encountered a plaintiff set on its destruction. They were unable to defeat Veoh in the world of technology or in the world of business. With those avenues closed, Universal sued. The judicial system provided Universal with what it could not achieve on a level business playing field. Veoh won the case but is not around to continue to grow. That is wrong. UMG and its lawyers should be required to pay for the damage they have done. Strike one to a plaintiff and its lawyers. Fairness in our judicial systems dictates such an outcome.
Joshua Metzger is an Internet consultant. He was SVP Corporate Development & General Counsel for Veoh Network and before that was chief legal officer for Overture Services, which was acquired by Yahoo!.
I sometimes wonder about the lawyers representing the major labels, and their ability to continually bill those supposedly struggling labels top dollar in quixotic attempts to fight any and all innovation. We've written plenty of times about Universal Music Group's legal crusade against online video site Veoh. Veoh was a site not unlike YouTube, but Universal Music sued it years back, eventually losing badly, as the court made it clear that Veoh was protected by the DMCA's safe harbors. UMG appealed and, even though Veoh had won the case, the company itself shut down, later admitting that the legal bills from the UMG case were too much. On appeal, UMG lost again as the appeals court once again pointed to the DMCA's safe harbors. Not able to accept a loss, UMG asked the court to rehear the case, which it did. End result?another big loss for UMG.
Apparently, no one at UMG is getting the hint. The company has now filed, yet again, asking the court to rehear the case. UMG argues that the rulings against it, arguing that the court misinterpreted parts of the DMCA's safe harbor. As in the Viacom v. YouTube case, we see Universal Music here trying to completely rewrite the DMCA -- pretending that it means something that it clearly doesn't, and which many courts have rejected. I can't see how that's a wise use of UMG's money.
Specifically, it argues that the DMCA has always intended the burden for copyright enforcement to fall on service providers.
The new opinion effectively rewrites the DMCA to provide different
rules for copyright infringement on the internet. It improperly shifts the burden
of online copyright enforcement to content owners whose businesses depend
on payment for the use of their works, while broadly shielding internet service
providers ("ISPs") who use and reap financial benefits from those works
(without compensating their owners) even when they have the right and ability
to police their sites. The Opinion upends the carefully-crafted balance
embodied in Section 512 of the Copyright Act. And, as explained below, the
Opinion fails to clarify the limits or scope of the DMCA's "safe harbors."
Almost nothing there is true. The ruling is entirely consistent with other rulings on the DMCA. The entire point of having safe harbors in the first place is because the burden must be on the copyright holder, since the service provider is never in the position to know that a work is definitely infringing, since the work may actually be authorized. Basically, this is a case where Universal Music's lawyers are presenting their wishful thinking of what the DMCA should be, even though that has been rejected by the courts over and over again. There are three key points that Universal Music is making -- all of them laughable.
First, it's arguing that Veoh doesn't qualify for safe harbors because the safe harbors only apply to storage, and that anything else (such as the display of the work) is not covered.
first, the holding that section 512(c)'s
safe harbor for infringement "by reason of the storage at the direction of a
user" actually encompasses all "access-facilitating processes that automatically
occur when a user" uploads, streams or downloads infringing material
eviscerates both the language and structure of the DMCA. Congress created
four discrete safe harbors, each addressing different activities. After the
Opinion, Section 512(c), now applicable to "access-facilitating processes,"
swallows several of the other supposedly different and discrete safe harbors
This would basically disregard all of the caselaw surrounding the DMCA since its inception, and pretend that the key safe harbors only apply to web backup/storage. Any service provider (such as a webhost) that allows users to display the content they store wouldn't be eligible under this interpretation. And, of course, that's crazy. Anyone who was around for the original fight that brought about the DMCA's safe harbors knows that it was the telcos who fought for those safe harbors. To think that they were only fighting to protect web backup services is laughable. There is simply no support for this argument, and no court has agreed.
They also argue that this ruling "eviscerates" the "red flag knowledge" part of the DMCA.
Second, the Opinion ignores longstanding copyright law to hold that an
ISP does not have either actual or red flag knowledge of infringement unless it
has received information identifying "specific instances of infringement."
Section 512(c)(1)(A) requires no such thing. As a result, content owners must
now incur the expense of continuously scouring hundreds of thousands (or
indeed millions) of constantly changing internet websites, to attempt to locate
copies of their works and then send take-down notices or otherwise advise ISPs
of these "specific instances of infringement" on their sites. The Opinion
requires a world wide web game of "Whack-A-Mole" to police infringement.
Again, this argument is wishful thinking. The whole reason why red flags only concern specific knowledge, as outlined in multiple other cases, is because "general knowledge" that there is some infringing works on a site doesn't do anything useful, as the site would have no meaningful way of dealing with it at that stage, not knowing what is actually infringing.
Finally, UMG tries to pretend (despite tons upon tons of caselaw to the contrary) that the DMCA's safe harbors cannot apply to a service provider like Veoh, because of its own total misreading of one of the safe harbor clauses (which the court read properly).
Third, as a consequence of the Opinion's interpretation of Section
512(c)(1)(B), websites like Veoh, which (a) copy, perform, and distribute (by
offering digital downloads), tens of thousands of infringing works, (b) receive
a direct financial benefit from the infringement in the form of advertising
revenues that directly increase with each view of an infringing video by a user,
and (c) have the "right and ability to control" the infringement as those terms
have historically been understood in copyright law, nevertheless get a free pass
under the DMCA unless they also engage in an undefined "something more" -which apparently must be akin to inducing infringement. If the Opinion is left
standing, ISPs like Veoh will have no obligation either to affirmatively police
their site (indeed, they are disincentivized from doing so lest they find an
infringing file which would give them "actual" or red flag knowledge), to
adopt readily available technical solutions to mitigate infringement, or to
obtain authorization from content owners.
First of all, Veoh's dead, so it's not like it will have anything to do, but that's a separate point. More importantly, UMG's interpretation of almost every key point is questionable here. Veoh qualifies for the safe harbors because it's a service provider. It does not "receive a direct financial benefit from the infringement" because it is receiving financial benefit the exact same way no matter whether the content is infringing or not. Veoh received financial benefit from providing a service of hosting videos. That has nothing to do with whether or not it financially benefits directly from infringement. But, most importantly UMG is pretty blatant in arguing that the DMCA somehow requires service providers to "affirmatively police their site." The law has never said that and no court has ever agreed with that argument either. UMG is simply trying to rewrite the DMCA the way it wishes it was written and hoping a court might agree, even after it's lost time and time again with the nearly identical arguments.
It will come as little surprise that the arguments here mirror those made by Viacom against YouTube, but both have been pretty big losers so far. They're basically trying to insist that the DMCA must mean what they always wanted it to mean, even though it's clear from the language, the legislative history and the caselaw surrounding the law, that it was never meant to be interpreted this way.
In the meantime, though, Veoh is still dead. And all this is doing is throwing more UMG money to lawyers who have no problem presenting silly arguments like this one so long as they keep getting paid.
from the a-sad-tale-of-copyright-destroying-innovation dept
We've written a few times about the sad case of Veoh. Veoh was a YouTube-like site, funded by Hollywood insiders like Michael Eisner, but who got sued by Universal Music Group, claiming copyright infringement (using more or less the same theories used by Viacom against YouTube). Technically, Veoh sued first (filing for declaratory judgment after receiving a threat letter from UMG, but UMG quickly followed with its own lawsuit). UMG played dirty, not just suing the company but directly suing its investors as well. This was a pure intimidation technique, designed to scare major investors into either pulling investment or ordering the company to change course, even if what they were doing was legal. While the court dismissed the charges against the investors (and scolded UMG in the process), the intimidation might have worked. In the middle of all of this, Veoh shut down, because it ran out of money, mainly due to the lawsuit. It sold off its assets to another party, and somehow scraped together a little money to keep the lawsuit, and just the lawsuit, going.
Since then, there have been a series of rulings that have repeatedly found Veoh to be legal and protected under the DMCA's safe harbor. The district court found in Veoh's favor, as did the 9th Circuit appeals court. Yesterday, the appeals court ruled again on the issue, with a superseding opinion that, once again, says that Veoh was legal. Even though it's still dead. The ruling not only reiterates the importance of DMCA's safe harbor protections for user-generated sites like Veoh, but also shows how that still applies even given the 2nd Circuit's slightly weaker view of the DMCA safe harbors.
The court goes through a nicely detailed explanation for why Universal Music's interpretation of the DMCA doesn't make any sense at all and would not only create internal conflict within the law, but also make the safe harbors effectively meaningless. Specifically, Universal Music tries, ridiculously, to argue that DMCA safe harbors aren't supposed to apply to any service that makes files accessible to the public. As the court points out, if that were the case, the law would be silly, since copyright holders would never learn about that infringement anyway, since the works wouldn't be available for them to find. The court points out it's ridiculous to think that DMCA safe harbors were only meant to apply to backup services.
We do not find persuasive UMG’s effort to reconcile the
internal contradictions its reading of the statute creates by
positing that Congress must have meant § 512(c) to protect
only “web hosting” services. Web hosts “host” websites on
their servers, thereby “mak[ing] storage resources available
to website operators.” The thrust of UMG’s argument seems
to be that web hosts do not undertake the sorts of
accessibility-facilitating functions that Veoh does, and thus
the services they perform “fit within the ordinary meaning of
‘storage,’” and thereby “harmoniz[e]” with the notice and
takedown procedures. UMG’s theory fails to account for the
reality that web hosts, like Veoh, also store user-submitted
materials in order to make those materials accessible to other
Internet users. The reason one has a website is so that others
may view it. As amici note, these access activities define
web hosting – if the web host only stored information for a
single user, it would be more aptly described as an online
The court also rejects a theory -- popular among some of our maximalist commenters -- that the DMCA was only intended for purely "web hosting" companies, rather than being broadly applied across various online services such as user-generated service providers. As the court noted, if Congress wanted to limit the safe harbors in that manner, it would have said so: "Had Congress intended to
include such a limitation, it would have said so expressly and
The next damaging part for Universal Music: Veoh was really good at taking down videos when it received DMCA notices. UMG tried to argue that Veoh had knowledge of infringing works on its site that it didn't remove. This argument is the crux of the YouTube/Viacom case as well: is "actual knowledge" from DMCA notices, or what kind of knowledge creates "red flag" awareness. The DMCA can be read in self-contradictory ways at points. For example, it says that a provider only has to takedown content if it receives a DMCA notice that follows somewhat strict procedures. But, then, also talks about if there's "red flag" awareness. Take both literally, and you could, for example, wonder what happens if someone sends an improperly structured DMCA notice (say, missing certain elements), but indicates infringing works, nonetheless. Is that "red flag" knowledge? Here, as in the YouTube case, though, UMG relies on a much broader definition of red flag knowledge, in which it kind does a "but they must have known!" sort of thing. It's basic argument: there was music on Veoh, and Veoh had to know that was infringing. The court is not buying it. First of all, just because there's music, it doesn't mean it's infringing.
As an initial matter, contrary to UMG’s contentions, there
are many music videos that could in fact legally appear on
Veoh. “Among the types of videos subject to copyright
protection but lawfully available on Veoh’s system were
videos with music created by users and videos that Veoh
provided pursuant to arrangements it reached with major
copyright holders, such as SonyBMG.” Further, Congress’ express intention that
the DMCA “facilitate making available quickly and
conveniently via the Internet . . . movies, music, software, and
literary works” – precisely the service Veoh provides – makes
us skeptical that UMG’s narrow interpretation of § 512(c) is
plausible. S. Rep. No. 105-190, at 8. Finally, if merely
hosting material that falls within a category of content
capable of copyright protection, with the general knowledge
that one’s services could be used to share unauthorized copies
of copyrighted material, was sufficient to impute knowledge
to service providers, the § 512(c) safe harbor would be
rendered a dead letter: § 512(c) applies only to claims of
copyright infringement, yet the fact that a service provider’s
website could contain copyrightable material would remove
the service provider from § 512(c) eligibility.
Later on, the court makes a key point that we've reiterated over and over again -- every time copyright holders and maximalists insist that service providers need to become copyright cops -- that the service can't become copyright cops because they have no idea if stuff is actually authorized or not:
know precisely what materials they own, and are thus better
able to efficiently identify infringing copies than service
providers like Veoh, who cannot readily ascertain what
material is copyrighted and what is not.
That message is something that the various lawyers representing MPAA and RIAA affiliated companies should be forced to write on a blackboard over and over again until the point is driven home.
Of course, in the YouTube case, with the original district court ruling, there were similarly strong statements, but the 2nd circuit walked it back somewhat, suggesting that a different standard need apply to "red flag" knowledge. Here the court points out that, even if that's true, Universal Music would need to show a lot more to prove any red flag knowledge.
Of course, a service provider cannot willfully bury its
head in the sand to avoid obtaining such specific knowledge.
See Viacom Int’l v. YouTube.... Even viewing the evidence in the light most favorable
to UMG as we must here, however, we agree with the district
court there is no evidence that Veoh acted in such a manner.
Rather, the evidence demonstrates that Veoh promptly
removed infringing material when it became aware of specific
instances of infringement. Although the parties agree, in
retrospect, that at times there was infringing material
available on Veoh’s services, the DMCA recognizes that
service providers who do not locate and remove infringing
materials they do not specifically know of should not suffer
the loss of safe harbor protection.
The ruling goes on in this nature. It's definitely a good ruling that lays out, yet again, why the DMCA safe harbors protect internet companies, and blasts holes in the silly theories of some of the big legacy players that have tried to wipe out those safe harbors. It does send one small issue back to the lower court -- an exploration of whether or not Veoh is due certain fees (excluding attorneys fees). This is more of a procedural issue than anything else.
So, once again, Veoh has proven that internet services like it are protected by the DMCA from being blamed for users infringing. And yet, the fact that it had to effectively shut down and just sell off its assets, is a reminder of just how much the big copyright players can stifle and kill off innovative services via copyright law, even when they have no case.
One of the key examples of what happens when you have bad, overly draconian copyright laws that burden companies falsely accused of infringement is Veoh. We've talked about them a bunch in the past, but Dmitry Shapiro, who had been CEO of the company, has written up a great (though depressing) first-hand explanation of how bad copyright law kills good companies. He talks about having the vision for an online video service (which he came up with before YouTube existed, though both happened at about the same time), how he built up the product, raised a bunch of money (including from former Disney CEO Michael Eisner), and put together a really good product. On top of that, to help the big entertainment companies feel comfortable, they installed audio filtering technologies -- even though such things are not (yet) required by law. And yet, the company was still sued by Universal Music, who insisted that Veoh was a "pirate site."
Of course, as we've noted, Veoh has won every bit of their lawsuits. The latest ruling came in December, where an appeals court, once again, said that Veoh was perfectly legal. It complied with the DMCA and actually went above and beyond what the law required (such as by using those filters). Of course, Veoh is also dead. The costs of the lawsuit really were too much for a young company struggling to build a good product and compete in the marketplace.
As you can imagine the lawsuit dramatically impacted our ability to operate the company. The financial drain of millions of dollars going to litigation took away our power to compete, countless hours of executive's time was spent in dealing with various responsibilities of litigation, and employee morale was deeply impacted with a constant threat of shutdown. Trying to convince new employees to join the company in spite of this was extremely challenging. To make sure that our money supply was cut off, in an unprecedented move, UMG sued not only the company, but our investors (Michael Eisner, Art Bilger, and Spark Capital) personally. This move raised lot of eyebrows in the legal community, and at one point was thrown out by a judge, only to continue to be appealed and litigated by UMG. This completely choked off all of our financial oxygen, as trying to convince investors to invest with the threat of them personally being sued is insurmountable.
Even after winning the initial lawsuit, UMG just piled on the appeals, and it made it impossible for the company to survive:
With the appeal looming, financing continued to be choked off for us, and in April 2010 we had to sell the company in a fire sale to a small startup. The company that we had built, that was once valued at over $130 Million was gone. Along with it went the livelihoods of over 120 people and their families, $70 million of money entrusted to us by investors, and a big part of me. I had sacrificed so much to live the life of an entrepreneur. My marriage couldn't stand the strain of this lifestyle and ended in 2009, and while all of this was going on, my father was dying. Instead of spending time with him at his bedside, I was sitting in depositions with lawyers, and stressing over the lawsuit. He died July 13 2009, two months before we won the original judgement on the lawsuit. He would have been proud of me for following through with the fight. I felt so beaten down after this experience, that I couldn't imagine going back to being an entrepreneur. I was disenchanted, disgusted by the system that would allow these kinds of behaviors to go on, and it is not until recently that I have been able to come up to bat again.
Shapiro posted this to explain why he's against SOPA/PIPA, but the amazing thing is that the lawsuit is still going on. Even after that ruling in December that totally eviscerated UMG's arguments and made it abundantly clear that Veoh had been a perfectly legal operation destroyed by a bogus lawsuit, UMG is trying again. Embedded below is the petition that UMG recently filed in the appeals court, asking for an en banc rehearing (appeals courts usually hear cases with a three-judge panel, but parties can later ask for a rehearing with all of the judges in the court -- which is an en banc rehearing).
I'm not going to go through the filing in detail. It's more of the same from UMG. Basically, UMG wants to pretend that the DMCA requires certain actions that it clearly does not. Every judge so far has told UMG this, but it won't give up. And, more importantly, it won't give up even though Veoh is long since dead. Considering that UMG and the rest of the legacy recording business keep complaining that they're not making any money any more, the fact that they're choosing to keep suing a company they already killed years ago really says something, doesn't it?
The truth is that UMG is continuing the lawsuit for one reason: because it's hoping and praying that some court will magically believe UMG's made up interpretation of copyright law. If that happens, it will make it much easier for UMG to kill other legit sites that it doesn't like. It will also allow UMG to pretend that Veoh was a "rogue" site that needed to be killed, rather than a successful legitimate business that was killed via a bogus lawsuit.
We wrote a detailed post about the latest Veoh ruling, in which Universal Music lost (again) in claiming that Veoh violated copyright law with its YouTube-like service. Of course, as we pointed out, the "victory" for Veoh is pretty meaningless because Veoh is dead. The cost of the lawsuit itself killed it. I've been thinking about this a lot lately, when you see stories like the federal government shutting down Dajaz1 for over a year, without having an actual case for infringement, and the similar case in Japan, in which the developer of a software program, Winny, had to battle in courts for more than five years, before the court declared that he was totally innocent.
The harm done to legitimate businesses by totally bogus copyright claims seems like it should be a big deal. If the government is really concerned about jobs, rather than passing something like SOPA, shouldn't it be ramping up the punishment for bogus copyright claims that cause so much real harm to businesses? Eric Goldman, in discussing the Veoh ruling makes a similar point and puts forth an interesting suggestion for SOPA, to force companies filing such claims to put up a bond to pay, if they turn out to be wrong:
A partial fix to SOPA/PROTECT-IP would make rightsowners bear the cost of their overclaiming. Make them put up a $1 billion bond for the privilege of sending cutoff notices; and pay liberally out of that bond if the rightsowners get the law or facts wrong. Write checks to the investors and employees whose economic expectations are disrupted when rightsowners get it wrong. Write checks to the payment service providers and ad networks who turn down money from legally legit businesses based solely on rightsowner accusations. Heck, write checks to the users of those legit services who are treated as inconsequential pawns in this chess match. Sure, a $1B bond obligation with liberal payouts would turn cutoff notices into a sport of kings that only the richest rightsowners could afford, but perhaps that’s the way it should be. A rightsowner's decision to send a cutoff notice should be a Big Deal, the equivalent of going to Defcon 5, and not like sending holiday cards to distant relatives you last saw at Ethan's bar mitzvah.
The supporters of the bill, of course, would reject such a suggestion out of hand, noting that it would be unfair and would make it harder for them to "enforce their rights." But that ignores the other side of the equation. If enforcing their rights involves completely destroying someone else's company, then, as Goldman notes, shouldn't it be difficult?
Of course, the chances of this happening are nil. During the SOPA markup, Rep. Jason Chaffetz actually put forth an amendment that didn't even go as far as Goldman's suggestion. It merely said that if you file a lawsuit under SOPA and it turns out that the site was legal, then the plaintiff should pay the legal fees of the defendant. This seems quite reasonable. And it was quickly shot down by SOPA supporters who complained that this was somehow unfair. I still can't figure out why only the copyright holders get to talk about "fairness," while the companies and websites completely destroyed by bogus claims apparently have no "fairness" on their behalf.
In what should be a clear warning of the problems with laws like SOPA, we have a new ruling in the UMG v. Veoh case -- and how copyright holders will miss no opportunity to kill off perfectly legal services with bogus copyright claims. As you may recall, Veoh was a YouTube-like site, that was sued by Universal Music because some users had uploaded videos with UMG copyrighted music in them (technically Veoh sued for declaratory judgment first, but only in response to a threat letter from UMG, who followed up with an actual suit of its own). Veoh -- in part funded by former Disney CEO Michael Eisner -- had always been very careful to follow the DMCA notice-and-takedown process. However, in the minds of Hollywood, that's simply never enough. As in the Viacom-YouTube suit, UMG seemed to want to claim that Veoh had to wave a magic wand and figure out what was infringing and make it disappear. Thankfully, a court recognized that Veoh was legal under the DMCA. Still, UMG couldn't resist trying to bury the company in legal costs, not just suing the company, but by also suing the company's investors, in some twisted theory of secondary liability.
Either way, despite being declared perfectly legal, the costs of defending against such a ridiculous lawsuit was too much for a startup like Veoh, and it was forced to shut down, living on solely to keep the case going, so that someone was able to defend against UMG's appeal.
Today we get the excellent news that the 9th Circuit has affirmed the lower court's ruling and noted that Veoh, indeed, was perfectly legal. The ruling is pretty thorough and comprehensive and dismisses some of the ridiculous claims we've see here at times. First, it notes that Veoh is clearly protected by the DMCA. Some (including UMG) have argued repeatedly that because Veoh (and others) don't just "store" the content, but process it for display/performance, that this goes beyond the DMCA protections. The court notes that, if this interpretation is accurate, it makes much of the rest of Section 512(c) of the DMCA totally meaningless -- and that doesn't make any sense. Furthermore, it points out that it would be kind of silly to suggest the DMCA only protects storage but never access:
By its terms, § 512(c) presupposes that service providers
will provide access to users’ stored material, and we
would thus contravene the statute if we held that such access
disqualified Veoh from the safe harbor. Section 512(c) codifies
a detailed notice and takedown procedure by which copyright
holders inform service providers of infringing material
accessible through their sites, and service providers then “disable
access to” such materials. 17 U.S.C. § 512(c)(1)(A)(iii),
(c)(1)(C) & (c)(3)(A)(iii) (emphasis added). This carefully
considered protocol, and the statute’s attendant references to
“disabl[ing] access” to infringing materials, see id., would be
superfluous if we accepted UMG’s constrained reading of the
statute. See Greenwood v. CompuCredit Corp., 615 F.3d
1204, 1209 (9th Cir. 2010) (“We must, if possible, interpret
a statute such that all its language is given effect, and none of
it is rendered superfluous.” (citing TRW Inc. v. Andrews, 534
U.S. 19, 31 (2001))). Indeed, it is not clear how copyright
holders could even discover infringing materials on service
providers’ sites to notify them as the protocol dictates if
§ 512(c) did not contemplate that there would be access to the
We do not find persuasive UMG’s effort to reconcile
the internal contradictions its reading of the statute creates by
positing that Congress must have meant § 512(c) to protect
only “web hosting” services. Web hosts “host” websites on
their servers, thereby “mak[ing] storage resources available to
website operators.” The thrust of UMG’s argument seems to
be that web hosts do not undertake the sorts of accessibility facilitating functions that Veoh does, and thus the services
they perform “fit within the ordinary meaning of ‘storage,’ ”
and thereby “harmoniz[e]” with the notice and takedown procedures.
UMG’s theory fails to account for the reality that
web hosts, like Veoh, also store user-submitted materials in
order to make those materials accessible to other Internet
users. The reason one has a website is so that others may view
it. As amici note, these access activities define web hosting -- if the web host only stored information for a single user, it
would be more aptly described as an online back-up service...
Next up is the question of whether or not Veoh fell afoul of the DMCA's "red flag" knowledge provisions -- the part that's the key to the Viacom/YouTube lawsuit. The problem here is that, as with Viacom/YouTube, UMG completely fails because Veoh clearly took down any content as soon as it became aware that the specific content was infringing. Of course, part of the problem here is that UMG never sent a takedown (oops). It just let the RIAA send some notices instead. UMG tries to get around this by arguing that because Veoh had a "music category" it must have known it had infringing material (seriously). The court is not impressed and educated UMG to the fact that, you know, not all music online is infringing:
As an initial matter, contrary to UMG’s contentions, there
are many music videos that could in fact legally appear on
Veoh. “Among the types of videos subject to copyright protection
but lawfully available on Veoh’s system were videos
with music created by users and videos that Veoh provided
pursuant to arrangements it reached with major copyright
holders, such as SonyBMG
Then the court points out that Congress' expressed purpose behind the DMCA was to "facilitate making available quickly and conveniently via the Internet . . . movies, music, software, and literary works" and that's "precisely the service Veoh provides." You can almost hear the sarcasm in the ruling in response to UMG's preposterous suggestion that anyone hosting music online must know it's infringing. The court furthermore goes back to the Betamax ruling:
Cases analyzing knowledge in the secondary copyright
infringement context also counsel against UMG’s general
knowledge approach. In Sony Corp. of America v.
Universal City Studios, Inc., 464 U.S. 417 (1984), the
Supreme Court held that there was “no precedent in the law
of copyright for the imposition of” liability based on the theory
that the defendant had “sold equipment with constructive
knowledge of the fact that their customers may use that equipment
to make unauthorized copies of copyrighted material.”
Id. at 439. So long as the product was “capable of substantial
noninfringing uses,” the Court refused to impute knowledge
Requiring specific knowledge of particular infringing activity
makes good sense in the context of the DMCA, which
Congress enacted to foster cooperation among copyright holders
and service providers in dealing with infringement on the
From there, the court makes a key point that we've discussed plenty of times: the only one who really knows if the material is infringing is the copyright holder:
Copyright holders know precisely what materials
they own, and are thus better able to efficiently identify
infringing copies than service providers like Veoh, who cannot
readily ascertain what material is copyrighted and what is
I feel like that quote needs to be stamped on the foreheads of copyright holders who keep trying to make everyone else become copyright cops for them. No one else knows if the work is authorized or not.
The court goes on to note that this was Congress' clear intent. Otherwise it wouldn't have made it clear that bogus DMCA notices can be ignored. That is, notices that don't provide the specific info don't make service providers liable. UMG (and Viacom) seek to flip that on its head, by arguing that if you know that something somewhere on your site may be infringing, you lose safe harbors and are suddenly liable. That's crazy and makes no sense... as the court clearly understands.
Congress made a considered policy determination that the “DMCA notification procedures
[would] place the burden of policing copyright infringement
— identifying the potentially infringing material and adequately
documenting infringement — squarely on the owners."
of the copyright.
The court notes that it sees "no principled basis" for changing Congress' intent here.
We therefore hold that merely hosting a category of copyrightable
content, such as music videos, with the general
knowledge that one’s services could be used to share infringing
material, is insufficient to meet the actual knowledge
The court goes on to remind UMG that it also doesn't own all rights to every artist signed to the label. UMG had argued that because Veoh ads popped up on searches for UMG artists, that Veoh knew it was infringing. But the court notes that's crazy.
UMG argues that Veoh’s purchase of certain
search terms through the Google AdWords program demonstrates
knowledge of infringing activity because some of the
terms purchased, such as “50 Cent,” “Avril Lavigne” and
“Britney Spears,” are the names of UMG artists. However,
artists are not always in exclusive relationships with recording
companies, so just because UMG owns the copyrights for
some Britney Spears songs does not mean it owns the copyright
for all Britney Spears songs. Indeed, 50 Cent, Avril
Lavigne and Britney Spears are also affiliated with Sony-
BMG, which gave Veoh permission to stream its videos by
these artists. Furthermore, even if Veoh had not had such permission,
we recognize that companies sometimes purchase
search terms they believe will lead potential customers to
their websites even if the terms do not describe goods or services
the company actually provides. For example, a sunglass
company might buy the search terms “sunscreen” or “vacation”
because it believed that people interested in such
searches would often also be interested in sunglasses. Accordingly,
Veoh’s search term purchases do little to demonstrate
that it knew it hosted infringing material.
From there, the court quickly dispatched each of UMG's nuttier attempts to show "red flag" knowledge (an email from a Disney CEO complaining to Eisner, some news articles mentioning that infringing content is on the site and a user complaining that Veoh wouldn't let him upload infringing content by noting that he's seen lots of other infringing content). None of those rise to the level under the DMCA that would show Veoh had red flag knowledge of specific infringing content that would remove safe harbors.
In fact, the court states again that specific (not general) knowledge of infringement is necessary, and that was clearly what Congress intended.
First, Congress explicitly stated in three different
reports that the DMCA was intended to “protect qualifying
service providers from liability for all monetary relief for
direct, vicarious and contributory infringement.” .... Under UMG’s interpretation, however, every
service provider subject to vicarious liability would be automatically
excluded from safe harbor protection. Second, Congress
made clear that it intended to provide safe harbor
protection not by altering the common law vicarious liability
standards, but rather by carving out permanent safe harbors to
that liability for Internet service providers even while the common law standards continue to evolve.
Finally, the court also soundly rejects UMG's attempt to bring Veoh's investors into the lawsuit for vicarious and contributory infringement, as well as inducement. The problem here is that since Veoh was protected by the DMCA there was no infringement that its investors could be guilty of secondarily helping to proceed:
It is well-established that “[s]econdary
liability for copyright infringement does not exist in the
absence of direct infringement . . . .”
Finally, Veoh itself had appealed the rejection of its request for attorneys fees. Here, Veoh wins a partial victory as the court says that the lower court needs to go back and review some (though not all) of that part of the ruling.
Either way, this should be a huge warning sign for why SOPA/PIPA would be a disaster. Just look at the status of Veoh today. It's out of business due to a totally bogus DMCA claim that forced it into court. At least under the DMCA, it was able to keep its site up. SOPA/PIPA set up a system whereby sites don't just have to defend themselves in court after they've already been shut down, but they can't even keep their business going at all while the process is ongoing. Given situations like Veoh and the Dajaz1 takedown, it should be quite obvious that copyright holders have a long history of killing off perfectly legal services by abusing copyright law. Giving them more ability to do so should insult basic common sense.
Last week, a single three judge panel from the 9th Circuit appeals court heard two key appeals concerning the DMCA, and specifically the DMCA's safe harbors for service providers. Lawyer Michael Barclay attended both appeals and has an excellent report and analysis of each. It's not always easy to read the tea leaves of which way judges are leaning on appeals like this, but based on both appeals, and the details of both cases, if I had to guess, I'd say that the appeals court will uphold both lower court rulings, even if this seems slightly contradictory.
If you're not aware of the details of the two cases, the Veoh case is quite similar to the YouTube/Viacom case. Veoh was a video hosting website that ended up in a lawsuit with Universal Music, who not only sued the company, but sued a bunch of its investors as well (a tactic that the record labels have tried a few times, despite the fact that investors are shielded from liability for the actions of company management for very good reasons: otherwise you'd create a massive chill on investment). The judge wisely tossed the Veoh lawsuit, noting that the company was clearly protected by the DMCA safe harbors, and the separate action against the investors was also shot down. Of course, mainly because of this lawsuit, Veoh ran out of money and was forced to shut down. It ended up selling off its assets to some other company, but a "mystery funder" (I'll give you three guesses...) showed up and continued funding the appeal.
The IsoHunt case is one that has probably received more attention. IsoHunt is one of many BitTorrent search engines out there, and it was sued by the movie studios. Given similar lawsuits, it wasn't much of a surprise when IsoHunt lost, but there were elements of the ruling that were quite troubling. It was really the first big DMCA safe harbor lawsuit to make use of the "red flag" provisions of the DMCA. Most safe harbor cases have focused on whether or not the service provider responded to notices, but in this case, the court said that there were enough "red flags" that, even in the absence of notices, IsoHunt should have blocked certain files. This is problematic for any number of reasons, as it leaves an incredibly vague standard out there that is, in many ways, incompatible with the notice-and-takedown provisions of the DMCA. The only real way to reconcile these would be to say that red flags only apply to very specific infringing works, rather than the fact that infringement takes place on the site. Unfortunately, the court didn't really do that here. It also took certain statements from IsoHunt founder Gary Fung really out of context to support the claim that he was inducing infringement under the Supreme Court's Grokster standard for inducement.
It's interesting to see that IsoHunt's lawyer, Ira Rothken, even referenced the Veoh case in his opening remarks, trying to make the claim that IsoHunt has an even stronger case than Veoh, in that IsoHunt is a pure search engine and, unlike Veoh, doesn't host or control any of the actual content. Separately, he argued that the evidence presented for inducement by Gary Fung came from 2003, but the actual infringement in the case came in 2007 -- and suggested that you can't use general inducement for specific cases of infringement. Apparently, the court was skeptical on this. It would surprise me if the court found that convincing at all, as I don't think anything in previous inducement rulings have ever suggested the inducement has to be directly tied to the infringing files. Anyway, you can listen to the IsoHunt hearing below:
The Veoh hearing, on the other hand, appeared to go pretty strongly in Veoh's favor. Universal Music's argument appeared to be that the DMCA safe harbors are meaningless, because they're kinda annoying for Universal Music. That's a bit of an exaggeration, but not by much -- and the judges aren't buying it. Universal kicks it off by ridiculously claiming that the Veoh ruling would upend copyright law. That's simply not true, and the judges immediately called Universal's lawyer on this, pointing out that copyright law and the case law in the 9th Circuit clearly puts the burden on the copyright holder to file notices, rather than expect service providers to proactively police.
Universal also argued that the DMCA only applies to backend infrastructure service providers, not every other service providers. That's a massive uphill climb there, as no court has ever ruled that. Thankfully, the judges seemed rightfully skeptical, and pointed out that this would decimate the DMCA's safe harbors (exactly what Universal Music and the RIAA wants, of course). Finally, Universal Music tried to argue (again against all sorts of precedent) that since the DMCA was merely locking in common law precedent, vicarious liability could be interpreted broadly. Again, the judges seemed skeptical, noting that this would apparently destroy the DMCA's safe harbors. From Barclay's summary:
Judges Fisher and Berzon had problems with that interpretation. Judge Fisher said that under vicarious liability principles, most commercial web sites would satisfy the “financial benefit” provision, and since in response to a takedown notice they could remove the content, that would satisfy Marenberg’s interpretation of the control provision. Both Judges Fisher and Berzon told Marenberg that under his interpretation, the safe harbor would therefore go away: Judge Berzon told Marenberg his view of the statute “kind of blown the whole thing up.”
We've actually seen a weaker, less legalistic, version of this argument made here many times before. We see people argue all the time that, for example, YouTube must be liable because it makes some money from hosting, and thus is profiting from infringement. Except, that's not what the law says. YouTube isn't profiting from infringement. It's profiting (if it's profiting) from providing a service, which is hosting and displaying videos. It makes that money whether the works are infringing or not. If Universal's interpretation of the safe harbors is correct, there are no more safe harbors online, because any for-profit company loses all safe harbors. That's clearly not what Congress intended.
Either way, you can year the Veoh hearings below as well:
I still think that the appeals court will likely uphold both lower court rulings (though, I'm only about 70% confident on that...), even if it is a bit bizarre when you compare the two. IsoHunt doesn't host or transmit any infringing content. Veoh likely did. And yet Veoh has been deemed protected, while IsoHunt was not. That seems like a questionable outcome no matter what.
Last fall, you may recall, there was a very important -- and very well argued -- ruling against Universal Music in its attempt to sue video site Veoh. The court found that Veoh was clearly protected by the DMCA's safe harbor provisions. The ruling was important on a few different points, especially since the entertainment industry has been working overtime to try to change the definition of the DMCA's safe harbors to make them effectively meaningless. Thankfully, the court put a stop to that. However, things got complicated in February, when Veoh declared Chapter 7 bankruptcy. We wondered what would happen to the appeal that Universal Music was filing, and Eriq Gardner answered:
If Veoh declares Chapter 7, a bankruptcy judge would issue an automatic stay in the case. UMG would likely file a motion with the bankruptcy court seeking relief from the stay to perfect its appeal. The trustee would engage legal counsel and make financial arrangements to cover the costs of defending the case before the 9th Circuit.
However, that's not quite what happened. The case is moving forward (with the same lawyers for Veoh -- even though the company doesn't exist), but the company never actually filed Chapter 7 bankruptcy. Joe Mullin has the latest details, which don't clear up much. Instead of filing bankruptcy, at the last minute, it sold its assets to an Israeli company, Qlipso -- but the lawsuit liabilities were separate. So, basically it's a bit of a mystery who's funding the ongoing lawsuit:
On Thursday, Elkin confirmed to Corporate Counsel that he will represent the Veoh side on appeal, even though Veoh has ceased to exist as an operating company. Elkin said he is being paid to continue handling the case, which he says has consumed him for the past three years, but declined to comment on who is paying him. He said he and his team are "working mightily" to prepare their reply brief, which is due May 20.
Just weeks before Veoh went out of business, I'd been told that the company was about to secure new funding solely to prop it up to fight this legal battle. So it's interesting that there does appear to be funding, even if no one's saying where it's coming from. Of course, it wouldn't be too hard to come up with a pretty short list of probable funders...
That said, Mullin's piece also goes through UMG's appeals filing, and it's a doozy. It effectively says that the DMCA's safe harbors don't exist, because Universal Music finds them inconvenient. I'm not kidding:
[UMG] must incur the enormous expense of constantly monitoring Veoh's internet site to identify infringing content and request its removal in order to protect their property. And the task is not limited to monitoring Veoh alone. Rather, it is geometrically larger since thousands of comparable websites must also be monitored. The task is ultimately Sisyphean; because Veoh's site, like others' is dynamic and changes day-to-day or hour-to-hour [and] as users upload more material, the task of identifying and sending notifications requesting the removal of copyrighted works would amount to an unending version of the children's game of "Whack-A-Mole."
What Universal fails to point out is that if the process is hard for it, it's actually infinitely harder for Veoh, and that's because Veoh has no way of knowing for sure if content is infringing or not. As Mullin points out, Universal's argument is effectively the same one that Tiffany has made over and over and over again against eBay -- losing every time. It's the argument that because it's too inconvenient for rightsholders to police their rights, the courts should arbitrarily force service providers to do so -- even as they have no insight into what's really infringing and what's not. In fact, you could argue that Tiffany had a stronger case, in that there aren't safe harbors when it comes to trademark issues. Universal has a huge uphill battle here.
Veoh was one of a number of online video YouTube-wannabes that, despite being connected to Michael Eisner and raising money from Time Warner and Goldman Sachs, never got very much actual traction... and... got tangled up in a lawsuit with Universal Music pretty quickly over alleged copyright infringement, despite Veoh abiding by the DMCA. Every single step of the way, Veoh basically won big in the lawsuit. Time and time again, every trick that Universal Music tried -- including suing Veoh's investors directly, was rejected by the judge, and the final ruling late last year was that Veoh abided by the DMCA and was protected by its safe harbors from Universal Music's lawsuit. It was a complete victory.
The only problem? Veoh spent a lot of time, money and effort on this lawsuit, and no one was using Veoh.
I'd heard about a month ago that the company was flat broke, but that it had a good chance of raising more money to continue fighting the appeal from Universal Music... but it looks like that fell through. The company has laid off everyone and is shutting down. Those involved with the company are blaming Universal Music... and certainly it's tempting to blame UMG and this pointless lawsuit, which definitely sucked up a ton of resources. But, let's also face facts: no one was using Veoh. When was the last time you were sent a Veoh video? I get sent videos on YouTube, Hulu, Vimeo and even DailyMotion every so often. But I can't recall ever hearing about a Veoh video.
Still, with the company declaring bankruptcy, I'm not quite sure what this would mean for Universal's appeal in the lawsuit. While the company was a total flop, the district court ruling last year set a very important precedent in clearly stating that the DMCA's safe harbors did protect such sites (like YouTube) as long as they complied with the takedown process. Without a company to continue fighting what happens to the appeal? I'm not that familiar with how bankruptcy plays into such lawsuits, so any lawyers here want to chime in and let us know....
If Veoh declares Chapter 7, a bankruptcy judge would issue an automatic stay in the case. UMG would likely file a motion with the bankruptcy court seeking relief from the stay to perfect its appeal. The trustee would engage legal counsel and make financial arrangements to cover the costs of defending the case before the 9th Circuit.
We're betting that all of this happens. The requiem on Veoh is now being written, but the company could continue to play a significant role in helping shape copyright liability for tech companies. (We wouldn't even be surprised to see Google acquire Veoh just so it could share in the fun of the action.)