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."

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 whole.

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.

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.

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.

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.

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 not.

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.

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.

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.

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.

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 materials.

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...

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

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 of infringement....

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 Internet...

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 not.

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.

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 requirement

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.

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.

It is well-established that “[s]econdary liability for copyright infringement does not exist in the absence of direct infringement . . . .”

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.”

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.

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.

[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."

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.)

Here, Veoh has simply established a system whereby software automatically processes user-submitted content and recasts it in a format that is readily accessible to its users. Veoh preselects the software parameters for the process from a range of default values set by the third party software... But Veoh does not itself actively participate or supervise the uploading of files. Nor does it preview or select the files before the upload is completed. Instead, video files are uploaded through an automated process which is initiated entirely at the volition of Veoh's users