This Panel Opinion is a classic case of bad facts making bad law. Amicus Electronic Frontier Foundation does not file this brief to dispute the Court's factual conclusions regarding the conduct at issue in this case. However, the Panel Opinion went far beyond what was necessary to address that conduct. As a result, it has created new legal uncertainty for online service providers and their customers, undermining over a decade of legislation and jurisprudence designed to help reduce that uncertainty. A predictable legal environment has proven to be crucial not only the growth of the Internet generally, but the growth of innovative platforms for free expression, in particular. This case should not provide a vehicle to impede that development.

Most important, the Panel Opinion adopts a "loose causation theory" that disconnects the scope of inducement liability from the defendants' acts—raising the troubling possibility that a single inducing act (such as a message to one customer) could open the floodgates to liability for third-party infringement entirely unrelated to that act. The Opinion's loose causation theory conflicts with fundamental common law principles of proximate cause essential to both predictability and fairness. The Panel's decision to depart from those principles was apparently based on the unfounded assumption that the Supreme Court's decision in Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005) requires it. Not so. First, Grokster expressly recognized that secondary liability under copyright derives from common law principles. Second, given that Grokster's specific inducement standard was imported from patent law, it is more likely that the Court also intended to import the analytical framework patent law applies where, as here, a service is capable of both infringing and non-infringing uses.

There is a danger that this passage could be misconstrued to stand for a broader proposition that we do not believe the panel intended: that any time an online service provider is found to have exercised "substantial influence" over any user-submitted content on its service—no matter what that finding was based on—it thereby loses its DMCA safe harbor protections for all user-submitted content on the entire service. This is how some copyright plaintiffs have already tried to read the panel's ruling. In a recent submission to the Southern District of New York in the Viacom v. YouTube case, for example, the plaintiffs have asserted, citing the panel opinion, that this Court “made clear that where DMCA eligibility is unavailable due to the right and ability to control prong of the safe harbor, the DMCA defense is broadly lost as to all clips in suit.” Ltr. from Paul M. Smith to Hon. Louis L. Stanton at 2 (March 22, 2013) (attached as Ex. 1).

Imagine, for example, a video-hosting service that was otherwise eligible for the section 512(c) safe harbor, but that on one occasion commissioned a particular user to upload a video that, unbeknownst to the service, turned out to be infringing. A court might conclude that the service exerted a “substantial influence” over that instance of infringement and, if the service earned a direct financial benefit from it, there would be grounds for denying the safe harbor for a claim based on that video. But it would make no sense to thereby disqualify the service provider from DMCA protection across the board—even for countless other videos whose posting it did not control or from which it earned no benefit.

Likewise, consider a search engine eligible for protection under the section 512(d) safe harbor for linking to infringing material online. If one of the millions of links provided by the search engine pointed users to infringing material that had been authored by the search engine itself and that users were charged to view, a finding of control plus financial benefit might be warranted for that particular link. But, again, there would be no plausible basis for categorically depriving the service of the safe harbor for the millions of unrelated links it delivers to material that it does not control or financially benefit from.

Metro areas that produce a lot of patents—and the inventiveness that that implies—are more likely to see above-average gains in population, productivity, jobs, and education, according to a report from the Brookings Institution, a nonprofit research and policy think tank. And the bottom fourth of metro areas, the ones that produce the fewest patents, could gain as much as $4,300 per worker over a decade if they amped up their patent production to match the top fourth.

“If we were able to get the roughly 250 metropolitan areas that do very little patenting up to the level of the 100 that do a great deal of patenting, we’d be richer in an extraordinary way,” says Jonathan Rothwell, a lead researcher on the study. “It would make really a huge difference to economic development.”

These conclusions are unwarranted given the model and findings expressed in the paper. To see that this is the case, assume temporarily that patents do nothing to incentivize real innovation, and that they merely transfer wealth from consumers at large to the patent holder through firm profits. If this were the case, then we would find that measured output per worker was higher in metropolitan areas with more patents—exactly what the authors found!—because they are gaining profits at the expense of consumers in metropolitan areas with fewer patents. In other words, the authors could be laboring under a fallacy of composition. Just because patents enrich the MSAs that generate them doesn’t mean that they are a source of prosperity for the nation as a whole or that they increase social welfare.

Alternatively, assume temporarily that patents do nothing to incentivize real innovation, but that firms that produce valuable innovations must defensively patent them to avoid being taken to court for using their own inventions. If this were the case, then patents would correlate with real innovation, and therefore with output per worker, but they would not cause an increase in productivity. In addition, at least some of the measured increase in output would come from an influx of highly-paid intellectual property attorneys, which by assumption does not represent real added productivity. Note that the top-patenting MSA in the study is Silicon Valley, the part of the country where people are most concerned about defensive patenting. But the word “defensive” does not appear even one time in the report, the appendix, or the working paper.

The authors have done nothing to identify the effect of patents on productivity, which is to say, nothing to rule out either of the possible assumptions above. They are simply relying on the assumption that more patents means more innovation.

Right up front, I think it is important to keep in mind that our study aimed to examine the effects of invention rather than the effects of patents themselves. Hundreds of economic papers have been written that use patents as a proxy measure of invention (based on detailed firm and industry level analysis), so I think that is fairly uncontroversial.