Cyberlocker Responds To MPAA Lawsuit Which Tries To Give Hollywood A Veto On Tech It Doesn't Like

from the it-shouldn't-be dept

Ever since the Supreme Court's Grokster decision, in which it made up a non-legislative "inducement" standard for copyright infringement (a standard, it should be noted, that Congress had a chance to put into law, but declined), the entertainment industry has tried to expand what "inducement" actually means. In the entertainment industry's general definition, it appears to mean "anything we don't like" or "anything that challenges our existing legacy business models." Case in point: cyberlockers. The MPAA has been screaming about "cyberlockers" as this new horrible piracy scheme for a couple years now, ignoring (of course) that cyberlockers serve important and useful legitimate functions in allowing people to share large legal digital files. Like many people, I've used cyberlockers to share PowerPoint presentations, photos and videos I've taken. They're incredibly useful and have significant non-infringing purposes.

However, obviously, those tools can (and perhaps frequently are) used for infringement as well. But, we already have laws to deal with that. The DMCA's notice-and-takedown provision allows copyright holders to alert service providers, who then need to takedown the content. A couple months ago, however, the MPAA went after Hotfile, one of the larger cyberlockers out there, with what struck me as a surprisingly weak case. It was as if whoever wrote the filing didn't quite understand how cyberlockers work, made a bunch of (mostly really bad) assumptions, and then twisted the facts in the most ridiculous possible way to make a case that Hotfile "induces" infringement.

For example, the MPAA claimed that because Hotfile charges fees for premium service, that's a sign of inducement. But that makes no sense. Plenty of online services charge for premium accounts, and since there are real marginal costs here, it makes basic economic sense for cyberlockers to charge premium users for additional services. That has nothing to do with infringement. Separately, the MPAA tries to spin the fact that Hotfile encourages people to use it to share widely, claiming that no legitimate "backup" service would do that. But, the MPAA is (incorrectly) assuming that Hotfile is a backup service. It's not. It's a tool for sharing digital files. None of that adds up to inducement.

The Supreme Court tried to dance around the earlier Betamax ruling, in which it allowed the VCR to exist because it had "substantial non-infringing uses," by creating a specific "standard" for inducement, which (as standards go) is pretty vague:
"[O]ne who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties . . . [but] mere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as offering customers technical support or product updates, support liability in themselves. The inducement rule, instead, premises liability on purposeful, culpable expression and conduct . . . ."
Basically, the Supreme Court says that you have to do something to specifically purposely encourage infringement. Just because your service is used for infringement, that doesn't cut it. Grokster and others lost because there were signs that they advertised or marketed their services specifically for infringement. In the Hotfile case, the MPAA didn't seem to be able to show that at all.

So it's not surprising that Hotfile is fighting back pretty hard on the lawsuit, pointing out that (1) it meets the Betamax standard of significant non-infringing uses, but (2) doesn't come anywhere near the inducement standard of purposefully inducing infringement. The company notes that it promptly responds to DMCA notices and is quick to take down content, once made aware that it's infringing. It notes that providing a legitimate data storage business is not against the law, and it doesn't appreciate the MPAA's insinuations. It goes through the specifics of the Grokster ruling, which clearly don't apply to Hotfile. In fact, they note that one of the reasons Grokster ran into trouble was because it didn't receive revenue directly from users -- and now the MPAA is trying to use the exact opposite argument (that Hotfile does get money from users) to argue it's the same as Grokster?

Similarly, it points out how the fact that Grokster, Isohunt, Limewire and others have had a search function has been one of the key points used against those services to "prove" inducement. The courts have reasoned that since they allow searches for any file, they're "inducing" infringement. Yet, with Hotfile, there's no search. That should settle the issue... but this is the MPAA we're talking about, and so they twist the lack of a search engine into a charge that Hotfile "concealed" the content its users uploaded.

Sued if you do. Sued if you don't.

This seems like a pretty strong filing in response to a clear attempt by the MPAA to twist and extend "inducement" theory way beyond what was intended by the Supreme Court. Hopefully the courts recognize this, but you never know when it comes to these kinds of cases. As Professor Eric Goldman is fond of pointing out, there's regular copyright law, and then there's file sharing copyright law, in which the judges creatively reintepret the law to make activities they don't like illegal, rather than following the actual law.

Either way, this case could become important in determining the boundaries of what really is "inducement." If the MPAA gets its way, it will effectively erase the Supreme Court's Betamax ruling, because it will mean that even if you have substantial non-infringing uses, if there are a lot of people using it for infringement, even if you did not push them to use your service for that particular reason, you automatically become liable. This is a complete fabrication by the MPAA who appears to effectively want to overturn the Betamax ruling here by suggesting that if enough people are infringing, you're automatically guilty of inducement, because any action you do (have a search engine? yes! don't have a search engine? yes!) is interpreted as inducement.

Filed Under: copyright, cyberlockers, inducement, infringement
Companies: hotfile, mpaa

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  1. icon
    Karl (profile), 8 Apr 2011 @ 6:25am

    Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re:

    Considering if my first sentence is true, the MPAA might then turn to arguing that Hotfile does have a database showing all filenames and file sizes on their server. But in my opinon, if there's no file hash system in place as well, Hotfile couldn't be sure if those files matched or that the name and size was mere coincidence, and removing access or deleting those files could be a setup for a breach of contract suit.

    A couple comments about this.

    First of all, if Hotfile does have some sort of virtual mirroring system on their computers, then they would in fact be liable for taking these down as well. This, I'm sure, would be included in (iii) as being "actual knowledge."

    However, such "virtual mirroring" would almost certainly be in the web server software (or even OS) itself, so disabling access to one should disable access to all the "mirrored" files as well.

    So I'm not sure what the other AC means. If users are uploading the same file twice, then of of course Hotfile would need to be notified, via a DMCA notice, that the files were the same. If he means something different, then I'm not sure what is going on.

    I'm not familiar with how Hotfile works, so maybe I'm missing something.

    Second of all, if Hotfile does not have some sort of database of equivalent files, they are under absolutely no obligation to put one in place. Just making that clear.

    Third of all, if Hotfile did delete or remove access to files, they wouldn't be liable to their users, either. They are exempt from liability under 17(g)(2). Of course, there are rules there as well - they have to notify the allegedly infringing user, allow that user to file a counter-notice, and if the user does, they have to put the material back up within 10 days. If Hotfile does this, the worst that can happen to them is that users cancel their Hotfile accounts.

    If the person who accuses copyright infringement does so fraudulently, that person is on the hook for damages and attorney's fees to Hotfile.

    In theory, such a person could also be engaging in criminal behavior under 506(c), and faces a $2,500 fine. But good luck getting anyone to prosecute.

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