Second Circuit Affirms Standard for “Red Flag” Knowledge of Infringement, But Opens Door for YouTube’s Copyright Liability

In a case that required the court to “clarify the contours of the “safe harbor” provision of the Digital Millennium Copyright Act (DMCA),” the U.S. Court of Appeals for the Second Circuit on April 5, 2012, continued a line of cases that place the burden on content owners to alert service providers to specific infringements residing on the service providers’ systems.

This case pertains to approximately 79,000 audiovisual clips that appeared on YouTube between 2005 and 2008, e.g., Premier League (soccer), Family Guy, South Park, MTV Cribs, Reno 911 and Chappell Show.

The U.S. District Court for the Southern District of New York previously held that YouTube was entitled to the DMCA’s safe harbor in §512(c), which covers user-generated content. This is only available if the service provider:

(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing [“actual knowledge”];

(ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent [“red flag knowledge”]; or

(iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to the material.

The Second Circuit affirmed the District Court’s holding that “actual knowledge” and “aware[ness] of facts or circumstances” that would disqualify an online service provider from the safe harbor refers to “knowledge of specific and identifiable infringements.”

In so holding, the Second Circuit was persuaded by the language of (iii). “The nature of the removal obligation itself contemplates knowledge or awareness of specific infringing material, because expeditious removal is only possible if the service provider knows which items to remove.”

Plaintiffs urged the court to adopt the contrary proposition that the red flag provision requires less specificity than the actual knowledge provision. Plaintiffs argued that requiring awareness of specific infringements in order to establish awareness of facts or circumstances from which infringing activity is apparent renders the red flag provision superfluous, because that provision would be satisfied only when the actual knowledge provision is also satisfied. The court was not moved by this argument, stating that, “[t]he difference between actual and red flag knowledge is thus not between specific and generalized knowledge, but instead between a subjective and an objective standard.”

Regardless of the Second Circuit’s reasoning, the result is that actual knowledge and red flag knowledge are satisfied only when the service provider has knowledge of specific and identifiable infringements. This is generally consistent with other recent cases construing the same statutory provision. See, e.g., Capitol Records, Inc. v. MP3tunes, LLC, __ F.Supp. 2d __, 2011 WL 5104616, at *14 (S.D.N.Y. Oct. 25, 2011). Even if a defendant is not only generally aware of, but welcomes, copyright infringing material to be placed on its website, it is entitled to the DMCA safe harbor so long is it does not have knowledge of specific and identifiable infringements.

Although the Second Circuit agreed with the District Court’s construction of the safe harbor, it disagreed with the District Court’s application, reversing an award of summary judgment in YouTube’s favor on claims of direct and secondary copyright infringement. According to the Second Circuit, “a reasonable jury could find that YouTube had actual knowledge or awareness of specific infringing activity on its site.” Among the evidence that the Second Circuit used in reversing summary judgment were indications that YouTube’s founder Jawed Kim was aware of specific clips that he perceived to be “blatantly illegal.”

Although its affirmation of the standard for red flag knowledge of infringement was arguably the most significant portion of the decision, the Second Circuit instructed the District Court to consider whether the defendants made a deliberate effort to avoid guilty knowledge (“willful blindness”) on remand. Further, the Second Circuit held that the District Court erred in importing a specific knowledge requirement into the control and benefit portion of the safe harbor, which states that an eligible service provider must, “not receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity.” 17 U.S.C. § 512(c)(1)(B). Finally, the Second Circuit reversed the District Court’s holding that all of YouTube’s software functions fell within the safe harbor for infringements that occur “by reason of” user storage, remanding for further fact finding to determine whether YouTube’s transcoding of certain videos into a format compatible with mobile devices and licensing thereof were activities not at the “direction of a user.”

Notwithstanding the Second Circuit’s “clarifications”, questions linger with respect to the outer reaches of the safe harbor provision, especially with respect to its relationship with inducement liability. These reaches may be explored in cases involving sites such as Grooveshark, which has been accused of failing to properly compensate artists, while unfairly exploiting loopholes in copyright law.

In the short term, however, this decision may embolden business models built on infringing content. Under the Second Circuit’s construction of the safe harbor provision, websites are required to take down infringing content only when they have knowledge of specific and identifiable infringements-general awareness is not enough. Until the content owner sends a notice of claimed infringement under the DMCA, the website need do nothing to remove the infringement and instead may continue to reap the benefits that the infringing content provides: increased user base and advertising revenue. Further, even after the infringing content is removed, another user can post the infringing content again without liability to the website. These businesses even use their leverage to negotiate with content owners for one-sided licensing arrangements.


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