Viacom, YouTube, and Inducement

Count IV in the Viacom v. YouTube complaint is for "inducement of copyright infringement." What is inducement and does YouTube induce people to infringe copyright?

Inducement is the idea that a defendant should be liable for its bad intent in encouraging others to infringe copyright. In 2005, the Supreme Court laid out the legal rule for inducement to infringe copyright in MGM v. Grokster, 545 US 913 [2005]:

We hold that one 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. Grokster, 937.

When Grokster came to the Supreme Court, it had already won before the District Court and the 9th Circuit. Both lower courts applied the rule from Sony v. Universal (the famous Betamax case) that:

the sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes

It's amazing to think that, had the Sony decision gone the other way (it was a 5-4 decision), there might never have been a VCR. Fortunately, SCOTUS in Sony realized that, while some people would use the Betamax to illegally copy TV shows, plenty of copyright owners condoned such taping and some recordings would fall under fair use. Because Sony couldn't know how people would use the Betamax, it would not be held contributorily liability for copyright infringement by Betamax users so long as the Betamax was capable of substantial non-infringing uses.

Grokster was a provider of p2p file-sharing software and was sued for contributory and vicarious infringement. The District Court and the 9th Circuit both likened p2p software to the Betamax and, finding that p2p file-sharing was capable of substantial non-infringing uses and that Grokster didn't know beforehand how its p2p software would be used, granted summary judgment in favor of Grokster, finding it not liable under the rule from Sony. SCOTUS disagreed with this result and reversed, finding that the lower courts had misapplied Sony:

Sony barred secondary liability based on presuming or imputing intent to cause infringement solely from the design or distribution of a product capable of substantial lawful use, which the distributor knows is in fact used for infringement. The Ninth Circuit has read Sony's limitation to mean that whenever a product is capable of substantial lawful use, the producer can never be held contributorily liable for third parties' infringing use of it. Grokster, 934

In short, SCOTUS said in Grokster that Sony means an "intent to infringe" would not be imputed to a manufacturer who creates a product that can be used to infringe, but which also has legal uses. This is a far cry from saying that intent is irrelevant so long as the product is capable of substantial lawful use, which is what the 9th Circuit held in finding for Grokster. The 9th Circuit wanted to give manufacturers immunity, while SCOTUS wanted to preserve the ability to punish bad actors.

But wait, I thought copyright infringement was a strict liability crime (you either copied or you didn't), so why all the intent discussion? In Grokster, there was ample evidence that Grokster was a classic bad actor, so bad as to warrant punishing it for its bad intent. SCOTUS found that:

Grokster and StreamCast are not, however, merely passive recipients of information about infringing use. The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software, each one clearly voiced the objective that recipients use it to download copyrighted works, and each took active steps to encourage infringement. Grokster, 924.

Among its bad acts was that it actively sought ex-Napster users, claimed that it was the next Napster, directed searches for "Napster" to Grokster's site, and even it's name is reminiscent of Napster. Further, SCOTUS found its business model highly suspect as it received no revenue from users and didn't charge for its software; all revenue came from advertising, which was tied to the number of using the service, which was largely influenced by the ability to download copyrighted material. Plus, when contacted about infringing works being available on the network, Grokster did nothing. Based on this evidence, it was clear to SCOTUS that Grokster existed almost entirely as a tool to infringe copyright based on its acts, intentions, and business model. The lesson: if there's an outside chance your company may be in the infringement business, you better not be a bad actor because a court will massage the law to make it punish you.

It appears that the reason the court focused so much on the intent, and introduced us to the inducement rule, is that contributory infringement might not have been enough for Grokster. Besides direct infringement and vicarious infringement, the third way to be found liable for copyright infringement is through a contributory infringement claim, which requires that the defendant, (1) with knowledge of the infringing activity of another, (2) induces, causes or materially contributes to that infringing conduct. The inability of this test to deal with Sony led to its unique rule, and its inability to deal with Grokster led to the inducement rule, If one is making a product that can be used in both ways that infringe and ways that don't, there is no way to know in advance how a given user will use it. So rather than rely on contributory infringement in finding against Grokster (partly because of that pesky knowledge problem), SCOTUS instead focused on the intent and the common law:

nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law... Thus, where evidence goes beyond a product's characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony's staple-article rule will not preclude liability. Grokster, 935

In order to effectively punish Grokster for its bad acts, SCOTUS found a way to focus on all the evidence of Grokster's bad intent to hold it liable for the infringement caused by its users. It's worth noting that the Grokster case focused only on the most current version of its software, and not its previous versions that arguably made Grokster look much worse, the evidence of which would not be applicable under the three standard copyright infringement claims. Thus, SCOTUS borrowed the inducement test codified in patent law (the Sony staple-article rule was also adapted from patent law), and found that:

evidence of "active steps . . . taken to encourage direct infringement," Oak Industries, Inc. v. Zenith Electronics Corp., 697 F. Supp. 988, 992 (ND Ill. 1988), such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe, and a showing that infringement was encouraged overcomes the law's reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use. Grokster, 936.

Focusing on intent allowed the full scope of Grokster's bad acts to be analyzed by the Court. This break from standard avenues for holding parties liable for the infringement of others can also be seen from the majority opinion's conclusion:

MGM's evidence in this case most obviously addresses a different basis of liability for distributing a product open to alternative uses. Here, evidence of the distributors' words and deeds going beyond distribution as such shows a purpose to cause and profit from third-party acts of copyright infringement. If liability for inducing infringement is ultimately found, it will not be on the basis of presuming or imputing fault, but from inferring a patently illegal objective from statements and actions showing what that objective was. Grokster, 941.

Regarding inducement as in the Grokster decision, the question is then whether YouTube is more like Grokster or more like Sony. For YouTube to fall under the Grokster rule, Viacom would have to show that it marketed itself to users as a means to infringe copyright, that it's business model was based on advertising tied to a large number of users engaging in copyright infringement, and that it was unresponsive to notices of infringing material. If YouTube is more like Sony, than the staple-article doctrine would apply and it would not be liable for infringement so long as its service is capable of substantial non-infringing use. Of course, a court could rely on other factors that indicate bad intent if it were inclined to find against YouTube.

As to YouTube's marketing, I am unfamiliar with any overt attempts to attract users by advertising the ability to infringe copyright. However, YouTube did gain notoriety when the SNL clip of Lazy Sunday was uploaded and the press coverage that surrounded it undoubtedly introduced plenty of people to the site. But does press coverage of an infringing video and the resulting takedown notification count as an advertisement selling YouTube as a place to infringe? That seems like a stretch to me at least. Certainly, advertising the site as a free place to upload videos, any videos even, doesn't seem as bad as what Grokster did. Rather, it seems more akin to Sony's actions in marketing the Betamax. If marketing a site like YouTube counts as inducing others to use the site to infringe, then any other sharing site (ie. Flickr), and possibly any other site that allows users to submit content, would also be inducing copyright infringement.

It's interesting to note how SCOTUS found Grokster's business plan to be evidence of an intent to induce others to infringe because it didn't charge users for its service and relied on advertising revenues. If that reasoning holds, then nearly every Web 2.0 company out there is inducing others to infringe copyright. The YouTube business model certainly fits the Grokster mold, so that would be bad news for YouTube. On the other hand, YouTube has struck licensing deals with several content providers, most recently with the BBC, which helps distinguish it from Grokster. That YouTube was bought for $1.6 billion, yet only made $15 million last year, well, who knows how a court will make sense of that.

Further, YouTube does respond when it is informed that infringing videos are on its site. The DMCA safeharbors under section 512(c) require it and, so far as one can tell, YouTube has followed the processes outlined in 512(c) to the letter. Complaints to the contrary focus on filtering software, or the lack thereof to companies that don't have deals with YouTube, but the extent that filtering software is an issue under the DMCA has yet to be resolved. It would be tragic if a bad intent could be found by complying with a statute lobbied for by big media companies and passed by Congress.

Nothing in the Viacom complaint seems to allege anything that is sufficient for YouTube to fall outside of Sony and under the Grokster rule. The reasoning in the complaint under Count IV is that (1) YouTube users are uploading Viacom videos, (2) YouTube knows that Viacom owns videos, (3) YouTube knows that these videos are owned by Viacom, (4) and thus that YouTube intends for its users to upload Viacom's videos. In short, because everyone knows these videos are up on YouTube (even YouTube itself knows this), users are induced to watch these videos and to upload more. It's debatable as to whether this actually induces copyright infringement, in the abstract at least, but I think SCOTUS made clear that such roundabout ways of finding intent to induce would be inadequate, for the:

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, and thus does nothing to compromise legitimate commerce or discourage innovation having a lawful promise. Grokster, 937.

That being said, it would seem that offering users free video hosting service with the hope of paying for the bandwidth through advertising would constitute innovation having a lawful purpose, especially given that plenty of YouTube is filled with random home movies, videos that copyright owners allow to be posted, and videos subject to licensing agreements. In Grokster, a lot was made about the fact that 90% of the material available on Grokster was infringing, but it's worth noting that Sony was only able to show that 10% of uses would be non-infringing. More than 90% of YouTube is legit, and coupled with no bad intent like Grokster, one would imagine it being ok.

Instead of clarifying how courts should view intent and inducement in copyright infringement, the Grokster decision muddied the waters a bit by not providing a clear rule that allows parties to effectively gauge the legality of their actions in designing new products. The Grokster principle exists, but it's application to YouTube is difficult to judge. Based on the complaint and what we know about YouTube, it doesn't appear that YouTube is as bad an actor as Grokster was, but that doesn't mean that creative judges will find the same. All that can be said for certain is that Viacom needs to show plenty more evidence for YouTube to fall under the Grokster ruling, but then again, Viacom may have plead just enough as is so as to have the claim survive YouTube's inevitable motion for summary judgment.