New ISP Liability

New Jersey Law Journal, July 23, 2001

Copyright 2001 American Lawyer Newspapers Group, Inc.
New Jersey Law Journal

July 23, 2001

LENGTH: 2211 words

HEADLINE: Intellectual Property Infringement by ISPs Internet service providers could be liable for infringement under the Digital Millennium Copyright Act


*Three years ago, Congress passed the Digital Millennium Copyright Act and established a safe harbor for Internet site operators and service providers that limited or eliminated liability for using content, or for linking to another Web site that contained content, that infringed on a copyright. As a result, thousands of businesses flocked to the Internet. A recent court of appeals decision, however, stuck a pin in the balloon when it held that an Internet service provider could be liable for infringement -- even if it had fully complied with the DMCA.
*As a result of this decision, ISPs may no longer rely on the safe-harbor provisions of the DMCA to protect them from infringement liability. In particular, the immunity will not apply to an ISP that has been put on notice of infringing activity on its system, even if the notice is insufficient. Thus, the DMCA's protection of an innocent service provider disappears at the moment the service provider is informed that a third party is using its system to infringe.
*In a case of first impression, ALS Scan, Inc. v. RemarQ Communities, Inc., 239 F.3d 619, (4th Cir. 2001), the Fourth Circuit held recently that despite the defendant's compliance with the safe harbor provisions, it was not allowed to exploit the immunity defense offer by the DMCA. Such judicial action suggests that thousands of companies should reconsider their liability for Internet content; the DMCA's safe harbor may no longer be safe.
*Before enactment of the DMCA, courts were able to hold ISPs liable for copyright infringements committed by their subscribers. The argument supporting such liability claims was that the risk of copyright infringement is simply a byproduct of Internet services offered by ISPs.
*Under the principles of enterprise liability, ISPs should internalize losses resulting from the risk of copyright infringement as a cost of doing business. See George L. Priest, The Invention of Enterprise Liability: A Critical History of the Intellectual Foundations of Modern Tort Law, 14 J. LEGAL STUD. 461, (1985) (relating the rise of enterprise liability as a theory of tort law). In other words, by exposing an ISP to infringement litigation, ISPs would be deterred from engaging in such infringement.
*In addition, three copyright doctrines offer reasonable support for the general idea of ISP liability. First, the ISPs' control of the hardware and software that stores and transmits copies of copyrighted material may be enough to make ISPs directly liable as copyright infringers, with or without a finding of liability against the user. Second, the relationship between an ISP and its customers gives rise to an ISP's vicarious liability. Third, an ISP might face contributory liability if it knowingly provides Internet service to a subscriber who is committing copyright infringement.
Congressional Action
*In spite of these theories, Congress was convinced that ISPs should not be liable under certain circumstances and created the DMCA, which creates four limitations on liability for copyright infringement by site operators and service providers. These limitations effectively resulted in a complete bar on monetary damages for direct, contributory and vicarious infringement and also restricted the availability of injunctive relief. See 17 U.S.C. ' 512.
*The DMCA grants the protection of this safe harbor if the site operator or service provider lacks actual knowledge of the material's infringing nature and is not aware of facts or circumstances from which infringing activity is apparent. It should be noted in order to claim the protections of these safe harbors, site operators and service providers are not required to monitor the Web sites to which they link or to affirmatively seek facts indicating infringing activity.
*Once aware of infringement, however, the Internet site operator must act rapidly to remove the infringing material in accordance with the notice and take-down provisions of the DMCA.
ALS Scan
*In ALS Scan, the Fourth Circuit reversed the District Court when it found that an ISP, which was given an infringement notice that substantially complied with the act, "may not rely on a claim of defective notice to maintain the immunity defense provided by the safe harbor." In short, the court found that the ISP could be liable for copyright infringement even though it had complied with the DMCA's requirements.
*ALS Scan, Inc. maintained an Internet site where subscribers could pay for access to copyrighted adult images. Defendant RemarQ Communities Inc. provided a system where users could post materials. ALS sued RemarQ after it refused to block access to users posting infringing copies of ALS photographs. The U.S. District Court for the District of Maryland granted summary judgment to RemarQ, after finding that RemarQ was entitled to immunity as an ISP under the DMCA and ALS failed to comply with the "notice and takedown" provisions of the DMCA.
*The District Court in this matter held that RemarQ was not liable for contributory infringement because ALS Scan failed to comply with the notice requirements set forth in the DMCA, 17 U.S.C. ' 512(c)(3)(A). ALS Scan contended that the District Court erred in dismissing its direct copyright infringement claim.
*In rejecting ALS Scan's direct infringement claim, the District Court relied on the decision in Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361 (N.D. Cal. 1995), which concluded that when an Internet provider serves, without human intervention, as a passive conduit for copyrighted material, it is not liable as a direct infringer.
*ALS argued that the better reasoned position, contrary to that held in Netcom, is presented in Playboy Enterprises, Inc. v. Frena, 839 F. Supp. 1552 (M.D. Fla. 1993), which held a computer bulletin board service provider liable for the copyright infringement when it failed to prevent the placement of plaintiff's copyrighted photographs in its system, despite any proof that the provider had any knowledge of the infringing activities.
*In reversing the District Court, the Fourth Circuit disregarded the safe- harbor nature of the immunity set forth in the DMCA by finding that copyright holders need only substantially comply with notice requirements set by Congress. This finding was made despite the fact that it is stated in the DMCA: "To be effective under this subsection, a notification of claimed infringement must be a written communication provided to the designated agent of a service provider that includes substantially the following." 17 U.S.C. ' 512(c)(3)(A).
*In this case, even though the ISP had received defective notice of infringing materials on its system, it could not avail itself of the DMCAs safe harbor because the court found that substantial compliance with the act's notice requirements was sufficient.
*Title II of the DMCA limits copyright infringement liability for Internet service providers. In particular, provisions are made for limiting liability for copyright infringement resulting from transitory digital network communications, system caching and information residing on networks at the direction of users, as well as information location tools, including hypertext linking.
*The DMCA's so-called safe harbor for online service providers and Internet service providers is a statutory exchange of action for immunity. Congress used the safe-harbor provision to provide a strong incentive for OSPs and ISPs to control their users at the request of allegedly aggrieved right holders. This action was in exchange for the negation of their own possible liability. As a result, OSPs and ISPs are required to take down content when notified by the allegedly aggrieved right holder.
*No remuneration for the ISPs or OSPs was contemplated other than immunity. A grant of a motion for summary adjudication under 17 U.S.C. '512(a), the safe- harbor provision of the DMCA, was contemplated as the major benefit for complying with the DMCA.
*ALS Scan admitted that it did not comply with the DMCA. RemarQ claimed that due to the inadequate compliance with the DMCA it had no way of knowing what to eliminate. This claim was substantiated by a finding that the infringing material in question was commingled with noninfringing material.
*Nevertheless, rather than giving the statutory immunity associated with compliance with all the safe-harbor requirements, the court found that the safe-harbor provision only provides substantial rather than perfect immunity. The case was remanded for further proceedings on ALS Scan's copyright claims and any additional affirmative defenses from RemarQ.
*The DMCA adds a new section to the remedies chapter of the Copyright Act. This new section (512) exempts online service and access providers from liability for damages for copyright infringement and significantly reduces the scope of injunctive relief. This section only is applicable if the providers meet the statute's cumulative factors assessing the independence of the providers from the infringing content they transmit or host. Failure to comply with '512 does not by itself subject the service provider to liability for copyright infringement; '512 offers a safe harbor, but a nonqualifying provider must still be proved to have infringed and may still invoke traditional copyright and other defenses.
*The DMCA explicitly provides limitations on liability for ISPs regarding copyright infringement. Section 512(a) as amended by the DCMA states that an ISP is not liable for copyright infringement "by reason of the provider's transmitting, routing, or providing connections for, material through a system or network controlled or operated by or for the ISP, or by reason of the intermediate and transient storage of that material" in performing this service.
*This limitation is conditioned on six factors: (1) the transmission being at the request of a person or entity other than the ISP; (2) the selection of the material transmitted by a person or entity other than the ISP; (3) the selection of the recipient of the material transmitted by a person or entity other than the ISP; (4) the ISP not maintaining a copy accessible to anyone other than the requesting party; (5) the ISP not maintaining a copy longer than is reasonably required for the transmitting, routing, or provision of connections; and (6) the ISP transmitting material without modification.
*The plain meaning of '512(a) insulates ISPs from claims of contributory copyright infringement resulting from aiding users in accessing material on the Web. Section 512(b) limits ISPs' liability regarding system caching, which involves storing a copy of material in the system as a result of a request. In particular, '512(b)(1) provides that an ISP is not liable "for infringement of copyright by reason of the intermediate and temporary storage of material on a system or network controlled or operated by or for the service provider."
*This language protects ISPs from claims of direct infringement for storing copies, or equivalently reproductions, of the work on the ISP systems as a result of a user's request. This protection is conditioned on: (1) the material having been made available on the Web by someone other than the ISP; (2) the material being transmitted at the direction of someone other than the ISP; and (3) the storage occurring as part of an automatic process for the purpose of making it available to the users.
*In addition, the ISP must not alter the material, must comply with any requirements imposed by the person making the material available on the Web and must ensure that any access requirements such as passwords for users are met. Further, the ISP must disable access expeditiously if notified that the material was made available without authorization of the copyright holder.
*But beware: The Fourth Circuit's finding appears to contravene the intent of Congress. ALS Scan is a most significant case for ISPs and copyright holders because it severely limits the benefits associated with the DMCA. It is likely to have an immediate chilling effect on ISP content.
*It has a secondary impact as well, with respect to judicial action. Normally, courts refrain from changing any publicly available statutory standard adopted in good faith to implement the requirements of the law. This is particularly true when the provision in question is known in the congressional record to be a safe harbor.
*Finally, this case could have the effect of reducing the incentive for networks to police themselves and may result in an increase in judicial involvement.
*The court understood that the issue was whether an Internet service provider enjoys a safe harbor from copyright infringement liability when it is put on notice of infringement activity on its system by an imperfect notice. Thus, it knew that it was dismantling a safe harbor.

LOAD-DATE: July 23, 2001