Knobbe Martens Olson & Bear LLP - Intellectual Property Law

WHO WANTS TO SUE A MULTI-BILLIONAIRE: GOOGLE'S RISKY VENTURE INTO YOUTUBE
By: Jonathan A. Hyman [FNa1]

Shortly before Google bought YouTube for $1.65 billion, Internet entrepreneur Mark Cuban said that only a "moron" would purchase YouTube as he thought it would be "sued into oblivion" because of copyright violations. Cuban felt that the only reason YouTube had not been used by major content providers was because there were no deep pockets to go after. All of that changed when Google stepped up to the plate. Google has acknowledged rumors that it set aside approximately $200 million of the YouTube purchase price to cover legal defenses of the site. The question facing Google is whether that will be enough.

Most content providers have decided to play nice with Google by signing licensing deals to allow their content to be hosted on YouTube in exchange for a share in the revenue generated from ads associated with the content. Yet other major content providers are unable to sue YouTube due to their ownership of sites that do exactly what YouTube is doing, such as News Corp., which owns MySpace. A ruling adverse to YouTube could vastly affect MySpace and numerous other sites which allow users to post content. However, in March 2007, Viacom became the first major content producer to sue YouTube, the second lawsuit filed against the most popular video-sharing site on the web. The first suit, inherited by Google, was filed by Robert Tur of the Los Angeles News Service before the purchase.

Tur v. YouTube

Tur filed suit against YouTube seeking removal of his copyrighted videos of the beating of Reginald Denny and the OJ Simpson car chase. He also sought damages on the ground that YouTube intentionally induces copyright infringement, relying primarily on Supreme Court's decision in Grokster. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 125 S. Ct. 2764 (2005). In Grokster, the Supreme Court held that if a company distributes a product with the object of promoting its use to infringe copyrights, as shown by clear expression or other affirmative steps taken to foster infringement, then the company can be liable.

Viacom vs. YouTube

Viacom sued YouTube after Viacom and YouTube could not come to an agreement over splitting advertising revenues generated from ads posted next to Viacom's content posted by YouTube's users. Viacom then inked a deal with one of YouTube's competitors, Joost, to host Viacom's content. Google's CEO Eric Schmidt has reportedly called the lawsuit a negotiating tactic by Viacom. If this is true, then perhaps the lawsuit will not go to trial. Viacom contends that 150,000 unauthorized clips of its programming from such shows as "South Park," "SpongeBob SquarePants," "The Colbert Report," and "The Daily Show" have been viewed illegally on YouTube no fewer than 1.5 billion times. Viacom's suit seeks $1 billion in damages from YouTube, a staggering amount if Viacom wins. If Viacom does win, then the litigation floodgates will open, making Cuban's "moron" statement a vast understatement from someone who is not generally known for his understatements.

Application of the DMCA

The key issue in both lawsuits is whether YouTube falls under the protection of one of the Digital Millennium Copyright Act's ("DMCA") safe harbors. The safe harbors were enacted to limit the liability of online service providers for copyright infringement. The rationale behind the DMCA safe harbors is to protect online service providers (OSPs) from secondary copyright infringement liability so they do not have to monitor each individual user's expression. For the most part, the DMCA has been successful, allowing sites like Hotmail and Yahoo! to function without having to screen each email sent through their systems. Tur and Viacom are betting that YouTube's actions make it ineligible for safe harbor protection.

To qualify for safe harbor protection, YouTube must jump through certain hoops and comply with requirements set up by the DMCA. 17 U.S.C. § 512(c)(1)(B). First, the safe harbor only provides protection if the content is stored at the direction of a user. As YouTube's content is uploaded by its users, it meets this first requirement.

Second, YouTube must adopt and reasonably implement a policy for terminating users who are repeat infringers. YouTube has such a policy in its terms and conditions. YouTube defines a repeat infringer as a user "who has been notified of infringing activity more than twice and/or has had a user submission removed from the Website more than twice." This policy, however, is not the saving grace it was intended to be for copyright holders. It is easy for savvy Internet users to create numerous (even limitless) additional or anonymous identities to circumvent such policies.

Third, YouTube must designate an agent with the U.S. Copyright Office that will receive the "take down" notices from copyright owners requesting removal of infringing material. YouTube has registered with the U.S. Copyright Office. Upon receiving proper notice of an infringement, YouTube must respond quickly to remove the material, which it does.

Generally, an OSP that complies with the first three requirements can push the burden to police infringements onto the content owners by forcing them to file take down notices. However, Tur and Viacom allege that YouTube is not complying with the remaining portions of the safe harbor requirements:

YouTube must not have actual knowledge that the material on its site is infringing, and in the absence of such actual knowledge, YouTube cannot be aware of facts or circumstances from which infringing activity is apparent; and

YouTube must not "receive a financial benefit directly attributable to the infringing activity" if it has the right and ability to control such activity.

These last two issues are critical for YouTube. YouTube's position is that it does not monitor what its users post and therefore it cannot have actual knowledge of what is on its system. Generally, YouTube relies on users to police infringements and does not currently have filtering mechanisms to ensure copyrighted materials are not posted. Once YouTube receives actual notice, through the filing of a take down notice, it acts within the DMCA to expeditiously remove the infringing content. YouTube also argues that it does not receive a financial benefit directly attributable to the infringing activity, primarily because its site contains a large amount of content that does not infringe third party rights.

Tur's Position on the DMCA

Tur's lawsuit asserts that YouTube intentionally induces infringement because it derives a substantial benefit from the hosting of numerous copyright infringements. Tur argues that YouTube has actual knowledge of what particular copyrightable material is on its site. Tur further argues that even though YouTube allows for non-infringing uses, it is "intended to promote infringement of copyrighted works" and, paraphrasing the Grokster decision, is aimed at a "known source of demand for copyright infringement, e.g., the market comprised of former Grokster video 'sharers."'

Tur points out that YouTube has not developed or implemented any substantial filtering tools or other mechanisms to diminish the infringing activity. Tur argues that this failure, and its known perception as a "bootleg-heavy site," puts YouTube squarely in the same boat as Grokster. Tur submits that YouTube's advertising sales generate revenue based on infringing activity and relies on infringing material to increase users, which in turn generates greater advertising revenue.

In November 2006, Tur filed a Motion for Summary Judgment on YouTube's First Affirmative Defense that YouTube qualifies for safe harbor protection. Tur's motion argues that, as a matter of law, YouTube receives a financial benefit in the form of banner advertising directly attributable to the infringing video clips. This, coupled with Tur's argument that YouTube admits in effect, it "has the right and ability to control such [infringing] activity," within the meaning of § 512(c)(1)(B) by virtue of its online User Agreement, renders YouTube incapable of DMCA safe harbor protection. Tur argues that the functionality of YouTube's service (namely, the manipulation, categorization, sorting, embedding, and promotion of audiovisual clips uploaded by its users) shows the level of control YouTube has over its users' actions.

Viacom's Position on the DMCA

Viacom's lawsuit alleges vicarious infringement, contributory infringement, and liability for the intentional inducement of copyright infringement. Viacom's suit also raises claims of direct infringement by YouTube on the ground that the infringing content resides on YouTube's servers, from which users can request, embed and view the infringing videos, all of which violate Viacom's exclusive rights of public display and reproduction under the Copyright Act. Tur's suit did not raise such a claim. YouTube has been quick to point out that it took down Viacom's materials after Viacom asked it to do so. However, it has been reported that the videos were reposted almost immediately, highlighting Viacom's frustration on the DMCA placing the burden to police the site on the copyright owner and not YouTube.

Like Tur, Viacom argues in its complaint that YouTube is a brazen copyright infringer that it is knowingly "exploiting the infringing potential of digital technology" on a massive scale. Based on the large volume of infringing works, Viacom alleges that there is no way that YouTube cannot be aware that its users violate copyrights through YouTube's service, and that YouTube actually encourages and induces users to do so. Viacom's lawsuit alleges that if "the public knows what's there, then YouTube's management surely does." Thus, YouTube is essentially turning a blind eye to the infringement on its site, in an effort to maintain a semblance that its qualifies for DMCA safe harbor protection. This seems like a compelling argument in light of the numerous complaints filed by various rights organizations and companies from around the world. In response to complaints from organizations and companies such as the Japan Society for Rights of Authors, Composers and Publishers, the German Society for Musical Performing and Mechanical Reproduction Rights, Universal, the NFL, among others, YouTube has removed the objectionable material.

Like Tur, Viacom also argues that YouTube receives a direct financial benefit attributable to the infringing activity. The question regarding this issue is the definition of the term "direct." It is unclear how "direct" the financial benefit must be for YouTube to be liable. Similar to the allegations in the Grokster case, Viacom alleges that YouTube uses the infringing content to increase traffic to the site, thereby increasing YouTube's revenue from ads placed next to the infringing videos. Currently, YouTube displays little advertising. However, like much of Google's empire, it plans on pursuing advertising as its business model and is exploring a range of possibilities, including sponsorships, contextual-based advertisements and banner ads. These business plans are likely just what Tur and Viacom are counting on. The more money YouTube pulls in, the easier it may be to pull YouTube from its safe harbor and show that it derives a financial benefit from the infringements.

Further, Viacom alleges that YouTube has the right and ability to control the use of its site and often does so, when doing so is in the best interest of YouTube. YouTube regulates content on its site by removing pornography and hate content and spam. YouTube has even offered to find infringing content for copyright owners on its servers, but only after content owners sign a licensing deal with YouTube. Based on these activities, Viacom alleges that YouTube is much more of an active, rather than passive, site with actual control over its operations such that there is no DMCA protection. Viacom's position is that the DMCA safe harbors were not intended to protect sites with such active control over the content that resides on its systems.

Although YouTube has said it will use fingerprinting technology, which would allow it to identify and remove copyrighted materials, it is unclear how and when YouTube will implement such technology. There are reports that YouTube will not use fingerprinting to block clips from being placed on the site. This is likely because the more control YouTube places on what can and cannot be posted and how early in the process YouTube steps in to remove content can be used to show that YouTube has the right and ability to control its users' actions. This Catch 22 paralyzes YouTube and hinders its ability to take proactive steps to curb infringement on the site for fear of losing its DMCA protection. Instead, it is likely that YouTube will only use the fingerprinting technology, or other safe guards, to remove content once copyright owners identify the location of the content on YouTube through take down notices.

However, even if YouTube adopts filtering software at the posting stage, it can easily be circumvented. For example, users disrupt the audio pattern, which is the basis of most current filtering software, by dropping the sound, clipping the videos, or degrading the quality. It has been reported that in testing on MySpace and other similar sites, Audible Magic's filtering software (which Google is reported to be using), has been more than 99% accurate when it is used to examine clips in which the image and audio quality have not been "degraded" and are more than 20-30 seconds.

Conclusion

Whether Tur's and Viacom's arguments are enough to pull YouTube from its DMCA safe harbor remains to be seen. Moreover, it is unclear whether the DMCA provides immunity for intentional inducement under the Grokster decision. It is possible that the DMCA may extend to such a secondary liability theory due to the fact that the infringement is a result of YouTube's actions as an OSP. On the other hand, if YouTube is found to have intentionally induced infringement, it would seem odd to reward it with safe harbor protection. Intentionally inducing infringement would constitute an overt act by YouTube which is not consistent with the original intention of extending DMCA protection to the more "passive" actions of OSPs.

Nevertheless, even if YouTube fails to qualify for the storage, or any other safe harbor, it is not necessarily liable for copyright infringement. The copyright owner must still demonstrate that YouTube has infringed and YouTube can still use any defenses such as fair use or prior case law (i.e., Sony v. Universal, CoStar Group v. LoopNet, Perfect 10 v. Google, etc.). In addition, it is possible that Congress could step into the fray and amend the DMCA to "clarify" the safe harbor provisions.

At the time this article was written, the judge in the Tur case had continued the hearing on Tur's Motion for Summary Judgment until May 21, 2007. In the Viacom case, the parties stipulated to an extension of time for YouTube to file its Answer, now due on May 2, 2007. It is likely that a ruling in either case will not be imminent. In the meantime, YouTube and other similar sites will continue to operate under "their" current understanding of the DMCA safe harbor provisions. However, as soon as a ruling in either case is rendered, regardless of how preliminary, the rules will change and both sides of the issue will regroup to decide how to respond to the new landscape of DMCA protection.

FNa1. Bio The author is a partner in the Los Angeles office of Knobbe Martens Olson & Bear LLP. He can be contacted at jhyman@kmob.com.