BMG Rights Management (US) LLC v. Cox Communications, Inc.

Citation: 881 F.3d 293Docket: 16-1972

Court: Court of Appeals for the Fourth Circuit; January 31, 2018; Federal Appellate Court

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BMG Rights Management (US) LLC and Round Hill Music LP are plaintiffs in appeals against Cox Communications, Inc. and Coxcom, LLC, along with other defendants, in the United States Court of Appeals for the Fourth Circuit. The appeals originate from a case in the Eastern District of Virginia, presided over by Judge Liam O’Grady. The opinions were delivered on February 1, 2018, with Judges Motz, Wynn, and Senior Judge Shedd participating. The court's decision affirmed some aspects, reversed others, vacated parts, and remanded the case for further proceedings. Various amici curiae supported both sides, including organizations representing educational institutions and the technology industry, as well as those from the music and film sectors. Legal representation included multiple law firms for both appellants and appellees.

David E. Weslow and other legal representatives are involved in a case where BMG Rights Management (US) LLC alleges copyright infringement against Cox Communications, Inc. and CoxCom, LLC, claiming that Cox is contributorily liable for copyright violations committed by its subscribers using their high-speed Internet service. The district court ruled that Cox did not provide sufficient evidence to qualify for a statutory safe harbor defense, leading to a summary judgment in favor of BMG. Following a jury trial, Cox was found liable for willful contributory infringement and ordered to pay $25 million in statutory damages. Cox is appealing, arguing that the district court erred in denying the safe harbor defense and in jury instructions. The appellate court upheld the denial of the safe harbor defense but found errors in the jury instructions, resulting in a partial reversal, vacating part of the judgment, and remanding for a new trial. Cox provides Internet services to approximately 4.5 million subscribers, many of whom use BitTorrent, a peer-to-peer file-sharing protocol that enables the sharing of copyrighted files, including music, without authorization.

Cox, operating as a conduit ISP, solely provides internet access and does not create or sell software using the BitTorrent protocol, nor does it store infringing material or control subscriber content. Its subscriber agreement allows for suspension or termination of accounts for copyright infringement. Cox employs a limited automated system based on a thirteen-strike policy to manage notifications of alleged infringement, with escalating responses to repeated notices, ranging from warnings to potential service suspension and consideration for termination after the thirteenth notice. However, the effectiveness of this policy is constrained by limitations on the number of notices processed per day from any copyright holder and the resetting of the strike count every six months. 

BMG, a music publisher, engaged Rightscorp, Inc. to monitor BitTorrent for copyright infringement, leading to Rightscorp sending notices to Cox containing details of alleged infringers and settlement offers. Cox refused to forward notices with settlement language and subsequently blacklisted Rightscorp, resulting in the deletion of numerous notices without review. BMG hired Rightscorp after Cox had already blacklisted the company, meaning Cox did not view any of the notices sent on BMG's behalf.

On November 26, 2014, BMG filed a lawsuit against Cox, claiming vicarious and contributory liability for copyright infringement by its subscribers. Following discovery, both parties submitted cross-motions for summary judgment, which the district court addressed in a detailed opinion. BMG argued that Cox failed to implement a policy qualifying for the DMCA safe harbor, which requires an ISP to “adopt and reasonably implement” a policy for terminating repeat infringers. The court sided with BMG, finding no reasonable jury could conclude that Cox had such a policy, as evidence indicated Cox was aware of repeated infringing activity yet did not terminate the associated accounts. Consequently, the court granted BMG summary judgment on Cox's safe harbor defense. 

The case then proceeded to a jury trial, where the jury was instructed that BMG needed to prove direct infringement by Cox subscribers, Cox's knowledge of such activity, and its material contribution to the infringement. The jury could also establish Cox's knowledge through evidence of willful blindness. The jury found Cox liable for willful contributory infringement, awarding BMG $25 million in statutory damages, but ruled Cox not liable for vicarious infringement. The district court rejected all post-trial motions and upheld the jury's verdict, leading to Cox's appeal. Cox contended that the district court incorrectly denied its DMCA safe harbor defense and that the jury instructions were flawed. 

In addressing Cox's appeal, it was noted that the DMCA provides safe harbors that limit ISP liability, and Cox needed to demonstrate compliance with the requirement of terminating repeat infringers. Cox argued that "repeat infringers" referred only to those adjudicated as such by a court, asserting its compliance since BMG did not prove failure to terminate adjudicated infringers. BMG countered that this interpretation contradicted the DMCA's wording. The term "repeat infringers" was deemed undefined in the statute, prompting examination of its ordinary meaning, defined as individuals who infringe on copyright rights.

A repeat infringer is defined as an individual who infringes a copyright multiple times. Cox argues that the term "infringer" in the repeat infringer provision of the DMCA should be interpreted to mean "adjudicated infringer" since the provision does not use modifiers like "alleged" or "claimed," which appear elsewhere in the DMCA. However, the distinction between "infringer" and "alleged infringer" is significant; the former indicates actual infringement, whereas the latter refers to unproven allegations. The Copyright Act's language supports this interpretation, as it states that anyone violating a copyright owner's exclusive rights qualifies as an infringer, regardless of court adjudication. The DMCA also differentiates between infringing activities and those ultimately determined to be infringing, indicating that ISPs can remove allegedly infringing material without liability, even if a court has not ruled on the matter. This legislative framework demonstrates that Congress intentionally did not limit the definition of "infringer" to those who have been adjudicated in court. Legislative history further emphasizes that individuals who abuse their Internet access through copyright infringement should face consequences, implying that action can be taken based on repeated infringement without the necessity of a court ruling.

Losing Internet access does not present a credible deterrent for infringement if the punishment is limited to those who have already faced civil penalties as adjudicated infringers. The only circuit to explicitly define a "repeat infringer" under the DMCA considers it someone who repeatedly infringes on exclusive copyright rights. Notably, multiple cases, including EMI Christian Music Grp. Inc. v. MP3tunes, LLC, and Ellison v. Robertson, establish that ISP liability for safe harbor provisions does not depend solely on whether infringing users have been adjudicated as infringers. Cox's argument that "repeat infringers" are limited to adjudicated cases is rejected. Section 512(i) mandates that to benefit from DMCA safe harbor, Cox must have reasonably enforced a policy to terminate subscribers who repeatedly infringe copyrights. While ISPs are given flexibility in crafting such policies, failing to enforce them meaningfully does not constitute reasonable implementation. Evidence reveals that Cox adopted a repeat infringer policy but actively evaded its enforcement, as demonstrated by internal communications indicating a practice of reactivating subscribers after terminations for DMCA violations, allowing them to continue infringing. Despite Cox's claims of lacking "actual knowledge" of infringement, this argument does not absolve it from the requirement to terminate repeat infringers.

Cox consistently reactivated subscribers after termination, without properly addressing repeat infringement, undermining its claim to DMCA safe harbor protections. Despite claims of improved practices in September 2012, evidence indicates a mere change in procedure rather than genuine enforcement, as Cox shifted from terminating an average of 15.5 subscribers per month to less than one. Between September 2012 and October 2014, only 21 terminations occurred, most related to billing issues rather than copyright infringement, despite over 500,000 warnings issued. Cox's decision to ignore all infringement notices from BMG's agent, Rightscorp, further illustrated a lack of a reasonable repeat infringer policy. Specific instances revealed that Cox employees were aware of repeat infringers but failed to terminate them, prioritizing revenue over compliance. Cox's argument that these instances do not demonstrate actual knowledge is flawed, as it is responsible for proving it reasonably implemented a repeat infringer policy under DMCA guidelines.

Cox internally decided to terminate a subscriber after a specific strike but ultimately chose not to, prioritizing revenue over adherence to its policy. Although Cox claims that these emails pertain to only four cases and argues that occasional lapses are acceptable, four cases are significant given the limited number of relevant terminations during that period. Cox has not provided evidence of following its policy by terminating subscribers after final warnings for infringement. Instead, it suggests that it refrained from termination when “appropriate circumstances” were not present but fails to show how such determinations influenced its decisions. Evidence indicates that Cox's decisions not to terminate were based solely on financial considerations, undermining the consistency of its policy and disqualifying it from the DMCA safe harbor. Consequently, the district court was correct in ruling that Cox did not provide sufficient evidence for the 512(a) safe harbor defense, leading to summary judgment in favor of BMG.

Cox also contends that the district court erred in instructing the jury about contributory infringement, arguing that its technology is capable of substantial noninfringing use, which should absolve it of liability. However, this argument lacks merit, as mere possession of a product with both lawful and unlawful uses does not imply intent to infringe. The precedent set by the Supreme Court in Sony Corp. v. Universal City Studios, which stated that a product capable of significant lawful use cannot automatically lead to contributory liability, does not support Cox’s position. Initial interpretations of this ruling that align with Cox's reasoning have been challenged by subsequent cases, indicating a more nuanced application of the law.

In *Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd.*, 545 U.S. 913 (2005), the Supreme Court clarified that secondary liability for copyright infringement cannot be based solely on the design or distribution of a product with substantial lawful uses, even if the distributor knows it may be misused. The Court rejected the notion that a product’s capability for lawful use immunizes its producer from contributory liability. The Ninth Circuit's interpretation that substantial lawful use negates liability was deemed erroneous. The Court emphasized that intent to infringe must be established through more than the product's characteristics; it must be shown that the product was distributed with the intent to encourage infringement. Furthermore, the Court found that providing a product with substantial non-infringing uses could still constitute a material contribution to infringement, as seen in *Perfect 10, Inc. v. Amazon.com, Inc.*, 508 F.3d 1146 (9th Cir. 2007). Regarding jury instructions, the district court erred by allowing liability based on knowledge of infringing activities; instead, liability hinges on intentional inducement or encouragement of infringement, with intent possibly inferred from knowledge of certain consequences, as per common law principles.

An article deemed solely useful for infringement allows for a presumption of intent to infringe from the seller's actions. If a seller is aware that their product will be used for infringement, it can be assumed they intend that outcome. This principle similarly applies when a product has legitimate uses, but the seller knows the buyer will misuse it. The precedent set in *Henry v. A.B. Dick Co.* establishes that a seller's expectation of infringement from their product warrants a presumption of intent. This reasoning extends to subscription services, where a company renewing a lease to known infringers may also be presumed to intend infringement. The concept of willful blindness—failing to acknowledge evident infringement—equates to actual knowledge in contributory copyright infringement cases. While the standard for contributory liability based on negligence (the "should have known" standard) has some support, it is argued that willful blindness is necessary to establish intent. The principle articulated in *Grokster* reinforces that contributory infringement arises from intentional inducement or encouragement of direct infringement.

A negligence standard is difficult to reconcile with the requirements for contributory liability as established by the Supreme Court. In cases like *Sony* and *Grokster*, the Court emphasized that contributory patent infringement necessitates knowledge of direct infringement, with *Aro Mfg. Co.* affirming that mere recklessness or negligence does not fulfill this requirement. In *Global-Tech*, the Court clarified that willful blindness meets the knowledge threshold, while merely knowing of a substantial risk or failing to know does not. This principle was reaffirmed in *Commil USA, LLC v. Cisco Sys. Inc.*, where it was indicated that liability cannot be based on a defendant's should-have-known standard.

The Supreme Court has aligned copyright law with patent law principles, recognizing the need to impose liability for culpable conduct without hindering technological development. The law of aiding and abetting further supports the necessity of intent, as aiding a crime requires intention to facilitate its commission. While contributory infringement is codified in patent law, the standards established in *Global-Tech*, which dismisses negligence and recklessness in favor of willful blindness, should also apply to copyright law, indicating that the requisite intent can only be presumed when an individual actively participates in a criminal venture with full awareness of the circumstances involved.

The Restatement of Torts outlines a concert of action principle akin to criminal aiding and abetting, which parallels contributory infringement. An actor is liable for harm to a third party caused by another's tortious conduct if the actor has actual knowledge of the breach of duty and provides substantial assistance or encouragement. The term "knows" in this context indicates actual knowledge, distinguishing it from other standards that include "should know." The Second Circuit's Gershwin decision supports this by asserting that those who knowingly further a tortious act are jointly liable with the primary tortfeasor. 

Proving contributory infringement necessitates demonstrating willful blindness; mere negligence is inadequate. BMG's argument, referencing Ellison v. Robertson, where knowledge for contributory copyright infringement included actual knowledge or reason to know, has been clarified by the Ninth Circuit. The court now requires actual knowledge of specific acts of infringement or willful blindness regarding specific facts. BMG's interpretation of Sony mischaracterizes it; the case refers to vicarious liability, which involves control over copyright use, not contributory infringement. Although some lower court cases have discussed a "knew or should have known" standard, they also indicate that willful blindness can suffice for liability, thereby negating the need for a lower negligence threshold.

The district court incorrectly instructed the jury that Cox could be liable for contributory infringement based on a standard of "knew or should have known" regarding infringing activity, which reflects negligence and is insufficiently stringent. The erroneous jury instruction likely influenced the verdict, necessitating a remand for a new trial. Additionally, the court's instructions failed to impose the necessary burden of proving knowledge, warranting a new trial. The argument that the jury found willful blindness based on a finding of willfulness is unfounded, as the willfulness standard employed allowed for a finding based on recklessness rather than the higher standard of willful blindness. 

Cox raised further potential errors in the contributory infringement instructions, which, despite possibly not being preserved for review, are addressed for judicial efficiency. Specifically, Cox argued that the court erred in allowing liability based on "generalized knowledge" of infringement occurring on its network, which does not meet the standard established in case law. The requirement for contributory infringement is specific knowledge of particular instances of infringement, rather than a general awareness of potential infringement. BMG's assertion that the jury was instructed to connect knowledge to specific acts of infringement does not guarantee that the jury indeed found such specific knowledge.

Cox could be found liable for contributory infringement if it had specific knowledge of its subscribers infringing BMG's copyrights, rather than just generalized knowledge about infringement. The court clarified that mere awareness of possible infringement does not meet the standard for intent; Cox must have known about specific instances of infringement or been willfully blind to them. The jury's instructions on willful blindness should reflect this requirement, focusing on Cox's conscious avoidance of specific instances rather than general knowledge of infringement.

The court rejected Cox's argument for judgment as a matter of law, affirming the district court's thorough handling of the case and noting that BMG presented substantial evidence suggesting Cox willfully blinded itself to specific instances of infringement, including ignoring over one million notices from Rightscorp. The determination of Cox’s liability must be made by a properly instructed jury.

Cox's additional claims of error, including a challenge to the willfulness instruction, were deemed without merit. The court noted that willfulness in copyright law can be established by recklessness, as supported by relevant case law, which recognizes that reckless disregard for a copyright holder's rights can lead to a finding of willfulness.

Contributorily or vicariously infringing with awareness of subscriber infringement indicates at least reckless disregard for copyright holders’ rights. The court correctly denied Cox’s request for an innocent infringer instruction, as such status requires proof that the infringer had no reason to believe their actions constituted infringement, a standard Cox did not meet. The court's willfulness instruction stated that Cox's contributory or vicarious infringement is willful if BMG proves Cox knew about the infringement, acted with reckless disregard, or was willfully blind to it. The absence of circumstances similar to those in Bryant v. Media Right Prods. Inc., where an infringer reasonably believed they had rights under an agreement, further supported the court's decision.

Cox's challenge regarding the DMCA instruction was also dismissed. The district court ruled that Cox was not entitled to any DMCA safe harbor defense and instructed the jury to disregard the DMCA, which did not misstate the law. Cox argued that the instruction implied liability due to failing to qualify for a DMCA defense, but the jury's finding of no liability for vicarious infringement indicated a lack of confusion.

Additionally, Cox's claims regarding evidentiary rulings were rejected. The district court properly admitted Rightscorp’s notices as non-hearsay, given that they were generated by a machine and thus did not constitute human statements. The presence of a CEO's signature and an oath did not convert the notices into statements. Furthermore, the notices were not excluded as overly prejudicial under Federal Rule of Evidence 403, as they were probative and did not unfairly prejudice Cox's case merely because they were damaging.

Cox challenges the district court's admission of two studies on the infringing nature of BitTorrent content, arguing it violated Federal Rule of Evidence 803(17), which pertains to hearsay exceptions for reliable compilations in specific fields. However, BMG's expert, Dr. William Lehr, testified that these studies were widely recognized and substantial, leading the court to conclude it did not abuse its discretion in admitting them. Additionally, Cox asserts that the court improperly allowed BMG’s witnesses and attorneys to frequently use the term "infringement" when discussing Rightscorp’s automated observations. The court had instructed jurors that they alone would determine infringement, even interrupting expert testimony to clarify this point. Thus, the court's handling of the term "infringement" was deemed appropriate. Ultimately, the court affirmed the district court’s summary judgment favoring BMG regarding the DMCA safe harbor defense but reversed and remanded for a new trial, also vacating the award of attorney’s fees and costs to BMG while denying such fees and costs to Cox.