TechLaw

Well, it certainly did not take long for content owners to try out the Supreme Court's inducement test of secondary liability, announced in Metro-Goldwyn-Mayer Studios Inc. v. Grokster Ltd., 125 S. Ct. 2764 (2005). The claim popped up in nearly a half dozen cases filed or litigated in 2006. But so far, apart from the remand in Grokster, only two other district courts have applied the test.

The first ruling came from Judge Marilyn Hall Patel of the Northern District of California, who held that the recording industry could proceed with an inducement theory of liability against investors in the former Napster file-sharing service. In Re Napster Copyright Litigation, No. C MDL-00-1369  (N.D. Cal. May 17, 2006).

The inducement theory, as explained by the Supreme Court, imposes secondary liability against "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."

This test does not require plaintiffs to show actual knowledge, Patel explained. She rejected an attempt by Napster's investors to limit their liability to just those works for which they received actual notice of infringement from the recording industry, noting that the Grokster test permits liability premised upon constructive knowledge. That the Grokster decision came down after this case was already in play is no impediment to its application here, Patel added.

The second ruling applying the inducement test originated from the District of New Jersey. An open-air flea market nabbed for hawking pirated CDs tried to use the inducement test to bolster its argument that "mere knowledge of actual or infringing uses" is not enough to subject a distributor of a product to secondary liability. The court did not give that argument any credence, observing that operating a flea market is not analogous to placing a copying device into the stream of commerce. Arista Records Inc. v. Flea World Inc., No. 03-2670 (D.N.J. March 31, 2006). The case settled in November 2006.

There is nothing surprising in either of these two holdings. But now, content owners are pushing to apply the test outside the traditional P2P context. One such lawsuit claims that XM Satellite Radio induces its subscribers to infringe the recording industry's copyrights by offering a service that lets those users build a digital library of their favorite songs recorded off of XM, all without paying any royalties for downloading. By advertising that the portable music player enables users to save huge collections of songs, XM has taken "affirmative steps" to promote infringement, the recording industry alleges. The court recently ruled that XM cannot escape liability by asserting immunity under the Audio Home Recording Act.

Two other lawsuits filed against social networking sites also cleave to the inducement test. Videographer Richard Tur has filed an infringement lawsuit against video streaming site YouTube, alleging that the company does not do enough to police its service for infringing copies of his videos (such as the Reginald Denny beating) that are uploaded to the site. Tur v. YouTube Inc., No. 06-4436 (C.D. Cal. complaint filed July 14, 2006). His complaint styles YouTube as the new Grokster and accuses YouTube of pursuing an advertising revenue model that directly benefits from the infringing activity. The court is scheduled to hear oral argument on cross motions for summary judgment on DMCA issues Jan. 29.

Finally, in UMG Recordings Inc. v. MySpace Inc., No. 06-07361 (C.D. Cal. complaint filed Nov. 17, 2006), the recording industry claims that the social networking site MySpace encourages rampant infringement by making it easy for its members to incorporate illegal copies of songs into their profiles. This, in turn, draws more traffic to the site, according to the complaint.

Of these three lawsuits, it is the XM case that probably has the riskiest liability exposure. Advertising materials used by XM to promote is XM+MP3 service, in which XM lauds the storage capacity of its device, could be problematic, particularly given the court's recent ruling that strongly suggested that the XM+MP3 service infringes the reproduction right. While the plaintiffs in the social networking cases will undoubtedly be able to show infringement occurs on YouTube and MySpace, they will have a tougher time showing that those services are designed with the aim of promoting infringement.