Last week the Fourth Circuit reversed a $1 billion copyright verdict against an internet service provider and ordered a new trial on damages allegedly arising from illegal music downloads by its subscribers.  In Sony Music Entertainment et al. v. Cox Communications Inc. et al.,[1] a group of music producers belonging to the Recording Industry Association of America brought suit against Cox for contributory and vicarious copyright infringement based on allegations that Cox induced and encouraged rampant infringement on its service.  In 2019, a jury found Cox liable on both theories for infringement of 10,017 copyrighted works and awarded $99,830.29 per work, for a total of $1 billion in statutory damages.  On appeal, the Fourth Circuit issued a mixed ruling – upholding the finding of contributory infringement but reversing the vicarious liability verdict and remanding for a new trial on damages. 

DMCA Safe Harbor Not Applicable:  The Digital Millennium Copyright Act (“DMCA”) generally protects internet service providers (“ISPs”) from liability for infringing content posted to their websites and services by users, but only if those ISPs comply with DMCA requirements for timely removing infringing content once they become aware of it and implement and follow a reasonable policy for barring repeat infringers from accessing the service.  In a prior case covering the same claim period, the Fourth Circuit previously found that Cox had failed to reasonably implement an anti-piracy program and, thus, could not invoke the DMCA safe harbor.  As a result, Cox faced the vicarious and contributory liability claims in this case without that protection. 

Vicarious Liability:  To prevail on their claim of vicarious copyright infringement, plaintiffs were required to show that Cox had (1) the right and ability to supervise its user’s infringing conduct, and (2) a direct financial interest in the infringing activity.  The jury found both requirements satisfied, but the Fourth Circuit reversed, concluding that the music producers had failed to establish the requisite direct relationship between the infringing activity and a financial benefit to Cox. 

Cox argued that it does not profit directly from its subscribers’ infringement because they pay a flat monthly fee for internet access, and a subscriber’s decision to download or distribute a copyrighted song without permission does not provide any financial benefit to Cox.  The Fourth Circuit acknowledged that a direct financial benefit may be shown—even without a “strict correlation between each act of infringement and an added penny of profits”—where the “copyright infringement draws customers to the defendant’s service or incentivizes them to pay more for their service.”[2]  However, it found such evidence lacking as to Cox.  Although Cox repeatedly declined to terminate infringing subscribers’ internet service so as to continue collecting their monthly fees, those fees would have been owed and collected for internet access no matter what the subscribers did online.  Further, there was no evidence that subscribers purchased internet access through Cox, or its higher priced subscription for faster internet service, because it enabled or facilitated their infringement.  In other words, while “Cox profited from the sale of internet service,” plaintiffs failed to show it “had a financial interest in its subscribers committing infringement.”

Contributory infringement: Unlike vicarious liability, contributory infringement does not require a nexus between the infringement and a financial benefit to defendant.  Instead, to prevail on this claim the music producers needed to prove that Cox (1) had knowledge (either actual or willful blindness) of its users’ infringement and (2) either materially contributed to or induced that infringement.  The Fourth Circuit upheld the contributory infringement verdict given the ample evidence that Cox knew of specific instances of repeat infringement, actually traced that infringement to specific repeat infringers, and materially contributed to it by nevertheless continuing to provide service to those users to avoid losing revenue.  As the Court explained, “[s]upplying a product with knowledge that the recipient will use it to infringe copyrights is exactly the sort of culpable conduct sufficient for contributory infringement.”[3]

New Trial on Damages:  Because the $1 billion damages award was not apportioned between the vicarious and contributory infringement claims, the Fourth Circuit vacated the award and remanded for a new trial on damages for contributory infringement.  While both claims were predicated on the same conduct and maximum statutory damages are identical, the court held that the jury’s assessment of damages may have been different absent the legally erroneous finding that Cox directly profited from its subscribers’ infringement, necessitating a new trial.       Key Takeaways:  This case is instructive on what evidence is necessary to support claims for secondary liability against ISPs.  To prevail on a vicarious infringement claim, a plaintiff must show that an ISP directly profited from the infringement, either because the ISP received fees directly tied to infringing use, or because the infringement served as a draw to the site or the value of the service lies in providing access to infringing material.  Conversely, where there is strong evidence that an ISP is aware of specific instances of repeat infringement on its platform and knowingly provides service to repeat infringers anyway, it can be held contributorily liable absent any causal nexus between the infringement and its revenues.

[1] No. 21-1168, 2024 WL 676432 (4th Cir. Feb. 20, 2024). 

[2] Id. at *5.

[3] Id. at *9.