Court: Actual Knowledge Kills Sony-Betamax Dead, and That Might Make a Difference

Hey, I sort of called it. In my last blog post, I embarked on a journey of self-discovery in which I learned that ISPs were not effectively immune to claims for constructive copyright infringement. In this journey, I had to come to terms with the real possibility that the Sony-Betamax rule—that a product cannot create contributory copyright liability if it has substantial non-infringing uses—applies only where the claim is based on “constructive” knowledge (i.e., you should have known, as opposed to, you knew). This explained something that had puzzled me: why was Cox Communications even liable for the claims of contributory copyright infringement brought by Rightscorp1Again, not actually Rightscorp, but two of its customers, since Rightscorp doesn’t own the copyrights in question and thus lacks standing.? After all, internet service has a tremendous number of non-infringing uses. The answer (in my analysis) was: because Cox had actual knowledge of its customers’ infringement, for the same reason its repeat-infringer policy was such a hilarious shambles.

A Sony Betamax video tape recorder. Weighed about 36 pounds. Copyright owners tried to stop it & lost (barely). Ended up giving copyrighted properties a second life as home video. Ironic, dontchya think? Groundbreaking. Lost out to JVC's VCR. Then VCRs stopped being a thing. Time marches on.

A Sony Betamax video tape recorder. Weighed about 36 pounds. Copyright owners tried to stop it & lost (barely). Ended up giving copyrighted properties a second life as home video. Ironic, dontchya think? Groundbreaking, but still lost out to JVC’s VCR. Then VCRs stopped being a thing. Time marches on.

Actual Knowledge + Current Continuing Relationship

Earlier this week, the court in the Cox Communications case ruled on some post-judgment motions and followed very much the same reasoning in denying Cox’s motion challenging the jury verdict.2After a jury trial, but before the appeal, the losing party may challenge the verdict on grounds that the jury just got it massively wrong, or may ask for a new trial on grounds that the jury was mislead by bad jury instructions or bad or missing evidence. Cox filed both kinds of motions. The plaintiff also had some bits of the jury verdict it didn’t like and challenged those (which was denied), and it asked the court for a permanent injunction. Regarding the application of the Sony-Betamax rule, the court this to say:

Throughout this litigation, the Court has taken the position that Sony is not the broad bar to liability that Cox paints it to be. Rather, the Court reads Sony as precluding the imputation of fault based solely on “the design or distribution of a product capable of substantial lawful use, which the distributor knows is in fact used for infringement.”3The court is quoting Grokster here, which kinda-sorta refined the Sony-Betamax rule. Had that been [the Plaintiff’s] claim, it would have failed. There can be no dispute, and the evidence at trial established, that the internet has an untold number of legal uses far beyond what is at issue here [i.e., pirating music]. Thus, Cox’s “equivocal conduct” of providing internet access that supplies the means to infringe would not, standing alone, be contributory infringement.

(Citations omitted.)
But, as the court points out, that’s not the legal theory here. The legal theory is not based on the design or capabilities of a product, but on Cox’s relationship with the direct infringers and on Cox’s actual knowledge of their infringing activities. Both of those things have to be true for Cox to be contributorily liable. It must not only have actual knowledge—after all, Sony might well have had actual knowledge, too—but also a present relationship with the direct infringers. In other words, it had to know and be in a position to act on that knowledge.
The relationship between ISP and customer is pretty attenuated. It’s about a close as your relationship with your electric company. So, in the ordinary course of affairs, your ISP is unlikely to know about your infringing activity. It has no earthly reason to check. These are businesses, not angels, after all. But, with Cox, things were different, because Cox knew about infringing activity through its own repeat-infringer policy. If you implement any type of repeat-infringer policy, you’ll inevitably gain actual knowledge of infringing activity. But that’s OK because the point of a repeat infringer policy is to make you (an ISP) immune to claims of copyright infringement. It just needs to be reasonable and implemented reasonably. Which is a low bar. It doesn’t have to be effective, just sort of make a decent show of maybe being effective. You don’t even need to terminate anyone’s account. You just need to set out the conditions—which can be highly unlikely—under which termination would occur. And, in the unlikely event someone met those conditions, well, then, you kind of had to terminate them. Nothing personal, just business.
But Cox managed to screw this up. There was nothing wrong with its repeat infringer policy. In fact, by many accounts, it was effective. The problem was that, when the time came to terminate a customer’s account, Cox wouldn’t pull the trigger. It would just make a bang! sound, the account would play dead for a while, then get right back up.

Exception of an Exception or Half an Exception?

The court’s legal analysis regarding knowledge and the Sony-Betamax rule doesn’t quite jibe with mine. I had suggested that Sony-Betamax applies only to constructive knowledge, not actual knowledge. The court, however, regards the actual knowledge + continuing relationship test as a kind of exception to the Sony-Betamax rule, which, remember is itself an exception to the knowledge element for contributory infringement. Once the Sony-Betamax rule is out of the way, the court proceeds to address the knowledge element from scratch, perhaps overthinking it. It looks at the 1.8 million notices Rightscorp sent Cox. After acknowledging that even this enormous volume of notices still only amounts to “generalized knowledge” and is, therefore, not enough, the court finds that they are evidence of “willful blindness” once you consider Cox’s deliberate decision to ignore the notices. The notices were like gunpowder: harmless until you introduce a spark.
It might seem like splitting hairs, but there’s a practical difference between my way4I call it “my way,” but I’m sure someone else has come up with this, and if this were a real law review article I’d hunt that person down and call it “that person’s way.” But for now, it’s just “my way.” and the court’s way of structuring constructive knowledge. My way is much better for Cox. Yes, Cox is liable, but only for those instances of infringement about which it had actual knowledge. By my logic, the Sony-Betamax rule is in full force and effect for all of the constructive knowledge, just not the actual knowledge. Under the court’s reasoning, by contrast, all instances of which Cox had even constructive knowledge come in. Actual knowledge + current relationship killed Sony-Betamax dead.
There are problems with both approaches. The court’s approach is unreasonably high-leverage. Even one instance of actual knowledge + continuing relationship would open the floodgates.5I assume that the instances of actual knowledge must be logically related to the constructive knowledge. E.g., if the actual knowledge was of BitTorrent use, constructive knowledge of watching unauthorized clips on YouTube wouldn’t come in. My approach is too constrained. Proving actual knowledge is really difficult, and you know that for every instance of actual knowledge you can prove, there are several others you just couldn’t prove, perhaps because you lack the resources or evidence is just (legitimately) gone. Meanwhile, you have evidence for lots of constructive evidence—shouldn’t that matter somehow?
I don’t see an easy way to reach a just compromise between these two views. Perhaps the court’s way is better. In the end, it’s really just throwing all the evidence at the jury and letting it do some rough justice, which is what juries do. I’ll just add that my way has the virtue of being much simpler and theoretically coherent, since it fits within an existing legal structure and isn’t an exception to an exception.
We might never find out. The circumstances leading to Cox’s problems are probably unique to Cox: you have to (1) develop and almost implement a good repeat-infringer policy, (2) think it’s working well enough to get you DMCA safe-harbor protection, (3) be targeted on a massive scale by Rightscorp, (4) decide to play hardball with Rightscorp because you’re so confident in your DMCA safe harbor, (5) actually screw up your repeat-infringer policy implementation, (6) regularly document your screw up, (7) get sued (no guarantee of that), and (8) go to the mat in litigation because you don’t discover how badly you screwed up repeat-infringer policy implementation until too late.6I’m 95% certain Cox’s lawyers were completely surprised by the damning internal emails and would’ve given very different advice had they known. A repeat or a parallel set of facts might never occur again.

Nothing to Be Scared Of

The court seems a bit frightened by its own conclusions:

In sum, the Court finds … there was sufficient evidence for a reasonable jury to hold Cox responsible for the infringement of [the plaintiff’s] copyrights on its network. Whether or not Cox’s effort to protect its customers from RIghtscorp was noble or well-intentioned, Cox could not also turn a blind eye to specific infringement occurring on its network. In reaching this conclusion, the Court acknowledges that the application of traditional contributory infringement to large intermediaries like Cox magnifies the uncertainties in this area of the law and raise the specter of undesirable consequences that may follow. This case may provide the vehicle for consideration of those questions.

(Emphasis mine.) In other words, Cox’s lawyers were very effective with their public-policy arguments, but they got overwhelmed by the bad facts on the ground.
But is this result really so worrisome? From a public policy standpoint, applying contributory infringement to an ISP is only a problem if the result is either (1) an injunction shutting the service down, or (2) a damages award so large it impairs the ISP’s ability to serve subscribers. But as this very opinion shows, the chances of so broad an injunction is pretty much zero; and the damages award—$25 million—is really not significant to a major ISP. The plaintiff had requested an injunction preventing Cox “from knowingly and materially contributing to the unauthorized copying [etc.] … by others using [Cox’s] network of any musical composition” that the Plaintiff owns or controls. As the court immediately apprehended, this is basically an injunction to obey the law—something you don’t need an injunction for. But what else could the Plaintiff have asked for?7The plaintiff did also ask for what was in effect an ongoing subpoena power, forcing Cox to rat out customers identified by Rightscorp. The court found that request also completely inappropriate. There’s no easy way to predict infringement; all you can do is ask for actual implementation of a real repeat infringer policy—something I’m sure Cox is already doing!—which also just reflects the DMCA safe-harbor requirement. The court was naturally concerned about over-reach: it would be wrong if innocent Cox subscribers got caught up.
Remember, while the plaintiff might be relatively happy with an extra $25 million in its pocket8This assumes the plaintiff wins its attorney’s fees, which is likely but not certain. If it doesn’t, then it probably lost money on the case., this case wasn’t a success for RightsCorp, which is struggling financially.9As of today, RightsCorp’s stock is selling for four cents a share. It caught a whole bunch of breaks but didn’t get what it needed: a rule requiring ISPs to pass settlement demands along to its customers. The DMCA safe harbor for ISPs is very easy to comply with; RightsCorp just got lucky with Cox. All an ISP has to do is terminate bad actors. It doesn’t need to do RightsCorp’s bidding.
Thanks for reading!

Rick Sanders

Rick is an intellectual-property litigator. He handles lawsuits, arbitrations, emergency injunctions and temporary restraining orders, opposition and cancellation proceedings, uniform dispute resolution proceedings (UDRPs), pre-litigation counseling, litigation avoidance, and other disputes, relating to copyrights, trademarks, trade secrets, domain names, technology and intellectual-property licenses, and various privacy rights. He has taught Copyright Law at Vanderbilt University Law School. He co-founded Aaron | Sanders with Tara Aaron-Stelluto in 2011.

    Footnotes

    1 Again, not actually Rightscorp, but two of its customers, since Rightscorp doesn’t own the copyrights in question and thus lacks standing.
    2 After a jury trial, but before the appeal, the losing party may challenge the verdict on grounds that the jury just got it massively wrong, or may ask for a new trial on grounds that the jury was mislead by bad jury instructions or bad or missing evidence. Cox filed both kinds of motions. The plaintiff also had some bits of the jury verdict it didn’t like and challenged those (which was denied), and it asked the court for a permanent injunction.
    3 The court is quoting Grokster here, which kinda-sorta refined the Sony-Betamax rule.
    4 I call it “my way,” but I’m sure someone else has come up with this, and if this were a real law review article I’d hunt that person down and call it “that person’s way.” But for now, it’s just “my way.”
    5 I assume that the instances of actual knowledge must be logically related to the constructive knowledge. E.g., if the actual knowledge was of BitTorrent use, constructive knowledge of watching unauthorized clips on YouTube wouldn’t come in.
    6 I’m 95% certain Cox’s lawyers were completely surprised by the damning internal emails and would’ve given very different advice had they known.
    7 The plaintiff did also ask for what was in effect an ongoing subpoena power, forcing Cox to rat out customers identified by Rightscorp. The court found that request also completely inappropriate.
    8 This assumes the plaintiff wins its attorney’s fees, which is likely but not certain. If it doesn’t, then it probably lost money on the case.
    9 As of today, RightsCorp’s stock is selling for four cents a share.