Chapter 3: Copyright Protection of Software:
Reproducing "Copies" of Works (Continued)

Introduction

The following material introduces another issue that relates to what constitutes reproducing a copy. The issue is the circumstances in which the copyright law will hold one actor liable for causing another actor to reproduce a copy of a protected work or for facilitating the latter conduct. The leading decision on that subject is Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984). That case involved whether a seller of VCRs was liable for contributory infringement because its customers used the machines, among other things, to tape record copyright-protected TV broadcasts. (The Court held that it was not liable, because the tape recording by customers was a fair use. The Netcom decision, which follows immediately, provides more or less the conventional take on that decision. The Aimster decision, presented after that, puts a somewhat different spin on Sony. Finally, the Grokster decision reveals a deeply divided Court on what spin to place on Sony and it borrows “active inducement” from patent law to provide another branch of indirect liability.

Given the different readings that have been given the Supreme Court's Sony opinion, here is a brief excerpt from that rather long opinion — the part dealing with the proper legal standard for contributory infringement:

Sony Corp. v. Universal City Studios, Inc.
United States Supreme Court
464 U.S. 417 (1984)

. . . The two respondents in this case do not seek relief against the Betamax [VCR] users who have allegedly infringed their copyrights. The copying of the respondents' programs represents a small portion of the total use of VTR's. It is, however, the taping of respondents' own copyrighted programs that provides them with standing to charge Sony with contributory infringement. To prevail, they have the burden of proving that users of the Betamax have infringed their copyrights and that Sony should be held responsible for that infringement.

III

The Copyright Act does not expressly render anyone liable for infringement committed by another. In contrast, the Patent Act expressly brands anyone who "actively induces infringement of a patent" as an infringer, 35 U. S. C. § 271(b), and further imposes liability on certain individuals labeled "contributory" infringers, § 271(c). The absence of such express language in the copyright statute does not preclude the imposition of liability for copyright infringements on certain parties who have not themselves engaged in the infringing activity. For vicarious liability is imposed in virtually all areas of the law, and the concept of contributory infringement is merely a species of the broader problem of identifying the circumstances in which it is just to hold one individual accountable for the actions of another.

Such circumstances were plainly present in Kalem Co. v. Harper Brothers, 222 U.S. 55 (1911), the copyright decision of this Court on which respondents place their principal reliance. In Kalem, the Court held that the producer of an unauthorized film dramatization of the copyrighted book Ben Hur was liable for his sale of the motion picture to jobbers, who in turn arranged for the commercial exhibition of the film.

Respondents argue that Kalem stands for the proposition that supplying the "means" to accomplish an infringing activity and encouraging that activity through advertisement are sufficient to establish liability for copyright infringement. This argument rests on a gross generalization that cannot withstand scrutiny. The producer in Kalem did not merely provide the "means" to accomplish an infringing activity; the producer supplied the work itself, albeit in a new medium of expression. Sony in the instant case does not supply Betamax consumers with respondents' works; respondents do. Sony supplies a piece of equipment that is generally capable of copying the entire range of programs that may be televised: those that are uncopyrighted, those that are copyrighted but may be copied without objection from the copyright holder, and those that the copyright holder would prefer not to have copied. The Betamax can be used to make authorized or unauthorized uses of copyrighted works, but the range of its potential use is much broader than the particular infringing use of the film Ben Hur involved in Kalem. Kalem does not support respondents' novel theory of liability.

Justice Holmes stated that the producer had "contributed" to the infringement of the copyright, and the label "contributory infringement" has been applied in a number of lower court copyright cases nvolving an ongoing relationship between the direct infringer and the contributory infringer at the time the infringing conduct occurred. In such cases, as in other situations in which the imposition of vicarious liability is manifestly just, the "contributory" infringer was in a position to control the use of copyrighted works by others and had authorized the use without permission from the copyright owner. This case, however, plainly does not fall in that category.

If vicarious liability is to be imposed on Sony in this case, it must rest on the fact that it has sold equipment with constructive knowledge of the fact that its customers may use that equipment to make unauthorized copies of copyrighted material. There is no precedent in the law of copyright for the imposition of vicarious liability on such a theory. The closest analogy is provided by the patent law cases to which it is appropriate to refer because of the historic kinship between patent law and copyright law. In the Patent Act both the concept of infringement and the concept of contributory infringement are expressly defined by statute. The prohibition against contributory infringement is confined to the knowing sale of a component especially made for use in connection with a particular patent. There is no suggestion in the statute that one patentee may object to the sale of a product that might be used in connection with other patents. Moreover, the Act expressly provides that the sale of a "staple article or commodity of commerce suitable for substantial noninfringing use" is not contributory infringement. 35 U. S. C. § 271(c).

When a charge of contributory infringement is predicated entirely on the sale of an article of commerce that is used by the purchaser to infringe a patent, the public interest in access to that article of commerce is necessarily implicated. A finding of contributory infringement does not, of course, remove the article from the market altogether; it does, however, give the patentee effective control over the sale of that item. Indeed, a finding of contributory infringement is normally the functional equivalent of holding that the disputed article is within the monopoly granted to the patentee.

For that reason, in contributory infringement cases arising under the patent laws the Court has always recognized the critical importance of not allowing the patentee to extend his monopoly beyond the limits of his specific grant. These cases deny the patentee any right to control the distribution of unpatented articles unless they are "unsuited for any commercial noninfringing use." Unless a commodity "has no use except through practice of the patented method," the patentee has no right to claim that its distribution constitutes contributory infringement. "To form the basis for contributory infringement the item must almost be uniquely suited as a component of the patented invention." "[A] sale of an article which though adapted to an infringing use is also adapted to other and lawful uses, is not enough to make the seller a contributory infringer. Such a rule would block the wheels of commerce." Henry v. A. B. Dick Co., 224 U.S. 1, 48 (1912), overruled on other grounds, Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 517 (1917).

We recognize there are substantial differences between the patent and copyright laws. But in both areas the contributory infringement doctrine is grounded on the recognition that adequate protection of a monopoly may require the courts to look beyond actual duplication of a device or publication to the products or activities that make such duplication possible. The staple article of commerce doctrine must strike a balance between a copyright holder's legitimate demand for effective -- not merely symbolic -- protection of the statutory monopoly, and the rights of others freely to engage in substantially unrelated areas of commerce. Accordingly, the sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.

IV

The question is thus whether the Betamax is capable of commercially significant noninfringing uses. In order to resolve that question, we need not explore all the different potential uses of the machine and determine whether or not they would constitute infringement. Rather, we need only consider whether on the basis of the facts as found by the District Court a significant number of them would be noninfringing. Moreover, in order to resolve this case we need not give precise content to the question of how much use is commercially significant. For one potential use of the Betamax plainly satisfies this standard, however it is understood: private, noncommercial time-shifting in the home. It does so both (A) because respondents have no right to prevent other copyright holders from authorizing it for their programs, and (B) because the District Court's factual findings reveal that even the unauthorized home time-shifting of respondents' programs is legitimate fair use.

. . . In summary, the record and findings of the District Court lead us to two conclusions. First, Sony demonstrated a significant likelihood that substantial numbers of copyright holders who license their works for broadcast on free television would not object to having their broadcasts time-shifted by private viewers. And second, respondents failed to demonstrate that time-shifting would cause any likelihood of nonminimal harm to the potential market for, or the value of, their copyrighted works. The Betamax is, therefore, capable of substantial noninfringing uses. Sony's sale of such equipment to the general public does not constitute contributory infringement of respondents' copyrights.



Religious Technology Center v. Netcom
On–Line Communications, Inc.
United States District Court
907 F. Supp. 1361 (N.D. Cal. 1995)

Whyte, District Judge.

This case concerns an issue of first impression regarding intellectual property rights in cyberspace. Specifically, this order addresses whether the operator of a computer bulletin board service (“BBS”), and the large Internet access provider that allows that BBS to reach the Internet, should be liable for copyright infringement committed by a subscriber of the BBS.

Plaintiffs Religious Technology Center (“RTC”) and Bridge Publications, Inc. (“BPI”) hold copyrights in the unpublished and published works of L. Ron Hubbard, the late founder of the Church of Scientology (“the Church”).

Defendant Dennis Erlich (“Erlich”) is a former minister of Scientology turned vocal critic of the Church, whose pulpit is now the Usenet newsgroup alt.religion.scientology (“a.r.s.”), an on-line forum for discussion and criticism of Scientology. Plaintiffs maintain that Erlich infringed their copyrights when he posted portions of their works on a.r.s.

[In a September 1995 order, the court issued a preliminary injunction against Erlich, because it concluded that he probably could not prevail on his defense of fair use. The reason was that Erlich posted large amounts of verbatim material from Hubbard's writings, without substantial added comments or criticism to which the material taken was ancillary. The court nonetheless permitted the other defendants to argue that their own use was fair and also that they believed, albeit incorrectly, that Erlich's use was fair.]

Erlich gained his access to the Internet through defendant Thomas Klemesrud's BBS “support.com.” Klemesrud is the operator of the BBS, which is run out of his home and has approximately 500 paying users. Klemesrud's BBS is not directly linked to the Internet, but gains its connection through the facilities of defendant Netcom On-Line Communications, Inc. (“Netcom”), one of the largest providers of Internet access in the United States.

After failing to convince Erlich to stop his postings, plaintiffs contacted defendants Klemesrud and Netcom. Klemesrud responded to plaintiffs' demands that Erlich be kept off his system by asking plaintiffs to prove that they owned the copyrights to the works posted by Erlich. However, plaintiffs refused Klemesrud's request as unreasonable. Netcom similarly refused plaintiffs' request that Erlich not be allowed to gain access to the Internet through its system. Netcom contended that it would be impossible to prescreen Erlich's postings and that to kick Erlich off the Internet meant kicking off the hundreds of users of Klemesrud's BBS. Consequently, plaintiffs named Klemesrud and Netcom in their suit against Erlich, although only on the copyright infringement claims.

For the reasons set forth below, the court grants in part and denies in part Netcom's motion for summary judgment and Klemesrud's motion for judgment on the pleadings and denies plaintiffs' motion for a preliminary injunction.

Netcom's Motion for Summary Judgment of Noninfringement

To establish a claim of copyright infringement, a plaintiff must demonstrate (1) ownership of a valid copyright and (2) “copying“ of protectable expression by the defendant. The court has already determined that plaintiffs have established that they own the copyrights to most of the works. The court also found plaintiffs likely to succeed on their claim that defendant Erlich copied the works and was not entitled to a fair use defense. Plaintiffs argue that, although Netcom was not itself the source of any of the infringing materials on its system, it nonetheless should be liable for infringement, either directly, contributorily, or vicariously. Netcom disputes these theories of infringement and further argues that it is entitled to its own fair use defense.

Direct Infringement

Infringement consists of the unauthorized exercise of one of the exclusive rights of the copyright holder delineated in § 106. See 17 U.S.C. § 501. Direct infringement does not require intent or any particular state of mind.

Many of the facts pertaining to this motion are undisputed. The court will address the relevant facts to determine whether a theory of direct infringement can be supported based on Netcom's alleged reproduction of plaintiffs' works. The court will look at one controlling Ninth Circuit decision addressing copying in the context of computers and two district court opinions addressing the liability of BBS operators for the infringing activities of subscribers. The court will additionally examine whether Netcom is liable for infringing plaintiffs' exclusive rights to publicly distribute and display their works.

The parties do not dispute the basic processes that occur when Erlich posts his allegedly infringing messages to a.r.s. [A diagram showing the process may be found in the Editorial Notes following the court's opinion.] Erlich connects to Klemesrud's BBS using a telephone and a modem. Erlich then transmits his messages to Klemesrud's computer, where they are automatically briefly stored.

According to a prearranged pattern established by Netcom's software, Erlich's initial act of posting a message to the Usenet results in the automatic copying of Erlich's message from Klemesrud's computer onto Netcom's computer and onto other computers on the Usenet. In order to ease transmission and for the convenience of Usenet users, Usenet servers maintain postings from newsgroups for a short period of time eleven days for Netcom's system and three days for Klemesrud's system.

Once on Netcom's computers, messages are available to Netcom's customers and Usenet neighbors, who may then download the messages to their own computers. Netcom's local server makes available its postings to a group of Usenet servers, which do the same for other servers until all Usenet sites worldwide have obtained access to the postings, which takes a matter of hours.

Unlike some other large on-line service providers, such as CompuServe, America Online, and Prodigy, Netcom does not create or control the content of the information available to its subscribers. It also does not monitor messages as they are posted. It has, however, suspended the accounts of subscribers who violated its terms and conditions, such as where they had commercial software in their posted files. Netcom admits that, although not currently configured to do this, it may be possible to reprogram its system to screen postings containing particular words or coming from particular individuals.

Netcom, however, took no action after it was told by plaintiffs that Erlich had posted messages through Netcom's system that violated plaintiffs' copyrights, instead claiming that it could not shut out Erlich without shutting out all of the users of Klemesrud's BBS.

Creation of Fixed Copies

The Ninth Circuit addressed the question of what constitutes infringement in the context of storage of digital information in a computer's random access memory (“RAM”). MAI Systems Corp, v. Peak Computer, Inc. In MAI, the Ninth Circuit found copyright infringement where a repair person, who was not authorized to use the computer owner's licensed operating system software, turned on the computer, thus loading the operating system into RAM for long enough to check an “error log.” MAI established that the loading of data from a storage device into RAM constitutes copying because that data stays in RAM long enough for it to be perceived.

In the present case, there is no question that “copies” were created, as Erlich's act of sending a message to a.r.s. caused reproductions of portions of plaintiffs' works on both Klemesrud's and Netcom's storage devices. Even though the messages remained on their systems for at most eleven days, they were sufficiently “fixed” to constitute recognizable copies under the Copyright Act.

Is Netcom Liable for Making the Copies?

Accepting that copies were made, Netcom argues that Erlich, and not Netcom, is directly liable for the copying. MAI did not address the question raised in this case: whether possessors of computers are liable for incidental copies automatically made on their computers using their software as part of a process initiated by a third party. Netcom correctly distinguishes MAI on the ground that Netcom did not take any affirmative action that directly resulted in copying plaintiffs' works other than by installing and maintaining a system whereby software automatically forwards messages received from subscribers onto the Usenet, and temporarily stores copies on its system.

Netcom's actions, to the extent that they created a copy of plaintiffs' works, were necessary to having a working system for transmitting Usenet postings to and from the Internet. Unlike the defendants in MAI, neither Netcom nor Klemesrud initiated the copying. The defendants in MAI turned on their customers' computers thereby creating temporary copies of the operating system, whereas Netcom's and Klemesrud's systems can operate without any human intervention. Thus, unlike MAI, the mere fact that Netcom's system incidentally makes temporary copies of plaintiffs' works does not mean Netcom has caused the copying.

The court believes that Netcom's act of designing or implementing a system that automatically and uniformly creates temporary copies of all data sent through it is not unlike that of the owner of a copying machine who lets the public make copies with it. (Netcom compares itself to a common carrier that merely acts as a passive conduit for information.) Although some of the people using the machine may directly infringe copyrights, courts analyze the machine owner's liability under the rubric of contributory infringement, not direct infringement.

Plaintiffs' theory of liability would create many separate acts of infringement and, carried to its natural extreme, would lead to unreasonable liability. It is not difficult to conclude that Erlich infringes by copying a protected work onto his computer and by posting a message to a newsgroup. However, plaintiffs' theory further implicates a Usenet server that carries Erlich's message to other servers regardless of whether that server acts without any human intervention beyond the initial setting up of the system. It would also result in liability for every single Usenet server in the worldwide link of computers transmitting Erlich's message to every other computer.

These parties, who are liable under plaintiffs' theory, do no more than operate or implement a system that is essential if Usenet messages are to be widely distributed. There is no need to construe the Act to make all of these parties infringers. Although copyright is a strict liability statute, there should still be some element of volition or causation which is lacking where a defendant's system is merely used to create a copy by a third party.

Plaintiffs point out that the infringing copies resided for eleven days on Netcom's computer and were sent out from it onto the “Information Superhighway.” However, under plaintiffs' theory, any storage of a copy that occurs in the process of sending a message to the Usenet is an infringement. While it is possible that less “damage” would have been done if Netcom had heeded plaintiffs' warnings and acted to prevent Erlich's message from being forwarded, this is not relevant to its direct liability for copying. The same argument is true of Klemesrud and any Usenet server.

Whether a defendant makes a direct copy that constitutes infringement cannot depend on whether it received a warning to delete the message. This distinction may be relevant to contributory infringement, however, where knowledge is an element.

The court will now consider two district court opinions that have addressed the liability of BBS operators for infringing files uploaded by subscribers.

Playboy Case

Playboy Enterprises, Inc. v. Frena, 839 F. Supp. 1552 (M.D. Fla 1993), involved a suit against the operator of a small BBS whose system contained files of erotic pictures [“Playmates”]. A subscriber of the defendant's BBS had uploaded files containing digitized pictures copied from the plaintiff's copyrighted magazine, which files remained on the BBS for other subscribers to download.

The court did not conclude, as plaintiffs suggest in this case, that the BBS is itself liable for the unauthorized reproduction of plaintiffs' work; instead, the court concluded that the BBS operator was liable for violating the plaintiff's right to publicly distribute and display copies of its work.

It is clear from the context of this discussion that the Playboy court was looking only at the exclusive right to distribute copies to the public, where liability exists regardless of whether the defendant makes copies. Here, however, plaintiffs do not argue that Netcom is liable for its public distribution of copies. Instead, they claim that Netcom is liable because its computers in fact made copies.

Notwithstanding Playboy's holding that a BBS operator may be directly liable for distributing or displaying to the public copies of protected works, this court holds that the storage on a defendant's system of infringing copies and retransmission to other servers is not a direct infringement by the BBS operator of the exclusive right to reproduce the work where such copies are uploaded by an infringing user. Playboy does not hold otherwise. (Besides, the decision has been much criticized. The finding of direct infringement was perhaps influenced by the fact that there was evidence that defendants in fact knew of the infringing nature of the works, which were digitized photograph files labeled “Playboy” and “Playmate.”)

Sega Case

A court in this district addressed the issue of whether a BBS operator is liable for copyright infringement where it solicited subscribers to upload files containing copyrighted materials to the BBS that were available for others to download. Sega Enterprises Ltd. v. MAPHIA, 857 F. Supp. 679 (N.D. Cal. 1994). The defendant's “MAPHIA” BBS contained copies of plaintiff Sega's video game programs that were uploaded by users. The defendant solicited the uploading of such programs and received consideration for the right to download files. Access was given for a fee or to those purchasing the defendant's hardware device that allowed Sega video game cartridges to be copied. The court granted a preliminary injunction against the defendant, finding that plaintiffs had shown a prima facie case of direct and contributory infringement. The court found that copies were made by unknown users of the BBS when files were uploaded and downloaded. Further, the court found that the defendant's knowledge of the infringing activities, encouragement, direction, and provision of the facilities through his operation of the BBS constituted contributory infringement, even though the defendant did not know exactly when files were uploaded or downloaded.

This court is not convinced that Sega provides support for a finding of direct infringement where copies are made on a defendant's BBS by users who upload files. The court's reference to the “knowledge of Defendant” indicates that the court was focusing on contributory infringement, as knowledge is not an element of direct infringement. Perhaps, Sega's references to direct infringement are to the direct liability of the “unknown users,” as there can be no contributory infringement by a defendant without direct infringement by another.

Thus, the court finds that neither Playboy nor Sega requires finding Netcom liable for direct infringement of plaintiffs' exclusive right to reproduce their works.

Public Distribution or Display?

The court is not convinced that the mere possession of a digital copy on a BBS that is accessible to some members of the public constitutes direct infringement by the BBS operator. Such a holding suffers from the same problem of causation as the reproduction argument. Only the subscriber should be liable for causing the distribution of plaintiffs' work, as the contributing actions of the BBS provider are automatic and indiscriminate. Erlich could have posted his messages through countless access providers and the outcome would be the same: anyone with access to Usenet newsgroups would be able to read his messages.

There is no logical reason to draw a line around Netcom and Klemesrud and say that they are uniquely responsible for distributing Erlich's messages. Netcom is not even the first link in the chain of distribution-Erlich had no direct relationship with Netcom but dealt solely with Klemesrud's BBS, which used Netcom to gain its Internet access. Every Usenet server has a role in the distribution, so plaintiffs' argument would create unreasonable liability. Where the BBS merely stores and passes along all messages sent by its subscribers and others, the BBS should not be seen as causing these works to be publicly distributed or displayed.

Even accepting the Playboy court's holding, the case is factually distinguishable. Unlike the BBS in that case, Netcom does not maintain an archive of files for its users. Thus, it cannot be said to be “suppl[ying] a product.” In contrast to some of its larger competitors, Netcom does not create or control the content of the information available to its subscribers; it merely provides access to the Internet, whose content is controlled by no single entity. Although the Internet consists of many different computers networked together, some of which may contain infringing files, it does not make sense to hold the operator of each computer liable as an infringer merely because his or her computer is linked to a computer with an infringing file.

It would be especially inappropriate to hold liable a service that acts more like a conduit, in other words, one that does not itself keep an archive of files for more than a short duration. Finding such a service liable would involve an unreasonably broad construction of public distribution and display rights. No purpose would be served by holding liable those who have no ability to control the information to which their subscribers have access, even though they might be in some sense helping to achieve the Internet's automatic “public distribution” and the users' “public” display of files.

In summary, as to direct infringement, the court is not persuaded by plaintiffs' argument that Netcom is directly liable for the copies that are made and stored on its computer. Where the infringing subscriber is clearly directly liable for the same act, it does not make sense to adopt a rule that could lead to the liability of countless parties whose role in the infringement is nothing more than setting up and operating a system that is necessary for the functioning of the Internet. Such a result is unnecessary as there is already a party directly liable for causing the copies to be made.

Plaintiffs occasionally claim that they only seek to hold liable a party that refuses to delete infringing files after they have been warned. However, such liability cannot be based on a theory of direct infringement, where knowledge is irrelevant. The court does not find workable a theory of infringement that would hold the entire Internet liable for activities that cannot reasonably be deterred. Billions of bits of data flow through the Internet and are necessarily stored on servers throughout the network and it is thus practically impossible to screen out infringing bits from noninfringing bits. Because the court cannot see any meaningful distinction (without regard to knowledge) between what Netcom did and what every other Usenet server does, the court finds that Netcom cannot be held liable for direct infringement. Cf: IITF Report at 69 (noting uncertainty regarding whether BBS operator should be directly liable for reproduction or distribution of files uploaded by a subscriber).

Contributory Infringement

Netcom is not free from liability just because it did not directly infringe plaintiffs' works; it may still be liable as a contributory infringer. Although there is no statutory rule of liability for infringement committed by others —

The absence of such express language in the copyright statute does not preclude the imposition of liability for copyright infringement on certain parties who have not themselves engaged in the infringing activity. For vicarious liability is imposed in virtually all areas of the law, and the concept of contributory infringement is merely a species of the broader problem of identifying the circumstances in which it is just to hold one individual accountable for the actions of another.

Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 435 (1984). Liability for participation in the infringement will be established where the defendant, “with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another.”

Knowledge of Infringing Activity

Plaintiffs insist that Netcom knew that Erlich was infringing their copyrights at least after receiving notice from plaintiffs' counsel indicating that Erlich had posted copies of their works onto a.r.s. through Netcom's system. Despite this knowledge, Netcom continued to allow Erlich to post messages to a.r.s. and left the allegedly infringing messages on its system so that Netcom's subscribers and other Usenet servers could access them. Netcom argues that it did not possess the necessary type of knowledge because (1) it did not know of Erlich's planned infringing activities when it agreed to lease its facilities to Klemesrud, (2) it did not know that Erlich would infringe prior to any of his postings, (3) it is unable to screen out infringing postings before they are made, and (4) its knowledge of the infringing nature of Erlich's postings was too equivocal given the difficulty in assessing whether the registrations were valid and whether Erlich's use was fair. The court will address these arguments in turn.

First, the relevant time frame for knowledge is not when Netcom entered into an agreement with Klemesrud. It should be when Netcom provided its services to allow Erlich to infringe plaintiffs' copyrights. It is undisputed that Netcom did not know that Erlich was infringing before it received notice from plaintiffs. Netcom points out that the alleged instances of infringement occurring on Netcom's system all happened prior to the date on which Netcom first received notice of plaintiffs' infringement claim against Erlich. Thus, there is no question of fact as to whether Netcom knew or should have known of Erlich's infringing activities that occurred more than 11 days before receipt of the plaintiffs' letter.

However, the evidence reveals a question of fact as to whether Netcom knew or should have known that Erlich had infringed plaintiffs' copyrights following receipt of plaintiffs' letter. There is a genuine issue as to whether Netcom knew of any infringement by Erlich before it was too late to do anything about it. If plaintiffs can prove the knowledge element, Netcom will be liable for contributory infringement since its failure to simply cancel Erlich's infringing message and thereby stop an infringing copy from being distributed worldwide constitutes substantial participation in Erlich's public distribution of the message.

Netcom argues that its knowledge after receiving notice of Erlich's alleged infringing activities was too equivocal, given the difficulty in assessing whether registrations are valid and whether use is fair. Although a mere unsupported allegation of infringement by a copyright owner may not automatically put a defendant on notice of infringing activity, Netcom's position that liability must be unequivocal is unsupportable. While perhaps the typical infringing activities of BBSs will involve copying software, where BBS operators are better equipped to judge infringement, the fact that this involves written works should not distinguish it. Where works contain copyright notices within them, as here, it is difficult to argue that a defendant did not know that the works were copyrighted. To require proof of valid registrations would be impractical and would perhaps take too long to verify, making it impossible for a copyright holder to protect his or her works in some cases, as works are automatically deleted less than two weeks after they are posted.

The court is more persuaded by the argument that it is beyond the ability of a BBS operator to quickly and fairly determine when a use is not infringement where there is at least a colorable claim of fair use. Where a BBS operator cannot reasonably verify a claim of infringement, either because of a possible fair use defense, the lack of copyright notices on the copies, or the copyright holder's failure to provide the necessary documentation to show that there is a likely infringement, the operator's lack of knowledge will be found reasonable and there will be no liability for contributory infringement for allowing the continued distribution of the works on its system.

Since Netcom was given notice of an infringement claim before Erlich had completed his infringing activity, there may be a question of fact as to whether Netcom knew or should have known that such activities were infringing. Given the context of a dispute between a former minister and a church he is criticizing, Netcom may be able to show that its lack of knowledge that Erlich was infringing was reasonable. However, Netcom admits that it did not even look at the postings once given notice and that had it looked at the copyright notice and statements regarding authorship, it would have triggered an investigation into whether there was infringement. These facts are sufficient to raise a question as to Netcom's knowledge-once it received a letter from plaintiffs.

Substantial Participation

Where a defendant has knowledge of the primary infringer's infringing activities, it will be liable if it “induces, causes or materially contributes to the infringing conduct of” the primary infringer. Providing a service that allows for the automatic distribution of all Usenet postings, infringing and noninfringing, goes well beyond renting a premises to an infringer. It is more akin to the radio stations that were found liable for rebroadcasting an infringing broadcast.

Netcom allows Erlich's infringing messages to remain on its system and be further distributed to other Usenet servers worldwide. It does not completely relinquish control over how its system is used, unlike a landlord. Thus, it is fair, assuming Netcom is able to take simple measures to prevent further damage to plaintiffs' copyrighted works, to hold Netcom liable for contributory infringement where Netcom has knowledge of Erlich's infringing postings yet continues to aid in the accomplishment of Erlich's purpose of publicly distributing the postings. Accordingly, plaintiffs do raise a genuine issue of material fact as to their theory of contributory infringement as to the postings made after Netcom was on notice of plaintiffs' infringement claim.

Vicarious Liability

Even if plaintiffs cannot prove that Netcom is contributorily liable for its participation in the infringing activity, it may still seek to prove vicarious infringement based on Netcom's relationship to Erlich. A defendant is liable for vicarious liability for the actions of a primary infringer where the defendant (1) has the right and ability to control the infringer's acts and (2) receives a direct financial benefit from the infringement. Unlike contributory infringement, knowledge is not an element of vicarious liability.

Right and Ability To Control

The first element of vicarious liability will be met if plaintiffs can show that Netcom has the right and ability to supervise the conduct of its subscribers. Netcom argues that it does not have the right to control its users' postings before they occur. Plaintiffs dispute this and argue that Netcom's terms and conditions, to which its subscribers must agree, specify that Netcom reserves the right to take remedial action against subscribers. Plaintiffs also argue that under “netiquette,” the informal rules and customs that have developed on the Internet, violation of copyrights by a user is unacceptable and the access provider has a duty take measures to prevent this; where the immediate service provider fails, the next service provider up the transmission stream must act. Further evidence of Netcom's right to restrict infringing activity is its prohibition of copyright infringement and its requirement that its subscribers indemnify it for any damage to third parties. Plaintiffs have thus raised a question of fact as to Netcom's right to control Erlich's use of its services.

Netcom argues that it could not possibly screen messages before they are posted given the speed and volume of the data that goes through its system. Netcom further argues that it has never exercised control over the content of its users' postings. Plaintiffs' expert opines otherwise, stating that with an easy software modification Netcom could identify postings that contain particular words or come from particular individuals. (However, plaintiffs submit no evidence indicating that Netcom, or anyone, could design software that could determine whether a posting is infringing.)

Plaintiffs further dispute Netcom's claim that it could not limit Erlich's access to Usenet without kicking off all 500 subscribers of Klemesrud's BBS. As evidence that Netcom has in fact exercised its ability to police its users' conduct, plaintiffs cite evidence that Netcom has acted to suspend subscribers' accounts on over 1000 occasions. See Ex. J (listing suspensions of subscribers by Netcom for commercial advertising, posting obscene materials, and off-topic postings). Further evidence shows that Netcom can delete specific postings. Whether such sanctions occurred before or after the abusive conduct is not material to whether Netcom can exercise control. The court thus finds that plaintiffs have raised a genuine issue of fact as to whether Netcom has the right and ability to exercise control over the activities of its subscribers, and of Erlich in particular.

Direct Financial Benefit

Plaintiffs must further prove that Netcom receives a direct financial benefit from the infringing activities of its users. For example, a landlord who has the right and ability to supervise the tenant's activities is vicariously liable for the infringements of the tenant where the rental amount is proportional to the proceeds of the tenant's sales. However, where a defendant rents space or services on a fixed rental fee that does not depend on the nature of the activity of the lessee, courts usually find no vicarious liability because there is no direct financial benefit from the infringement. See Comment, The Vicarious Liability of Electronic Bulletin Board Operators for Copyright Infringement Occurring on Their Bulletin Boards, 80 Iowa L. Rev. 391, 415 (1995) (arguing that BBS operators “lease cyberspace” and should thus be treated like landlords, who are not liable for infringement that occurs on their premises).

Plaintiffs cannot provide any evidence of a direct financial benefit received by Netcom from Erlich's infringing postings. Netcom receives a fixed fee. There is no evidence that infringement by Erlich, or any other user of Netcom's services, in any way enhances the value of Netcom's services to subscribers or attracts new subscribers. Plaintiffs argue, however, that Netcom somehow derives a benefit from its purported “policy of refusing to take enforcement actions against its subscribers and others who transmit infringing messages over its computer networks.” Plaintiffs point to Netcom's advertisements that, compared to competitors like CompuServe and America Online, Netcom provides easy, regulation–free Internet access. Plaintiffs assert that Netcom's policy attracts copyright infringers to its system, resulting in a direct financial benefit. The court is not convinced that such an argument, if true, would constitute a direct financial benefit to Netcom from Erlich's infringing activities.

Further, plaintiffs' argument is not supported by probative evidence. The only “evidence” plaintiffs cite for their supposition is the declaration of their counsel, who states that in a conversation regarding Netcom's position related to this case, counsel for Netcom “informed me that Netcom's executives are happy about the publicity it is receiving in the press as a result of this case.”

Whether or not this declaration is admissible, it does not support plaintiffs' argument that Netcom either has a policy of not enforcing violations of copyright laws by its subscribers or, assuming such a policy exists, that Netcom's policy directly financially benefits Netcom, such as by attracting new subscribers. Because plaintiffs have failed to raise a question of fact on this vital element, their claim of vicarious liability fails.

First Amendment Argument

Netcom argues that plaintiffs' theory of liability contravenes the first amendment, as it would chill the use of the Internet because every access provider or user would be subject to liability when a user posts an infringing work to a Usenet newsgroup. The court agrees that an overbroad injunction might implicate the First Amendment. For example, plaintiffs' demand that the court order Netcom to terminate Klemesrud's BBS's access to the Internet, thus depriving all 500 of his subscribers, would be overbroad. It would unnecessarily keep hundreds of users, against whom there are no allegations of copyright infringement, from accessing a means of speech. The overbroadness is even more evident if, as plaintiffs contend, there is a way to restrict only Erlich's access to a.r.s.

But imposing liability for infringement where it is otherwise appropriate does not necessarily raise a First Amendment issue. The copyright concepts of the idea/expression dichotomy and the fair use defense balance the important First Amendment rights with the constitutional authority for “promot[ing] the progress of science and useful arts.”

Netcom argues that liability here would force Usenet servers to perform the impossible—screening all the information that comes through their systems. However, the court holds that Usenet servers are not directly liable for causing a copy to be made, and absent evidence of knowledge and participation or control and direct profit, they will not be contributorily or vicariously liable. If Usenet servers were responsible for screening all messages coming through their systems, this could have a serious chilling effect on what some say may turn out to be the best public forum for free speech yet devised. See Jerry Berman & Daniel J. Weitzner, Abundance and User Control: Renewing the Democratic Heart of the First Amendment in the Age of Interactive Media, 104 Yale L. J. 1619, 1624 (1995) (praising decentralized networks for opening access to all with no entity stifling independent sources of speech).

Fair Use Defense

Assuming plaintiffs can prove a violation there still is no infringement if the defendant's use is fair under 17 U.S.C. § 107. The proper focus here is on whether Netcom's actions qualify as fair use, not on whether Erlich himself engaged in fair use; the court has already found that Erlich was not likely entitled to his own fair use defense.

Congress has set out four nonexclusive factors to be considered in determining the availability of the fair use defense: (1) the purpose and character of the infringing use, including whether the use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. 17 U.S.C. § 107. All of the factors “are to be explored, and the results weighed together, in light of the purposes of copyright.”

The first statutory factor looks to the purpose and character of the defendant's use. Netcom's use of plaintiffs' works is to carry out its commercial function as an Internet access provider. Such a use, regardless of the underlying uses made by Netcom's subscribers, is clearly commercial. Netcom's use, though commercial, also benefits the public in allowing for the functioning of the Internet and the dissemination of other creative works, a goal of the Copyright Act. A commercial use does not dictate against a finding of fair use, as most of the uses listed in the statute are “generally conducted for profit in this country.”

Although Netcom gains financially from its distribution of messages to the Internet, its financial incentive is unrelated to the infringing activity and the defendant receives no direct financial benefit from the acts of infringement. Therefore, the commercial nature of the defendant's activity should not be dispositive. It is undisputed that, unlike the defendants in Playboy and Sega, Netcom does not directly gain anything from the content of the information available to its subscribers on the Internet. This factor weighs in Netcom's favor, notwithstanding the otherwise commercial nature of Netcom's use.

The second fair–use factor focuses on two different aspects of the copyrighted work: whether it is published or unpublished and whether it is informational or creative. Plaintiffs rely on the fact that some of the works transmitted by Netcom were unpublished and some were arguably highly creative and original. However, because Netcom's use of the works was merely to facilitate their posting to the Usenet, which is an entirely different purpose than plaintiffs' use (or, for that matter, Erlich's use), the precise nature of those works is not important to the fair use determination.

The third factor concerns both the percentage of the original work that was copied and whether that portion constitutes the “heart” of the copyrighted work. The copying of an entire work will ordinarily militate against a finding of fair use, although this is not a per se rule. Plaintiffs have shown that Erlich's postings copied substantial amounts of the originals or, in some cases, the entire works. Netcom, of course, made available to the Usenet exactly what was posted by Erlich. Here, Netcom copied no more of plaintiffs' works than necessary to function as a Usenet server. Netcom had no practical alternative way to carry out its socially useful purpose; a Usenet server must copy all files, since the prescreening of postings for potential copyright infringement is not feasible. Accordingly, this factor should not defeat an otherwise valid defense.

The fourth and final statutory factor concerns “the extent of market harm caused by the particular actions of the alleged infringer” and “`whether unrestricted and widespread conduct of the sort engaged in by the defendant...would result in a substantially adverse impact on the potential market' for the original.” Although the results of all four factors must be weighed together, the fourth factor is the most important consideration.

Netcom argues that there is no evidence that making accessible plaintiffs' works, which consist of religious scriptures and policy letters, will harm the market for these works by preventing someone from participating in the Scientology religion because they can view the works on the Internet instead. Further, Netcom notes that the relevant question is whether the postings fulfill the demand of an individual who seeks to follow the religion's teachings, and not whether they suppress the desire of an individual who is affected by the criticism posted by Erlich. Netcom argues that the court must focus on the “normal market” for the copyrighted work, which in this case is through a Scientology-based organization.

Plaintiffs respond that the Internet's extremely widespread distribution—where more than 25 million people worldwide have access—multiplies the effects of market substitution. The evidence raises a genuine issue as to the possibility that Erlich's postings, made available over the Internet by Netcom, could hurt the market for plaintiffs' works.

In balancing the various factors, the court finds that there is a question of fact as to whether there is a valid fair use defense. Netcom has not justified its copying plaintiffs' works to the extent necessary to establish entitlement to summary judgment in light of evidence that it knew that Erlich's use was infringing and had the ability to prevent its further distribution. Although plaintiffs may ultimately lose on their infringement claims if, among other things, they cannot prove that posting their copyrighted works will harm the market for these works, fair use presents a factual question on which plaintiffs have at least raised a genuine issue of fact. Accordingly, the court does not find that Netcom's use was fair as a matter of law.

The court finds that plaintiffs have raised a genuine issue of fact regarding whether Netcom should have known that Erlich was infringing their copyrights after receiving a letter from plaintiffs, whether Netcom substantially participated in the infringement, and whether Netcom has a valid fair use defense. Accordingly, Netcom is not entitled to summary judgment on plaintiffs' claim of contributory copyright infringement. However, plaintiffs' claims of direct and vicarious infringement fail.

Klemesrud's Motion for Judgment on the Pleadings

First, plaintiffs allege that Klemesrud directly infringed their copyrights by “reproduc[ing] and publish[ing] plaintiffs' works. They allege that “Klemesrud's computer, after receiving and storing for some period of time the copies of the Works sent to it from Erlich, created additional copies of the works and sent these copies to Netcom's computer.” The allegations against Klemesrud fail for the same reason the court found that Netcom was entitled to judgment as a matter of law on the direct infringement claim. There are no allegations that Klemesrud took any affirmative steps to cause the copies to be made. There are no allegations in the complaint to overcome the missing volitional or causal elements necessary to hold a BBS operator directly liable for copying that is automatic and caused by a subscriber.

To state a claim for contributory infringement, plaintiffs must allege that Klemesrud knew or should have known of Erlich's infringing actions at the time they occurred and yet substantially participated. For the reasons discussed in connection with Netcom's motion, the court finds plaintiffs' pleadings sufficient to raise an issue of contributory infringement.

Plaintiffs' failure to allege a financial benefit is fatal to their claim for vicarious liability. The complaint alleges that Klemesrud is in the business of operating a BBS for subscribers for a fee. The complaint does not say how the fee is collected, but there are no allegations that Klemesrud's fee, or any other direct financial benefit received by Klemesrud, varies in any way with the content of Erlich's postings. Nothing in or attached to the complaint states that Klemesrud in any way profits from allowing Erlich to infringe copyrights. Plaintiffs are given 30 days leave in which to amend to cure this pleadings deficiency if they can do so in good faith.

Preliminary Injunction

Plaintiffs have not met their burden of showing a likelihood of success on the merits as to either Netcom or Klemesrud. The only viable theory of infringement is contributory infringement, and there is little evidence that defendants knew or should have known that Erlich was engaged in copyright infringement of plaintiffs' works and was not entitled to a fair use defense, especially as they did not receive notice of the alleged infringement until after all but one of the postings were completed. Further, their participation in the infringement was not substantial. Accordingly, plaintiffs will not likely prevail on their claims and are not entitled to a preliminary injunction.

Central Point Software, Inc. v. Nugent
United States District Court
903 F. Supp. 1057 (E.D. Tex. 1995)

Cobb, U.S.D.J.

Plaintiffs, Central Point Software, Inc. (Central) and Quarterdeck Office Systems, Inc. (Quarterdeck), design and produce a variety of computer software applications. They brought suit in this court alleging that the defendant, Jimmy Nugent (Nugent), operated a computer Electronic Bulletin Board System (BBS) for profit. (A computer bulletin board allows an individual who subscribes to the bulletin board to contact the board via modem and to then either “upload” a software program to the board (in effect adding a “posting” to the board) or “download” a copy of a software program already on the board.)

According to plaintiffs, this BBS allowed (even encouraged) its subscribers to illegally obtain plaintiffs' copyrighted computer software (Central's “PC Tools,” ver. 8.0, and Quarterdeck's “QEMM,” ver. 6.2 and “DESQview,” ver. 2.43) that had been “posted” on the BBS. Plaintiffs assert that defendant's actions violate the Copyright Law and move for summary judgment.

Analysis

Plaintiffs have provided the court with copies of the Certificates of Copyright Registration establishing that Quarterdeck is the owner of the copyright for QEMM 6.0 and DESQview 2.34, and Central is the owner of the copyright for PC Tools 7.0. Additionally, plaintiffs provided the court with the affidavit of an individual who subscribed to Defendant's BBS. The affidavit and accompanying exhibit demonstrate that PC Tools 8.0, DESQview 2.43 and QEMM 6.2 were posted on the BBS (that is, copied to the Defendant's hard drive) and available for downloading. It is uncontroverted that defendant reproduced these later versions of the copyrighted works.

Quarterdeck and Central do not own copyrights to PC Tools 8.0, DESQview 2.43, and QEMM 6.2, but these works are protected by copyright if they are “derivative” of the copyrighted works (i.e. PC Tools 7.0, DESQview 2.34, and QEMM 6.0). To constitute a derivative work, the work need only contain a substantial amount of material from the copyrighted work. Based on the affidavits the court concludes that PC Tools 8.0, DESQview 2.43, and QEMM 6.2 are derivative works and enti–tled to copyright protection. The affidavits reveal (1) that PC Tools 8.0 serves the same basic function as and incorporates over 50% of the original code of PC Tools 7.0; (2) DESQview 2.43 and QEMM 6.2 are substantially the same as DESQview 2.34 and QEMM 6.0 with only minor modifications and improvements.

Remedies

Without an injunction, there is no reason to believe that defendant will discontinue his practice of copyright infringement; therefore, the defendant is permanently enjoined from interfering with any of the plaintiffs' copyrights, including but not limited to, unauthorized use, copying and/or distribution of plaintiffs' copyrighted software, and from encouraging and aiding others to commit such acts.

Plaintiffs also wish to have defendant deliver to plaintiffs all computer hardware and software used to make and distribute unlicensed or unauthorized copies of the plaintiffs' copyrighted software. The covered items include, but are not limited to, modems, disk drives, central processing units, and all other articles by means of which such unauthorized or unlicensed copies were made. The provisions of 17 U.S.C. § 503(b) specifically allow for such a disposition. As part of a final judgment or decree, the court may order the destruction or other reasonable disposition of all copies found to have been made or used in violation of the copyright owner's exclusive rights, and of all plates, molds, matrices, masters, tapes, film negatives, or other articles by means of which such copies may be reproduced. The court finds the plaintiffs' request to be a reasonable disposition of the property.

Attorneys fees are also justified.

Notes

1. The Netcom court explained the Internet and Usenet in the following terms in footnotes (omitted above) (citations omitted):

The Internet today is a worldwide entity whose nature cannot be easily or simply defined. The Internet is the “set of all interconnected Internet protocol networks”—the collection of several thousand local, regional, and global computer networks interconnected in real time via the TCP/IP Internetworking Protocol suite.” One article described the Internet as a collection of thousands of local, regional, and global Internet Protocol networks. In practical terms millions of computers in schools, universities, corporations, and other organizations are tied together via telephone lines. The Internet enables users to share files, search for information, send electronic mail, and log onto remote computers. But it isn't a program or even a particular computer resource. It remains only a means to link computer users together. Unlike on-line computer services such as CompuServe and America On Line, no one runs the Internet

No one pays for the Internet because the network itself doesn't exist as a separate entity. Instead various universities and organizations pay for the dedicated lines linking their computers. Individual users may pay an Internet provider, such as defendant Netcom, for access to the Internet via its server.

The Usenet has been described as a worldwide community of electronic bulletin boards that is closely associated with the Internet and with the Internet community. The messages in Usenet are organized into thousands of topical groups, or “Newsgroups.” Each Usenet user reads and contributes (“posts”) to a local Usenet site. Each Usenet site distributes its users' postings to other Usenet sites based on various implicit and explicit configuration settings, and in turn receives postings from other sites. Usenet traffic typically consists of as much as 30 to 50 Mbytes of messages per day. Usenet is read and contributed to on a daily basis by a total population of millions of people. There is no specific network that is the Usenet. Usenet traffic flows over a wide range of networks, including the Internet and dial-up phone links.

2. In a footnote omitted earlier, the court discussed Netcom's comparison of itself with a common carrier that merely acts as a passive conduit for information. The court pointed that, in a sense, a Usenet server that forwards all messages acts like a common carrier, passively retransmitting every message that gets sent through it. Netcom thus suggested that it should no more be liable than the phone company would be liable for carrying an infringing facsimile transmission or storing an infringing audio recording on its voice mail. Netcom's counsel argued that holding such a server liable would be “like holding the owner of the highway, or at least the operator of a toll booth, liable for the criminal activities that occur on its roads.” Netcom argued, further, that since other similar carriers of information are not liable for infringement, courts should exempt Internet access providers from liability for infringement by their users.

In this vein, the final report of the Commerce Department's task force on the Information Infrastructure, Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights (1995) (“IITF Report”), drew this conclusion: “If an entity provided only the wires and conduits—such as the telephone company, it would have a good argument for an exemption if it was truly in the same position as a common carrier and could not control who or what was on its system.” Id. at 122.

The court in Netcom went on to note, however, that counsel's analogy is not completely appropriate to the facts, since Netcom does more than just “provide the wire and conduits” and it does not act as a regulated common carrier, bound to carry all traffic. Whether a new exemption should be carved out for online service providers, the court said, is to be resolved by Congress, not the courts. Online service providers proposed amending the Copyright Act to limit their copyright infringement liability to cases where a “provider has `actual knowledge that a work that is being or has been transmitted onto, or stored on, its system is infringing,' and has the `ability and authority' to stop the transmission, and has, after a reasonable amount of time, allowed the infringing activity to continue.'” Comment, Online Service Providers and Copyright Law: The Need for Change, 1 Syracuse J. Legis. & Pol'y 197, 202 (1995).

On the other hand, IITF Report at 122–24 recommended that Congress not exempt service providers from strict liability for direct copyright infringement. The reasons the IITF Report gave are that such an exemption would prematurely deprive those exempted of an incentive to reduce the damage to copyright holders by reducing the chances that users will infringe. Some mechanisms that the IITF Report hoped that access providers would adopt are educating users not to commit copyright infringement, requiring indemnification agreements from users, purchasing insurance, and developing technological solutions to screen out infringement. Denying strict liability, the report concluded, in many cases would leave copyright owners without an adequate remedy because direct infringer users may act anonymously or pseudonymously or may be judgment–proof.

3. How likely is it that one could develop a technological means of detecting copyright infringement and screening it out? How likely is it that the means would be hack–proof? How would you devise an “electronic marker” to insert into electronic material that a Net access provider could detect, in screening copy before posting it to the Net, but which a would–be poster could not also detect and hack out?

4. How does someone like Dennis Erlich get electronic copy of hubbard.txt so that it can be uploaded? Does the copyright proprietor provide it? Did Playboy Magazine provide digitized electronic copy of its Playmates for uploading to Frena's bulletin board?

Oddly enough, in the Netcom case, Erlich apparently copied the plaintiffs' copyright notices along with the rest. The court said:

Netcom admits that it did not even look at the postings once given notice and that had it looked at the copyright notice and statements regarding authorship, it would have triggered an investigation into whether there was infringement. These facts are sufficient to raise a question as to Netcom's knowledge — once it received a letter from plaintiffs.

How likely is Erlich's modus operandi to be followed in the future?

5. Netcom argued that plaintiffs' theory of liability would have a chilling effect on users, because they would become liable for merely browsing infringing works. The argument was that browsing technically causes an infringing copy of the digital information to be made in RAM. See MAI. The court responded that browsing is the functional equivalent of reading, which does not implicate the copyright laws and may be done by anyone in a library without the permission of the copyright owner. On the other hand, the effects of digital browsing are different from reading a book in a library because millions of people can browse a single copy of a work in cyberspace.

6. The court concluded that browsing was probably fair use for several reasons. First, it is infeasible to devise a licensing system to cover browsing. Second, browsing is less convenient than reading hard copy, so that browsing on the Net probably could not function as a market substitute for purchase of the work. “Until reading a work online becomes as easy and convenient as reading a paperback,” the court said, “copyright owners do not have much to fear from digital browsing and there will not likely be much market effect.” Finally, “it seems highly unlikely from a practical matter that a copyright owner could prove such infringement or would want to sue such an individual.” Do you agree with these factual and legal points? What of contributory infringement?

7. The Netcom decision was the first in–depth exploration by any court of the liability for copyright infringement of a network access provider whose customer posts infringing material to the Net, where the access provider has no direct complicity in the infringement. The earlier Playboy and MAPHIA cases are of less precedential importance, because they both involved bulletin boards that virtually conspired with users to commit copyright infringement. The Netcom decision was not appealed.

8. The Netcom court's opinion is policy–oriented in the extreme, placing extraordinary weight on the social importance of access to the Net. Compare its approach to that of the court in the co–pending Nugent case. (Are the fact patterns sufficiently similar to permit a comparison of approaches?)

Would conventional copyright law doctrinal analysis have led a court to a result different from that of the Netcom court, in particular as to direct infringement? For example, did Netcom and Klemesrud reproduce copies of the material, in violation of § 106(1) and therefore in direct infringement of the copyright?


The accompanying diagram illustrating the Usenet and its relation to the defendants in this case, shows a number of candidate “copies” of the copyrighted material (designated Hubbard Text in the diagram). Putting the issue of fair use or other privilege aside for the moment, how would you as hypothetical counsel for a defendant in this case convince a court that your client had not fixed a reproduction of the copyrighted work in a copy, within the literal meaning of the definitions of those terms in the statute and case law? Focus on the hard disks and other nonvolatile memory units of the defendants.

9. The main issue in this case is comparable to that involved in deciding whether unloading object code from a ROM, making a so–called intermediate copy, and disassembling it for purposes of reverse–engineering a computer program involves the reproduction of an infringing copy of the computer program. In the NEC–Intel case the district court said, in a part of its opinion found below in chapter 6, that NEC's intermediate copy (the microcode unloaded from the ROM of the Intel 8086 microprocessor chip) was not an infringing reproduction unless the final NEC microprocessor chip based on the reverse engineering contained infringing microcode. Since NEC's microcode took only functional aspects of the Intel microcode, along with a de minimis amount of other code, the commercial NEC product was non–infringing and thus the court legally excused NEC's intermediate copying. Intel did not appeal this decision.

Later, the issue of intermediate copying in reverse engineering reached the Ninth Circuit in the Accolade case, also found below in chapter 6. The Ninth Circuit refused to adopt a standard holding intermediate copying excusable when the final commercial product to which it related was itself non–infringing. Instead, it held Accolade's intermediate copying conduct to be prima facie copyright infringement, but then excused it on the basis of the fair use defense.

Sega had used a lockout system to keep video game software vendors such as Accolade out of Sega video game hardware platforms that Sega had sold to the public, unless the vendors paid a large fee to Sega. The Ninth Circuit held that, in those circumstances, reverse engineering was a fair use. Probably, that approach is more consistent with traditional copyright law's concept of what is a reproduction of a copy than it would have been for the Ninth Circuit to adopt in Accolade the perhaps common–sensical, but non–legalistic, approach of the NEC–Intel court: no sale of an infringing product, no infringing copy.

If the Ninth Circuit took a parallel approach on appeal of Netcom to that which it took in Accolade, it would accept the Church's contention that Netcom and Klemesrud each engaged in unauthorized reproduction of copies of Hubbard's writings. That in turn would lead to a finding that Netcom (and/or the bulletin board) each made directly infringing copies of the Hubbard works when their respective computer systems accepted the Erlich–posted material and wrote it into their system memory. That infringement would be excusable, if at all, only on grounds of fair use. (No appeal was taken.)

10. Why wasn't the Nugent court troubled by fair use issues? Why did it confiscate Nugent's computer? Should it matter whether it has noninfringing uses? What is the effect of confiscating it?

11. Does it make any difference whether a court finds direct infringement and then determines whether the use was fair, as suggested in the preceding paragraph, or simply goes directly to what amounts to a fair use policy analysis in order to decide whether the defendant made a contributorily infringing copy? Won't the same social utility considerations be determinative in deciding (a) whether there was fair use, or (b) whether there was directly infringing reproduction of a copy? Thus, won't the result come out the same no matter how you slice it?

Consider these factors. Direct infringement is subject to strict liability; good faith or bona fide ignorance is no excuse. Contributory infringement, however, can be established only when the party charged with contributory infringement knew or should have known of infringement; good faith or bona fide ignorance is a complete excuse to a charge of contributory infringement. The court does not even need to get to the fair use defense if the defendant is bona fide ignorant.

Under the legal theory that the Netcom court adopted, Netcom and the bulletin board get two bites at the legal apple — once on knowledge of infringement and once on fair use. Suppose that a defendant has only a 40% probability of success at each bite. Compare numerically the respective likelihoods of success under the two different foregoing legal approaches.

12. If the court did violence to traditional copyright law doctrine, does that suggest that a doctrinally rigorous copyright law analysis is not the best way to resolve Internet controversies? Would a special Internet statute (Federal Net Law) that gives Internet enough room to breathe be a better idea? But would it be politically feasible? Would Congress enact it? Is that a legitimate argument for judicial legislation?

13. Doctrine aside, the approach of the district courts in Netcom and NEC–Intel has clear administrative advantages over the Accolade approach: simple, bright–line tests that lend themselves to predictability and greater business certainty. Much of the time it would never be necessary to reach the complex issue of fair use, the first apple bite being dispositive enough.

The advantage of the “copying but perhaps fair use” approach, as in Accolade, is that it is more nuanced and thus permits adjustment of outcome in each case to be titrated or calibrated to the particular fact pattern and total equities of the case. This occurs at greater administrative expense (in terms of public costs of operating the judicial system as well as suitors' legal bills), less predictability, and thus less security of expectation. (Consider Judge Boudin's concurring opinion in Lotus–Borland, ch. 2.)

In practice, it may also result in subordinating the general interest of the public in robust development of the Internet to the protection of interests of copyright owners, for copyright law may draw on a hierarchy of values in which intellectual property rights count more heavily than net users' interests in unconstrained exchange of their ideas. Would it be realistic to expect that a Federal Net Law would reverse that hierarchal order?

14. Do not assume that the Netcom court gave the net access provider defendants a sure win. The court adopted a contributory infringement standard, in place of copyright law's strict liability rule, because it sought to strike a compromise between two policies. One favors recognition of property rights of copyright owners. The other policy favors unchilled public discourse on the Internet (or at least on its Usenet newsgroups). The court at least purported not to be willing to disregard or completely subordinate intellectual property rights in favor of net policy interests. Moreover, it held Erlich an infringer. How balanced was all of this?

15. More material on Erlich and Klemesrud:

16. Do you think that on appeal, had there been one, and on these facts, the Ninth Circuit could easily have reached the same compromise simply by relying on the doctrine of fair use, as in Accolade, rather than trying to turn what looks like direct infringement into contributory infringement? Would it be a stretch? Untenable?

17. How important is it, in copyright law, that the Netcom and Klemesrud defendants took no affirmative action to infringe? The fact nonetheless is, as the Church sought to emphasize, that they designed and implemented Usenet site systems that automatically and uniformly created temporary copies of material that its users (newsgroup posters) sent it by modem. Other users (newsgroup subscribers) could then copy the material to their own computers. What difference does it make to the copyright owner whether Netcom impersonally shoots the copyright with an automatic spring gun or by taking aim on an ad hoc, personal basis? Why is setting up a machine to do a wrong, automatically and randomly, more acceptable than operating under personal malice on a case-by-case basis?

18. Is there a flaw in the VCR or Xerox machine analogy? Carrying the analogy closer to the case's facts, Netcom has programmed its notional Xerox machine or VCR to make a copy of anything that anyone puts into the machine. Netcom then places the copy into its own files and keeps it. Why isn't Netcom, in those circumstances, deliberately making an at least potentially infringing copy of whatever customers put into its programmed machine?

19. How do you decide whether one person is justly accountable for the wrongs that another person commits? Or for an “accident”? Is it not Fletcher v. Rylands, redux? Do we measure the social utility of the conduct that gave rise to the wrong or the “accident” and try to balance it against the gravity of the damage done? Can that be done on a case–by–case basis without subjecting litigants to the tyranny of the Chancellor's foot length? (What occurred here?)

We will approach this question from several angles as this chapter proceeds and concludes. Think now about the material in chapter 1 concerning property rights and their basis. For additional commentary, press the following button and look at the status bar at the bottom of your browser screen.

Or is that whole methodology inept? Should we instead ascertain simply which party is in a better position to spread the risk? But why do we want to spread the risk? Should that be decided case-by-case? Assume, arguendo, that Nugent is not secretly complicitous with the computer program uploaders, and assume that too for Frena in the Playboy case and for MAPHIA. Now, consider in each of these cases, starting with the Netcom case, why you would want to spread the risk of loss. Is this, too, an inept methodology? Can you think of other methodologies?

Patent law usually addresses this question under 35 U.S.C. §§ 271(b) and (c). Copyright law has no express statutory provision, but the Supreme Court's decision in Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984), imported the patent law's approach into copyright law, saying that in this regard both kinds of intellectual property law embodied similar principles (or should do so). (The 2005 Grokster opinion, latwer in this chapter, expands on that.) The Netcom opinion provides a convenient summary of what Sony says. Jodge Posner's opinion in the 2003 Aimster case (on file-sharing MP3s), later in this chapter, provides a different take on what Sony means, along with a further elaboration on the questions raised in this note. Finally, Grokster provides several differemt takes.

20. Legislative resolution of the liability of Internet access providers for copyright infringement by users eventually occurred. Congress urged the Internet service providers (ISPs or access providers) and the copyright ownership community (content providers) to work out a satisfactory compromise and present it to Congress for enactment as an industry consensus. But for years they could not reach agreement. Often such controversies are resolved by a pie-divvying process, in which the parties to the consensus palliate or compensate one another at the expense of the general public. (The 1976 Copyright Act has been so characterized.) The accompanying graphic commented on the process.

Eventually, the pie cutters managed to reach agreement among themselves. The solution, enacted as part of the Digital Millennium Copyright Act (DMCA), is reprinted below. It may raise as many issues as it resolves.

17 U.S.C.A. § 512

§ 512. Limitations on liability relating to material online

(a) Transitory digital network communications. — A service provider shall not be liable for monetary relief, or, except as provided in subsection (j), for injunctive or other equitable relief, for infringement of copyright by reason of the provider's transmitting, routing, or providing connections for, material through a system or network controlled or operated by or for the service provider, or by reason of the intermediate and transient storage of that material in the course of such transmitting, routing, or providing connections, if—

(b) System caching.—

(c) Information residing on systems or networks at direction of users.—

(d) Information location tools.—A service provider shall not be liable for monetary relief, or, except as provided in subsection (j), for injunctive or other equitable relief, for infringement of copyright by reason of the provider referring or linking users to an online location containing infringing material or infringing activity, by using information location tools, including a directory, index, reference, pointer, or hypertext link, if the service provider—

(e) Limitation on liability of nonprofit educational institutions.—

(f) Misrepresentations.—Any person who knowingly materially misrepresents under this section—

shall be liable for any damages, including costs and attorneys' fees, incurred by the alleged infringer, by any copyright owner or copyright owner's authorized licensee, or by a service provider, who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing, or in replacing the removed material or ceasing to disable access to it

(g) Replacement of removed or disabled material and limitation on other liability.—

(h) Subpoena to identify infringer.—

(i) Conditions for eligibility.—

(j) Injunctions.—The following rules shall apply in the case of any application for an injunction under section 502 against a service provider that is not subject to monetary remedies under this section:

(k) Definitions.—

(l) Other defenses not affected.—The failure of a service provider's conduct to qualify for limitation of liability under this section shall not bear adversely upon the consideration of a defense by the service provider that the service provider's conduct is not infringing under this title or any other defense.

(m) Protection of privacy.—Nothing in this section shall be construed to condition the applicability of subsections (a) through (d) on—

(n) Construction.—Subsections (a), (b), (c), and (d) describe separate and distinct functions for purposes of applying this section. Whether a service provider qualifies for the limitation on liability in any one of those subsections shall be based solely on the criteria in that subsection, and shall not affect a determination of whether that service provider qualifies for the limitations on liability under any other such subsection.



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