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Copyrights and Fair Use: Lenz v. Universal Music Group, et. al.

In this appeal from the U.S. District Court for the Northern District of California, the U.S. Court of Appeals for Ninth Circuit’s panel held that the Digital Millennium Copyright Act (“DMCA”) requires copyright holders to consider “fair use” before sending a takedown notification. If a copyright holder fails to do this, it introduces a triable issue regarding whether the alleged infringing use was not in accordance with the law. The copyright owner’s determination whether the use is fair use or not is subjective. This subjective “good faith belief” test required under the DMCA can be determined under two analysis methods: 1) the actual knowledge theory and 2) the willful blindness doctrine, both of which the 9^th Circuit held could be used under the DMCA.

Actual knowledge theory says that the there must be some actual knowledge of the misrepresentation on the part of the copyright holder. Generally, in order to be held liable for any damages due to misrepresentation, the court will look to whether the person making the statement was negligent in making false statements. The distinction between this and fraud is that to be held liable for fraud, the speaker must have intended that there be reliance on the false statement made.

The “willful blindness doctrine” means that the speaker materially misrepresented that it had a good faith belief that the offending activity was not a fair use. The plaintiff would have to show that the defendants subjectively believed that the use of the copyright protected work constituted fair use. The lower court in this case determined that Lenz could proceed under the actual knowledge theory, but not the blindness doctrine because “because she did not show that the defendants subjectively believed there was a high probability that the video constituted fair use.”

Background: On July 24, 2007, Stephanie Lenz filed a lawsuit under 17 U.S.C. § 512(f)—part of the DMCA against Universal Music Corp. (“UMG”) and its subsidiaries. She claimed that UMG misrepresented in its takedown notification that her 29 second video containing Prince’s song “Let’s Go Crazy” and to which her children danced, was not lawful. The court determined that “the statute requires copyright holders to consider fair use before sending a takedown notification, and that failure to do so raises a triable issue as to whether the copyright holder formed a subjective good faith belief that the use was not authorized by law.

Lenz uploaded her video named “Let’s Go Crazy #1” to YouTube in 2007. UMG monitors YouTube videos and one of its employees found Lenz’s video. The employee checked to see if the video “embodied a Prince composition” and made “significant use of . . . the composition, specifically if the song was recognizable, was in a significant portion of the video or was the focus of the video.” If the song is the focus of the video, UMG’s procedure required that they notify YouTube to take it down. The procedures did not explicitly say that UMG considered application of the fair use doctrine. The notice included a good faith statement which: “We have a good faith belief that the above-described activity is not authorized by the copyright owner, its agent, or the law.”

YouTube took down the video, and Lenz protested. YouTube brought the protest to UMG’s attention and UMG responded that Lenz did not acknowledge that her statement was made under penalty of perjury and that there was no record that YouTube or Lenz had licenses to use the song. Lenz protested again, and YouTube reinstated the video. Lenz brought a lawsuit regarding UMG’s alleged misrepresentation under 512(f), among other reasons, including tortuous interference. Only the misrepresentation claim was before the Ninth Circuit for this decision.

Under the Digital Millennium Copyright Act, service providers, such as YouTube, can avoid copyright infringement claims under certain conditions. Infringement liability can be avoided if the service provider disables or removes the alleged infringing content “expeditiously.” DMCA sets forth the copyright holder’s requirements to support removal: 1) identification of the copyrighted work, 2) identification of the allegedly infringing material, and, 3) a “good faith” statement regarding the copyright holder’s belief that the infringing use was not authorized by the copyright owner, an agent, or the law. If a copyright owner misuses the takedown notice requirements, the owner is subject to liability under 512(f) misrepresentation.

Fair use analysis was codified in the Copyright Act in 1976, under 17 U.S.C. § 107. Fair use considerations are:

(1) the purpose and character of the use, including whether such 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.

Universal argued that fair use is a “defense” to otherwise infringing activity, e.g., unless proven otherwise, any use of copyright protected works without permission is an infringement. This court stated that fair use is a right, and not an excuse for otherwise infringing content. However, the court quoted Bateman v. Mnemonics, Inc., 79 F.3d 1532, 1542 n.22 (11^th Cir. 1996) which said: “Regardless of how fair use is viewed, it is clear that the burden of proving fair use is always on the putative infringer.”

The court provided some guidance as to how a copyright holder could use computer programs to identify content which could be subject to a takedown notice and determine fair use: “For example, consideration of fair use may be sufficient if copyright holders utilize computer programs that automatically identify for takedown notifications content where: “(1) the video track matches the video track of a copyrighted work submitted by a content owner; (2) the audio track matches the audio track of that same copyrighted work; and (3) nearly the entirety . . . is comprised of a single copyrighted work.” Brief for The Org. for Transformative Works, Public Knowledge & Int’l Documentary Ass’n as Amici Curiae Supporting Appellee at 29–30 n.8 (citing the Electronic Frontier Foundation website (link unavailable)).” [CMG link here.]

The court concluded, however, that copyright holders must consider fair use before submitting takedown notices under the DMCA and that the plaintiff, Lenz, could move forward at trial under the actual knowledge theory regarding plaintiff’s misrepresentation allegation. In addition, the plaintiff could seek nominal damages for injuries due to the misrepresentation, if proved.

In my opinion, there are two things worth noting regarding this decision. First, Lenz had filed a tortuous interference claim which was dismissed. In her second amended complaint, only misrepresentation under § 512(f) was the only claim. The tortuous interference with her contract with YouTube claim suggested that the plaintiff’s insistence in reposting the video had a purpose other than making available an innocent video about her children. Indeed, how many children [49,659,075 YouTube views as of October 22, 2015] have been launched to fame after videos were posted on YouTube and subsequently interviewed by television personalities [100,795,145 YouTube views as of October 22, 2015] or had the opportunity to meet the musicians or vocalists the children were imitating? Second, M. Smith, Circuit Judge, concurring in part, dissenting in part, and concurring in the judgment, had the better analytical approach to this case: “In sum, I would hold that parties must individually consider whether a work is a fair use before representing that the work is infringing in a takedown notice. If they do not, and the work is a non-infringing fair use, they are subject to liability for knowingly misrepresenting that the work is infringing.”

If you have copyright protected work which you want to monitor online, Gayton Law can help you with developing policies and procedures for your businesses’ infringement monitoring activities.

Contracts

Terms of Use and Arbitration Clauses. Berkson,et. al. v.Gogo LLC and Gogo, Inc. This consumer fraud case came before the U.S. District Court for the Eastern District of New York. The class action plaintiffs alleged that the defendants, Gogo LLC and Gogo, Inc., fraudulently charged Wi-Fi services on air flights, specifically, that the defendants “improperly increased their sales and profits by misleading customers into purchasing a service that charged a customer’s credit card, on an automatically-renewing continuing monthly basis, without adequate notice or consent.” According to the complaint filed for this case, between 2008 and 2012, the defendants fraudulently advertised that purchasers were only buying single one month subscription to the Wi-Fi service, but the defendants were making recurring charges on the plaintiffs’ credit cards. The defendants said that the plaintiffs agreed to the recurring charges and they also agreed to a mandatory arbitration clause. The named plaintiffs, representing a nationwide class, claimed that the defendants committed “common law breach of the implied covenant of good faith and fair dealing, common law unjust enrichment, and violation of various consumer protection statutes.” On April 8, 2015, the court made decisions on defendants’ procedural motions, specifically, motions to (1) transfer venue; (2) compel arbitration; and (3) dismiss for lack of standing.

The motions to transfer venue and compel arbitration was based on Gogo’s terms of use. Plaintiffs’ claim that Gogo’s terms and conditions were hidden, and, therefore, unenforceable. Gogo is a dominant player in the in-flight Wi-Fi market, where more than 80% of North American flights use Gogo’s services. Gogo’s website advertised a daily rate of $10 and a monthly rate of about $40. Plaintiffs used Gogo’s services during air plane flights. The plaintiffs’ claimed that there was nothing to indicate that if they registered for the monthly service that they would be billed on a recurring basis. The service was only canceled once the subscribers noticed the fee and contacted Gogo.

The court determined that because the terms and conditions were hidden and users were not given sufficient notice to inquire about the terms (which included language regarding the recurring fee and the arbitration clause) the court denied the defendants’ motions to transfer venue and compel arbitration. The defendant’s motion regarding standing stated that the plaintiffs had not shown the particularized and concrete injuries required to meet the requirements to bring a lawsuit. The court found that just because one plaintiff was reimbursed by a credit card company for the charges when Gogo refused to do so and that another was reimbursed when that plaintiff informed Gogo of the class action lawsuit. The standing motion was also denied.

Although this case was before a New York federal district court, the issues it addresses are nationwide. More and more transactions are being conducted online. This case is instructive with regard to providing transparency about your business’s online contract terms and conditions. Contact Gayton Law to ensure that your online agreements are in compliance with your jurisdiction’s click-wrap, sign-in-wrap and browse-wrap laws.

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Filed under: Contracts, Copyrights, Intellectual Property, Knowledge Management, Social Media, Technology Tagged: | arbitration, contracts, Copyright, fraud, ftc, knowledge, television, Vienna Woods