'UMG v. Shelter Capital/Veoh' Video Website And Its Investors Win Another Round As Ninth Circuit Rejects DMCA Safe Harbor Challenges

Article by Mitchell Zimmerman*

In an important decision upholding the application of the safe harbors of the Digital Millennium Copyright Act and addressing claims against investors for secondary copyright infringement, the Ninth Circuit Court of Appeals on Tuesday upheld summary judgment and a Rule 12(b)(6) dismissal in favor of Veoh Networks Inc. and its investors. UMG Recordings, Inc. v. Shelter Capital Partners LLC (No. 09-55902); UMG Recordings, Inc. v. Veoh Networks, Inc. (Nos. 09- 56777, 10-55732) (9th Cir. Dec. 20, 2011).

Defendant Veoh operates a website that allows users to upload and share video content that they have created; Veoh's site also allows users to view authorized video content from major copyright holders such as SonyBMG, ABC and ESPN. Plaintiff UMG is one of the world's largest recorded music and music publishing companies. It also produces music videos.

Veoh had implemented what appeared to be an energetic program to block infringing content, observing the take-down protocols of the DMCA and also implementing content filtering using Audible Magic fingerprinting. Nonetheless, UMG sued for direct and secondary copyright infringement, decrying Veoh's efforts as "too little too late." UMG also asserted Veoh's investors bore secondarily liability on account of their control of the company. In 2008, the District Court granted summary judgment to Veoh and dismissed the claims against its investors. UMG Recordings, Inc. v. Veoh Networks, Inc., 620 F. Supp. 2d 1081 (C.D. Cal. 2008). The Ninth Circuit has now affirmed that judgment.

Safe Harbor Rulings

The central issue was whether Veoh was protected against copyright liability by virtue of the system storage safe harbor of the DMCA (17 U.S.C.§ 512(c)). A unanimous Ninth Circuit panel comprised of Circuit Judges Pregerson, Fisher and Berzon rejected UMG's three arguments that Veoh was ineligible for the safe harbor.

The "Storage at the Direction of a User" Requirement

As a threshold matter, UMG asserted that the safe harbor did not apply because UMG's infringement claims arose out of actions by Veoh other than storage, and that these actions meant that the infringements charged were not (as the safe harbor specifies) "by reason of storage at the direction of a user."

Whenever a video was uploaded, Veoh's software automatically broke the file into smaller 256-kilobyte "chunks"; it automatically transcoded video files into Flash 7 format; and (for some users) Veoh's software...