Opinion
Civil Action No. 19-cv-00874-RBJ-MEH
2020-04-15
WARNER RECORDS INC., et al., Plaintiffs, v. CHARTER COMMUNICATIONS, INC., Defendant.
ORDER
This case is before the Court on Magistrate Judge Michael E. Hegarty's recommendation, ECF No. 71, on defendant's motion to dismiss, ECF No. 38, defendant's objections to the recommendation, ECF No. 81, and plaintiffs’ response to those objections, ECF No. 87. For the following reasons the recommendation is adopted, and the motion to dismiss is denied.
BACKGROUND
Judge Hegarty provides a detailed account of the factual allegations in this case, and I summarize his findings here. See ECF No. 71. The plaintiffs are a collection of record companies and music publishers that produce and distribute commercial sound recordings and musical compositions. Id. at 3. Plaintiffs, through the recording artists and songwriters they represent, have created and marketed a large amount of music and recordings which have been registered with the U.S. Copyright Office ("plaintiffs’ copyrighted works"). Id. Plaintiffs collectively own or control millions of copyrighted musical compositions or sound recordings, which constitute their primary source of income. Id.
Defendant Charter Communications, Inc. ("Charter") is one of the largest internet service providers ("ISP") in the country, with more than twenty-two million subscribers nationwide. Id. Charter provides high speed internet services in exchange for monthly subscription fees. Id. Charter customers may purchase higher download speeds for higher monthly fees. Id.
Plaintiffs have become aware of persons infringing their copyrighted works through online peer-to-peer file-sharing programs, such as "BitTorrent." Id. BitTorrent and similar file-sharing protocols allow users to share music and other files directly with one another over the internet. Id. BitTorrent became popular because it facilitates much faster downloading by breaking files into smaller pieces, allowing users to download different pieces from different peers simultaneously. Id. at 4. Once a user has downloaded all pieces of a file, the file automatically assembles itself into its complete form and becomes available for playback by the user. Id.
The efficiency of this type of file-sharing system proves particularly conducive to online piracy. Id. A 2011 report estimated that 11.4 percent of all internet traffic involved unauthorized distribution of copyrighted works through BitTorrent. Id. Plaintiffs’ copyrighted works have been unlawfully distributed millions of times through BitTorrent. Id.
Charter draws customers in part by advertising their "blazing-fast ... speeds" that allow users to "download just about anything instantly," including up to "8 songs in 3 seconds." Id. Subscribers have used these speeds and Charter's services to pirate plaintiffs’ works. Id. Plaintiffs have identified hundreds of thousands of specific instances in which Charter's subscribers utilized peer-to-peer systems to distribute and copy plaintiffs’ songs illegally. Id. Plaintiffs and others have submitted to Charter statutory infringement notices detailing specific infringements committed by specific subscribers, identified by their unique Internet Protocol ("IP") addresses. Id. 4–5.
Charter's terms of service prohibit users from engaging in copyright infringement and state that Charter reserves the right to terminate accounts of participants in piracy. Id. at 5. Despite this, Charter has not taken any steps to address the reported infringements. Id. Charter generates revenue from infringing subscribers and does not want to lose such revenue or risk the possibility of making its service less attractive to subscribers should it start terminating infringing accounts. Id. Additionally, tracking and responding to infringement notices would require resources which Charter does not want to spend. Id.
Charter's lack of action against known infringers likely draws further subscriptions, as subscribers know they can download infringing content without consequence. Id. This approach encouragers subscribers to continue using Charter's service as well as purchase higher bandwidth to facilitate higher download speeds. Id. All this activity undercuts the legitimate music market, plaintiffs’ primary source of income. Id. at 6.
STANDARD OF REVIEW
A. Magistrate Judge Recommendation
When a magistrate judge makes a recommendation on a dispositive motion, the district court "must determine de novo any part of the magistrate judge's disposition that has been properly objected to." Fed. R. Civ. P. 72(b)(3). An objection is sufficiently specific if it "focus[es] the district court's attention on the factual and legal issues that are truly in dispute." United States v. 2121 E. 30th St. , 73 F.3d 1057, 1060 (10th Cir. 1996). In the absence of a timely and specific objection, "the district court may review a magistrate's report under any standard it deems appropriate." Summers v. Utah , 927 F.2d 1165, 1167 (10th Cir. 1991) ; see also Fed. R. Civ. P. 72 advisory committee's note ("When no timely objection is filed, the court need only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation."). Legal theories raised for the first time in objections to a magistrate judge's recommendation are deemed waived. United States v. Garfinkle , 261 F.3d 1030, 1031 (10th Cir. 2001).
B. Motion to Dismiss
To survive a Rule 12(b)(6) motion to dismiss, the complaint must contain "enough facts to state a claim to relief that is plausible on its face." Ridge at Red Hawk, L.L.C. v. Schneider , 493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A plausible claim is one that "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While courts must accept well-pled allegations as true, purely conclusory statements are not entitled to this presumption. Id. at 678, 681, 129 S.Ct. 1937. Therefore, so long as the plaintiff pleads sufficient factual allegations such that the right to relief crosses "the line from conceivable to plausible," she has met the threshold pleading standard. Twombly , 550 U.S. at 556, 570, 127 S.Ct. 1955.
ANALYSIS
Judge Hegarty concluded that plaintiffs’ complaint sufficiently alleged a claim for vicarious copyright infringement. ECF No. 71 at 15–16. In reaching that conclusion Judge Hegarty found that Charter incurred a direct financial benefit from the alleged infringement, and that Charter had the right and ability to supervise the infringing activities. Id. Charter objects to both findings. ECF No. 81. According to Charter, Judge Hegarty misapplied the direct financial benefit standard and implausibly presumed that Charter had the practical ability to control infringement. Id . I address each objection in turn.
A. Direct Financial Benefit
Charter raises many objections to Judge Hegarty's finding regarding the direct financial benefit requirement. I address first the challenges to Judge Hegarty's articulation of the relevant standard and second the argument that plaintiffs’ allegations have not met that standard.
1. Legal Standard
The Tenth Circuit has limited precedent on the issue of vicarious and contributory copyright liability. Judge Hegarty therefore appropriately relied on persuasive precedents from a variety of courts of appeal and other federal courts. He also correctly noted that the Tenth Circuit cases that address similar issues cite particular Ninth Circuit cases favorably. See Diversey v. Schmidly , 738 F.3d 1196, 1204 (10th Cir. 2013) (citing Fonovisa, Inc. v. Cherry Auction, Inc. , 76 F.3d 259, 261–65 (9th Cir. 1996) ), and La Resolana Architects, PA v. Reno, Inc. , 555 F.3d 1171, 1181 (10th Cir. 2009) (citing Ellison v. Robertson , 357 F.3d 1072, 1076 (9th Cir. 2004) ).
Charter challenges Judge Hegarty's conclusion that ability to engage in infringing conduct need not be the primary draw of defendant's services, but only a draw. ECF No. 81 at 7–18. Charter interprets Perfect 10, Inc. v. Giganews, Inc. , 847 F.3d 657 (9th Cir. 2017) and other Ninth Circuit cases as holding that the ability to infringe on plaintiffs’ content must constitute "the attracting factor" for subscribers. ECF No. 81 at 12.
I agree with Judge Hegarty that Charter's reading of the case law on this issue is incorrect. In Perfect 10 the Ninth Circuit held that a "[f]inancial benefit exists where the availability of infringing material acts as a draw for customers" and that "[t]he size of the ‘draw’ relative to a defendant's overall business is immaterial." 847 F.3d at 673. The court concluded that "[t]he essential aspect of the ‘direct financial benefit’ inquiry is whether there is a causal relationship between the infringing activity and any financial benefit a defendant reaps, regardless of how substantial the benefit is in proportion to a defendant's overall profits." Id. This language does not suggest that plaintiffs must show that the draw of infringing activity was "the attracting factor" as Charter argues, but rather an attracting factor.
In support of its argument that infringing activity must be the attracting factor, Charter points to the language in Perfect 10 indicating that "infringing activity must be more than an ‘added benefit’ to a subscription." ECF No. 81 at 12. According to Charter, infringing activity is either the attracting factor for a subscriber or merely an added benefit. But this is a false dichotomy. Infringing activity may be merely an added benefit to subscribers and not a draw in itself. It may also be one among several draws to Charter's services. It may also be the draw for subscribers to subscribe to Charter. The latter two cases would be sufficient to show that Charter incurred a direct financial benefit from the infringing activity.
Moreover, the discussion of whether infringement was an "added benefit" in Perfect 10 concerned not the size of the draw, but whether plaintiffs’ works in particular served as a draw. The court found that the plaintiff copyright owners failed to allege that their own copyrighted works served as a draw. Perfect 10 , 847 F.3d at 674. Instead they argued only that the defendant "internet bulletin board" service provider incurred a financial benefit so long as some subscribers joined to access infringing material generally. Id. The Ninth Circuit found that plaintiffs had only shown that access to the plaintiff's works were an "added benefit to a subscription," because "there was no evidence indicating that anyone subscribed to [defendant's service] because of infringing Perfect 10 material." Id. The court held that plaintiffs must show that their works served as a draw. Perfect 10 does not support Charter's argument that if infringement is not "the attracting factor," it is simply an "added benefit." Instead it supports plaintiffs’ position because these plaintiffs, unlike those in Perfect 10 , have alleged their works in particular served as a draw.
Perfect 10 does not require that the plaintiff's materials must be "the attracting factor." If subscribers are attracted to Charter's services in part because of the ability to infringe on plaintiffs’ copyrighted materials in particular, this is sufficient to show that the materials were "a draw" under Perfect 10 . Id. at 673.
Finally, as Judge Hegarty notes, no Tenth Circuit case has relied on Perfect 10 . The cases on which the Tenth Circuit has relied only confirm Judge Hegarty's conclusions. In Ellison v. Robertson the Ninth Circuit distinguished between a draw and an added benefit. 357 F.3d 1072, 1078–79 (9th Cir. 2004). But this distinction is not, as Charter argues, focused on whether infringement is the sole motivating factor for subscribers. Rather the distinction focuses on whether the infringing use was merely something "that customers value" rather than a draw to subscribe. Id. Like in Perfect 10 , this distinction does not suggest that infringing use must be the draw, but rather as the court states, only that plaintiffs’ work in particular "constitutes a draw." Id. (emphasis added).
Charter cites Ellison for a distinction between services like Napster, where "virtually all" of the draw resulted from Napster's "providing access to infringing material," and AOL, where the draw of infringing material "constitutes a relatively insignificant draw when cast against AOL's vast array of products and services." Id. at 1078. However, the language Charter quotes comes from the Ninth Circuit's discussion of the district court's findings on the issue, which it ultimately rejected. Id. at 1078–79.
Charter also argues that it does not receive a financial benefit from infringement because "it does not affect Charter's revenues whether a subscriber ... uses the internet to infringe copyrights, and/or for legitimate purposes." ECF No. 81 at 9–10, 13. According to Charter, showing that subscribers were drawn to Charter at least in part by the ability to infringe is not enough. However, Charter has provided no case law to support the claim that a service provider must receive a larger financial benefit from infringing users than from non-infringing users. Courts have repeatedly made clear that all that is required to show a direct financial benefit is that subscribers were drawn to defendant's business by the ability to infringe. See, e.g. , Perfect 10 , 847 F.3d at 673 ("[A] [f]inancial benefit exists where the availability of infringing material acts as a draw for customers.") (quoting Ellison , 357 F.3d at 1078 ) (internal quotations omitted).
The Ellison court held that the proportion of the defendant's business that comes from infringing use is not relevant to whether the defendant received a financial benefit. 357 F.3d at 1078–79 (rejecting district court's requirement that the financial benefit be "substantial" or even quantified). Instead the court concluded that though the infringing uses constituted a "small ‘draw’ in proportion to [defendant's] overall profits," this did not insulate the defendant ISP from vicarious liability. Id. at 1079. Nor did the Ellison court require the defendant ISP to generate higher subscription fees from the infringing users than from the non-infringing users, as Charter suggests. Id. ; see also Perfect 10 , 847 F.3d at 673 ("The size of the ‘draw’ relative to a defendant's overall business is immaterial."); GC2 Inc. v. Int'l Game Tech. PLC , 255 F. Supp. 3d 812, 825 (N.D. Ill. 2017) ; Capitol Records, LLC v. Escape Media Grp., Inc. , No. 12-CV-6646-AJN, 2015 WL 1402049, at *42 (S.D.N.Y. Mar. 25, 2015). In sum, the Ellison court concluded that a "[f]inancial benefit exists where the availability of infringing material ‘acts as a "draw" for customers.’ " 357 F.3d at 1078 (quoting A&M Records, Inc. v. Napster, Inc. , 239 F.3d 1004, 1023 (9th Cir. 2001), as amended (Apr. 3, 2001), aff'd sub nom. 284 F.3d 1091, and aff'd sub nom. 284 F.3d 1091 ). I find no case, and Charter has provided no case, suggesting that Charter must have benefited more from infringing subscribers than from non-infringing subscribers, or that the infringing subscribers paid more than non-infringing subscribers.
Both parties cite Tomelleri v. Zazzle, Inc. , No. 13-CV-02576-EFM-TJJ, 2015 WL 8375083 (D. Kan. Dec. 9, 2015) for various purposes that have become somewhat opaque in the back-and-forth of the briefs on this issue. See ECF Nos. 81 at 14–15, 87 at 8. It suffices to say that Tomelleri does not contravene Ellison and Perfect 10 on this point. The district court in Tomelleri does state that a financial benefit "may be established by showing that users are attracted to a defendant's product because it enables infringement and that its use of the product for infringement financially benefits the defendant," seeming to indicate that two distinct elements are required to prove the financial benefit prong. Tomelleri , 2015 WL 8375083, at *15. However, the opinion goes on to state, quoting Ellison , that a direct financial benefit "exists where the availability of infringing material acts as a draw for customers." Id. at *15. The court then considered only whether infringement acted as a draw. Id.
Charter also relies on what it characterizes as the "swap meet" and "dance hall" cases which apparently articulate the "fundamental principles from which vicarious liability originated." ECF No. 81 at 7 (citing Shapiro, Bernstein & Co. v. H. L. Green Co. , 316 F.2d 304, 309–10 (2d Cir. 1963) ). Despite this statement, Charter provides no analysis from any federal court of appeal, including the Second Circuit in Sharpiro, Bernstein & Co. v. H. L. Green Co. See ECF No. 81 at 10–11.
Charter does cite cases from other district courts considering the liability of landlords and swap meet or flea market organizers. See, e.g., Coach, Inc. v. Swap Shop, Inc. , No. 12-60400-CIV, 2012 WL 12887010 (S.D. Fla. Sept. 21, 2012). In Coach, Inc. v. Swap Shop, Inc . the court found that a landlord did not receive a direct financial benefit from infringement by flea market vendors. Id. at *8. The landlord leased to the operators of the flea market who received rents from vendors who sold infringing goods. Id. at *8. The court found that the financial benefit to the landlord was "indirect" because the landlord was several layers removed from the infringing activity. Id. Charter suggests that it is analogous to the landlord because it earns the same from each customer regardless of whether the customer infringes. ECF No. 81 at 12–13. However, the instant case is not analogous, as Charter's profit comes directly from subscriptions, and it is the subscribers themselves who engage infringement. Thus, there is only one layer of removal between Charter and the infringing activity, and Charter receives a financial benefit directly from those engaged in infringement. Even disregarding this distinction, the decision in Coach did not depend on the conclusion that the landlord's financial benefit was indirect. Instead the court chose to rest its decision on its finding that the landlords did not meet the "supervise and control" prong of the vicarious liability test. Id.
Charter's reliance on these landlord/swap meet cases is misplaced given that more recent and more applicable ISP, website host, and downloading service cases are available. All these precedents are merely persuasive, and because of the factual dissimilarity between Charter, an ISP, and the landlord of a flea market, these cases provide little support for Charter's argument.
I find that Judge Hegarty correctly articulated the standard required to show a direct financial benefit.
2. Sufficiency of Allegations
Charter also argues that plaintiff's allegations fail to establish the direct financial benefit requirement. First, Charter argues that the plaintiffs did not allege that Charter subscribers are drawn by the ability to download infringing content specifically, rather than just access high speeds and downloading in general. ECF No. 81 at 8. As discussed in the preceding section, plaintiffs must only allege that the ability to download their infringing content served as a draw, not necessarily the only draw to subscribers.
I find that plaintiffs’ allegations are sufficient to show that the ability to download infringing content served as a draw. Plaintiffs allege not only that Charter subscribers have used Charter services to infringe their content, but that subscribers are motivated to subscribe by Charter's advertisement of features attractive to those who seek to infringe, such as fast download speeds for "just about anything." ECF No. 1 at 15. Plaintiffs allege hundreds of thousands of specific instances in which that Charter subscribers have illegally distributed and copied their works. Id. at 19. Plaintiffs also allege that infringing activity accounts for 11% of all internet traffic, indicating that though some subscribers may be drawn by the ability to download authorized content, a significant number of subscribers are likely drawn by the ability to download infringing content. Id. at 17–18.
Second, Charter likens its situation to that in UMG Recordings, Inc. v. Grande , in which a district court found that plaintiffs failed to establish a draw because there were no allegations that the ISP's failure "to adequately police their infringing subscribers is a draw to subscribers to purchase its services." 2018 WL 1096871, at *10. However, as Judge Hegarty correctly noted, plaintiffs here have alleged that that Charter's "failure to stop or take other action in response to notices of infringement is a draw to current and prospective subscribers." ECF No. 71 at 12. According to Charter, these allegations are conclusory and therefore must be ignored. I disagree. Plaintiffs’ factual assertions include that plaintiffs notified Charter of infringers, ECF No. 1 ¶¶ 86–88, including the most egregious abusers, id. ¶ 88; that Charter took no steps to intervene, id. ¶¶ 89–90; and that this failure to police motivated subscribers to join or purchase more bandwidth, id. ¶¶ 77, 90–92.
Third, Charter argues plaintiffs did not allege that subscribers are drawn by the ability to infringe plaintiffs’ copyrighted work in particular. Once again, the draw of plaintiffs’ copyrighted works need only be a draw, and I conclude that plaintiffs have sufficiently alleged that their collective copyrighted works served as such a draw. Plaintiffs allege that they own the rights to "some of the world's most famous and popular music," including both "classical music and contemporary superstars, as well as the copyrights to large catalogs of iconic musical composition and modern hit songs." Id. at 3. I agree with plaintiffs that the volume and popularity of plaintiffs’ copyrighted works, the commonality of infringing downloading, and the frequency that plaintiffs’ works in particular are downloaded allow for the reasonable inference that at least some of Charter's subscribers were drawn by the ability to infringe on plaintiffs’ works.
B. Ability to Supervise Infringing Activities
Charter also challenges Judge Hegarty's finding that plaintiffs plausibly allege Charter had the practical ability to supervise or control its subscribers’ infringing activities.
First, Charter argues that though it has the right to terminate user accounts, it lacks the ability to identify and police the infringement its users engage in. It might be that Charter lacks the ability to identify and terminate all users who infringe on plaintiffs’ copyrighted materials. However, Charter does not argue that it lacked the ability to terminate some users, such as those identified in plaintiffs’ infringement notices, and that is enough. In order to meet the supervision and control prong, the defendant must only exercise the ability "to stop or limit the directly infringing conduct." Perfect 10 v. Amazon.com , 508 F.3d 1146, 1173 (9th Cir. 2007). Charter can "stop or limit" infringement of plaintiffs works by terminating those users about whom it is notified. See also UMG Recordings, Inc. , 2018 WL 1096871, at *10 (holding ISP could stop or limit infringement by terminating users); BMG Rights Mgmt. (US) LLC v. Cox Commc'ns, Inc. , 149 F. Supp. 3d 634, 674 (E.D. Va. 2015) (same).
Charter relies on Perfect 10 v. Amazon.com to support its argument that it lacks the ability to control infringement. 508 F.3d at 1173. According to Charter, in Amazon the Ninth Circuit distinguished services like Napster, which is "a closed system file-sharing protocol," from services like Google, which "simply offers internet service and provides users the freedom to use that access as they see fit." ECF No. 81 at 19–20. Charter argues that it and Google are "general-purpose ISPs" that lack sufficient ability to curtail infringing conduct to be held liable. ECF No. 81 at 19–20. In Amazon the Ninth Circuit held that Google was not liable for copyright infringement by third-party websites with which it had advertising partnerships. 508 F.3d at 1173–74. Google could terminate its advertising partnership with infringing entities but could not "terminate those third-party websites or block their ability" to host infringing images. Id. at 1174. Charter inaccurately portrays its situation as factually identical to Google's though the services in question are materially different. Amazon considered Google's engagement in advertising partnerships with websites, while the instant case concerns Charter's provision of internet access to subscribers. Charter, unlike Google, can terminate its users’ ability to access the internet through Charter. Google lacks such power.
Second, Charter argues that because it cannot stop subscribers from using other forms of internet access to infringe, it has no ability to supervise or control infringing activity. ECF No. 81 at 18–19. This argument is unavailing. Plaintiffs only seek to hold Charter liable for infringement that occurs through the use of Charter's services, not all infringement that occurs on the internet. As discussed above, though Charter contests its ability to control such infringement, plaintiffs have successfully alleged that Charter can stop or limit infringement engaged in through its services. Charter can certainly limit its subscribers’ ability to infringe by blocking their access to the internet through Charter. I find that this is sufficient to allege that Charter has the ability to control infringement.
This comports with a variety of cases in which ISPs were found to have the practical ability to stop or limit infringement. In UMG Recordings the district court found that an ISP had the ability to stop or limit infringing conduct by terminating subscribers, though the ISP lacked the ability to stop infringement engaged in through other services. 2018 WL 1096871, at *10. Similarly, in BMG Rights Mgmt. (US) LLC , another district court found that an ISP could stop or limit infringement by terminating users from its services. 149 F. Supp. 3d at 674. Charter can point to no case suggesting that an ISP lacks the ability to control infringement unless it can control all infringement engaged in through any service.
I agree with Judge Hegarty that plaintiffs have sufficiently alleged that Charter had the right and ability to control infringing activity. Because plaintiffs have stated a claim for vicarious copyright infringement, defendant's motion to dismiss must be denied.
ORDER
1. Magistrate Judge Hegarty's recommendation, ECF No. 71, is ADOPTED.
2. Defendant's Motion to Dismiss, ECF No. 38, is DENIED.
RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Michael E. Hegarty, United States Magistrate Judge
This action arises out of the alleged secondary infringement by the Defendant of the Plaintiffs’ copyrighted musical compositions and sound recordings. Plaintiffs allege Defendant infringed on their copyrighted works by contributing to its subscribers’ direct infringement ("contributory infringement") and by profiting from the subscribers’ direct infringement while declining to exercise a right to stop or limit it ("vicarious infringement"). Defendant now moves to dismiss Plaintiffs’ claims for vicarious infringement, and the motion has been referred to this Court for a report and recommendation. For the reasons that follow, this Court respectfully recommends that the Honorable R. Brooke Jackson deny the Defendant's motion.
STATEMENT OF FACTS
The following are relevant factual allegations (as opposed to legal conclusions, bare assertions, or merely conclusory allegations) made by Plaintiffs in the operative Complaint, which are taken as true for analysis under Fed. R. Civ. P. 12(b)(6) pursuant to Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009).
Plaintiffs are record companies and music publishers that produce, manufacture, distribute, sell, and license commercial sound recordings and musical compositions. Through substantial investments of money, time, and creative effort, Plaintiffs—and the recording artists and songwriters they represent—have developed and marketed the music and recordings listed on the attachments to the Complaint, all of which have been registered with the U.S. Copyright Office ("copyrighted works"). Collectively, Plaintiffs own or control the copyrights to millions of musical compositions and sound recordings, which are one of their primary sources of income.
Defendant Charter Communications, Inc. is one of the largest internet service providers ("ISP") in the country, with more than twenty-two million subscribers nationwide. Defendant provides high-speed internet service to its customers in exchange for monthly subscription fees by offering a tiered pricing structure allowing a subscriber to purchase higher download speeds for higher monthly fees.
In recent years, Plaintiffs have become aware of persons infringing their copyrighted works through online peer-to-peer file-sharing programs, such as "BitTorrent." BitTorrent is a file-sharing protocol that allows users to transfer music and other files directly to one another over the internet. What makes BitTorrent unique from other file-sharing programs is that it facilitates much faster downloading by breaking each file into pieces, allowing users to download different pieces of content simultaneously from different peers. At the same time, the system allows users to begin disseminating the copyrighted content before the complete file has even downloaded. This means that, at any given time, each user connected to the internet can be both downloading and uploading different pieces of a file from, and to, multiple other users. Once a user has downloaded all the pieces, the file is automatically reassembled into its complete form and available for playback by the user.
The efficiencies gained from this type of file sharing have led to significant online piracy. A January 2011 report estimated that 11.4% of all internet traffic at the time involved the unauthorized distribution of copyrighted works through BitTorrent. In a report from September 24, 2013, another company, NetNames, estimated that 99.97 percent of non-pornographic files distributed via BitTorrent systems infringe copyrights. Further, in a well-publicized incident in 2015, millions of individual BitTorrent users downloaded an episode of HBO's "Game of Thrones" within just twenty-four hours of its airing. Plaintiffs’ own copyrighted works have been distributed millions of times through BitTorrent, depriving Plaintiffs of untold millions of dollars in legitimate music sales.
Defendant seeks to draw subscribers to its high-speed internet service—including subscribers who wish to download and distribute music illegally through programs such as BitTorrent—by touting "blazing-fast ... speeds" that allow users to "download just about anything instantly," including up to "8 songs in 3 seconds." Subscribers, in turn, have utilized these speeds to pirate Plaintiffs’ works. For example, between 2012 and 2015, Plaintiffs and their representatives identified hundreds of thousands of specific instances in which Defendant's subscribers utilized peer-to-peer systems to distribute and copy Plaintiffs’ songs illegally. Tens of thousands of these subscribers were serial infringers, with some pirating hundreds of Plaintiffs’ songs over the course of several months. Defendant ignored the hundreds of thousands of statutory infringement notices the Plaintiffs and others submitted to it under penalty of perjury, each of which detailed specific acts of infringement committed by specific subscribers, identified by their unique Internet Protocol ("IP") addresses.
Defendant's "Terms of Service/Policies" expressly prohibits users from engaging in copyright infringement and reserves to Defendant the right to terminate users’ accounts for participating in piracy. Notwithstanding this policy, Defendant has failed to address the repeated infringement that occurs over its network because it derives significant income from subscription fees, and Defendant does not want to lose the revenue generated from these infringing subscribers by terminating their accounts, nor risk the possibility that account terminations would make its service less attractive to other existing or prospective users. In addition, Defendant does not want to devote the resources necessary to track repeat infringers and respond to infringement notices. Furthermore, Defendant's refusal to terminate infringing users’ accounts acts as a further draw to its service, as subscribers come to understand that they can download music and other files illegally over Defendant's network without fear that Defendant will terminate their internet access. That is, the specific infringing subscribers identified in Plaintiffs’ notices knew Defendant would not terminate their accounts despite Defendant's receipt of multiple notices identifying them as infringers, and they remained Defendant's subscribers to continue illegally downloading copyrighted works. Defendant's conduct encourages its customers to purchase even more bandwidth from the company and to continue using—and paying subscription fees for—Defendant's services.
When Defendant's subscribers use its network to obtain infringing copies of Plaintiffs’ copyrighted works illegally, that activity undercuts the legitimate music market, depriving Plaintiffs and those recording artists and songwriters, whose works Plaintiffs sell and license, of the compensation to which they are entitled. Without such compensation, Plaintiffs and their recording artists and songwriters, have fewer resources available to invest in the further creation and distribution of high-quality music.
LEGAL STANDARDS
The purpose of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) is to test the sufficiency of the plaintiff's complaint. Sutton v. Utah State Sch. For the Deaf & Blind , 173 F.3d 1226, 1236 (10th Cir. 2008). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570 (2007) ). Plausibility, in the context of a motion to dismiss, means that the plaintiff pled facts which allow "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Twombly requires a two-prong analysis. First, a court must identify "the allegations in the complaint that are not entitled to the assumption of truth," that is, those allegations which are legal conclusions, bare assertions, or merely conclusory. Id. at 679. Second, the Court must consider the factual allegations "to determine if they plausibly suggest an entitlement to relief." Id. at 681. If the allegations state a plausible claim for relief, such claim survives the motion to dismiss. Id. at 680.
Plausibility refers "to the scope of the allegations in a complaint: if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs have not nudged their claims across the line from conceivable to plausible." SEC v. Shields , 744 F.3d 633, 640 (10th Cir. 2014) (quoting Khalik v. United Air Lines , 671 F.3d 1188, 1191 (10th Cir. 2012) ). "The nature and specificity of the allegations required to state a plausible claim will vary based on context." Safe Streets All. v. Hickenlooper , 859 F.3d 865, 878 (10th Cir. 2017) (quoting Kan. Penn Gaming, LLC v. Collins , 656 F.3d 1210, 1215 (10th Cir. 2011) ). Thus, while the Rule 12(b)(6) standard does not require that a plaintiff establish a prima facie case in a complaint, the elements of each alleged cause of action may help to determine whether the plaintiff has set forth a plausible claim. Khalik , 671 F.3d at 1191.
However, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal , 556 U.S. at 678. The complaint must provide "more than labels and conclusions" or merely "a formulaic recitation of the elements of a cause of action," so that "courts ‘are not bound to accept as true a legal conclusion couched as a factual allegation.’ " Twombly , 550 U.S. at 555 (quoting Papasan v. Allain , 478 U.S. 265, 286 (1986) ). "Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal , 556 U.S. at 679. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct," the complaint has made an allegation, "but it has not shown that the pleader is entitled to relief." Id . (quotation marks and citation omitted).
ANALYSIS
The present motion seeks an order dismissing Plaintiffs’ "Count II" for vicarious copyright infringement. The Tenth Circuit has determined that a defendant can be secondarily liable for another's copyright infringement under principles of vicarious and contributory liability. Diversey v. Schmidly , 738 F.3d 1196, 1204 (10th Cir. 2013) (citing Fonovisa, Inc. v. Cherry Auction, Inc. , 76 F.3d 259, 261–65 (9th Cir. 1996) ). Vicarious liability attaches when the defendant "has the right and ability to supervise the infringing activity" and "has a direct financial interest in such activities." Id. (quoting Gershwin Publ'g Corp. v. Columbia Artists Mgmt., Inc. , 443 F.2d 1159, 1162 (2d Cir. 1971) ); see also Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd. , 545 U.S. 913, 930 (2005) ("One ... infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it").
A defendant may be vicariously liable even when he or she is not aware of the infringing activity. Diversey , 738 F.3d at 1204 (citing Fonovisa , 76 F.3d at 262 ); see also Grokster, Ltd. , 545 U.S. at 930 n.9 ("vicarious liability theory ... allows imposition of liability ... even if the defendant initially lacks knowledge of the infringement."). But, there must be a showing that someone directly infringed a copyright for vicarious liability to attach. La Resolana Architects, PA v. Reno, Inc. , 555 F.3d 1171, 1181 (10th Cir. 2009) ("[B]oth contributory and vicarious infringements require someone to have directly infringed the copyright.") (citing Grokster, Ltd. , 545 U.S. at 930-31 ).
Here, Defendant contends that Plaintiffs fail to allege (1) a causal connection between the alleged infringement and its profits and, thus, fail to show a direct financial interest in any infringing activities; and (2) that Defendant maintained the right and ability to control infringement by its subscribers. The Court will address each challenge as presented.
I. Direct Financial Interest in Alleged Infringing Activities
Citing cases from the Ninth Circuit, Defendant argues that Plaintiffs’ allegations fail to demonstrate Defendant derived direct financial benefits from any infringement. Specifically, Defendant asserts that the alleged subscription fees Defendant charges the infringing users constitute only an "indirect benefit" because "the infringing activity must be more than an ‘added benefit’ to a subscription; it must be the attracting factor, the ‘draw’ for subscribers." Mot. 9 (citing Perfect 10, Inc. v. Giganews, Inc. , 847 F.3d 657, 674 (9th Cir.), cert. denied , 138 S. Ct. 504 (2017) ). Defendant contends that the only benefit it "receives is a flat fee for the provision of internet services, which is insufficient to state a claim." Id. at 11 (citing Ellison v. Robertson , 357 F.3d 1072, 1079 (9th Cir. 2004) ). According to Defendant, "[a]t most, Plaintiffs assert that subscribers are able to utilize their internet connection for illegal activity as an added benefit to the subscribers, not the draw." Id.
Plaintiffs counter that Defendant "misstates the financial benefit standard." Resp. 11. Plaintiffs contend that the standard is "permissive and imposes liability even for ‘remote’ and ‘unquantifiable’ benefits." Id. Plaintiffs also argue that Defendant misinterprets Ellison in that flat periodic fees "can and do ‘constitute direct financial benefits’ when ‘the value of a defendant's service lies in providing access to infringing material.’ " Id. at 11-12 (citing Ellison , 357 F.3d at 1079 (emphasis in original)). Plaintiffs conclude their allegations "that Charter drew infringers to its service by touting specific features of its service that are attractive to copyright infringers and by adopting a policy of non-enforcement, and that these features ‘motivated’ a subset of users to sign up for, or remain with, the company," together with allegations "that Charter has a financial incentive not to terminate the accounts of infringing users—an allegation buttressed by the fact that Charter has declined to terminate users’ accounts despite receiving repeated notices of specific users’ infringement" are sufficient to plausibly state the "direct financial interest" element of a vicarious liability claim. Id. at 14.
The Court finds Plaintiffs’ allegations, taken as true at this early stage of the litigation, plausibly state that Defendant has a direct financial interest in the alleged infringing activity. Defendant is correct that the Tenth Circuit has cited opinions from the Ninth Circuit when addressing vicarious infringement claims. See Diversey , 738 F.3d at 1204 (citing Fonovisa, Inc. , 76 F.3d at 261–65 ) and La Resolana Architects, PA. , 555 F.3d at 1181 (citing Ellison , 357 F.3d at 1076 ). However, no case in the Tenth Circuit has cited Perfect 10, Inc. v. Giganews, Inc., supra , on which Defendant primarily relies. Nevertheless, the court in Perfect 10 confirmed that a "[f]inancial benefit exists where the availability of infringing material acts as a draw for customers" and "[t]he size of the ‘draw’ relative to a defendant's overall business is immaterial." Perfect 10, Inc. , 847 F.3d at 673. The court concluded that"[t]he essential aspect of the ‘direct financial benefit’ inquiry is whether there is a causal relationship between the infringing activity and any financial benefit a defendant reaps, regardless of how substantial the benefit is in proportion to a defendant's overall profits." Id.
The Perfect 10 court also noted its analysis in Ellison –which has been cited by the Tenth Circuit–emphasizing the difference between a defendant's receipt of financial benefits from infringement of the plaintiff's copyrighted works and a defendant's receipt of benefits from infringement in general. In Ellison , the Ninth Circuit concluded "[t]he record lacks evidence that AOL attracted or retained subscriptions because of the infringement or lost subscriptions because of AOL's eventual obstruction of the infringement " – in other words, AOL's action upon its receipt of plaintiff's complaint of blocking access to the infringing material led the court to find the plaintiff failed to demonstrate the defendant received a direct financial benefit from the infringement alleged in that case. Ellison , 357 F.3d at 1079. Likewise, in Perfect 10 , the court concluded "Perfect 10 was required to provide evidence that customers were drawn to Giganews's services because of the infringing Perfect 10 material at issue" and "there was no evidence indicating that anyone subscribed to Giganews because of infringing Perfect 10 material." Perfect 10, Inc. , 847 F.3d at 674.
While the Tenth Circuit has cited Ellison and Fonovisa in setting forth the elements for secondary copyright infringement, the court has not yet engaged in an analysis of the direct financial benefit prong of such claim. However, citing the Supreme Court's opinion in Grokster and the Ninth Circuit's opinions in Ellison and Fonovisa , the District of Kansas determined that "[t]he financial benefit may be established [ ] ‘by showing that users are attracted to a defendant's product because it enables infringement and that [ ] use of the product for infringement financially benefits the defendant.’ It exists ‘where the availability of infringing material acts as a draw for customers.’ " Tomelleri v. Zazzle, Inc. , No. 13-CV-02576-EFM-TJJ, 2015 WL 8375083, at *15 (D. Kan. Dec. 9, 2015). The Tomelleri court addressed a motion for summary judgment and found the plaintiff failed to provide evidence that the alleged infringement was a "draw" to zazzle.com users. Id.
The Tomelleri court cites to Arista Records LLC v. Lime Grp. LLC , 715 F. Supp. 2d 481 (S.D. N.Y. 2010), which was withdrawn and superceded by Arista Records LLC v. Lime Grp. LLC , 784 F. Supp.2d 398 (S.D. N.Y. 2011) ; however, the analysis cited in Tomelleri is the same in both opinions.
This Court finds Tomelleri consistent with Perfect 10, Ellison and Fonovisa , and concludes that Plaintiffs have plausibly alleged the infringement of their musical compositions and sound recordings is a "draw" to Defendant's subscribers. Taking the allegations as true, Plaintiffs allege that Defendant's subscribers are "motivated" by company advertisements promoting Defendant's "high speed" service that "enables subscribers to ... ‘download 8 songs in 3 seconds’ "; Defendant's subscribers have used such service to "pirate" Plaintiffs’ works, as evidenced by Plaintiffs’ identification between 2012 and 2015 of "hundreds of thousands" of instances in which Defendant's subscribers used its service to distribute Plaintiffs’ songs illegally; despite notification of its subscribers’ infringement, Defendant did nothing to stop it; once Defendant's subscribers realized that Defendant did not intend to stop or control the infringement, they "purchased more bandwidth" and continued using Defendant's service to infringe Plaintiffs’ copyrights; and, the greater the bandwidth used for pirating content, "the more money [Defendant] made." These allegations are sufficient to demonstrate a causal relationship between the infringing activity alleged in this case and any financial benefit the Defendant reaps in this case. See Perfect 10, Inc. , 847 F.3d at 673.
Defendant contends that the opinion in UMG Recordings, Inc. v. Grande Communications Networks, LLC , No. A-17-CA-365-LY, 2018 WL 1096871, at *10 (W.D. Tex. Feb. 28, 2018), report and recommendation adopted by 2018 WL 1905124 (Mar. 28, 2018), demonstrates Plaintiffs’ allegations are insufficient to state a plausible direct financial benefit. This Court disagrees. In Grande , the court found the allegation that the availability of plaintiff's music acted as a "powerful draw for users of [defendant's] service" was not sufficient and noted, "[t]here are no allegations that [defendant's] actions in failing to adequately police their infringing subscribers is a draw to subscribers to purchase its services, so that they can then use those services to infringe on [plaintiff's] (and others’) copyrights." Id. Here, the Plaintiffs do, in fact, allege that Defendant's failure to stop or take other action in response to notices of infringement is a draw to current and prospective subscribers to purchase and use Defendant's internet service to "pirate" Plaintiffs’ copyrighted works. The Court finds the UMG Recordings opinion consistent with its conclusion that Plaintiffs’ allegations, taken as true, are sufficient.
Accordingly, the Court respectfully recommends that Judge Jackson deny Defendant's motion to dismiss Plaintiffs’ vicarious liability claim based on a failure to state the direct financial benefit element of the claim.
II. Right and Ability to Supervise Alleged Infringing Activities
Defendant also seeks dismissal of Plaintiffs’ vicarious infringement claim asserting Plaintiffs fail to plausibly allege Defendant "exercises any practical ability to control the online activity of the allegedly infringing subscribers here." Mot. 14.
Again, the Supreme Court has determined that a claim for vicarious infringement "allows imposition of liability when the defendant profits directly from the infringement and has a right and ability to supervise the direct infringer, even if the defendant initially lacks knowledge of the infringement." Grokster, Ltd. , 545 U.S. at 930 n.9 ; see also Diversey , 738 F.3d at 1204 (the "right and ability to supervise" may be found even when a defendant is not aware of the infringing activity). The parties cite Perfect 10, Inc. v. Amazon.com, Inc. , 508 F.3d 1146, 1173 (9th Cir. 2007) for the proposition that "a defendant exercises control over a direct infringer when he has both a legal right to stop or limit the directly infringing conduct, as well as the practical ability to do so."
The court in UMG Recordings, Inc. v. Grande Communications Networks, LLC , which is cited by both parties in this case, also cites Amazon.com for the same proposition. See 2018 WL 1096871, at *10. Like the Plaintiffs here, UMG Recordings and the other plaintiffs in that case "are a collection of record companies that produce and distribute commercial sound recordings in the United States" and like Defendant here, Grande Communications is "an internet service provider that provides internet access to subscribers in portions of Texas." Id. at *1. The court addressed Grande Communications’ motion to dismiss the plaintiffs’ vicarious infringement claims and, as set forth above, found that plaintiffs failed to allege plausible facts supporting the direct financial benefit element of the claims. Id. at *10 (allegations "that the existence of music and the BitTorrent protocol is the draw" were insufficient).
However, before coming to that conclusion, the UMG Recordings court addressed the same arguments Defendant proffers here (see Reply 4-5) for dismissal based on the "right and ability to supervise" element:
Grande asserts that because it cannot block access to the peer-to-peer software used to infringe the copyrights here, it cannot stop or limit the infringing conduct taking place by its subscribers. Additionally, Grande argues that, even if it terminates subscribers, such action will only indirectly affect the infringing conduct, as Internet access is ubiquitous, and the subscribers can simply obtain the service from another ISP. The Court disagrees. Grande can stop or limit the infringing conduct by terminating its subscribers’ internet access. BMG [Rights Mgmt. (US) LLC v. Cox Commc'ns, Inc. ], 149 F. Supp. 3d [634,] 674 [ (E.D. Va. 2015), reversed on other grounds , 881 F.3d 293 (4th Cir. 2018) ]. This is clearly sufficient to state a claim on the first element of vicarious liability.
Id. at *10. In fact, in BMG Rights Management , the court found that defendant, another internet service provider, had "the contractual right to condition the availability of its internet access to users who do not use that service to violate copyrights. If users listen when Cox exercises that power, infringement stops. If users do not and Cox terminates them, that also stops or at least limits infringement." BMG Rights Mgmt. (US) LLC , 149 F. Supp. 3d at 674. The court also determined the defendant had
The Fourth Circuit reversed the jury verdict in this case based on a faulty jury instruction regarding contributory infringement. BMG Rights Mgmt. (US) LLC , 881 F.3d at 307. With respect to the vicarious infringement claim, the court did not opine on the trial court's decision on summary judgment (cited here) nor the jury's finding of no liability. See id.
the practical ability to stop or limit infringement. There cannot be any serious dispute that internet service is an essential component of the infringing activity alleged by BMG. File-sharing programs are completely dependent on the internet to facilitate the download and upload of files. It is therefore a reasonable inference that the result of an internet service provider exercising its ability to suspend or terminate account holders stops or limits infringement.
Id. This Court finds UMG Recordings and BMG Rights Management instructive as applied to this case and concludes that Plaintiffs plausibly allege the Defendant "has both a legal right to stop or limit the directly infringing conduct, as well as the practical ability to do so." Plaintiffs allege that Defendant's own "Terms of Service/Policies" expressly prohibits users from engaging in copyright infringement and reserves to Defendant the right to terminate users’ accounts for participating in piracy. Plaintiffs provided Defendant with "hundreds of thousands" of notices of infringement; yet, despite the notices identifying the infringing users and the Defendant's policy, Defendant failed to stop or limit the infringement by suspending or terminating these users’ accounts. See Amazon.com, Inc. , 508 F.3d at 1173.
The Court notes an opinion from this District also citing Amazon.com and Grokster , and finding the plaintiff failed to state a plausible vicarious infringement claim. Viesti Assocs., Inc. v. Pearson Educ., Inc. , No. 12-cv-02240-PAB, 2013 WL 4052024, at *8 (D. Colo. Aug. 12, 2013). The Viesti court, unlike here, found the plaintiff asserted only conclusory allegations and failed to identify any third party over which the defendant might have the ability to control. Id. ("The factual averments present no evidence to support a plausible inference that Pearson had the right or ability to prevent infringing conduct of unidentified third parties.").
Accordingly, this Court respectfully recommends that Judge Jackson deny the Defendant's motion to dismiss Plaintiffs’ vicarious infringement claim based on a failure to state the "right and ability to supervise" element of the claim.
CONCLUSION
In sum, the Court finds that, taking Plaintiffs’ allegations as true, Plaintiffs plausibly allege the Defendant profited from direct infringement while declining to exercise a right to stop or limit the infringing activity. See Grokster, Ltd. , 545 U.S. at 930. Thus, this Court respectfully RECOMMENDS that Judge Jackson deny Defendant's Motion to Dismiss Plaintiff's Claim for Vicarious Liability [filed May 28, 2019; ECF 38 ].
Be advised that all parties shall have fourteen (14) days after service hereof to serve and file any written objections in order to obtain reconsideration by the District Judge to whom this case is assigned. Fed. R. Civ. P. 72. The party filing objections must specifically identify those findings or recommendations to which the objections are being made. The District Court need not consider frivolous, conclusive or general objections. A party's failure to file such written objections to proposed findings and recommendations contained in this report may bar the party from a de novo determination by the District Judge of the proposed findings and recommendations. United States v. Raddatz , 447 U.S. 667, 676-83 (1980) ; 28 U.S.C. § 636(b)(1). Additionally, the failure to file written objections to the proposed findings and recommendations within fourteen (14) days after being served with a copy may bar the aggrieved party from appealing the factual and legal findings of the Magistrate Judge that are accepted or adopted by the District Court. Duffield v. Jackson , 545 F.3d 1234, 1237 (10th Cir. 2008) (quoting Moore v. United States , 950 F.2d 656, 659 (10th Cir. 1991) ).