Fourth Circuit Reverses BMG’s $25 Million Contributory Copyright Infringement Verdict Against Cox

On February 1, 2018, the U.S. Court of Appeals for the Fourth Circuit issued an Opinion affirming in part and vacating the judgment entered for $25 million in favor of BMG against Cox Communications, and remanded the case for a new trial. BMG had sued Cox in federal district court in Alexandria, Virginia, claiming 1.8 million “notices of infringement” sent by Rightscorp to Cox alleging Cox subscribers infringed BMG’s copyrighted music were blocked and ignored. BMG also alleged Cox was not eligible for “safe harbor” under the Digital Millennium Copyright Act (DMCA) because Cox had not implemented a policy of terminating repeat infringers.

Before trial, the district judge ruled that Cox was not eligible for safe-harbor, and the case went to trial on whether Cox was liable as a contributory infringer for its subscribers’ alleged downloading of BMG’s copyrighted musical works. The jury awarded BMG $25 million in damages for contributory infringement related to Cox subscribers allegedly sharing 1,397 works without authorization. The trial court also awarded BMG over $8 million in attorney’s fees, which award was also vacated by the Fourth Circuit.

BMG alleged that Cox internet subscribers infringed copyright by receiving or sharing BMG’s copyrighted music, using BitTorrent. Cox did not store or share any infringing material, and did not create, sell, or control the use of any peer-to-peer file sharing software. BMG had hired Rightscorp to monitor BitTorrent activity, and to send notices of alleged infringement of BMG music to Internet Service Providers (ISPs), including Cox.

ISPs are generally immune from contributory infringement liability where subscribers directly infringe copyright holders’ material pursuant to a safe harbor provided for in the DMCA. However, that safe harbor is conditioned on the ISP implementing a policy for terminating repeat infringers. Although Cox had such a policy, the trial judge ruled (and the Fourth Circuit affirmed) that “Cox failed to qualify for the DMCA safe harbor because it failed to implement its [repeat infringer] policy in any consistent or meaningful way — leaving it essentially with no policy.”

While the Fourth Circuit was “mindful of the need to afford ISPs flexibility in crafting repeat infringer policies, and of the difficulty of determining when it is ‘appropriate’ to terminate a person’s access to the Internet . . . At a minimum, however, an ISP has not ‘reasonably implemented’ a repeat infringer policy if the ISP fails to enforce the terms of its policy in any meaningful fashion.” Relying on internal company emails, the Fourth Circuit found that Cox had adopted a policy but “made every effort to avoid reasonably implementing that policy,” and concluded that “Cox never terminated a subscriber for infringement without reactivating them.”

The Court also rejected the argument that the policy for terminating repeat infringers meant terminating only “adjudicated” infringers after analyzing the DMCA and the legislative history. The court warned ISPs generally that “an ISP cannot claim the protections of the DMCA safe harbor provisions merely by terminating customers as a symbolic gesture before indiscriminately reactivating them within a short timeframe.”

The loss of safe harbor did not then mean that Cox would be contributorily liable for all infringements that its subscribers may have committed. For an ISP to be contributorily liable there must be some intent on the part of the ISP with respect to the infringement, not simply negligence. The trial judge instructed that Cox could be contributorily liable if it “knew or should have known of such infringing activity.” The Fourth Circuit ruled that the trial judge erred in that instruction, holding that “proving contributory infringement requires proof of at least willful blindness; negligence is insufficient” and the instruction the trial court gave therefore set “too low a standard.”

The matter was remanded for a new trial which will likely focus on whether the emails and other evidence could prove “willful blindness” to the alleged infringements, and whether Rightscorp’s notices can establish direct infringement by the subscribers (there was no other evidence of direct infringement). The trial court had held that receipt of notices of alleged infringement was circumstantial evidence of direct infringement, and when combined with statements of confession by a few Cox customers alleged to have been infringers (but who were not the subjects of the Rightscorp notices), it was enough to form a sufficient basis to conclude Cox had “subjective knowledge of specific repeat infringements.” Clearly BMG will want to argue that not accepting or acting on the notices is “willful blindness,” while Cox will assert the notices themselves could not be evidence of actual direct infringement by any Cox subscriber, because (as acknowledged by the trial judge), they suffered severe deficiencies requiring the kind of investigation Congress explicitly opted not to require.

BMG or Cox could seek rehearing by the panel (unlikely given that it was a unanimous opinion), or rehearing en banc by the full Fourth Circuit. Either after that, or by forgoing that option, BMG or Cox could seek certiorari at the Supreme Court.