At the invitation of the Biederman Blog, Zachary Levine, Esq., a partner in the Law Office of WLF Lawyers in Glendale, offers this briefing on and his perspectives about a leading-edge technology with potential significant effects on the Entertainment industry and Entertainment Law. He is a Southwestern alum and a graduate of the University of California, San Diego. Levine may be reached at email@example.com and his firm’s website is https://wlflawyers.com
The latest technology buzzword is cloud. A cloud allows software to be run, and data to be stored, on a remote server. The advantage to the user is the ability to run programs stored on a centralized server from multiple locations, and on multiple devices, without the need to install anything more than once. Running programs from the cloud, and storing data remotely, also reduces the operating requirements of user devices, especially mobile devices such as netbooks and tablets. Google’s Chromebook is designed primarily to run web apps rather than traditionally installed software. As a result, the Chromebook boasts faster boot times and automatic backup of data.
The cloud model is quickly being adopted by music services, which allow users to access their music library at home or on the road, from their computers, music players, or cell phones. These services, designated as “cloud music,” or “music lockers,” have been met by recent legal challenge from the recording industry.
Most cloud music services require users to upload their own music files, usually after agreeing that they have the requisite rights to the music. Users then access their account from their computer or mobile device, and stream individual songs or playlists. Some services also allow users to re-download their files, either to the original device they were uploaded from, or to a secondary or tertiary device. This ability to re-download has been particularly criticized by the recording industry, which is concerned with the possibility of cloud music being used to illegally share and distribute files.
Some services use a “master copy” model, wherein a user’s computer is scanned for music files, which are then automatically added to the user’s cloud music account. This model prevents the sometimes lengthy process of uploading individual songs, however, is restricted to services that have licensed the rights to the applicable songs. Master copy services lead to additional concerns for record companies that warn against the possibility of “music laundering,” wherein a user who has low-quality or infringing files can signs up for a service in order to gain access to high-quality, licensed content.
Is Cloud Music “Legal”?
The legality of cloud music services is somewhat dependent on the particular methods of delivery and whether the service provider requires users to upload their own files or makes use of the master copy model. Many of the record companies, however, contend that such a service would infringe on their copyrights and constitute contributory infringement, or at least some form of inducement. These arguments are not much different that the established industry’s response to new technology in general – consider file sharing, streaming and the internet, writable media and MP3s, even the VCR.
One of the pioneers of cloud music is defending a challenge to its service from several record companies hoping to set a potentially valuable precedent. MP3Tunes LLC operated MP3Tunes, a music locker that allowed users to upload content, but also stream it from multiple devices, and re-download that content on any device from which they could access their account. Multiple record companies joined together to bring suit against MP3Tunes LLC, alleging causes of action for:
- infringement of reproduction rights;
- infringement of distribution rights;
- infringement of public performance rights;
- inducement of copyright infringement;
- contributory copyright infringement;
- vicarious copyright infringement;
- common-law copyright infringement of pre-1972 works; and
- unfair competition as to pre-1972 works.
The parties are currently awaiting a decision from the judge, which will likely set the course of events for this industry. MP3Tunes has asserted multiple defenses to the record company claims, largely stemming from the safe harbor provisions of the Digital Millennium Copyright Act (DMCA).
Digital Millennium Copyright Act’s Safe Harbor Provisions
To qualify for the safe harbor, a party must be considered a service provider, as defined by the DMCA, and it must adopt, reasonably implement, and inform subscribers of a policy providing that it may, in appropriate circumstances, terminate the accounts of repeat infringers.
One of the safe harbors is “for infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider.” 17 U.S.C. § 514(c). Essentially, all data back-up services, including music lockers and cloud music, should qualify for this safe harbor.
To continue to qualify under a safe harbor, a service provider must expeditiously remove any content for which it receives a proper take-down notice from a copyright owner, or the representative of such owner. Plaintiffs who own, or represent the owners of, content have argued unsuccessfully that service providers should be stripped of immunity if their sites are rife with infringement.
Viacom International, Inc. v. YouTube, Inc.
Discouraged with the countless cases of infringing content on YouTube, Viacom filed suit for copyright infringement against the video host. YouTube moved for summary judgment against all of Viacom’s direct and secondary infringement claims, including claims for “inducement” and contributory liability under the DMCA “safe harbor” protection, alleging insufficient notice of the particular infringements claimed in the suit. Viacom also moved for partial summary judgment that YouTube was not protected by the safe harbor provisions because they had “actual knowledge” and were “aware of facts and circumstances from which infringing activity [was] apparent,” but failed to “act expeditiously” to stop it, because they “receive[d] a financial benefit directly attributable to the infringing activity” and “had the right and ability to control such activity,” and because YouTube’s infringement did not result solely from providing “storage at the direction of a user” or any other Internet functions specified in Section 512.
YouTube was in compliance with standard DMCA “take-down” procedures – upon receipt of a notice by a copyright holder it would remove the infringing content. However, in compliance with the DMCA, but to the chagrin of Viacom, YouTube would not conduct an independent inquiry into the existence of additional copies of the same or similar content on its system. YouTube construed the language in the DMCA narrowly, claiming that “actual knowledge” of infringement required actual knowledge of the infringement of a specific file. Viacom argued that actual knowledge was met with a general awareness of infringement – a standard that was more than met by the multitude of notices sent by Viacom and other content owners to YouTube.
In ruling on the standard required for knowledge in this instance, the court looked to the Senate Judiciary Committee Report and the House Committee on Commerce Report, describing the DMCA’s purpose in almost identical language. Of particular note, was the so-called “red flag” test. “[A] service provider need not monitor its service or affirmatively seek facts indicating infringing activity (except to the extent consistent with a standard technical measure comply with subsection (h)), in order to claim this limitation on liability (or, indeed any other limitation provided by the legislation). While a service provider may not have any such affirmative obligation, if the service provider becomes aware of a “red flag” from which infringing activity is apparent, it will lose the limitation of liability if it takes no action.
Guided by the legislative history, the court determined that “the phrases ‘actual knowledge that the material or an activity’ is infringing, and ‘facts of circumstances’ indicating infringing activity, describe actual knowledge of specific and identifiable infringements of particular individual items. If investigation of ‘facts and circumstances’ is required to identify material as infringing, then those facts and circumstances are not ‘red flags.’ The court also noted that the take-down regime works efficiently, pointing out that Viacom had sent over 100,000 notices to YouTube for material that formed the basis of the lawsuit and that by the next day virtually all of the allegedly infringing files had been removed.
Plaintiff argued that YouTube’s replication of uploaded videos and subsequent transmission and display to users deprived it of safe harbor under the DMCA. However, the DMCA clearly gives safe harbor to “infringement of copyright by reason of the storage at the direction of a user of material” on a service provider’s system or network. As stated in Io Group, Inc. v. Veoh Networks, Inc., in the ordinary course of operations of a service provider, certain acts must be committed that expose them to potential copyright infringement liability. Such “means of facilitating user access to material on its website” do not cost the service provider its safe harbor.
The YouTube case, as well as Veoh and the UMG cases, all failed to find against the defendant on an inducement theory simply for providing a service that could potentially be used for the spread of infringing material. The analogy to consider here is the VCR and other re-writable media; while they are clearly used to infringe, because there exist a number of legitimate uses, no one will succeed on a claim of infringement against the manufacturer. That being said, if a defendant takes active steps to induce infringement, that service provider would lose immunity under the safe harbor provisions.
The Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. case dealing with the Grokster service, and recently the Columbia Pictures Industries, Inc. v. Fung case dealing with various bittorent sites, outline the current standard for inducement liability.
The court in Fung defines inducement as when “the defendant has undertaken purposeful acts aimed at assisting and encouraging others to infringe copyright.” The Supreme Court held in Grokster that inducement occurs when a defendant “distribute[s] a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement.” In both cases, the defendants were taking affirmative steps to either advertise the use of their service for infringing purposes or courting the users of other sites that were acting in bad faith with regard to infringement.
The Future of the Cloud
Many of the record companies’ concerns over cloud music should also be an issue for other, general storage operations. If it is infringement to upload pirated music to a site that lets you download them on another device, then it should also be an infringement for other backup sites to receive, store, and deliver the same content, with or without the ability to cache locally.
It is worth noting, however, that while Google offers general storage services where a user can upload files from one computer or device and download them on another, it has chosen to exclude this option from its cloud music service, Google Music. A representative from Google, Jamie Rosenberg, was recently asked to comment on the legality of Google Music in comparison to a site like MP3Tunes. Mr. Rosenberg declined to comment extensively but gave the current exclusive of “re-downloading” as a major difference with supposed legal significance. Mr. Rosenberg also noted the absence of “sideloading,” an option present in MP3Tunes that allowed a user to import music from other services, such as iTunes, to their music locker.
Ultimately, the recording industry would be better served by adopting the model of cloud music than trying to enjoin or overly regulate its practice. The ability of content owners to absolutely restrict the use and dispersion of their content after a lawful sale is on the decline; the future of content consumption is mobility, and cloud music (and cloud storage in general) facilitate this basic desire of the end-user. If the record industry continues to fight this battle they will alienate users and have a negative impact on the future online storefronts of their product. A more pragmatic approach would be to form more strategic partnerships with cloud music service providers to make the purchase of legal, electronic content easy and available for all users.
 In Perfect 10 v. CCbill LLC, 488 F.3d 1102 (9th Cir. 2007), the court refused to attribute actual knowledge to a service provider that offered services to websites named “illegal.net” and “stolencelebritypics.com”.
 See also Corbis Corp. v. Amazon.com, Inc., 351 F.Supp.2d 1090 (W.D. Wash. 2004), and Tiffany (NJ), Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010) (general knowledge that infringement is “ubiquitous” does not impose a duty on the service provider to monitor or search its service for infringements.)
 The court also acknowledged that even if a service provider were to be aware of an additional copy of a work for which it had received a take-down notice, there are reasons, such as fair use and licenses, that could lend privilege to the poster. A service provider cannot be expected to make independent legal inquiry into the status of a post any more than it can be expected to review all the content posted by third parties providing that it complies with the remaining provisions of the DMCA.
 586 F.Supp.2d 1132 (N.D. Cal. 2008).
 See also UMG Records, Inc. v. Veoh Networks, Inc.. 665 F.Supp.2d 1099 (C.D. Cal. 2009).
 545 U.S. 913 (2005).
 2009 WL 6355911 (C.D. Cal. 2009).