If you’re running a file-sharing service, making money and encouraging others to infringe on copyrights, the courts have got a legal slap-down for you, as Gary Fung, one such entrepreneurial operator has discovered: He found himself on the wrong side of a recent decision by the U.S. Ninth Circuit Court of Appeals, which upheld a lower court ruling, sought by Hollywood studios, that Fung was liable for contributory infringement. After seven years of legal combat, the courts have said he cannot find his claimed shelter under the Digital Millennium Copyright Act because his service’s chief aim was not neutral but to allow others to trade copyrighted materials.

Fung owns several different bittorrent hosting services, most notably isoHunt where users could access content files  — and get technological help doing so, with search and storage assistance, especially creation of new copies of materials. Via bittorrent — a “protocol (a set of rules and description of how to do things) allowing you to download files quickly by allowing people downloading the file to upload (distribute) parts of it at the same time” — those who used his service found movies, including those owned by plaintiffs Columbia Pictures Industries. Columbia sued Fung and others in 2006, prevailing in the district court, leading to his appellate appeal.

At the appellate level, as reported by Copyright Alliance,  the judges applied the analysis from the U.S. Supreme Court’s ruling Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd.: There, justices laid out their “inducement rule” with four elements: (1) the distribution of a device or product; (2) acts of infringement; (3) an object of promoting its use to infringe copyright; and (4) causation.” The appellate dissection of Fung’s arguments, using these Grokster elements, may be found on Page 23 of the full opinion.

The appellate ruling also rejected Fung’s affirmative defense — that his site should be protected under DMCA safe-harbor provisions. The court said Fung could not invoke this shield because he knew or had reason to know of  expansive infringement by users of his service. He had the right and ability to control these illicit activities and received direct financial benefit from them.