by John Farmer

Ponder this question: You run a business such as a company, university, coffee shop, or hospital that provides internet access to many people. Of course, some people use it to access pirated content, such as NFL games, movies, or songs. Are you at risk that your internet service provider (ISP) will cut off your business even though many of your users don’t break the law?

Also, rights holders might identify and contact your business, demanding that you disconnect offending users. Must you disconnect them? Can you give the scofflaws multiple warnings before cutting them off?

Case before the U.S. Supreme Court

That’s what’s at stake in a case in which the Supreme Court just heard oral argument – a case with Virginia connections in which an ISP was held responsible for not cutting off customers engaged in repeated piracy and hit with a judgment for $1 billion. This case could have a major impact on the price of Internet service and perhaps on available download speeds.

A group of record labels, including Sony Music Entertainment, brought this case against Cox Communications, an ISP, in federal court in Alexandria, Virginia.

The record labels repeatedly notified Cox of individuals using its Internet service to download pirated music. Cox did practically nothing to stop the infringement. Cox gave flagged accounts thirteen strikes before temporarily terminating them, and rarely did so. It continued to rake in subscription fees from those accounts.

Internal Cox emails showed that it wanted to keep getting subscription fees from those rogue accounts. A Cox manager once wrote “[t]his customer pays us over $400/month” and that “[e]very terminated Customer becomes lost revenue.”

The record labels sent over 160,000 infringement notices to Cox, resulting in Cox suspending only 32 subscribers. During that time, Cox terminated over 600,000 accounts for non-payment. Cox also limited the number of ISP complaints per day it would handle to 600.

You cannot entirely stop piracy

Technically speaking, what the record labels wanted Cox to do – terminate the accounts that repeatedly traffic in pirated content – would not stop piracy. Sophisticated computer users know how to mask their computer’s IP addresses by using VPNs, and how to avoid bans directed to particular IP addresses. Also, BitTorrent technology, which is frequently used in piracy, enables the sharing of computer files on a peer-to-peer basis amongst a large number of computers, where someone seeking to download a pirated file might get parts of it from different places. Taking off-line any specific computer user won’t stop the BitTorrent sharing. Thus, the enforcement efforts of the music labels might tamp down the volume of piracy and intimidate some conscientious computer users, but it won’t stop knowledgeable consumers of pirated content (i.e., most teenagers).

Sony is in an ironic position

That Sony is leading this case against piracy is rich irony. Sony was the defendant in the 1984 Supreme Court case concerning its Betamax, a VCR. The Supreme Court held that Sony wasn’t liable for enabling the copyright infringement committed by some Betamax users because the device also had “substantial non-infringing uses,” such as recording TV shows for watching later. Now, decades later, Sony is asking the Supreme Court to hold ISPs accountable for their users’ copyright infringements.

The litigation so far

The record labels won in the trial court. They didn’t sue Cox for copyright infringement per se, because Cox itself wasn’t making copies of the songs. Instead, the record labels sued under two theories of secondary copyright infringement liability – theories under which a party can be held liable for the copyright infringement of others due to the nature of its relationship with them. Specifically, those theories were vicarious and contributory copyright infringement liability. This resulted in the jury verdict awarding Sony $1 billion in damages.

Cox appealed to the Fourth Circuit, which delivered a mixed result. The court held that the record labels’ evidence didn’t meet the legal standard for imposing vicarious copyright-infringement liability but did suffice to prove contributory liability. The Fourth Circuit sent the case back to the trial court for a recalculation of damages based on this result. Nevertheless, Cox was headed toward getting hit with a new judgment for at least hundreds of millions of dollars.

Previous cases have defined contributory and vicarious infringement liability, but how those concepts should be applied to ISPs has been unresolved. With both types of liability, one must first prove that someone has infringed on a copyright, such as an ISP customer receiving a pirated movie stream. If that happened, to establish contributory infringement, you generally must show that the potentially secondarily liable party (such as the ISP) had knowledge of the infringement and either intentionally induced it or materially contributed to it. For vicarious infringement, you must show that the party had the right or ability to supervise the infringing activity and had a direct financial interest in it.

You may be wondering why the Digital Millennium Copyright Act (DMCA) didn’t shield Cox from liability. The DMCA provides a liability shield to Internet service providers against copyright infringement occurring on their network, but only if they maintain an adequate program for terminating subscribers who are repeat infringers. In a previous case against Cox, the Fourth Circuit affirmed a holding that Cox failed to maintain such a program, so it didn’t have DMCA protection.

But, even without DMCA protection, the record labels had to prove that Cox had committed contributory or vicarious copyright infringement. Failure to meet the DMCA standard for ISP liability protection doesn’t itself establish ISP liability – it just opens the door for proving a basis for ISP copyright-infringement liability. Whether the standard for either theory was met is the issue before the Supreme Court.

First issue that the Supreme Court is considering — secondary liability standards

The Supreme Court took the case to address whether an ISP can be held secondarily liable for copyright infringement merely because it knows that people are using certain accounts to engage in piracy and did not terminate their accounts, when there is no proof that the ISP promoted such piracy or took affirmative steps to foster it. Based on oral arguments, it appears the justices are wrestling with two issues.

First, the standard is unclear for when a person or company can be held liable for the copyright infringement of someone else. This is true for secondary liability generally, not just ISP cases.

The federal Copyright Act does not expressly provide for secondary liability. Courts created that law. It’s unlikely that the Supreme Court will eliminate secondary liability, but it likely will clarify the conduct threshold at which it kicks in.

Based upon the wording of the Court’s statement that it would hear the case and comments made by Justice Kagan during oral argument, the court might hold that secondary liability kicks in only when an ISP intentionally induces infringement or takes a positive step to facilitate infringing activity. Simply continuing to provide Internet service to users who are demonstrated to be trafficking in pirated material might not be enough for ISP liability.

Second issue that the Supreme Court is considering — practical implications of liability

Second, the justices expressed concern about the practicality. ISP customers are often large organizations that, in turn, provide Internet access to a substantial number of people, such as universities, employers, hotels, and restaurants.

Practically speaking, if the copyright owner, such as a record label or movie company, gives notice to a large organization that piracy is occurring, what must happen? Is the ISP required to terminate service for the whole organization, such as a university? If the organization can identify specific IP addresses (i.e., specific computers) used for piracy, would terminating those IP addresses be a pointless game of whack-a-mole? For example, if a university with 20,000 students terminates access for student IP addresses through which piracy has occurred, that’s easy for the students to get around and unlikely to stop another wave of students from doing the same thing.

Would this mean that organizations that provide Internet access must turn the speed down so low that certain piracy is impractical, such as illicit movie streaming? That would make legitimate uses of high-speed Internet unavailable.

A lot of money is at stake

There is a lot of money on the table. If a copyright-infringement plaintiff has registered its copyrights (as music labels always do with their songs), under federal law, a successful plaintiff can recover between $750 and $30,000 per work infringed in statutory damages. If the plaintiff proves that the infringement was willful, the ceiling goes up to $150,000 per work infringed.

In the Cox case, the jury found Cox responsible for 10,017 pirated songs and that Cox acted willfully, so it awarded $99,830.29 per song in statutory damages, which led to the $1 billion damage award. The parties argued about whether statutory damages should be awarded per song or per album, and that didn’t get resolved. Either way, if a defendant, such as an ISP, is held liable for facilitating such copyright infringement, it will be hit with a huge statutory damages award because of the large number of movies, songs, and other pirated content that pass through its networks.

One issue the Supreme Court is considering is whether plaintiffs can recover statutory damages in the willful range ($30,000-$150,000 per work infringed) if the evidence shows only that the ISP knew of infringement passing through its network and didn’t disconnect defending users – that the ISP didn’t induce or take affirmative steps to facilitate the infringement. Still, even if statutory damages are capped at $30,000 per work infringed, such as per song or album, you get to a huge damages number.

What will be the impact of the Supreme Court decision?

Ultimately, this decision will have an impact on the price and availability of Internet service. If the Court sets rules that make ISPs liable for failure to terminate repeat violators, that will drive up the cost of Internet service. Providers will have to invest in technology and personnel to process claims and terminate accounts, and they will earn less subscription revenue. This will lead to price increases because people consider Internet service necessary. Such a ruling might also increase costs for businesses that are not ISPs but provide Internet service to their customers or employees. These organizations might also receive piracy claims, which will lead to a lot of hassle and cost in processing.

On the other side of the scales of justice, companies that produce copyright-protected material as their principal products, such as music labels and makers of movies and streaming shows, lose a lot of money when people engage in piracy rather than pay for legitimate copies. This makes the business less profitable, which reduces the volume of new works created.

Either way the Supreme Court decides, some innocents will suffer.

If the Court requires ISPs to crack down on accounts used for piracy, some innocent Internet users (such as parents in a household) will lose Internet service because other people sharing the account (the teenagers in the basement) stream pirated content.

On the other hand, if the Court gives ISPs a pass as long as they don’t take affirmative steps to induce or facilitate the consumption of pirated content, that will let ISPs off the hook. While content owners could subpoena records and sue internet users individually, legal fees would almost always outweigh the harm being caused, and the suit could be bad optics, such as suing grandma because a visiting teenager watched a pirated movie.

John Farmer practices intellectual-property law in Richmond. This column is republished with permission from his Substack account.