Article: Entertainment Litigation Update

Ninth Circuit Confirms That “Volitional Conduct” Is Still Required for Direct Copyright Infringement Post-Aereo. Earlier this year, in Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657 (2017), the Ninth Circuit re-affirmed that a defendant must engage in “volitional conduct” in order to be liable for direct copyright infringement. The Supreme Court’s decision in American Broadcasting Companies, Inc. v. Aereo, Inc., 134 S.Ct. 2498 (2014), had cast considerable doubt whether volitional conduct was still required, raising questions concerning potential copyright liability for emerging technologies such as cloud computing.

In Aereo, the Supreme Court considered whether Aereo “performed” television broadcasters’ copyrighted works when it streamed television programs to its subscribers over the Internet, and was thus subject to liability for direct copyright infringement. Even though Aereo’s streaming system was “inert until a subscriber indicates that she wants to watch a program,” and its “equipment simply respond[ed] to its subscribers’ directives,”—suggesting the absence of volitional conduct—the Court nonetheless held that Aereo “performed” the copyrighted works within the meaning of the Copyright Act’s Transmit Clause. 17 U.S.C. § 101; Aereo, 134 S. Ct. at 2507. In dissent, Justice Scalia argued that the majority’s holding was inconsistent with the volitional-conduct requirement—a requirement adopted by “[e]very Court of Appeals to have considered an automated-service provider’s direct liability for copyright infringement”—and that this requirement “demands conduct directed to the plaintiff’s copyrighted material.” 134 S.Ct. at 2512-13 (Scalia, J., dissenting). Justice Scalia maintained that “Aereo does not ‘perform’ for the sole and simple reason that it does not make the choice of content,” and noted the possibility that the Court’s holding could “imperil billions of dollars of investments in cloud-storage services.” Id. at 2514, 2518.

Against this backdrop, the Ninth Circuit decided Perfect 10. Perfect 10 owns copyrights in several thousand adult images shared over the Usenet, a collection of online bulletin boards (called “newsgroups”) that allow users to post and respond to messages and share content. Giganews provides users with access to the Usenet, and owns and operates Usenet servers, which store the content uploaded by users. Perfect 10 brought several claims against Giganews, including direct copyright infringement on the theories that 1) Giganews displayed Perfect 10’s images to users through its browser application; 2) Giganews distributed Perfect 10’s images by delivering downloadable content to users; and 3) Giganews directly copied and stored Perfect 10’s images. The district court dismissed the first two theories at the pleadings stage, and the third at summary judgment, all on the ground that Perfect 10 failed to allege (or prove) that Giganews engaged in any volitional conduct directed towards Perfect 10’s copyrighted images. The district court also awarded Giganews $5.6 million in attorney’s fees.

On appeal, the Ninth Circuit first held that the volitional conduct requirement remains an element of a direct copyright infringement claim post-Aereo, clarifying that “volitional conduct” is “a basic requirement of causation” such that “direct liability must be premised on conduct that can reasonably be described as the direct cause of the infringement.” 847 F.3d at 666. The court reasoned, first, that Aereo did not expressly address the volitional conduct requirement, and that the Supreme Court was unlikely to have abandoned by implication a requirement that had been adopted by several Courts of Appeals. The Ninth Circuit reasoned, second, that the Supreme Court’s analysis in Aereo was actually consistent with the volitional conduct requirement, because the Supreme Court had distinguished Aereo’s conduct from conduct of an entity that “merely supplies equipment that allows others’ to perform or transmit.”

After concluding that the volitional conduct requirement is consistent with Aereo, the Ninth Circuit affirmed the district court’s determination that Perfect 10 had not established volitional conduct with respect to any theory of direct copyright infringement it advanced against Giganews. The court held that 1) Giganews’ display and storage of Perfect 10’s copyrighted images was passive; 2) Giganews’ “distribution” of Perfect 10’s images was automatic and thus attributable to the user, not any active conduct by Giganews; and 3) Perfect 10 failed to present evidence that Giganews exercised control over Usenet content, actively chose any material for transmission, “or instigated any copying, storage, or distribution.” 847 F.3d at 670.

In the context of business litigation, the Ninth Circuit’s determination in Perfect 10 that volitional conduct is still required and that Giganews had not engaged in any volitional conduct as a passive provider, should offer some clarity for online service providers generally, whose liability for copyright infringement was called into question by Aereo. In particular, Perfect 10 seems to make it less likely that, cloud computing network providers and businesses generally reliant on cloud data storage will be subject to liability for direct copyright infringement. However, because the Aereo-majority declined to address the volitional conduct requirement (notwithstanding the dissent’s claim that the volitional conduct requirement mandated a contrary result), it is possible that the panel’s conclusion in Perfect 10 will be tested. Indeed, as of this writing, Perfect 10 petitioned the Ninth Circuit for rehearing en banc, arguing, among other things, that the panel’s opinion conflicts with Aereo. Whether Perfect 10 will continue to pursue its appeal is unclear—after Perfect 10’s rehearing petition was filed, the district court granted Giganews’ motion for appointment of a receiver. The receiver will begin the process of liquidating Perfect 10’s intellectual property in order to satisfy Giganews’ attorney’s fee award.