Arista Records LLC v. Lime Group LLC

ARISTA RECORDS LLC; ATLANTIC RECORDING CORPORATION;BMG MUSIC; CAPITOL RECORDS, INC; ELEKTRA ENTERTAINMENT GROUP INC;INTERSCOPE RECORDS; LAFACE RECORDS LLC; MOTOWN RECORD COMPANY, L.P.;PRIORITY RECORDS LLC; SONY BMG MUSIC ENTERTAINMENT;UMG RECORDINGS, INC; VIRGIN RECORDS AMERICA, INC.;and WARNER BROS. RECORDS INC., Plaintiffs,

v. LIME GROUP LLC; LIME WIRE LLC; MARK GORTON; GREG BILDSON;and M.J.G. LIME WIRE FAMILY LIMITED PARTNERSHIP, Defendants.

06 CV 5936 (KMW)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Dated: April 28, 2011

AMENDED OPINION & ORDER

KIMBA M. WOOD, U.S.D.J.:

I. Introduction^*

Plaintiffs are thirteen major record companies that collectively produce, manufacture, distribute, sell, and license "the vast majority of copyrighted sound recordings sold in the United States." (First Am. Compl. ¶ 1.) Plaintiffs raise various federal and state law claims of secondary copyright infringement against Lime Wire LLC (LW); Mark Gorton, the Chairman and sole Director of LW; Lime Group LLC ("Lime Group"); and the M.J.G. Lime Wire Family Limited Partnership ("Lime Wire FLP") (collectively, "Defendants") for their role in distribution of the LimeWire software program ("LimeWire"). LimeWire permits users of the program toshare digital files over the Internet. Plaintiffs allege that LimeWire users employ LimeWire to obtain and share unauthorized copies of Plaintiffs' sound recordings, and that Defendants facilitate this infringement by distributing and maintaining LimeWire.¹

Plaintiffs raise the following claims against LW, Lime Group, and Gorton: (1) inducement of copyright infringement; (2) contributory copyright infringement; (3) vicarious copyright infringement; and (4) state common law copyright infringement and unfair competition.² Plaintiffs also raise a state law fraudulent conveyance claim against Gorton and Lime Wire FLP, and a claim for unjust enrichment against Lime Wire FLP.

The parties now move for summary judgment. Plaintiffs move for partial summary judgment on their claims of (1) inducement of infringement; (2) contributory infringement; and (3) common law infringement and unfair competition. LW, Gorton, and Lime Group move for summary judgment on each of these claims, and on Plaintiffs' claim of vicarious copyright infringement.³ Gorton and Lime Wire FLP move for summary judgment on Plaintiffs' fraudulent conveyance and unjust enrichment claims. Defendants also have submitted a numberof motions to exclude evidence submitted by Plaintiffs in support of their motion for summary judgment.

For the reasons stated below, the Court: (1) DENIES Defendants' motions to exclude evidence;⁴ (2) GRANTS Plaintiffs' motion for summary judgment on the claim against LW of inducement of copyright infringement, and DENIES LW's motion for summary judgment on the claim; (3) DENIES the parties' cross-motions for summary judgment on the claim against LW of contributory copyright infringement; (4) DENIES LW's motion for summary judgment on the claim of vicarious copyright infringement; (5) GRANTS Plaintiffs' motion for summary judgment on their claims against LW for common law copyright infringement and unfair competition, and DENIES Defendants' motion for summary judgment on these claims; (6) GRANTS Plaintiffs' motions for summary judgment on the claims against Gorton and Lime Group for inducement of copyright infringement, common law infringement, and unfair competition, and DENIES Defendants' motions for summary judgment on these claims; (7) DENIES the parties' motions for summary judgment on the claims against Gorton and Lime Group for contributory copyright infringement and vicarious copyright infringement; and (8) DENIES Gorton's and Lime Wire FLP's motion for summary judgment on the fraudulent conveyance and unjust enrichment claims.

II. Factual Background

Unless otherwise noted, the following facts are undisputed by the parties:

A. File-Sharing Programs Over the last several years, technologies have developed that make it inexpensive and easy to record, distribute, and share music via the Internet. Many artists now digitally record songs to sell through online music retailers. Individuals who purchase digital recordings often share them with others by using free or low-cost software or Internet programs, known as "file-sharing programs." File-sharing programs allow users to exchange digital files, including digital recordings, with each other through the Internet. Most digital recordings released in the United States, however, are copyright protected, and the copyright owners do not authorize sharing through file-sharing programs. A number of companies that have distributed file-sharing programs, including the distributors of the programs Napster, Kazaa, Morpheus, and Grokster, have faced liability for copyright infringement, on the ground that they facilitated infringement committed by users of their programs. See e.g., A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001).⁵

B. Creation and Design of LimeWire

LW was founded in June 2000. The company released LimeWire in August 2000. LimeWire is a file-sharing program that utilizes "peer-to-peer" ("P2P") technology. By employing P2P technology, LimeWire permits its users to share digital files via an Internet-based network known as the "Gnutella network." LimeWire users can share almost all files stored on their computers with other LimeWire users.⁶ When a LimeWire user wishes to locate digitalfiles available through the network, she enters search criteria into the search function on LimeWire's user interface. LimeWire then scans the computers of other LimeWire users, to locate files that match the search criteria. The LimeWire user can download any files that LimeWire locates. When the user downloads a file, LimeWire transfers a digital copy of the file from the computer on which it is located to the LimeWire user's computer.

C. Plaintiffs' Copyrighted Recordings

Plaintiffs sell and distribute the vast majority of all recorded music in the United States. They allege that they own the copyrights or exclusive rights to more than 3000 sound recordings, which are listed in exhibits to the First Amended Complaint. (First Am. Compl., Exs. A & B (as revised, Jan. 31, 2008).) In this litigation, Plaintiffs have provided documentation establishing that they own the copyrights to thirty popular recordings (the "Recordings").⁷ Plaintiffs allege that LimeWire users share and download unauthorized digital copies of the Recordings via LimeWire, and that Defendants are secondarily liable for this infringement because they distribute and maintain LimeWire.

III. Evidentiary Motions Defendants have filed a number of motions challenging the admissibility of evidence submitted by Plaintiffs (the "Evidentiary Motions"). The Court considers each of the Evidentiary Motions in turn. The Court determines the admissibility of the challenged evidence based on the same principles as would apply at trial. See Raskin v. Wyatt Co., 125 F.3d 55, 66 (2d Cir. 1997). The Court finds that, except with respect to certain limited issues discussed below, Defendants' evidentiary objections are without merit.

A. Motions to Exclude Reports and Testimony of Plaintiffs' Experts

Defendants move to exclude the reports and testimony of two expert witnesses retained by Plaintiffs, Dr. Richard P. Waterman and Dr. Ellis Horowitz. The Court denies Defendants' motion.

1. Legal Standard

A court may admit expert testimony once it has determined that such testimony is reliable. Daubert v. Merrell Dow Pharms., Inc, 509 U.S. 579, 589 (1993); Nimely v. City of New York, 414 F.3d 381, 396-97 (2d Cir. 2005). Reliability is analyzed under Rule 702 of the Federal Rules of Evidence, which provides that a witness who is qualified as an expert by knowledge, skill, experience, training, or education may provide testimony that is (1) based upon sufficient facts or data; (2) the product of reliable principles and methods; and (3) based on reliable application of the principles and methods to the facts of the case. Fed. R. Evid. 702. There must be "'a sufficiently rigorous analytical connection between [the expert's] methodology and the expert's conclusions... and... the scientific principles and methods [must] have been reliably applied by the expert to the facts of the case.'" In re Zyprexa Prods. Liab. Litig., 489 F. Supp. 2d 230, 284 (E.D.N.Y. 2007) (quoting Nimely, 414 F.3d at 397). The party seeking to rely on expert testimony bears the burden of establishing, by a preponderance ofthe evidence, that all requirements have been met. See Daubert., 509 U.S. at 593 n.10 (1993); United States v. Williams, 506 F.3d 151, 160 (2d Cir. 2007).

2. Application

a. Dr. Richard P. Waterman

Dr. Waterman is an Adjunct Associate Professor of Statistics at The Wharton School at the University of Pennsylvania, and the President and Co-Founder of Analytic Business Services, Inc., a consulting company that provides expert advice and opinions in the field of statistical analysis.

Plaintiffs hired Dr. Waterman to conduct a study of LimeWire that estimates the percentage of digital files (1) available through LimeWire that are authorized for free distribution; and (2) requested for download by LimeWire users that are authorized for free distribution.⁸ For the study, Dr. Waterman analyzed a random sample of 1800 files available through LimeWire. He determined that 93% of files in the sample (1644 files) were protected or highly likely to be protected by copyright, and thus not authorized for free distribution through LimeWire. (Waterman Report, 2-3.) He found that 43.6% of the files were digital recordings with copyrights owned by Plaintiffs. (Id.) Dr. Waterman next logged the number of times LimeWire users sought to download each of the files in the sample. Based on these results, Dr. Waterman estimated that 98.8% of the files requested for download through LimeWire are copyright protected or highly likely...