EMI Christian Music Grp., Inc. v. MP3tunes, LLC

844 F.3d 79

121 U.S.P.Q.2d 1373

EMI Christian Music Group, Incorporated, Priority Records LLC, Beechwood Music Corporation, Colgems–EMI Music, Incorporated, EMI April Music, Inc., EMI Blackwood Music, Inc., EMI Full Keel Music, Inc., EMI Golden Torch Music Corporation, EMI Longitude Music, EMI Virgin Music, Inc., EMI Virgin Songs, Inc., Capitol Records, LLC, Plaintiffs–Counter–Defendants–Appellees–Cross–Appellants,

EMI Al Gallico Music Corporation, EMI Algee Music Corporation, EMI Feist Catalog, Inc., EMI Gold Horizon Music Corp., EMI Grove Park Music, Incorporated, EMI Hastings Catalog, Incorporated, EMI Mills Music, Incorporated, EMI Miller Catalog, Incorporated, EMI Robbins Catalog, Incorporated, EMI U Catalog, Inc., EMI Unart Catalog Inc., Jobete Music Company, Incorporated, Screen Gems–EMI Music, Incorporated, Stone Agate Music, Stone Diamond Music Corporation, Plaintiffs–Appellees–Cross–Appellants,

v.MP3tunes, LLC, Defendant–Counter–Claimant–Cross–Appellee,Michael Robertson, Defendant–Appellant–Cross–Appellee.

Docket Nos. 14-4369-cv(L)

14-4509-cv(XAP)

August Term, 2015

United States Court of Appeals, Second Circuit.

Argued: May 11, 2016

Decided: October 25, 2016

Amended: December 13, 2016

Andrew H. Bart (Frank P. Scibilia, M. Mona Simonian, Ross M. Bagley, Pryor Cashman LLP, New York, NY, Luke C. Platzer, J. Douglas Wilson, Jenner & Block LLP, Washington, DC, on the brief), Jenner & Block LLP, New York, NY, for Plaintiffs–Appellees–Cross–Appellants.

Ira S. Sacks (Mark S. Lafayette, Jamie B. Shyman, Patricia M. Carlson, on the brief), Akerman LLP, New York, NY, for Defendant–Appellant–Cross–Appellee.

Before: CABRANES, STRAUB, and LOHIER, Circuit Judges.

LOHIER, Circuit Judge:

In this appeal we principally consider the requirement of the Digital Millennium Copyright Act ("DMCA") safe harbor that an internet service provider "adopt[ ] and reasonably implement[ ]" a policy to terminate "repeat infringers." 17 U.S.C. § 512. Plaintiffs-appellees-cross-appellants are all record companies and music publishers. They filed this copyright infringement lawsuit against MP3tunes, LLC and its founder and Chief Executive Officer Michael Robertson,¹ alleging that two internet music services created by MP3tunes infringed their copyrights in thousands of sound recordings and musical compositions. The two services are MP3tunes.com, which primarily operated as a locker service for storing digital music, and sideload.com, which allowed users to search for free music on the internet.

On summary judgment, the United States District Court for the Southern District of New York (Pauley, J.) granted partial summary judgment to the defendants, holding that MP3tunes had a reasonably implemented repeat infringer policy under § 512. A jury ultimately returned a verdict in favor of the plaintiffs, but the District Court partially overturned the verdict.

For reasons we explain below: (1) we VACATE the District Court's grant of partial summary judgment to the defendants based on its conclusion that MP3tunes qualified for safe harbor protection under the DMCA because the District Court applied too narrow a definition of "repeat infringer"; (2) we REVERSE the District Court's grant of judgment as a matter of law to the defendants on claims that MP3tunes permitted infringement of plaintiffs' copyrights in pre-2007 MP3s and Beatles songs because there was sufficient evidence to allow a reasonable jury to conclude that MP3tunes had red-flag knowledge of, or was willfully blind to, infringing activity involving those categories of protected material; (3) we REMAND for further proceedings related to claims arising out of the District Court's grant of partial summary judgment; and (4) we AFFIRM the judgment in all other respects.

BACKGROUND

I. MP3tunes.com and Sideload.com

Robertson founded MP3tunes in 2005. It is undisputed that, by then, Robertson was familiar with both the online music industry and copyright litigation, having previously run the music site MP3.com, against which a copyright infringement judgment was entered in 2000. SeeUMG Recordings, Inc. v. MP3.com, Inc., 92 F.Supp.2d 349, 350 (S.D.N.Y. 2000). While recruiting for MP3tunes several years later, Robertson emphasized, "[T]his will be VERY big news. Major labels selling MP3s. MP3.com guy back to rejuvenate MP3 business. Largest copyright infringer of all time back at it again. Lots of juicy press angles."²

MP3tunes.com was MP3tunes's first project. Initially, customers could visit MP3Tunes.com and purchase MP3 versions of music created by musicians who were not associated with major record labels. In 2005 MP3tunes.com added a "locker storage" service, which charged users a fee to store music on the MP3tunes server. A user who uploaded songs to her "locker" (through LockerSync, a free plugin on the site) could play the music through other internet-enabled devices.

MP3tunes owned and operated a second website, sideload.com, that allowed users to search for free music on the internet. Sideload.com offered a free plug-in to enable users to "sideload" (or, to use Robertson's definition of "sideload," enabled users to "download[ ]" directly to their MP3tunes lockers) free songs that they found on the internet. Songs sideloaded into users' lockers were then added to sideload.com's index of searchable songs. This meant that the more songs users sideloaded from the internet, the more free music became available for sideload.com users to stream, download, or sideload into their own lockers. MP3tunes's executives, including Robertson, used their own accounts with MP3tunes to store sideloaded songs.

Users of MP3tunes.com could store a certain amount of music through the service for free and could purchase additional storage space for tiered fees, while storage associated with sideloaded songs did not count against the free storage limit. Partly as a result, sideload.com became "the most effective partner in driving traffic to [MP3tunes's] locker service." Joint App'x 1930. At Robertson's direction, MP3tunes strove to expand sideload.com's catalog by encouraging users to upload songs to the sideload.com index. For example, members of MP3tunes's staff were encouraged to upload songs from their own accounts, even when those songs came from websites that appeared to contain infringing material. Robertson directed MP3tunes employee Sharmaine Lindahl to provide MP3tunes employees a list of sites featuring free MP3s "for sideloading purposes." Joint App'x 1241. Lindahl observed that one of the sites on the list "look[ed] to be mainly pirated music." Joint App'x 1239. MP3tunes also encouraged repeated sideloading among MP3tunes.com users by creating a "Sideload Hall of Fame" consisting of the "top 25 Sideloaders with accounts at MP3tunes.com."

In October 2006 MP3tunes added a cover art feature. When a user began to "sync" or upload a song to her locker and cover art was not part of the music file, MP3tunes's software would "automatically go check for ... cover art" provided on Amazon.com and download the cover art to MP3tunes's servers. Although MP3tunes had two agreements with Amazon, an Amazon operations analyst testified at trial that the copying of cover art violated the agreements. The analyst explained that "there was no reference to Amazon around th[e] cover image[s]" and that the display of the cover art therefore "was not being used for the primary purpose of driving traffic to Amazon," as the agreements required.

II. Procedural History

In 2010 the parties cross-moved for summary judgment. The District Court granted the plaintiffs' summary judgment motion on certain claims that are not the subject of this appeal, including the claims of direct infringement by Robertson for the songs he personally sideloaded. The District Court also granted the defendants summary judgment on other claims on the ground that MP3tunes qualified for safe harbor protection under the DMCA and that the safe harbor barred the plaintiffs' state-law claims for infringement of recordings "fixed" before February 15, 1972.³ The District Court also addressed § 512(i)(1)(A)'s requirement that a service provider "adopt[ ] and reasonably implement[ ] ... a policy that provides for the termination in appropriate circumstances of subscribers ... who are repeat infringers." The District Court held that MP3tunes had such a policy because it "demonstrated that it has a procedure for responding to DMCA takedown notifications and does not interfere with copyright owners' ability to issue such notices." Capitol Records, Inc. v. MP3tunes, LLC, 821 F.Supp.2d 627, 639 (S.D.N.Y. 2011). As proof of the existence and effectiveness of the procedure, the District Court pointed out that MP3tunes had "terminated the accounts of 153 users who allowed others to access their lockers and copy music files without authorization." Id. Finally, in a separate ruling related to Robertson's motion for summary judgment, the District Court determined that it had personal jurisdiction over Robertson because "MP3tunes did a significant amount of business with New York customers and Robertson exercised extensive control over MP3tunes." Special App'x 76.

Prompted by our subsequent decision in Viacom International, Inc. v. YouTube, Inc., 676 F.3d 19 (2d Cir. 2012), the District Court partially reconsidered its ruling that MP3tunes qualified for safe harbor protection under the DMCA. Whether MP3tunes was barred from the DMCA's safe harbor protection (because it was willfully blind to or had red-flag knowledge of infringing activity), it held, actually presented a question of fact that a jury had to decide, not a question of law.

The case thereafter proceeded to trial before a jury, which returned a verdict for the plaintiffs and awarded them approximately $48 million, $7.5 million of which constituted punitive damages against Robertson. The District Court then granted judgment as a matter of law as to some of the claims. It reversed the jury's finding that MP3tunes was...