VHT, Inc. v. Zillow Grp., Inc.

918 F.3d 723

VHT, INC., a Delaware Corporation, Plaintiff-Appellee/Cross-Appellant,

v.ZILLOW GROUP, INC., a Washington Corporation; Zillow, Inc., a Washington Corporation, Defendants-Appellants/Cross-Appellees.

Nos. 17-35587

17-35588

United States Court of Appeals, Ninth Circuit.

Argued and Submitted August 28, 2018 Seattle, Washington

Filed March 15, 2019

Ian B. Crosby (argued), Edgar G. Sargent, Genevieve Vose Wallace, and Jenna G. Farleigh, Susman Godfrey LLP, Seattle, Washington, for Defendants-Appellants/Cross-Appellees.

Stephen M. Rummage (argued), Marcia B. Paul, Jonathan M. Lloyd, James E. Howard, and Max B. Hensley, Davis Wright Tremaine LLP, Seattle, Washington, for Plaintiff-Appellee/Cross-Appellant.

Keith Kupferschmid and Terry Hart, Copyright Alliance, Washington, D.C.; Eleanor M. Lackman and Lindsay W. Bowen, Cowan, DeBaets, Abrahams & Sheppard LLP, New York, New York; for Amicus Curiae Copyright Alliance.

Alicia Calzada, Alicia Wagner Calzada, PLLC, San Antonio, Texas, for Amici Curiae The American Society of Media Photographers, Inc., Digital Media Licensing Association, Inc., Graphic Artist Guild, Inc., and National Press Photographers Association, Inc.

Thomas G. Hentoff and Chanakya A. Sethi, Williams & Connolly LLP, Washington D. C., for Amici Curiae Disney Enterprises, Inc., Twentieth Century Fox Film Corporation, and Recording Industry Association of America, Inc.

Mitchell L. Stoltz, Electronic Frontier Foundation, San Francisco, California, for Amicus Curiae Electronic Frontier Foundation.

Brian M. Willen, Wilson Sonsini Goodrich & Rosati, P.C., New York, New York; Ryan T. O’Hollaren, Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California; for Amici Curiae Internet Association and Computer & Communications Industry Association.

Before: M. Margaret McKeown, William A. Fletcher, and Ronald M. Gould, Circuit Judges.

McKEOWN, Circuit Judge:

Zillow, an online real estate marketplace, has become a popular website for homeowners and others to check estimated valuations of their property, look for houses and condominiums for sale and rent, and see photographs of a wide range of properties. Thousands of those copyrighted photos come from VHT, the largest professional real estate photography studio in the country.

The copyright claims on appeal concern Zillow's use of VHT's photos on two parts of Zillow's website: the "Listing Platform" and "Digs." The Listing Platform is the core of the website, featuring photos and information about real estate properties, both on and off the market. Zillow claims that the site includes "most homes in America." Digs features photos of artfully-designed rooms in some of those properties and is geared toward home improvement and remodeling. Zillow tags photos on the Listing Platform so that Digs users can search the database by various criteria, like room type, style, cost, and color.

Real estate brokers, listing services, and agents hire VHT to take professional photos of new listings for marketing purposes. A VHT photographer takes the photos and sends them to the company's studio for touch-up, where they are saved to VHT's electronic photo database, and then delivered to the client for use under license. Each license agreement between VHT and its clients differs slightly, but each contract generally grants the requesting client the right to use the photos in the sale or marketing of the featured property. Zillow receives these photos and other data in feeds from various real estate-related sources.

In 2015, VHT sued Zillow Group, Inc., and Zillow, Inc., (collectively "Zillow") for copyright infringement, alleging that Zillow's use of photos on the Listing Platform and Digs exceeded the scope of VHT's licenses to brokers, agents, and listing services who provided those photos to Zillow. The district court granted partial summary judgment on a limited set of claims, while other claims advanced to trial. The jury found in favor of VHT on most remaining claims, awarding over $ 8.27 million in damages. The district court partially granted Zillow's post-trial motion for judgment notwithstanding the verdict, reversing in part the jury verdict and reducing total damages to approximately $ 4 million.

The parties cross-appealed issues stemming from partial summary judgment, the jury verdict, and judgment notwithstanding the verdict. We affirm in part and reverse in part.¹

To simplify and make sense of the various claims, this opinion does not split out the appeal and cross-appeal as was done in the briefing to the court. Instead, the opinion separately addresses liability for each of the categories of photos at issue, followed by a discussion of damages. In view of the multiple theories of liability and categories of photos, following is an overview of the opinion.

I. Direct Infringement

A. Direct Infringement—Listing Platform Photos

B. Direct Infringement—Digs Photos

1. Jury Verdict—Direct Infringement

2. Summary Judgment—Fair Use re Searchable Photos

a. Background on Fair Use

b. Evolution of Search Engine Cases

c. Application of Fair Use Principles

II. Secondary Infringement—Digs

A. Contributory Liability

B. Vicarious Liability

III. Damages

A. Compilation

B. Willfulness

IV. Conclusion

ANALYSIS

The heart of this dispute is Zillow's copyright liability for use of VHT photos. VHT argues that Zillow directly infringed its copyrighted photos, both those on the Listing Platform and Digs. VHT also argues that Zillow indirectly infringed through use of the photos on Digs. These claims pertain to different images, focus on different features of Zillow's website, and have different procedural postures, so we consider the various categories of photos separately.

I. Direct Infringement

VHT's key claim is that Zillow is directly liable for infringing VHT's copyright on photos that were posted on the Listing Platform and Digs. To prevail on a claim of direct copyright infringement, VHT must establish "ownership of the allegedly infringed material" and that Zillow "violate[d] at least one exclusive right granted to" VHT under 17 U.S.C. § 106. A&M Records, Inc. v. Napster, Inc. , 239 F.3d 1004, 1013 (9th Cir. 2001). It is undisputed that VHT is the copyright holder of the allegedly infringed photos and therefore has the exclusive right to reproduce, adapt, and display them.² 17 U.S.C. § 106.

VHT must also establish causation, which is commonly referred to as the "volitional-conduct requirement." See Perfect 10, Inc. v. Giganews, Inc. , 847 F.3d 657, 666 (9th Cir. 2017). As we set out in Giganews — decided on the first day of the VHT/Zillow trial and the closest circuit precedent on point—"volition in this context does not really mean an act of willing or choosing or an act of deciding"; rather, "it simply stands for the unremarkable proposition that proximate causation historically underlines copyright infringement liability no less than other torts." Id . (internal citations omitted). Stated differently, "direct liability must be premised on conduct that can reasonably be described as the direct cause of the infringement." Id. (citation omitted). This prerequisite takes on greater importance in cases involving automated systems, like the Zillow website.

In addressing this concept, Justice Scalia noted that "[e]very Court of Appeals to have considered an automated-service provider's direct liability for copyright infringement has adopted [the volitional-conduct] rule." Am. Broad. Cos., Inc. v. Aereo, Inc. , 573 U.S. 431, 453, 134 S.Ct. 2498, 189 L.Ed.2d 476 (2014) (Scalia, J., dissenting).³ He went on to explain that while "most direct-infringement cases" do not present this issue, "it comes right to the fore when a direct-infringement claim is lodged against a defendant who does nothing more than operate an automated, user-controlled system. ... Most of the time that issue will come down to who selects the copyrighted content: the defendant or its customers." Id . at 454–55, 134 S.Ct. 2498 (internal citations omitted).

Giganews , Aereo , and out-of-circuit precedent counsel that direct copyright liability for website owners arises when they are actively involved in the infringement. " ‘[T]he distinction between active and passive participation’ " in the alleged infringement is " ‘central’ " to the legal analysis. Giganews , 847 F.3d at 667 (quoting Fox Broad. Co. v. Dish Network LLC , 160 F.Supp.3d 1139, 1160 (C.D. Cal. 2015) ).

That "direct" infringement requires "active" involvement is hardly surprising, given the correlation between the words "active" and "direct." As the Fourth Circuit held, "[t]here must be actual infringing conduct with a nexus sufficiently close and causal to the illegal copying that one could conclude that the machine owner himself trespassed on the exclusive domain of the copyright owner." CoStar Grp., Inc. v. LoopNet, Inc. , 373 F.3d 544, 550 (4th Cir. 2004). By contrast, activities that fall on the other side of the line, such as " ‘automatic copying, storage, and transmission of copyrighted materials, when instigated by others, do[ ] not render an [Internet service provider] strictly liable for copyright infringement[.]’ " Giganews , 847 F.3d at 670 (quoting CoStar , 373 F.3d at 555 ).

In other words, to demonstrate volitional conduct, a party like VHT must provide some "evidence showing [the alleged infringer] exercised control (other than by general operation of [its website] ); selected any material for upload, download, transmission, or storage; or instigated any copying, storage, or distribution" of its photos. Id. at 666, 670. VHT failed to satisfy that burden with respect to either the photos on the Listing Platform or on Digs.

A. Direct Infringement—Listing Platform Photos

VHT asserted that Zillow directly infringed the photos displayed on the Listing Platform after a real estate property was sold because VHT's license agreements only authorized use of those photos in relation to the sale of the property. This claim, involving 54,257 non-searchable photos, was resolved on...