A California Federal Court rejected an arguably literalistic interpretation of a safe harbor provision in the Digital Millennium Copyright Act (DMCA), providing clarification for online service providers that host and deliver third-party content to their users.

In UMG Recordings, Inc. v. Veoh Networks, Inc., the U.S. District Court for the Central District of California specifically addressed Section 512(c) of the DMCA, which sets forth the circumstances under which service providers can escape liability for copyright infringement “by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider.” UMG, the plaintiff, asserted that Veoh was not eligible for protection under the safe harbor provision, because its site’s software manipulated files uploaded by users by “(1) automatically creating “Flash-formatted” copies of video files uploaded by users; (2) automatically creating copies of uploaded video files that are comprised of smaller “chunks” of the original file; (3) allowing users to access uploaded videos via a technology called “streaming”; [and] (4) allowing users to access uploaded videos by downloading whole video files.” According to UMG, such operations do not constitute “storage,” nor are they undertaken “at the direction of a user.” Veoh responded by arguing that, even though the operations occur after a user has taken steps to upload his or her content, they nevertheless occur automatically “by reason of the storage at the direction of a user” and are intended only to facilitate access to files stored by users.

The court denied UMG’s arguments and held that Veoh was entitled to use the defense. In so holding, it noted that Section 512(c) does not require that infringing conduct constitute storage in and of itself. Instead, the infringing conduct must occur “as a result of the storage.” In addition, the court agreed with Veoh that other language in Section 512(c) “presupposes that the service provider will be providing access to the user's material,” giving rise to a logical expectation that a service provider will take steps to manipulate the raw data uploaded by users in order to facilitate such access. Finally, the court cited to the legislative history of the DMCA, noting that “Congress enacted the DMCA ‘to facilitate the robust development and world-wide expansion of electronic commerce, communications, research, development, and education in the digital age.’” According to the court, the DMCA would be hard-pressed to achieve such goals “if service providers otherwise eligible for limited liability under [Section] 512(c) were exposed to liability for providing access to works stored at the direction of users.” 

While the opinion is that of a trial court rather than an appellate court, the Central District of California’s considerable experience with software issues, coupled with the number of such disputes it regularly hears, likely means that its analysis will be very persuasive in other jurisdictions and venues, and it would not be surprising if its holding were upheld or otherwise left standing by the Ninth Circuit, were UMG to appeal. Therefore, service providers and their counsel should be sure to review the opinion carefully in assessing the threat of litigation arising from hosted content. Copyright holders also should keep the Central District’s holding in mind when determining the advisability of filing suit against service providers to protect their content.