Brand owners and copyright owners found 80 million reasons to smile on December 3, 2013. On that day, online movie and TV streaming site Hotfile has agreed to pay $80 million to movie and TV studios to settle a two-year-old copyright infringement lawsuit. The Hollywood Reporter (Dec. 3, 2013).

Hotfile is an offshore, online storage site—sometimes called a “cyberlocker”—where the site’s 5 million users stored almost 3,500 movies and TV shows, and other users could download them. For those readers who believe that this description sounds very similar to YouTube, and who recall the studios’ unsuccessful lawsuit, some important differences were found to exist.

“Safe Harbor” for third party users

But first, by way of background, under the Digital Millennium Copyright Act’s (DMCA) “safe harbor,” a website or online service provider can be shielded from liability for infringing content posted by third party users if the site offers copyright owners the opportunity to submit a takedown notice and the service provider acts expeditiously once it is aware of the infringing material. 17 U.S.C. § 512(c). The takedown notice requires several elements:

  1. the complainant must identify the copyrighted work;
  2. identify the infringing material;
  3. provide the complainant’s contact information;
  4. provide a statement that the use of copyrighted material is unauthorized;
  5. provide a statement under penalty of perjury of the complainant’s good faith belief that the takedown notice is accurate; and
  6. the complainant is authorized to issue the notice, and the notice must be electronically signed.

If the six elements listed above are present, the online service provider must act “expeditiously to remove, or disable access to, the material.” 17 U.S.C. § 512(c)(1)(A)(iii). The DMCA’s “safe harbor” expressly states that its limitations on liability apply only to online service providers that have designated with the Copyright Office an agent to receive the infringement notices. The online service provider must file the agent’s name, address, phone number, and e-mail address, plus a fee, to register the agent with the Copyright Office. Both YouTube and Hotfile claimed that the DMCA’s “safe harbor” protected them from copyright infringement claims, but courts have found that only YouTube met the requirements. Both YouTube and Hotfile offered copyright owners the ability to file takedown notices. Everyone agreed that YouTube responded to the notices and actually took down infringing materials, and YouTube would terminate repeat infringers. Viacom Int’l Inc. v. YouTube, Inc., 676 F.3d 19 (2d Cir. 2012).

DMCA “Safe Harbor” not safe for Hotfile

In contrast, Hotfile received 8 million notices (for its 5 million users), did not have a registered DMCA agent, did not follow the necessary protocols under the DMCA “safe harbor,” failed to respond promptly to the “takedown” notices, and terminated only 43 repeat infringer accounts. Disney Enters., Inc. v. Hotfile, Corp., No. 1:11-cv-20427-KMW (S.D. Fla. Aug. 28, 2013). In addition, the studios claimed that Hotfile actively encouraged infringing activity by offering users payments based on the number of downloads other users made of their stored files. Therefore, a federal trial judge ruled in a 99-page opinion in August that Hotfile could not claim that the DMCA “safe harbor” applied and that Hotfile was vicariously liable for the actions of its users. With the jury trial scheduled to begin on December 9, 2013, Hotfile was facing potential liability in excess of $500 million, based on the U.S. copyright law’s statutory damage structure, permitting awards up to $150,000 per work infringed. 17 U.S.C. § 504(c)(2). Instead, Hotfile settled the matter for $80 million, and a permanent injunction against infringing any of the covered works. The site was ordered to shut down unless and until it implemented “digital fingerprinting,” which the court described as “state-of-the-art content identification and filtering technology, from reliable third party technology providers, that prevents infringement of the Copyrighted Works to the greatest extent allowable by available technology.” See Order Entering Judgment and Perm. Inj. (Dec. 3, 2013).

Commentary

This case serves as a reminder that any brand owner who permits third parties to upload content to the website/online service and who wants to take advantage of the DMCA ”safe harbor” should check for compliance with the statutory requirements.


This article was prepared by Sue Ross (susan.ross@nortonrosefulbright.com / +1 212 318 3280) of Norton Rose Fulbright’s United States’ Intellectual property group.