As important as what is protected by copyright is what isn’t protected. Since the use of a digital work generally involves the making of many intermediate copies, such as from disk to computer memory or from router to router, an all-encompassing reproduction right could effectively give the copyright owner the right to control all uses of the digital work. It could also make a network service provider an infringer when there is no practical way for that service provider to know of the infringement or control it.

III.A. The Court Decisions

In a number of cases, copyright owners sued not only people who were clear copyright infringers, through making unauthorized copies, but also the operators of the server computers or network communications used by those infringers. These cases led to an understanding of when a service provider might be liable for a copyright infringement caused by a user, later codified by Congress in the Digital Millennium Copyright Act.

III.A.1. Netcom

Probably the most notable of these cases is Religious Technology Center v. Netcom {FN61: 907 F.Supp. 1361, 37 USPQ2d 1545 (N.D. Cal. 1995)} This decision by the United Stated District Court for the Northern District of California ruled on a request by the plaintiffs, publishing arms of the Scientology religion, for a preliminary injunction against Netcom, a major Internet service provider, and Tom Klemesrud, who ran a small bulletin board service connected to the Internet through Netcom. A former minister and now vocal critic of Scientology, Dennis Erlich, had posted copies of works used by Scientologists in their religion to the Usenet discussion group alt.religion.scientology using Klemesrud’s bulletin board service. These were then relayed to the world through Netcom’s system. Scientology, through its Religious Technology Center and Bridge Publication, claimed that it held copyrights to the material Erlich posted and that its copyrights were being infringed.

When Erlich would not remove his postings, Scientology wrote to Netcom, who had relayed Erlich’s postings to the Internet. It refused to act on Scientology’s request, claiming that would result in disconnecting all of Klemesrud’s users, not just Erlich. (Klemesrud clearly could have blocked Erlich’s postings by terminating his account. Netcom’s argument that it would have to disconnect all of Klemesrud’s users is a stretch, since it could have developed a filter program that blocked the retransmission of any posting by Erlich. But either of those actions would have blocked all of his postings, not just those infringing Scientology’s copyrights.)

Scientology then went to court and received a preliminary injunction against Erlich. The question before the court was whether Netcom should be enjoined because its actions might also infringe Scientology’s copyrights. Netcom countered by asking for summary judgment (in which the judge decides the case on the basis of the law because there are no material facts in dispute) that it was not liable for copyright infringement.

The district court denied both the request for the preliminary injunction and the motions for summary judgment. But in doing so, it set forth a framework for determining whether a service provider has infringed a copyright through the actions of its users. The court noted that the roles of Erlich, who has posted the material, and Netcom, who had clearly made copies of the material as it was being relayed to the Internet, were clearly different. Netcom, unlike some large online service providers, did not create or control the content available to its subscribers. Instead, it provided a connection to content on other machines and stored and forwarded Usenet discussion group postings as required by the protocol for internet news. Netcom took no action regarding particular messages other than to forward them as specified by their originator.

The court first addressed the question of direct infringement by Netcom. Citing the Ninth Circuit decision in MAI v. Peak, {FN62: 991 F.2d 511, 26 USPQ2d 1458 (9th Cir. 1993)} the court noted that the process created fixed copies, either on disk or in RAM, on Netcom’s machines. The question was whether Netcom should be liable for any copyright infringement from those copies fixed on Netcom’s computers. The court found that it was not.

The court is not persuaded by plaintiff’s argument that Netcom is directly liable for the copies that are made and stored on its computer. Where the infringing subscriber is clearly directly liable for the same act, it does not make sense to adopt a rule that could lead to the liability of countless parties whose role in the infringement is nothing more than setting up and operating a system that is necessary for the functioning of the Internet. Such a result is unnecessary as there is already a party directly liable for causing the copies to be made. Plaintiffs occasionally claim that they only seek to hold liable a party that refuses to delete infringing files after they have been warned. However, such liability cannot be based on a theory of direct infringement, where knowledge is irrelevant. The court does not find workable a theory of infringement that would hold the entire Internet liable for activities that cannot reasonably be deterred. Billions of bits of data flow through the Internet and are necessarily stored on servers throughout the network and it is thus practically impossible to screen out infringing bits from noninfringing bits. Because the court cannot see any meaningful distinction (without regard to knowledge) between what Netcom did and what every other Usenet server does, the court finds that Netcom cannot be held liable for direct infringement. {FN63: 907 F.Supp. at 1372-1373, 37 USPQ2d at 1553}

In essence, the court found that the entire Usenet system was like a copy machine being controlled by the user making the posting. The operators of the individual servers are not liable because there are so many of them involved in the infringement, it is difficult for them to police their systems, and there is always a user who can be held liable. But while this is a good public policy decision (and one later made by Congress), it is not clear whether such reasoning is legally sound.

But that did not end the discussion. The court had found that it was likely that Erlich infringed Scientology’s copyrights. (This was at the preliminary injunction state, where the evidentiary requirement is a demonstration that the party asking for the injunction will likely prevail on its infringement claim.) And because Netcom had played a role in Erlich’s infringement, while not a direct infringer, it might be a contributory or vicarious infringer.

Vicarious infringement results when there has been a direct infringement and the vicarious infringer is in a position to control the direct infringer and benefits financially from the infringement. The court found that there was evidence either way regarding whether Netcom could have controlled Erlich’s infringement. On one hand, given the vast number of messages processed by Netcom, it would be clearly difficult for Netcom to selectively block Erlich’s postings. However, Scientology showed that Netcom did have the right to block Erlich under its acceptable use policy had it wanted to, and that it had blocked users over a thousand times in the past.

But had Netcom benefited financially from Erlich’s infringement, the second prong of the test for vicarious infringement? Netcom certainly received fees for connecting its subscriber (Klemesrud) to the Internet, but those fees remained the same whether infringing or noninfringing material passed through Netcom. There was no evidence that Netcom benefited in any way because of the infringing material – it received no new subscribers attributable to the material, nor was it able to charge a higher price because the material was there. That should not be surprising, since Netcom just forwarded the material to thousands of other machines on the Internet, where the subscriber of any service provider that carried alt.religion.scientology could read it without having to subscribe to Netcom or pay the company an access fee.

While the court found that there was clearly not vicarious infringement by Netcom, it was less certain regarding contributory infringement. Contributory infringement results when somebody knows of the direct infringement of another and substantially participates in that infringement, such as inducing, causing, or materially contributing to the infringing conduct. The court found that there was a genuine issue whether Netcom had substantially participated in Erlich’s infringement.

Providing a service that allows for the automatic distribution of all Usenet postings, infringing and noninfringing, goes well beyond renting a premises to an infringer. It is more akin to the radio stations that were found liable for rebroadcasting an infringing broadcast. Netcom allows Erlich’s infringing messages to remain on its system and be further distributed to other Usenet servers worldwide. It does not completely relinquish control over how its system is used, unlike a landlord. Thus, it is fair, assuming Netcom is able to take simple measures to prevent further damage to plaintiffs’ copyrighted works, to hold Netcom liable for contributory infringement where Netcom has knowledge of Erlich’s infringing postings yet continues to aid in the accomplishment of Erlich’s purpose of publicly distributing the postings. {FN64: 907 F.Supp. at 1375, 37 USPQ2d at 1555-1556 (citations omitted)}

As for knowledge of the infringing activity, the court considered two different time spans – before Netcom was notified of the infringement by Scientology and after it had received the notice. It was undisputed that Netcom did not know of the infringement before it received the notice from Scientology. Netcom argued that it did not have sufficient knowledge even after receiving the notice, since Scientology had not included copies of valid copyright registrations along with its notice. It also said that it could not determine whether Erlich’s postings were a fair use of the works and therefore noninfringing.

Since Netcom was given notice of an infringement claim before Erlich had completed his infringing activity, there may be a question of fact as to whether Netcom knew or should have known that such activities were infringing. Given the context of a dispute between a former minister and a church he is criticizing, Netcom may be able to show that its lack of knowledge that Erlich was infringing was reasonable. However, Netcom admits that it did not even look at the postings once given notice and that had it looked at the copyright notice and statements regarding authorship, it would have triggered an investigation into whether there was infringement. These facts are sufficient to raise a question as to Netcom’s knowledge once it received a letter from plaintiffs on December 29, 1994. {FN65: 907 F.Supp. at 1374-1375, 37 USPQ2d at 1555 (citations omitted)}

The holding in the Netcom case didn’t fully address the issues because it was deciding motions on preliminary matters – summary judgment and a preliminary injunction. It never went to a full trial on the merits, and it was never reviewed by an appellate court. But it did make two important points. First, there is no direct infringement if a service provider can’t reasonably determine whether such infringement is taking place on its systems. Second, once a service provider is made aware of the infringement, it may be a contributory or vicarious infringer if it does nothing to stop the infringement. One way to stop the infringement is to remove the material from the system until it can be determined whether it infringes. This is often referred to as a “notice and takedown” procedure.

III.A.2. When a Service Provider Will Be Liable

Sometimes the participation of the service provider does cross the line, and contributory infringement or vicarious infringement is appropriately found. In Sega v. Maphia, {FN66: 948 F.Supp. 923, 41 USPQ2d 1705 (N.D. Cal. 1996)} the defendant, Sherman, the operator of the Maphia bulletin board system, encouraged users to upload Sega games to the bulletin board and provided free downloads to people who had purchased a game copier from him.

The court first addressed the issue of direct infringement, noting that copies of Sega’s games had been made by someone, and also considered contributory or vicarious infringement. After finding that there was direct copyright infringement by the bulletin board users, the court addressed the bulletin board operator’s knowledge of his users’ activities:

The standard for the knowledge requirement is objective, and is satisfied where the defendant knows or has reason to know of the infringing activity. Here, it is undisputed that Sherman had knowledge that his users were copying the games. Sherman admits that users were allowed to upload and download Sega games from his MAPHIA BBS. Moreover, evidence of a screen printout of user uploading and downloading statistics from the MAPHIA BBS shows that Sherman tracked, or at least had the ability to track, user uploads and downloads. Thus, Sega has established that Sherman knew of the infringing conduct by MAPHIA BBS users. {FN67: 948 F.Supp. at 933, 41 USPQ2d at 1712-1713 (citations omitted)}

Finally, the court considered the extent of Sherman’s participation in his users’ activities:

The Ninth Circuit has recently stated that “providing the site and facilities for known infringing activity is sufficient to establish contributory liability,” at least in a swap meet context. In this case, Sherman provided the BBS as a central depository site for the unauthorized copies of games, and allowed subsequent distribution of the games by user downloads. He provided the facilities for copying the games by providing, monitoring, and operating the BBS software, hardware, and phone lines necessary for the users to upload and download games.

However, even under an alternative and higher standard of “substantial participation,” Sherman is liable. Under this standard, Sherman is only liable if he knew of the users’ infringing actions, and yet substantially participated by inducing, causing or materially contributing to the users’ infringing conduct. In this case, Sherman did more than provide the site and facilities for the known infringing conduct. He actively solicited users to upload unauthorized games, and provided a road map on his BBS for easy identification of Sega games available for downloading. Additionally, through the same MAPHIA BBS medium, he offered copiers for sale to facilitate playing the downloaded games. . . . Moreover, Sherman’s business, Parsec Trading, had a policy of providing limited free downloading of games and hereafter selling downloading privileges to customers who had purchased copiers. Thus, Sherman’s role in the copying, including providing facilities, direction, knowledge, encouragement, and seeking profit, amounts to a prima facie case of contributory copyright infringement. {FN68: 948 F.Supp. at 933, 41 USPQ2d at 1713 (citations omitted)}

The court found that Sega had established a case of contributory copyright infringement, and furthermore that the defendant’s defense of fair use did not apply in this case. The court also found that the defendant’s infringement was willful and granted Sega an injunction against further infringement and awarded statutory damages.

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