Class 16 Copyright, Winter, 2010 Third-Party Liability Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago Copyright © Randal C. Picker. All Rights Reserved.

October 21, 2015Copyright © Randal C. Picker2 Third Party Liability Relevant Law n Two Step Process u Establish primary liability u Establish secondary liability of third party n Copyright Act does not explicitly render anyone liable for infringements committed by another u Contrast to Patent Act, which does u Common Law in the Copyright Context

October 21, 2015Copyright © Randal C. Picker3 Evaluating Different Uses n Time Shifting u Private home copying: watch and re-record n Librarying u Private home copying for repeated viewing n Copying Business u Copy off the air and rent/sell tapes for home consumption

October 21, 2015Copyright © Randal C. Picker4 Consent to Use n How should we evaluate consent to use in this case? u Mr. Rogers: “You are an important person just the way you are. You can make healthy decisions.”

October 21, 2015Copyright © Randal C. Picker5 Evaluating Fair Use n Doing the four factors: u 1. The purpose and character, including whether the use is commercial u 2. Nature of the copyrighted work u 3. Amount of the work used in relation to the copyrighted work as a whole u 4. The effect on the potential market for or value of the copyrighted work

October 21, 2015Copyright © Randal C. Picker6 Evaluating Fair Use n Across the Three Cases u Factors 2 and 3 will be unchanging u 1 and 4 may change from case to case n Understanding Commercial Use u An effort to make money vs. a transaction that substitutes for a commercial transaction

October 21, 2015Copyright © Randal C. Picker7 Evaluating Fair Use n The Potential Market Value of the Copyrighted Work u The Broadcast TV Market w Fast-forwarding over commercials? w Repeats and syndication after first broadcast u The Video Rental and Sales Market w Doesn’t copying substitute directly for this market?

October 21, 2015Copyright © Randal C. Picker8 Allocating Liability n The Role of Third-Party Liability u When should we add third-party liability to first-party liability? u Does that depend on how we enforce first- party liability?

October 21, 2015Copyright © Randal C. Picker9 Two Theories n Vicarious Liability u When one party has control over another and also enjoys a direct financial benefit from infringement u No knowledge required. u Flea market (control: kick them out; benefit: patronage)

October 21, 2015Copyright © Randal C. Picker10 Contributory Copyright Infringement n Statement of Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159, 1162 (2d Cir. 1971): u “[O]ne who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another, may be held liable as a ‘contributory’ infringer.”

October 21, 2015Copyright © Randal C. Picker11 35 USC 271 n (a) u Except as otherwise provided in this title, whoever without authority makes, uses or sells any patented invention, within the United States during the term of the patent therefor, infringes the patent.

October 21, 2015Copyright © Randal C. Picker12 35 USC 271 n (b) u Whoever actively induces infringement of a patent shall be liable as an infringer.

October 21, 2015Copyright © Randal C. Picker13 35 USC 271 n (c) u Whoever sells a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.

The Sony Test n Says the Court u “Accordingly, the sale of copying equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.” October 21, 2015Copyright © Randal C. Picker14

October 21, 2015Copyright © Randal C. Picker15 In Sony: Two Key Issues n Third party liability, either vicarious or contributory u Premised on underlying violation by consumers n No underlying violation, as consumers engaged in fair use

October 21, 2015Copyright © Randal C. Picker16 Design Incentives n Hypo u Suppose Sony could have spent $10 to eliminate all infringing uses of the VCR n Under Sony, would it have an incentive to do so?

October 21, 2015Copyright © Randal C. Picker17 The Design of the VCR n Consider the design choices for the VCR: u Recorder rather than just pre-recorded tape player u Fast forward button u No capability for recognizing “jamming” signals to prevent recording n Should Sony have been liable for these design choices?

October 21, 2015Copyright © Randal C. Picker18 Design Incentives n Hypo u Suppose product generates $10 million in beneficial noninfringing uses and $1000 in infringing uses u Suppose producer could spend $5 to eliminate $1000 in infringing uses n How would we revise Sony to address this?

October 21, 2015Copyright © Randal C. Picker19 Use and Design n Weak Relationship between Use-Based Tests and Design Incentives u Sony: Substantial noninfringing uses w So long as you have those, extent of infringing uses irrelevant w No incentive to redesign to eliminate infringing uses

October 21, 2015Copyright © Randal C. Picker20 Use and Design u Primary Use Test w Suppose no third-party copyright liability so long as primary use of product is noninfringing w What incentives for design to eliminate infringing uses? Only at margin

October 21, 2015Copyright © Randal C. Picker21 Use and Design n Bottom Line? u Address design duties separately from use

October 21, 2015Copyright © Randal C. Picker22 Limits of the Decision n Justice Blackmun’s Second Footnote u “This case involves on the home recording for home use of televisions broadcast free over the airwaves. No issue is raised concerning cable or pay television, or the sharing or trading of tapes.” n What turns on the fact the broadcasts are free?

October 21, 2015Copyright © Randal C. Picker23 Implementing Consent n Should we implement a consent regime u for copying? u for redistribution? n Blackmun Again u “Sony may be able, for example, to build a VTR that enables broadcasters to scramble the signal of individual programs and ‘jam’ the unauthorized recording of them”

October 21, 2015Copyright © Randal C. Picker24 Grokster in the Sup Ct n Two Cuts u Grokster loses 9-0 on an inducement theory u We get a decision on Sony w Souter, Thomas & Scalia: 9 th Cir wrong on Sony and no more w Ginsberg, The Chief Justice & Kennedy: Liable under Sony w Breyer, Stevens & O’Connor: Not liable under Sony

October 21, 2015Copyright © Randal C. Picker25 Consumer Electronics Ass’n “The Betamax standard is the foundation of America’s explosive technological growth over the past twenty years. Betamax has made possible an unprecedented transformation in the way that Americans express themselves, communicate, create and experience the world. For two decades, Betamax has brought about enormous new revenues for innovators and the content community, contributed billions of dollars to the U.S. economy, and generated enormous benefits to society.”

Grokster n Key Questions u How does Grokster relate to Sony? u What does it take to avoid liability under Grokster? October 21, 2015Copyright © Randal C. Picker26

October 21, 2015Copyright © Randal C. Picker27 Three Pieces of Evidence n 1. Satisfying known demand for copyright infringement u Trying to get Napster users n 2. Business model driven by advertising u Turns on infringing high-volume use

October 21, 2015Copyright © Randal C. Picker28 Three Pieces of Evidence n 3. Didn’t try to filter out infringing uses u “Underscores … intentional facilitation of their users’ infringement” u But See Footnote 12 w “Of course, in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses. Such a holding would tread too close to the Sony safe harbor.”