CBA Technology and the Law
Forum Committee Update

In an article in the November 1994 issue of The Colorado Lawyer, ¹ this author described the potential liability for software piracy committed by others. Answers to the question of what responsibility an individual has when his or her maintenance company uses pirated software inevitably led to an examination of exposure for copyright infringement in the new on-line environment. This article expands the concepts of the previous article to the emerging medium of on-line services, such as America On Line, and various bulletin board services.

Liability Theories

An electronic bulletin board consists of electronic storage media attached to telephone lines via modems and controlled by a computer. Third parties, or "users", can transfer information over the modem from their own computers to the storage media on the bulletin board. Each bulletin board has hundreds or thousands of subscribers. Information can be transferred either to the user from the host bulletin board or to the host from the user.

Three theories under which liability can be asserted for copyright infringement are direct infringement, contributory infringement and vicarious infringement. Direct infringement is not within the scope of this article. The previous article showed that contributory infringement requires that the alleged infringer have knowledge of the infringement of the third party and that it aid, induce or actively contribute to the infringement.² Vicarious infringement can be sustained when (1) the alleged infringer can exercise control over the direct infringer or infringing activity and (2) the alleged infringer had a direct financial interest in the infringement. ³

The concepts of vicarious and contributory infringement were expanded to the new interactive environment when the U.S. Supreme Court in 1984 confronted the then-new technology of video recording. In Sony Corporation of America v. Universal City Studios, Inc.,⁴ owners of copyrights on television programs sued the manufacturers of home video tape recorders. They alleged that some individuals had used the recorders to record some of the owners' copyrighted works on television, that these individuals had thereby infringed their copyrights and that the recorder manufacturers were vicariously liable for such infringement because they sold these recorders.

However, the Supreme Court held in favor of the manufacturers, overturning the Ninth Circuit Court of Appeals in a five-to-four decision. In doing so, the Court implicitly held that vicarious liability could not be imposed on the manufacturers even if they sold the equipment with constructive knowledge of the fact that their customers might use the equipment to make unauthorized copies of copyrighted material. In addition to finding that there were substantial non-infringing uses for the video recorders, the Court concluded that the sale of home video tape recorders to the general public did not constitute contributory infringement of copyrights on television programs since there was a significant likelihood that substantial numbers of copyright holders who license their works for broadcast on free television would not object to having their broadcasts time-shifted by private viewers.

Further, the copyright owners in Sony were unable to prove that the practice of time-shifting had impaired the commercial value of their copyrights or had created any likelihood of future harm to the potential market for, or the value of, their copyrighted works. It appears that the Court applied an economic analysis to its decision and was unwilling to create liability where the defendant merely provided the means for performing the infringement.

Recent Cases

Recent cases have not been as generous to the defendant. In the 1994 case of Sega Enterprises LTD v. MAPHIA, ⁵ a federal court in California held that the operator of a bulletin board had allowed the unauthorized copying of video games where the games were uploaded to bulletin boards by unknown users and subsequently downloaded by users. In holding that Sega was entitled to a preliminary injunction enjoining the computer bulletin board company and its operator from infringing on Sega's copyrights, the court found that there was a strong likelihood of contributory copyright infringement on the part of the operator.

The court in Sega found contributory infringement based on the fact that the operator was aware of the uploading and downloading of the video games, that the operator specifically solicited the copying of the video games and that he sought placement of the game programs on the on-line bulletin board for downloading purposes. This is consistent with the traditional rule that the defendant have knowledge and control and actively induce infringement.

In 1993, a federal court in Florida found a computer bulletin board operator liable for copyright infringement, even though the operator himself did not upload the material onto the bulletin board and took steps to remove the material once it was brought to his attention. In Playboy Enterprises, Inc. v. Frena, ⁶ the court by implication held that a passive service provider was liable for the users' acts. In finding the bulletin board operator liable for copyright infringement, the court overlooked (perhaps intentionally) the fact that the operator was unaware of the infringement. Under Playboy Enterprises, intent and knowledge are not elements of infringement and, therefore, an innocent infringer is just as liable.

Implications of Playboy Enterprises

The Playboy Enterprises court appears to have expanded the concept of contributory infringement to include all individuals who obtain a financial gain from the acts of another, even if such an individual is unaware of the actual infringement. Therefore, the court would no longer require that the individual must knowingly aid, induce or contribute to the copyright infringement, as the Sega court held.

The idea of holding an individual liable because he or she obtained a financial gain from the acts of another is found in the doctrine of vicarious liability, which stems from the right to supervise the infringer's activities. However, in Playboy Enterprises, the court did not address whether the bulletin board operator had the ability or right to supervise the subscribers' actions.

The Playboy Enterprises court seemed to depart from the traditional rules discussed at the beginning of this article, treating the defendant as if he were a direct infringer. The record demonstrated that the defendant was not involved in inducing, aiding or in any way directly participating in the infringement; in fact, the defendant did not know the infringement was occurring.

Conclusion

In this author's opinion, the rationale of the Sony decision, rather than the Playboy or Sega decisions, should be applied to the unsettled issues involving copyright infringement liability in the on-line environment of dial-in bulletin boards and the Internet. The Internet facilitates a series of communication protocols that allow individuals to communicate by computer. For the analogous reasons that the phone company would not be liable for a user singing a copyrighted song on the phone, bulletin board operators should not be liable for the infringing acts of others. Practitioners should be aware that it will be difficult to apply inconsistent precedent to this newly emerging area of copyright law.

NOTES

1. Berkowitz, "Am I My Brother's Keeper?: Vicarious Liability for Software Piracy", 23 The Colorado Lawyer 2511 (Nov. 1994).

2. Southern Mississippi Planning and Development District, Inc. v. Robertson, 660 F.Supp. 1057 (S.D.Miss. 1986).

3. Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304 (2d Cir. 1963).

4. 464 U.S. 417 (1984).

5. 857 F.Supp. 679 (N.D.Cal. 1994).

6. 839 F.Supp. 1552 (M.D.Fla. 1993).

taken from: The Colorado Lawyer/November 1995/Vol.24, No.11