[x-pubpol] Megaupload indictment leaves everyone guessing

[Joly MacFie]

http://www.dailyjournal.com/prmo/prmomain.cfm?location=LA&eid=921273&pcode=12031218

By Tony Falzone and Jennifer Stisa Granick
The first part of this article outlined the mechanics of the
Megaupload website, and the novel questions of criminal inducement on
which the government's indictment is premised. Here, we explore two
more extensions of existing law on which the indictment is based, and
the impact this prosecution is likely to have on Internet innovators
and users alike.

In addition to pushing the boundaries of criminal inducement, the
government has put itself in the middle of an ongoing debate about the
scope of the Digital Millennium Copyright Act (DMCA) safe harbor
contained in 17 U.S.C. Section 512(c). Section 512 protects online
service providers from liability based on material placed on the site
at the direction of a user, so long as the service has no actual or
"red flag" knowledge of infringement, does not receive a financial
benefit directly attributable to infringement, terminates repeat
offenders, registers an agent for receipt of complaints, and obeys a
specified notice and take down procedure. Two recent cases have asked
whether the operator's general knowledge that infringing activity is
occurring on a service is sufficient to eliminate safe harbor
protection. Both said no.

In Viacom v. YouTube, Viacom International Inc. presented its one
billion dollar claim that YouTube Inc., now owned by Google, welcomed
copyright-infringing material on its website, that the popularity of
these works enhanced defendants' income from advertisements and that
such infringing works were rampant, numbering in the "tens of
thousands" just of Viacom's property alone. While the claims parallel
the allegations of the Megaupload indictment, the Southern District of
New York dismissed the case. It held that the company's general
knowledge that the service hosted copyrighted material, even a lot of
copyrighted material, did not defeat DMCA safe harbor protection.
Rather, the company must have actual or red flag knowledge that
particular clips are infringing, and is not otherwise required to
review or police uploads. The case is currently on appeal to the 2nd
U.S. Circuit Court of Appeals. Viacom International Inc. v. YouTube
Inc., 10-3270 (filed Aug. 11, 2010).

The 9th U.S. Circuit Court of Appeals adopted similar reasoning in UMG
v. Shelter Capital, 2011 DJDAR 18112 (Dec. 12, 2011). There, copyright
owners argued that because the video site Veoh offered access to
thousands of music videos without obtaining music licenses, and
triggered contextual advertising based on the names of artists whose
videos were on the site but with whom it had no license, it must have
known that the works on its site were infringing, therefore
disqualifying it from the safe harbor.

The 9th Circuit rejected this view, holding that "merely hosting a
category of copyrightable content, such as music videos, with the
general knowledge that one's services could be used to share
infringing material, is insufficient to meet the actual knowledge
requirement." The available information must be enough by itself to
put the service on notice of specific infringing activity.

The government's indictment alleges a wide array of communications
that suggest Megaupload and its principals knew there was infringing
content available on the site, and even sought it out. But UMG and
Viacom had both done likewise in their cases, and that evidence was
not enough to show actual or "red flag" knowledge necessary to
eliminate safe harbor protection.

Similarly, in both the UMG and YouTube cases, the copyright owners
claimed that the sites obtained an impermissible financial benefit
from infringement because they sold advertising against unauthorized
content. Again, neither court agreed. As a result, Megaupload's
advertising practices should not eliminate its safe harbor protection,
either.

Ultimately, whether Megaupload meets the standards required for safe
harbor protection may be less important than whether it believed it
did. Criminal infringement requires proof of willfulness and the view
of the majority of federal courts, including the 4th U.S. Circuit
Court of Appeals where this case is pending, is that "willfulness"
means a desire to violate a known legal duty. See RSM v. Herbert, 466
F.3d 316 (4th Cir. 2006). Did Mega register an agent? Did Mega have a
repeat infringer policy? These are all interesting civil questions.
But from a criminal law perspective, if Megaupload and its principals
believed they met the requirements of the Safe Harbor, then they were
not willfully disregarding the law, and cannot be held criminally
liable.

The indictment identifies a number of steps Megaupload took that
appear designed to reduce rather than induce piracy. At one time, it
included a search feature that permitted users to browse for specific
files (e.g. search for "Seinfeld" or "Game of Thrones"), but removed
that feature. It provided copyright owners with the ability to remove
infringing content directly, without submitting a DMCA notice. If
true, Megaupload went beyond what is required by the DMCA to obtain a
safe harbor from civil suits for monetary harm from infringement. Yet,
the government cites removal of the search feature as an effort to
disguise the fact that pirated material was on the site, and the
refusal to give copyright owners unlimited takedown rights as further
evidence of bad intent. This skepticism creates a damned-if-you-do,
damned-if-you-don't conundrum for file sharing sites.

The boundaries of civil liability for contributing to, or inducing,
infringement by other people have grown increasingly murky in the face
of technological change. Congress designed the DMCA safe harbor to
eliminate some of that uncertainty for companies that provide
platforms for users to share content and thereby incentivize
innovation and investment. An immense amount time and money has been
expended litigating the limits of those safe harbors. Until now, the
risk of guessing wrong has always been civil liability, not jail time.

This indictment ups the ante, and leaves the DMCA safe harbor looking
a lot less safe. A service with substantial non-infringing uses may
nevertheless be labeled a criminal enterprise based on customer
misuse. New services must worry that email messages will be cited as
evidence of intent to induce. Efforts to comply with the DMCA safe
harbor may be ignored and programs to combat piracy outside of what
the law requires may be critiqued for not having gone far enough.
Entrepreneurs and funders are not going to invest their time and money
creating new platforms for sharing information if the rules are murky,
and guessing wrong means financial ruin and jail time.

Users have still other reasons to worry. Those who use a platform for
perfectly legitimate purposes may nonetheless see their data seized by
the government (or destroyed forever) based on the unknown conduct of
other users. And once data is seized, users are left to wonder what
the government will do with it. The privacy rules applicable to seized
information are unknown. Searching a computer can expose evidence of
unrelated crimes as well as embarrassing private information. Once a
warrant is executed and returned, no statutory rule regulates the
timing of subsequent electronic examination of that data. Discovered
materials may be admissible in court under the plain view doctrine, or
under the theory that the user has no expectation of privacy in data
she stores with third parties.

Some judges have imposed limits on how computers are searched to try
to ensure that investigations involving such troves of data will be
conducted as narrowly and with as much respect for non-suspects as
possible, particularly after the 9th Circuit advised the safeguard in
its ruling in United States v. Comprehensive Drug Testing, 545 F.3rd
1106 (2008). But this practice is neither required nor common.

In sum, the Megaupload indictment raises the stakes while pushing the
boundaries of secondary copyright liability beyond current civil law,
which is already muddy and unsettled. Every innovator and future
customer has to guess whether they might be targeted next
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