Sony Music Entertainment v. Cox Communications, Incorporated: US Court of Appeals reverses vicarious liability verdict and remand for a new trial on damages (20 February 2024)

Court docket: https://www.courtlistener.com/docket/63148084/sony-music-entertainment-v-cox-communications-incorporated/

Excerpts:

RUSHING, Circuit Judge:

Defendant Cox Communications sells internet, telephone, and cable television service to 6 million homes and businesses across the United States. Plaintiffs—Sony Music Entertainment and numerous other record companies and music publishers—own some of the most popular copyrighted musical works of our time. Some users of Cox’s internet service infringed Plaintiffs’ copyrights by downloading or distributing songs over the internet without permission. Rather than sue those individuals, Plaintiffs sued Cox, seeking to hold it responsible for its customers’ copyright infringement.

Federal law protects internet service providers from monetary liability for copyright infringement committed by users of their networks, but only if those service providers reasonably implement a policy to terminate repeat infringers in appropriate circumstances. In a prior case, our Court held that Cox had failed to reasonably implement an anti-piracy program and therefore did not qualify for the statutory safe harbor.

This case proceeded to trial on two theories of secondary liability: vicarious and contributory copyright infringement. The jury found Cox liable for both willful contributory and vicarious infringement of 10,017 copyrighted works owned by Plaintiffs and awarded $1 billion in statutory damages. Cox appealed.

We affirm the jury’s finding of willful contributory infringement. But we reverse the vicarious liability verdict and remand for a new trial on damages because Cox did not profit from its subscribers’ acts of infringement, a legal prerequisite for vicarious liability.

the crux of the financial benefit inquiry is whether a causal relationship exists between the infringing activity and a financial benefit to the defendant. If copyright infringement draws customers to the defendant’s service or incentivizes them to pay more for their service, that financial benefit may be profit from infringement. See, e.g., EMI Christian Music Grp., Inc. v. MP3tunes, LLC, 844 F.3d 79, 99 (2d Cir. 2016). But in every case, the financial benefit to the defendant must flow directly from the third party’s acts of infringement to establish vicarious liability. See Grokster, 545 U.S. at 930 & n.9; Nelson-Salabes, 284 F.3d at 513.

To prove vicarious liability, therefore, Sony had to show that Cox profited from its subscribers’ infringing download and distribution of Plaintiffs’ copyrighted songs. It did not.

The district court thought it was enough that Cox repeatedly declined to terminate infringing subscribers’ internet service in order to continue collecting their monthly fees. Evidence showed that, when deciding whether to terminate a subscriber for repeat infringement, Cox considered the subscriber’s monthly payments. See, e.g., J.A. 1499 (“This customer will likely fail again, but let’s give him one more chan[c]e. [H]e pays 317.63 a month.”). To the district court, this demonstrated the requisite connection between the customers’ continued infringement and Cox’s financial gain.

We disagree. The continued payment of monthly fees for internet service, even by repeat infringers, was not a financial benefit flowing directly from the copyright infringement itself. As Cox points out, subscribers paid a flat monthly fee for their internet access no matter what they did online. Indeed, Cox would receive the same monthly fees even if all of its subscribers stopped infringing. Cox’s financial interest in retaining subscriptions to its internet service did not give it a financial interest in its subscribers’ myriad online activities, whether acts of copyright infringement or any other unlawful acts. An internet service provider would necessarily lose money if it canceled subscriptions, but that demonstrates only that the service provider profits directly from the sale of internet access. Vicarious liability, on the other hand, demands proof that the defendant profits directly from the acts of infringement for which it is being held accountable.

Sony responds that, even if we disagree with the district court, the jury heard other evidence of Cox’s direct financial interest in its subscribers’ copyright infringement. But none of Sony’s alternative theories supports vicarious liability here.