October 21, 2019 – A U.S. Magistrate Judge has issued a decision in Warner Bros. Records Inc. v. Charter Communications, Inc., which recommends Charter’s motion to dismiss the record company Plaintiffs’ claims for vicarious infringement be denied.[1]

Charter will surely object to the Magistrate’s decision. If it holds up, however, it would be seen as a major victory for the music industry and other digital content owners that are targeting Internet service providers with copyright infringement lawsuits.

The group of major recording company Plaintiffs (i.e., Universal, Warner, Sony) filed a copyright infringement lawsuit against Charter in March 2019. They allege Charter, through the provision of high-speed broadband service, “has knowingly contributed to, and reaped substantial profits from, massive copyright infringement committed by thousands of its subscribers, causing great harm to Plaintiffs, their recording artists and songwriters, and others whose livelihoods depend upon the lawful acquisition of music.”[2]

The Plaintiffs allege Charter is liable as (1) “a contributory copyright infringer,” and (2) “a vicarious copyright infringer” for the direct infringements of its subscribers. In response, Charter filed a motion to dismiss the Plaintiff’s claims for vicarious liability, likely expecting an easy “win,” based on precedent from the Grande case.[3]

The legal requirements for proving vicarious liability for copyright infringement are different than those that are required for contributory infringement. As explained by the Magistrate, vicarious liability attaches when the defendant “has the right and ability to supervise the infringing activity” and “has a direct financial interest in such activities.”[4] Additionally, a defendant may be vicariously liable even when he or she is not aware of the infringing activity, but, like other claims for secondary liability, there must be a showing that someone directly infringed a copyright for vicarious liability to attach.[5]

Charter, in its motion to dismiss, argued the Plaintiffs failed to allege (1) a causal connection between the alleged infringement and its profits and, thus, failed to show a direct financial interest in any infringing activities; and (2) that Charter maintained the right and ability to control infringement by its subscribers.

I’ll skip the arguments made by the Plaintiffs and Charter and the right and ability to control infringement question, and go straight to the Magistrate’s analysis of the direct financial benefit element.

Magistrate Says Yes – Charter Has A Direct Financial Interest In The Alleged Infringing Activity

First, the Magistrate reviewed Perfect 10, Inc. v. Giganews, Inc., the case on which Charter primarily relies, and which “no case in the Tenth Circuit has cited.” Perfect 10 , according to the Magistrate, confirmed that a “financial benefit exists where the availability of infringing material acts as a draw for customers” and “the size of the draw relative to a defendant’s overall business is immaterial.”[6] The Perfect 10 court concluded that the essential question is whether there is a causal relationship between the infringing activity and any financial benefit a defendant reaps.

The Magistrate then ran through Ellison v. Robertson, a case that has been cited by the Tenth Circuit, to review the difference between a defendant’s receipt of financial benefits from infringement of a plaintiff’s copyrighted works and a defendant’s receipt of benefits from infringement in general. However, the Magistrate noted that while the Tenth Circuit has cited Ellison and Fonovisa[7] in setting forth the elements for secondary copyright infringement the court has not yet engaged in an analysis of the direct financial benefit prong of such claim. Because of this, the Magistrate adopted the following reasoning from the District of Kansas’ opinion in Tomelleri v. Zazzle, Inc., which cited the Ninth Circuit’s opinions in Ellison and Fonovisa:

The financial benefit may be established by showing that users are attracted to a defendant’s product because it enables infringement and that use of the product for infringement financially benefits the defendant. It exists where the availability of infringing material acts as a draw for customers.[8]

The Magistrate concluded that the record company Plaintiffs have plausibly alleged the infringement of their musical compositions and sound recordings is a “draw” to Charter’s broadband subscribers.

Ok, everyone knows that you can use the Internet to illegally download music and videos. Is that what is really drawing people to use the Internet, though? No. People want the Internet because of all the many things it facilitates – email, shopping, news, research, education, entertainment, etc., and the list goes on. This is likely true even for the people that regularly pirate music. Let me frame the question another way. Is the ability to infringe what is really drawing people to Charter’s broadband service? I doubt it. Most people probably sign up with Charter because it’s the only game in town. Meaning, Charter is the only option.

Now here is the part of the decision that will not sit well with ISPs, legal scholars, copyright experts, and others interested in copyright issues. The following allegations, the Magistrate concluded, are sufficient to demonstrate a causal relationship between the infringing activity alleged in the case and financial benefit received by Charter:

Charter’s broadband subscribers are motivated by advertisements promoting Charter’s high-speed broadband service that enables subscribers to download 8 songs in 3 seconds;

Charter’s broadband subscribers have used such service to pirate Plaintiffs’ works, as evidenced by Plaintiffs’ identification between 2012 and 2015 of hundreds of thousands of instances in which Charter’s subscribers used its service to distribute Plaintiffs’ songs illegally;

Despite notification of its broadband subscribers’ infringement, Charter did nothing to stop it;

Once Charter’s broadband subscribers realized that Charter did not intend to stop or control the infringement, they purchased more bandwidth and continued using Charter’s broadband service to infringe Plaintiffs’ copyrights; and

The greater the bandwidth used for pirating content, the more money Charter made.[9]

The Magistrate Distinguishes UMG Recordings, Inc. v. Grande Communications Networks, LLC

In the final part of the analysis of whether Charter has direct financial interest in the alleged infringing activity, the Magistrate reviewed and distinguished the decision in UMG Recordings, Inc. v. Grande Communications Networks, LLC, a very similar and recent copyright infringement case.[10] There, the court granted a motion to dismiss a claim for vicarious infringement.

The Magistrate distinguished UMG v. Grande by focusing on policing infringing subscribers. In that case, the Magistrate explained, the court found the allegation that the availability of plaintiff’s music acted as a powerful draw for users of defendant’s broadband service was not sufficient and noted, “there are no allegations that defendant’s actions in failing to adequately police their infringing subscribers is a draw to subscribers to purchase its services, so that they can then use those services to infringe on plaintiff’s and others’ copyrights.”[11]

That is not what is going on in this case, the Magistrate determined. Here, the Magistrate explained, the Plaintiffs do, in fact, allege that Charter’s failure to stop or take other action in response to notices of infringement is a draw to current and prospective subscribers to purchase and use Charter’s internet service to “pirate” Plaintiffs’ copyrighted works.

In the end, the Magistrate recommends that the District Court deny Charter’s motion to dismiss the Plaintiffs’ vicarious liability claim based on a failure to state the direct financial benefit element of the claim.

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[1] Warner Bros. Records Inc., et al., v. Charter Communications, Inc., Recommendation Of United States Magistrate Judge, C.A. No. 19-cv-00874-RBJ-MEH, U.S. District Court, District of Colorado (Oct. 21, 2019) (Magistrate Decision).

[2] Warner Bros. Records Inc., et al., v. Charter Communications, Inc., Complaint And Jury Demand, C.A. No. 19-cv-00874-RBJ-MEH, U.S. District Court, District of Colorado, ¶ 2 (Mar. 22, 2019) (Complaint).

[3] UMG Recordings, Inc. v. Grande Communications Networks, LLC, 2018 WL 1096871 (W.D. Tex. Feb. 28, 2018) (Magistrate’s Report and Recommendation).

[4] Magistrate Decision at p. 8.

[5] Id.

[6] Magistrate Decision at p. 10 (citing Perfect 10, Inc., 847 F.3d at 673).

[7] Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996).

[8] Tomelleri v. Zazzle, Inc., No. 13-CV-02576-EFM-TJJ, 2015 WL 8375083, at *15 (D. Kan. Dec. 9, 2015).

[9] Magistrate Decision at p. 11-12.

[10] UMG Recordings, Inc. v. Grande Communications Networks, LLC, No. A-17-CA-365-LY, 2018 WL 1096871 (W.D. Tex. Feb. 28, 2018), report and recommendation adopted by 2018 WL 1905124 (Mar. 28, 2018).

[11] Magistrate Decision at p. 12.