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According to this Nov. 21, 1995 U.S. district court order, an online service provider can be held liable for alleged copyright infringement by a subscriber. The Church Scientology's Religious Technology Center, sued internet service provider Netcom On-Line Communciations Services over the posting of allegedly confidential Church of Scientology documents on the internet.
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
RELIGIOUS TECHNOLOGY CENTER, a California non-profit
corporation; and BRIDGE PUBLICATIONS, INC., a California
non-profit corporation, Plaintiffs,
v.
NETCOM ON-LINE COMMUNICATION SERVICES, INC., a
Delaware corporation; DENNIS ERLICH, an individual; and TOM
KLEMESRUD, an individual, dba CLEARWOOD DATA
SERVICES, Defendants.
NO. C-95-20091 RMW
ORDER DENYING DEFENDANT NETCOM'S MOTION FOR
SUMMARY JUDGMENT; DENYING DEFENDANT
KLEMESRUD'S MOTION FOR JUDGMENT ON THE
PLEADINGS; AND DENYING PLAINTIFFS' MOTION FOR
PRELIMINARY INJUNCTION AGAINST NETCOM AND
KLEMESRUD
This case concerns an issue of first impression regarding
intellectual property rights in cyberspace.[n1] Specifically, this
order addresses whether the operator of a computer bulletin board
service ("BBS"), and the large Internet[n2] access provider that
allows that BBS to reach the Internet, should be liable for
copyright infringement committed by a subscriber of the BBS.
Plaintiffs Religious Technology Center ("RTC") and Bridge
Publications, Inc. ("BPI") hold copyrights in the unpublished and
published works of L. Ron Hubbard, the late founder of the Church
of Scientology ("the Church"). Defendant Dennis Erlich
("Erlich")[n3] is a former minister of Scientology turned vocal
critic of the Church, whose pulpit is now the Usenet
newsgroup[n4] alt.religion.scientology ("a.r.s."), an on-line forum
for discussion and criticism of Scientology. Plaintiffs maintain that
Erlich infringed their copyrights when he posted portions of their
works on a.r.s. Erlich gained his access to the Internet through
defendant Thomas Klemesrud's ("Klemesrud's") BBS
"support.com." Klemesrud is the operator of the BBS, which is run
out of his home and has approximately 500 paying users.
Klemesrud's BBS is not directly linked to the Internet, but gains its
connection through the facilities of defendant Netcom On-Line
Communications, Inc. ("Netcom"), one of the largest providers of
Internet access in the United States.
After failing to convince Erlich to stop his postings, plaintiffs
contacted defendants Klemesrud and Netcom. Klemesrud
responded to plaintiffs' demands that Erlich be kept off his system
by asking plaintiffs to prove that they owned the copyrights to the
works posted by Erlich. However, plaintiffs refused Klemesrud's
request as unreasonable. Netcom similarly refused plaintiffs'
request that Erlich not be allowed to gain access to the Internet
through its system. Netcom contended that it would be impossible
to prescreen Erlich's postings and that to kick Erlich off the
Internet meant kicking off the hundreds of users of Klemesrud's
BBS. Consequently, plaintiffs named Klemesrud and Netcom in
their suit against Erlich, although only on the copyright
infringement claims.[n5]
On June 23, 1995, this court heard the parties' arguments on eight
motions, three of which relate to Netcom and Klemesrud and are
discussed in this order: (1) Netcom's motion for summary
judgment; (2) Klemesrud's motion for judgment on the
pleadings;[n6] and (3) plaintiffs' motion for a preliminary
injunction against Netcom and Klemesrud. For the reasons set
forth below, the court grants in part and denies in part Netcom's
motion for summary judgment and Klemesrud's motion for
judgment on the pleadings and denies plaintiffs' motion for a
preliminary injunction.
I. NETCOM'S MOTION FOR SUMMARY JUDGMENT OF
NONINFRINGEMENT
A. Summary Judgment Standards
Because the court is looking beyond the pleadings in examining
this motion, it will be treated as a motion for summary judgment
rather than a motion to dismiss. Grove v. Mead School District,
753 F.2d 1528, 1532(9thCir. 1985). Summary judgment is proper
when "the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law." Fed. R.
Civ. P. 56(c). There is a "genuine" issue of material fact only when
there is sufficient evidence such that a reasonable juror could find
for the party opposing the motion. Anderson v. Liberty Lobby.
Inc., 477 U.S. 242, 251-52 (1986). Entry of summary judgment is
mandated against a party if, after adequate time for discovery and
upon motion, the party fails to make a showing sufficient to
establish the existence of an element essential to that party's case,
and on which that party will bear the burden of proof at trial.
Celotex Corp. v. Catrett~ 477 U.S. 317, 322 (1986). The court,
however, must draw all justifiable inferences in favor of the
nonmoving parties, including questions of credibility and of the
weight to be accorded particular evidence. Masson v. New Yorker
Magazine. Inc.. 501 U.S. 496, 520 (1991).
B. Copyright Infringement
To establish a claim of copyright infringement, a plaintiff must
demonstrate (1) ownership of a valid copyright and (2) "copying"'
of protectable expression by the defendant. Baxter v. MCA. Inc.,
812 F.2d 421, 423 (9th Cir.), cert. denied. 484 U.S. 954 (1987).
Infringement occurs when a defendant violates one of the exclusive
rights of the copyright holder. 17 U.S.C. Section 501(a). These
rights include the right to reproduce the copyrighted work, the right
to prepare derivative works, the right to distribute copies to the
public, and the right to publicly display the work. 17 U.S.C.
Sections 106(1)-(3) & (5). The court has already determined that
plaintiffs have established that they own the copyrights to all of the
Exhibit A and B works, except item 4 of Exhibit A.[n8] The court
also found plaintiffs likely to succeed on their claim that defendant
Erlich copied the Exhibit A and B works and was not entitled to a
fair use defense. Plaintiffs argue that, although Netcom was not
itself the source of any of the infringing materials on its system, it
nonetheless should be liable for infringement, either directly,
contributorily, or vicariously.9 Netcom disputes these theories of
infringement and further argues that it is entitled to its own fair use
defense.
1. Direct Infringement
Infringement consists of the unauthorized exercise of one of the
exclusive rights of the copyright holder delineated in section 106.
17 U.S.C. Section 501. Direct infringement does not require intent
or any particular state of mind,'ø although willfulness is relevant to
the award of statutory damages. 17 U.S.C. Section 504(c).
Many of the facts pertaining to this motion are undisputed. The
court will address the relevant facts to determine whether a theory
of direct infringement can be supported based on Netcom's alleged
reproduction of plaintiffs' works. The court will look at one
controlling Ninth Circuit decision addressing copying in the
context of computers and two district court opinions addressing the
liability of BBS operators for the infringing activities of
subscribers. The court will additionally examine whether Netcom
is liable for infringing plaintiffs' exclusive rights to publicly
distribute and display their works.
a. Undisputed Facts
The parties do not dispute the basic processes that occur when
Erlich posts his allegedly infringing messages to a.r.s. Erlich
connects to Klemesrud's BBS using a telephone and a modem.
Erlich then transmits his messages to Klemesrud's computer, where
they are automatically briefly stored. According to a prearranged
pattern established by Netcom's software, Erlich's initial act of
posting a message to the Usenet results in the automatic copying of
Erlich's message from Klemesrud's computer onto Netcom's
computer and onto other computers on the Usenet. In order to ease
transmission and for the convenience of Usenet users, Usenet
servers maintain postings from newsgroups for a short period of
time eleven days for Netcom's system and three days for
Klemesrud's system. Once on Netcom's computers, messages are
available to Netcom's customers and Usenet neighbors, who may
then download the messages to their own computers. Netcom's
local server makes available its postings to a group of Usenet
servers, which do the same for other servers until all Usenet sites
worldwide have obtained access to the postings, which takes a
matter of hours. Francis Decl. Paragraph 5.
Unlike some other large on-line service providers, such as
CompuServe, America Online, and Prodigy, Netcom does not
create or control the content of the information available to its
subscribers. It also does not monitor messages as they are posted. It
has, however, suspended the accounts of subscribers who violated
its terms and conditions, such as where they had commercial
software in their posted files. Netcom admits that, although not
currently configured to do this, it may be possible to reprogram its
system to screen postings containing particular words or coming
from particular individuals. Netcom, however, took no action after
it was told by plaintiffs that Erlich had posted messages through
Netcom's system that violated plaintiffs' copyrights, instead
claiming that it could not shut out Erlich without shutting out all of
the users of Klemesrud's BBS.
b. Creation of Fixed Copies
The Ninth Circuit addressed the question of what constitutes
infringement in the context of storage of digital information in a
computer's random access memory ("RAM"). MAI Systems Corp,
v. Peak Computer, Inc.., 991 F.2d 511, 518 (9th Cir. 1993). In Mai,
the Ninth Circuit upheld a Ending of copyright infringement where
a repair person. who was not authorized to use the computer
owner's licensed operating system software, turned on the
computer, thus loading the operating system into RAM for long
enough to check an "error log." Id at 518-19. Copyright protection
subsists in original works of authorship "fixed in any tangible
medium of expression, now known or later developed, from which
they can be perceived, reproduced, or otherwise communicated,
either directly or with the aid of a machine or device." 17 U.S.C.
Section 102 (emphasis added). A work is "fixed" when its
"embodiment in a copy perceived, reproduced, or otherwise
communicated for a period of more than transitory duration." Id
Section 101. MAI established that the loading of data from a
storage device into RAM constitutes copying because that data
stays in RAM long enough for it to be perceived. MAI Systems,
991 F.2d at518.
In the present case, there is no question after "that "copies" were
created, as Erlich's act of sending a message to a.r.s. caused
reproductions of portions of plaintiffs' works on both Klemesrud's
and Netcom's storage devices. Even though the messages remained
on their systems for at most eleven days, they were sufficiently
"fixed" to constitute recognizable copies under the Copyright Act.
See Information Infrastructure Task Force, Intellectual Property
and the National Information Infrastructure: The Report of the
Working Group on Intellectual Property Rights 66 (1995) ("IITF
Report").
c. Is Netcom Directly Liable for Making the Copies?
Accepting that copies were made, Netcom argues that Erlich, and
not Netcom, is directly liable for the copying. MAI did not address
the question raised in this case: whether possessors of computers
are liable for incidental copies automatically made on their
computers using their software as part of a process initiated by a
third party. Netcom correctly distinguishes MAI on the ground that
Netcom did not take any affirmative action that directly resulted in
copying plaintiffs' works other than by installing and maintaining a
system whereby software automatically forwards messages
received from subscribers onto the Usenet, and temporarily stores
copies on its system. Netcom's actions, to the extent that they
created a copy of plaintiffs' works, were necessary to having a
working system for transmitting Usenet postings to and from the
Internet. Unlike the defendants in MAI, neither Netcom nor
Klemesrud initiated the copying. The defendants in MAI turned on
their customers' computers thereby creating temporary copies of
the operating system, whereas Netcom' s and Klemesrud's systems
can operate without any human intervention. Thus, unlike MAI,
the mere fact that Netcom's system incidentally makes temporary
copies of plaintiffs' works does not mean
Netcom has caused the copying.[n11] The court believes that
Netcom's act of designing or implementing a system that
automatically and uniformly creates temporary copies of all data
sent through it is not unlike that of the owner of a copying machine
who lets the public make copies with it.[n12] Although some of the
people using the machine may directly infringe copyrights, courts
analyze the machine owner's liability under the rubric of
contributory infringement, not direct infringement. See. e.g., RCA
Records v. All-Fast System, Inc., 594 F. Supp. 335 (S.D.N.Y.
1984); 3 Melville B. Nimmer & David Nimmer, NIMMER ON
COPYRIGHT Section 12.04[A][2][b], at 12-78 to -79 (1995)
(''NIMMER ON COPYRIGHT"); Elkin-Koren, supra, at 363
(arguing that "contributory infringement is more appropriate for
dealing with BBS liability, first, because it focuses attention on the
BBS-users relationship and the way imposing liability on BBS
operators may shape this relationship, and second because it better
addresses the complexity of the relationship between BBS
operators and subscribers"). Plaintiffs' theory would create many
separate acts of infringement and, carried to its natural extreme,
would lead to unreasonable liability. It is not difficult to conclude
that Erlich infringes by copying a protected work onto his
computer and by posting a message to a newsgroup. However,
plaintiffs' theory further implicates a Usenet server that carries
Erlich's message to other servers regardless of whether that server
acts without any human intervention beyond the initial setting up
of the system. It would also result in liability for every single
Usenet server in the worldwide link of computers transmitting
Erlich's message to every other computer. These parties, who are
liable under plaintiffs' theory, do no more than operate or
implement a system that is essential if Usenet messages are to be
widely distributed. There is no need to construe the Act to make all
of these parties infringers. Although copyright is a strict liability
statute, there should still be some element of volition or causation
which is lacking where a defendant's system is merely used to
create a copy by a third party.
Plaintiffs point out that the infringing copies resided for eleven
days on Netcom's computer and were sent out from it onto the
"Information Superhighway." However, under plaintiffs' theory,
any storage of a copy that occurs in the process of sending a
message to the Usenet is an infringement. While it is possible that
less "damage" would have been done if Netcom had heeded
plaintiffs' warnings and acted to prevent Erlich's message from
being forwarded,[n13] this is not relevant to its direct liability for
copying. The same argument is true of Klemesrud and any Usenet
server. Whether a defendant makes a direct copy that constitutes
infringement cannot depend on whether it received a warning to
delete the message. See D.C. Comics. Inc. v. Mini Gift, 912 F.2d
29, 35 (2d Cir. 1990). This distinction may be relevant to
contributory infringement, however, where knowledge is an
element. See infra part I.B.2.a. The court will now consider two
district court opinions that have addressed the liability of BBS
operators for infringing files uploaded by subscribers.
d. Playboy Case
Playboy Enterprises. Inc. v. Frena involved a suit against the
operator of a small BBS whose system contained files of erotic
pictures. 839 F. Supp. 1552, 1534 (M.D. Fla 1993). A subscriber of
the defendant's BBS had uploaded files containing digitized
pictures copied from the plaintiff's copyrighted magazine, which
files remained on the BBS for other subscribers to download. Id.
The court did not conclude, as plaintiffs suggest in this case, that
the BBS is itself liable for the unauthorized reproduction of
plaintiffs' work; instead, the court concluded that the BBS operator
was liable for violating the plaintiff's right to publicly distribute
and display copies of its work. Id at 1556-57.
In support of their argument that Netcom is directly liable for
copying plaintiffs' works, plaintiffs cite to the court's conclusion
that "[t]here is no dispute that [the BBS operator] supplied a
product containing unauthorized copies of a copyrighted work. It
does not matter that [the BBS operator] claims he did not make the
copies [him]self." D at 1556. It is clear from the context of this
discussion[n14] that the Playboy court was looking only at the
exclusive right to distribute copies to the public, where liability
exists regardless of whether the defendant makes copies. Here,
however, plaintiffs do not argue that Netcom is liable for its public
distribution of copies. Instead, they claim that Netcom is liable
because its computers in fact made copies. Therefore, the above-
quoted language has no bearing on the issue of direct liability for
unauthorized reproductions. Notwithstanding Playboy's holding
that a BBS operator may be directly liable for distributing or
displaying to the public copies of protected works,[n15] this court
holds that the storage on a defendant's system of infringing copies
and retransmission to other servers is not a direct infringement by
the BBS operator of the exclusive right to reproduce the work
where such copies are uploaded by an infringing user. Playboy
does not hold otherwise.[n16]
e. Sega Case
A court in this district addressed the issue of whether a BBS
operator is liable for copyright infringement where it solicited
subscribers to upload files containing copyrighted materials to the
BBS that were available for others to download. Sega Enterprises
Ltd. v. MAPHIA, 857 F. Supp. 679, 683 (N.D. Cal. 1994). The
defendant's "MAPHIA" BBS contained copies of plaintiff Sega's
video game programs that were uploaded by users. Id. at 683. The
defendant solicited the uploading of such programs and received
consideration for the right to download files. IL Access was given
for a fee or to those purchasing the defendant's hardware device
that allowed Sega video game cartridges to be copied. Id at 683-84.
The court granted a preliminary injunction against the defendant,
finding that plaintiffs had shown a prima facie case of direct and
contributory infringement. Id at 687. The court found that copies
were made by unknown users of the BBS when files were
uploaded and downloaded. Id. Further, the court found that the
defendant's I knowledge of the infringing activities,
encouragement, direction and provision of the facilities through his
operation of the BBS constituted contributory infringement, even
though the defendant did not know exactly when files were
uploaded or downloaded. Id. at 686-87.
This court is not convinced that Sega provides support for a finding
of direct infringement where copies are made on a defendant's BBS
by users who upload files. Although there is some language in
Sega regarding direct infringement, it is entirely conclusory:
Sega has established a prima facie case of direct copyright
infringement under 17 U.S.C. Section 501. Sega has established
that unauthorized copies of its games are made when such games
are uploaded to the MAPHIA bulletin board, here with the
knowledge of Defendant Scherman. These games are thereby
placed on the storage media of the electronic bulletin board by
unknown users. Id. at 686 (emphasis added). The court's reference
to the "knowledge of Defendant" indicates that the court was
focusing on contributory infringement, as knowledge is not an
element of direct infringement. Perhaps, Sega's references to direct
infringement and that "copies . . . are made" are to the direct
liability of the "unknown users," as there can be no contributory
infringement by a defendant without direct infringement by
another. See 3 NIMMER ON COPYRIGHT Section
12.04[A][3][a], at 12-89. Thus, the court finds that neither Playboy
nor Sega requires finding Netcom liable for direct infringement of
plaintiffs' exclusive right to reproduce their works.[n17]
f. Public Distribution and Display?
Plaintiffs allege that Netcom is directly liable for making copies of
their works. See FAC 25. They also allege that Netcom violated
their exclusive rights to publicly display copies of their works.
FAC m 44, 51. There are no allegations that Netcom violated
plaintiffs' exclusive right to publicly distribute their works.
However, in their discussion of direct infringement, plaintiffs insist
that Netcom is liable for "maintain[ing] copies of [Erlich's]
messages on its server for eleven days for access by its subscribers
and 'USENET neighbors"' and they compare this case to the
Playboy case, which discussed the right of public distribution.
Opp'n at 7. Plaintiffs also argued this theory of infringement at oral
argument. Tr.[n18] 5:22. Because this could be an attempt to argue
that Netcom has infringed plaintiffs' rights of public distribution
and display, the court will address these arguments.
Playboy concluded that the defendant infringed the plaintiff s
exclusive rights to publicly ; distribute and display copies of its
works. 839 F. Supp. at 1556-57. The court is not entirely
convinced that the mere possession of a digital copy on a BBS that
is accessible to some members of the public constitutes direct
infringement by the BBS operator. Such a holding suffers from the
same problem of causation as the reproduction argument. Only the
subscriber should be liable for causing the distribution of plaintiffs'
work, as the contributing actions of the BBS provider are
automatic and indiscriminate. Erlich could have posted his
messages through countless access providers and the outcome
would be the same: anyone with access to Usenet newsgroups
would be able to read his messages. There is no logical reason to
draw a line around Netcom and Klemesrud and say that they are
uniquely responsible for distributing Erlich's messages. Netcom is
not even the first link in the chain of distribution-Erlich had no
direct relationship with Netcom but dealt solely with Klemesrud's
BBS, which used Netcom to gain its Internet access. Every Usenet
server has a role in the distribution, so plaintiffs' argument would
create unreasonable liability. Where the BBS merely stores and
passes along all messages sent by its subscribers and others, the
BBS should not be seen as causing these works to be publicly
distributed or displayed.
Even accepting the Playboy court's holding, the case is factually
distinguishable. Unlike the BBS in that case, Netcom does not
maintain an archive of files for its users. Thus, it cannot be said to
be "suppl[ying] a product." In contrast to some of its larger
competitors, Netcom does not create or control the content of the
information available to its subscribers; it merely provides access
to the Internet, whose content is controlled by no single entity.
Although the Internet consists of many different computers
networked together, some of which may contain infringing files, it
does not make sense to hold the operator of each computer liable as
an infringer merely because his or her computer is linked to a
computer with an infringing file. It would be especially
inappropriate to hold liable a service that acts more like a conduit,
in other words, one that does not itself keep an archive of files for
more than a short duration. Finding such a service liable would
involve an unreasonably broad construction of public distribution
and display rights. No purpose would be served by holding liable
those who have no ability to control the information to which their
subscribers have access, even though they might be in some sense
helping to achieve the Internet's automatic "public distribution"
and the users' "public" display of files.
g. Conclusion
The court is not persuaded by plaintiffs' argument that Netcom is
directly liable for the copies that are made and stored on its
computer. Where the infringing subscriber is clearly directly liable
for the same act, it does not make sense to adopt a rule that could
lead to the liability of countless parties whose role in the
infringement is nothing more than setting up and operating a
system that is necessary for the functioning of the Internet. Such a
result is unnecessary as there is already a party directly liable for
causing the copies to be made. Plaintiffs occasionally claim that
they only seek to hold liable a party that refuses to delete
infringing files after they have been warned. However, such
liability cannot be based on a theory of direct infringement, where
knowledge is irrelevant. The court does not find workable a theory
of infringement that would hold the entire Internet liable for
activities that cannot reasonably be deterred. Billions of bits of data
flow through the Internet and are necessarily stored on servers
throughout the network and it is thus practically impossible to
screen out infringing bits from noninfringing bits. Because the
court cannot see any meaningful distinction (without regard to
knowledge) between what Netcom did and what every other
Usenet server does, the court finds that Netcom cannot be held
liable for direct infringement. Cf: IITF Report at 69 (noting
uncertainty regarding whether BBS operator should be directly
liable for reproduction or distribution of files uploaded by a
subscriber).[n19]
2. Contributory Infringement
Netcom is not free from liability just because it did not directly
infringe plaintiffs' works; it may still be liable as a contributory
infringer. Although there is no statutory rule of liability for
infringement committed by others,
[t]he absence of such express language in the copyright statute
does not preclude the imposition of liability for copyright
infringement on certain parties who have not themselves engaged
in the infringing activity. For vicarious liability is imposed in
virtually all areas of the law, and the concept of contributory
infringement is merely a species of the broader problem of
identifying the circumstances in which it is just to hold one
individual accountable for the actions of another. Sony Corp. v.
Universal City Studios. Inc, 464 U.S. 417, 435 (1984) (footnote
omitted). Liability for participation in the infringement will be
established where the defendant, "with knowledge of the infringing
activity, induces, causes or materially contributes to the infringing
conduct of another." Gershwin Publishing Corp v Columbia Artists
Management. Inc., 443 F.2d 1159, 1162 (2d Cir. 1971).
a. Knowledge of Infringing Activity
Plaintiffs insist that Netcom knew that Erlich was infringing their
copyrights at least after receiving notice from plaintiffs' counsel
indicating that Erlich had posted copies of their works onto a.r.s.
through Netcom's system. Despite this knowledge, Netcom
continued to allow Erlich to post messages to a.r.s. and left the
allegedly infringing messages on its system so that Netcom's
subscribers and other Usenet servers could access them. Netcom
argues that it did not possess the necessary type of knowledge
because (1) it did not know of Erlich's planned infringing activities
when it agreed to lease its facilities to Klemesrud, (2) it did not
know that Erlich would infringe prior to any of his postings, (3) it
is unable to screen out infringing postings before they are made,
and (4) its knowledge of the infringing nature of Erlich's postings
was too equivocal given the difficulty in assessing whether the
registrations were valid and whether Erlich's use was fair. The
court will address these arguments in turn.
Netcom cites cases holding that there is no contributory
infringement by the lessors of premises that are later used for
infringement unless the lessor had knowledge of the intended use
at the time of the signing of the lease. See. e.g. Deutsch v. Arnold,
98 F.2d 686, 688 (2d Cir. 1938).[n20] The contribution to the
infringement by the defendant in Deutsch was merely to lease use
of the premises to the infringer. Here, Netcom not only leases
space but also serves as an access provider, which includes the
storage and transmission of information necessary to facilitate
Erlich' s postings to a.r.s. Unlike a landlord, Netcom retains some
control over the use of its system. See infra part I.B.3.a. Thus, the
relevant time frame for knowledge is not when Netcom entered
into an agreement with Klemesrud. It should be when Netcom
provided its services to allow Erlich to infringe plaintiffs'
copyrights. Cf: Screen Gems-Columbia Music. Inc. v. Mark-Fi
Records. Inc., 256 F. Supp. 399, 403 (S.D.N.Y. 1966) (analyzing
knowledge at time that defendant rendered its particular service). It
is undisputed that Netcom did not know that Erlich was infringing
before it received notice from plaintiffs. Netcom points out that the
alleged instances of infringement occurring on Netcom' s system
all happened prior to December 29, 1994, the date on which
Netcom first received notice of plaintiffs' infringement claim
against Erlich. See Pisani Feb. 8, 1995 Decl., s 6 & Exs. (showing
latest posting made on December 29, 1994); McShane Feb. 8, 1995
Decl.; FAC m 36-38 & Ex. I. Thus, there is no question of fact as
to whether Netcom knew or should have known of Erlich's
infringing activities that occurred more than 11 days before receipt
of the December 28, 1994 letter.
However, the evidence reveals a question of fact as to whether
Netcom knew or should have known that Erlich had infringed
plaintiffs' copyrights following receipt of plaintiffs' letter. Because
Netcom was arguably participating in Erlich's public distribution of
plaintiffs' works, there is a genuine issue as to whether Netcom
knew of any infringement by Erlich before it was too late to do
anything about it. If plaintiffs can prove the knowledge element,
Netcom will be liable for contributory infringement since its failure
to simply cancel Erlich's infringing message and thereby stop an
infringing copy from being distributed worldwide constitutes
substantial participation in Erlich's public distribution of the
message. Cf R.T. Nimmer, THE LAW OF COMPUTER
TECHNOLOGY Paragraph 15.11 B, at S 15-42 (2d ed. 1994)
(opining that "where information service is less directly involved
in the enterprise of creating unauthorized copies, a finding of
contributory infringement is not likely").
Netcom argues that its knowledge after receiving notice of Erlich's
alleged infringing activities was too equivocal given the difficulty
in assessing whether registrations are valid and whether use is fair.
Although a mere unsupported allegation of infringement by a
copyright owner may not automatically put a defendant on notice
of infringing activity, Netcom's position that liability must be
unequivocal is unsupportable. While perhaps the typical infringing
activities of BBSs will involve copying software, where BBS
operators are better equipped to judge infringement, the fact that
this involves written works should not distinguish it. Where works
contain copyright notices within them, as here, it is difficult to
argue that a defendant did not know that the works were
copyrighted. To require proof of valid registrations would be
impractical and would perhaps take too long to verify, making it
impossible for a copyright holder to protect his or her works in
some cases, as works are automatically deleted less than two weeks
after they are posted. The court is more persuaded by the argument
that it is beyond the ability of a BBS operator to quickly and fairly
determine when a use is not infringement where there is at least a
colorable claim of fair use. Where a BBS operator cannot
reasonably verify a claim of infringement, either because of a
possible fair use defense, the lack of copyright notices on the
copies, or the copyright holder's failure to provide the necessary
documentation to show that there is a likely infringement, the
operator' s lack of knowledge will be found reasonable and there
will be no liability for contributory infringement for allowing the
continued distribution of the works on its system.
Since Netcom was given notice of an infringement claim before
Erlich had completed his infringing activity, there may be a
question of fact as to whether Netcom knew or should have known
that such activities were infringing. Given the context of a dispute
between a former minister and a church he is criticizing, Netcom
may be able to show that its lack of knowledge that Erlich was
infringing was reasonable. However, Netcom admits that it did not
even look at the postings once given notice and that had it looked
at the copyright notice and statements regarding authorship, it
would have triggered an investigation into whether there was
infringement. Kobrin June 7, 1995 Decl., Ex. H, Hoffman Depo.
At 125-128. These facts are sufficient to raise a question as to
Netcom's knowledge-once it received a letter from plaintiffs on
December 29, 1994.[n21]
b. Substantial Participation
Where a defendant has knowledge of the primary infringer's
infringing activities, it will be liable if it "induces, causes or
materially contributes to the infringing conduct of" the primary
infringer. Gershwin Publishing, 443 F.2d at 1162. Such
participation must be substantial. Apple Computer. Inc v.
Microsoft Corp., 821 F. Supp. 616, 625 (N.D. Cal. 1993), aff'd, 35
F.3d 1435 (9th Cir. 1994); Demetriades v. Kaufmann, 690 F. Supp.
289, 294 (S.D.N.Y. 1988).
Providing a service that allows for the automatic distribution of all
Usenet postings, infringing and noninfringing, goes well beyond
renting a premises to an infringer. See Fonovisa Inc. v. Cherry
Auction. Inc., 847 F. Supp. 1492, 1496 (E.D. Cal. 1994) (finding
that renting space at swap meet to known bootleggers not
"substantial participation" in the infringers' activities). It is more
akin to the radio stations that were found liable for rebroadcasting
an infringing broadcast. See. e.g., Select Theatres Corp. v. Ronzoni
Macaroni Corp, 59 U.S.P.Q. 288, 291 (S.D.N.Y. 1943). . Netcom
allows Erlich's infringing messages to remain on its system and be
further distributed to other Usenet servers worldwide. It does not
completely relinquish control over how its system is used, unlike a
landlord. Thus, it is fair, assuming Netcom is able to take simple
measures to prevent further damage to plaintiffs' copyrighted
works, to hold Netcom liable for contributory infringement where
Netcom has knowledge of Erlich's infringing postings yet
continues to aid in the accomplishment of Erlich's purpose of
publicly distributing the postings. Accordingly, plaintiffs do raise a
genuine issue of material fact as to their theory of contributory
infringement as to the postings made after Netcom was on notice
of plaintiffs' infringement claim.
3. Vicarious Liability
Even if plaintiffs cannot prove that Netcom is contributorily liable
for its participation in the infringing activity, it may still seek to
prove vicarious infringement based on Netcom' s relationship to
Erlich. A defendant is liable for vicarious liability for the actions of
a primary infringer where the defendant (1) has the right and
ability to control the infringer's acts and (2) receives a direct
financial benefit from the infringement. See Shapiro. Bernstein &
Co. v. H.L. Green Co., 316 F.2d 304, 306 (2d Cir. 1963). Unlike
contributory infringement, knowledge is not an element of
vicarious liability. 3 NIMMER ON COPYRIGHT Section
12.04[A][1], at 12-70.
a. Right and Ability To Control
The first element of vicarious liability will be met if plaintiffs can
show that Netcom has the right and ability to supervise the conduct
of its subscribers. Netcom argues that it does not have the right to
control its users' postings before they occur. Plaintiffs dispute this
and argue that Netcom's terms and conditions, to which its
subscribers[n22] must agree, specify that Netcom reserves the right
to take remedial action against subscribers. See. e.g., Francis Depo.
at 124-126. Plaintiffs argue that under "netiquette," the informal
rules and customs that have developed on the Internet, violation of
copyrights by a user is unacceptable and the access provider has a
duty take measures to prevent this; where the immediate service
provider fails, the next service provider up the transmission stream
must act. See Castleman Decl. m 3243. Further evidence of
Netcom's right to restrict infringing activity is its prohibition of
copyright infringement and its requirement that its subscribers
indemnify it for any damage to third parties. See Kobrin May 5,
1995 Decl., Ex. G. Plaintiffs have thus raised a question of fact as
to Netcom's right to control Erlich's use of its services.
Netcom argues that it could not possibly screen messages before
they are posted given the speed and volume of the data that goes
through its system. Netcom further argues that it has never
exercised control over the content of its users' postings. Plaintiffs'
expert opines otherwise, stating that with an easy software
modification Netcom could identify postings that contain particular
words or come from particular individuals. Castleman Decl. m 39-
43; see also Francis Depo. at 262-63; Hoffman Depo. at 173-74,
178.[n23] Plaintiffs further dispute Netcom's claim that it could not
limit Erlich's access to Usenet without kicking off all 500
subscribers of Klemesrud's BBS. As evidence that Netcom has in
fact exercised its ability to police its users' conduct, plaintiffs cite
evidence that Netcom has acted to suspend subscribers' accounts
on over one thousand occasions. See Ex. J (listing suspensions of
subscribers by Netcom for commercial advertising, posting
obscene materials, and off-topic postings). Further evidence shows
that Netcom can delete specific postings. & Tr. 9:16. Whether such
sanctions occurred before or after the abusive conduct is not
material to whether Netcom can exercise control. The court thus
finds that plaintiffs have raised a genuine issue of fact as to
whether Netcom has the right and ability to exercise control over
the activities of its subscribers, and of Erlich in particular.
b. Direct Financial Benefit
Plaintiffs must further prove that Netcom receives a direct financial
benefit from the infringing activities of its users. For example, a
landlord who has the right and ability to supervise the tenant's
activities is vicariously liable for the infringements of the tenant
where the rental amount is proportional to the proceeds of the
tenant's sales. Shapiro. Bernstein, 316 F.2d at 306. However, where
a defendant rents space or services on a fixed rental fee that does
not depend on the nature of the activity of the lessee, courts usually
find no vicarious liability because there is no direct financial
benefit from the infringement. See. e.g., Roy Export Co. v.
Trustees of Columbia University, 344 F. Supp. 1350, 1353
(S.D.N.Y. 1972) (finding no vicarious liability of university
because no financial benefit from allowing screening of bootlegged
films); Fonovisa, 847 F. Supp. at 1496 (finding swap meet
operators did not financially benefit from fixed fee); see also Kelly
Tickle, Comment, The Vicarious Liability of Electronic Bulletin
Board Operators for the Copyright Infringement Occurring on
Their Bulletin Boards, 80 IOWA L. REV. 391, 415 (1995)
(arguing that BBS operators "lease cyberspace" and should thus be
treated like landlords, who are not liable for infringement that
occurs on their premises).
Plaintiffs argue that courts will find a financial benefit despite
fixed fees. In Polygram International Publishing. Inc. v.
Nevada/TIG. Inc., 855 F Supp. 1314, 1330-33 (D. Mass. 1994), the
court found a trade show organizer vicariously liable for the
infringing performance of an exhibitor because, although the
infringement did not affect the fixed rental fee received by the
organizers, the organizers benefitted from the performances, which
helped make the show a financial success. Sat see Artists Music.
Inc. v. Reed Publishing, Inc., 31 U.S.P.Q. 2d 1623, 1994 WL
191643, at *6 (S.D.N.Y. 1994) (finding no vicarious liability for
trade show organizers where revenues not increased because of
infringing music performed by exhibitors). Plaintiffs cite two other
cases where, despite fixed fees, defendants received financial
benefits from allowing groups to perform infringing works over the
radio without having to get an ASCAP license, which minimized
the defendants' expenses. See Boz Scaggs Music v. KND Corp,
491 F Supp. 980, 913 (D. Conn. 1980); Realsongs v. Gulf
Broadcasting Corp., 824 F. Supp. 89, 92 (M.D. La 1993).
Plaintiffs' cases are factually distinguishable. Plaintiffs cannot
provide any evidence of a direct financial benefit received by
Netcom from Erlich's infringing postings. Unlike Shapiro.
Bernstein, and like Fonovisa, Netcom receives a fixed fee. There is
no evidence that infringement by Erlich, or any other user of
;Netcom's services, in any way enhances the value of Netcom's
services to subscribers or attracts new subscribers. Plaintiffs argue,
however, that Netcom somehow derives a benefit from its
purported "policy of refusing to take enforcement actions against
its subscribers and others who transmit infringing messages over
its computer networks." Opp'n at 18. Plaintiffs point to Netcom's
advertisements that, compared to competitors like CompuServe
and America Online, Netcom provides easy, regulation-free
Internet access. Plaintiffs assert that Netcom's policy attracts
copyright infringers to its system, resulting in a direct financial
benefit. The court is not convinced that such an argument, if true,
would constitute a direct financial benefit to Netcom from Erlich's
'infringing activities. See Fonovisa 847 F. Supp. at 1496 (finding
no direct financial benefit despite 'argument that lessees included
many vendors selling counterfeit goods and that clientele sought
t"bargain basement prices"). Further, plaintiffs' argument is not
supported by probative evidence. The only "evidence" plaintiffs
cite for their supposition is the declaration of their counsel, Elliot
Abelson, who states that [o]n April 7, 1995, in a conversation
regarding Netcom's position related to this case, Randolf Rice,
attorney for Netcom, informed me that Netcom's executives are
happy about the publicity it is receiving in the press as a result of
this case. Mr. Rice also told me that Netcom was concerned that it
would lose business if it took action against Erlich or Klemesrud in
connection with Erlich's infringements. Abelson Decl. Paragraph 2.
Netcom objects to this declaration as hearsay and as inadmissible
evidence of statements made in compromise negotiations. Fed. R.
Ev. 801, 408. Whether or not this declaration is admissible, it does
not support plaintiffs' argument that Netcom either has a policy of
not enforcing violations of copyright laws by its subscribers or,
assuming such a policy exists, that Netcom's policy directly
financially benefits Netcom, such as by attracting new subscribers.
Because plaintiffs have failed to raise a question of fact on this
vital element, their claim of vicarious liability fails. See Roy
Exports 344 F. Supp. at 1353.
4. First Amendment Argument
Netcom argues that plaintiffs' theory of liability contravenes the
first amendment, as it would chill the use of the Internet because
every access provider or user would be subject to liability when a
user posts an infringing work to a Usenet newsgroup. While the
court agrees that an overbroad injunction might implicate the First
Amendment, see In re Capital Cities/ABC. Inc, 918 F.2d 140, 144
(11 th Cir. 1990),[n24] imposing liability for infringement where it
is otherwise appropriate does not necessarily raise a First
Amendment issue. The copyright concepts of the idea/expression
dichotomy and the fair use defense balance the important First
Amendment rights with the constitutional authority for
"promot[ing] the progress of science and useful arts," U.S.
CONST. art. I, Section 8, cl. 8; 1 NIMMER ON COPYRIGHT
Section l.1O[B], at 1-71 to -83. Netcom argues that liability here
would force Usenet servers to perform the impossible-screening all
the information that comes through their systems. However, the
court is not convinced that Usenet servers are directly liable for
causing a copy to be made, and absent evidence of knowledge and
participation or control and direct profit, they will not be
contributorily or vicariously liable. If Usenet servers were
responsible for screening all messages coming through their
systems, this could have a serious chilling effect on what some say
may turn out to be the best public forum for free speech yet
devised. a Jerry Berman & Daniel J. Weitzner, Abundance and
User Control: Renewing the Democratic Heart of the First
Amendment in the Age of Interactive Media, 104 YALE L. J.
1619, 1624 (1995) (praising decentralized networks for opening
access to all with no entity stifling independent sources of speech);
Rose, supra at 4.[n25] Finally, Netcom admits that its First
Amendment argument is merely a consideration in the fair use
argument, which the court will now address. See Reply at 24.
5. Fair Use Defense
Assuming plaintiffs can prove a violation of one of the exclusive
rights guaranteed in section 106, there is no infringement if the
defendant's use is fair under section 108. The proper focus here is
on whether Netcom's actions qualify as fair use, not on whether
Erlich himself engaged in fair use; the court has already found that
Erlich was not likely entitled to his own fair use defense, as his
postings contained large portions of plaintiffs' published and
unpublished works quoted verbatim with little added commentary.
Although the author has the exclusive rights to reproduce, publicly
distribute, and publicly display a copyrighted work under section
106, these rights are limited by the defense of "fair use." 17 U.S.C.
Section 107. The defense "permits and requires courts to avoid
rigid application of the copyright statute when, on occasion, it
would stifle the very creativity which that law is designed to
foster." Campbell v. Acuff-Rose Music. Inc., 114 S. Ct. 1164, 1170
(1994) (citation omitted). Congress has set out four nonexclusive
factors to be considered in determining the availability of the fair
use defense:
( I ) the purpose and character of the use, including whether such
use is of a commercial nature or is for nonprofit educational
purposes; (2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to
the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of
the copyrighted work. 17 U.S.C. Section 107. The fair use doctrine
calls for a case-by-case analysis. Campbell, 114 S. Ct. at 1170. All
of the factors "are to be explored, and the results weighed together,
in light of the purposes of copyright." Id at 1170-71.
a. First Factor: Purpose and Character of the Use
The first statutory factor looks to the purpose and character of the
defendant's use. Netcom's use of plaintiffs' works is to carry out its
commercial function as an Internet access provider. Such a use,
regardless of the underlying uses made by Netcom's subscribers, is
clearly commercial. Netcom's use, though commercial, also
benefits the public in allowing for the functioning of the Internet
and the dissemination of other creative works, a goal of the
Copyright Act. See Sega v. Accolade 977 F.2d 1510, 1523 (9th
Cir. 1992) (holding that intermediate copying to accomplish
reverse engineering of software fair use despite commercial nature
of activity; considering public benefit of use). The Campbell Court
emphasized that a commercial use does not dictate against a
finding of fair use, as most of the uses listed in the statute are
"generally conducted for profit in this country." 114 S. Ct. at 1174.
Although Netcom gains financially from its distribution of
messages to the Internet, its financial incentive is unrelated to the
infringing activity and the defendant receives no direct financial
benefit from the acts of infringement. Therefore, the commercial
nature of the defendant's activity should not be dispositive.
Moreover, there is no easy way for a defendant like Netcom to
secure a license for carrying ever,v possible type of copyrighted
work onto the Internet. Thus, it should not be seen as "profit[ing]
from the exploitation of the copyrighted work without paying the
customary prices." Harper & Row. Publishers. Inc. v. Nation
Enterprises, 471 U.S. 539, 562 (1985). It is undisputed that, unlike
the defendants in Playboy and Sega, Netcom does not directly gain
anything from the content of the information available to its
subscribers on the Internet. See supra part I.B.3.b. Because it does
not itself provide the files or solicit infringing works, its purpose is
different from that of the defendants in Playboy and Sega Because
Netcom's use of copyrighted materials served a completely
different function than that of the plaintiffs, this factor weighs in
Netcom's favor, see Hustler Magazine. Inc. v. Moral Majority. Inc..
606 F. Supp. 1526, 1535 (C.D. Cal. 1985), aff'd, 796 F.2d 1148
(9th Cir. 1986), notwithstanding the otherwise commercial nature
of Netcom's use.
b. Second Factor: Nature of the Copyrighted Work
The second factor focuses on two different aspects of the
copyrighted work: whether it is published or unpublished and
whether it is informational or creative.[n26] Plaintiffs rely on the
fact that some of the works transmitted by Netcom were
unpublished and some were arguably highly creative and original.
However, because Netcom's use of the works was merely to
facilitate their posting to the Usenet, which is an entirely different
purpose than plaintiffs' use (or, for that matter, Erlich's use), the
precise nature of those works is not important to the fair use
determination. a Campbell, 114 S. Ct. at 1175 (finding creative
nature of work copied irrelevant where copying for purposes of
parody); Hustler Magazine. 606 F. Supp. at 1537; 3 NIMMER ON
COPYRIGHT Section 13.05[A][2][a], at 13177 ("It is sometimes
necessary, in calibrating the fair use defense, to advert to the
defendant's usage simultaneously with the nature of the plaintiff's
work.").
c. Third Factor: Amount and Substantiality of the Portion Used
The third factor concerns both the percentage of the original work
that was copied and whether that portion constitutes the "heart" of
the copyrighted work. Harper & Row, 471 U.S. at 564-65.
Generally, no more of a work may be copied than is necessary for
the particular use. See Supermarket of Homes v. San Fernando
Valley Board of Realtors 786 F.2d 1400, 1409 (9th Cir. 1986). The
copying of an entire work will ordinarily militate against a finding
of fair use, although this is not a per se rule. Sony, 464 U.S. at 449-
450.
Plaintiffs have shown that Erlich's postings copied substantial
amounts of the originals or, in some cases, the entire works.
Netcom, of course, made available to the Usenet exactly what was
posted by Erlich. As the court found in Sony, the mere fact that all
of a work is copied is not determinative of the fair use question,
where such total copying is essential given the purpose of the
copying. Id (allowing total copying in context of time-shifting
copyrighted television shows by home viewers). For example,
where total copying was necessary to carry out the defendants'
beneficial purpose of reverse engineering software to get at the
ideas found in the source code, the court found fair use. Sega v.
Accolade, 977 F.2d at 1526-27. Here, Netcom copied no more of
plaintiffs' works than necessarily.v to function as a Usenet server.
Like the defendant in Sega v. Accolade, Netcom had no practical
alternative way to carry out its socially useful purpose; a Usenet
server must copy all files, since the prescreening of postings for
potential copyright infringement is not feasible. 977 F.2d at 1526.
Accordingly, this factor should not defeat an otherwise valid
defense.
d. Fourth Factor: Effect of the Use upon the Potential Market for
the Work
The fourth and final statutory factor concerns "the extent of market
harm caused by the particular actions of the alleged infringer" and
"'whether unrestricted and widespread conduct of the sort engaged
in by the defendant . . . would result in a substantially adverse
impact on the potential market' for the original." Campbell, 114 S.
Ct. at 1177 (quoting 3 NIMMER ON COPYRIGHT Section 13.05
[A][4]) (remanding for consideration of this factor). Although the
results of all four factors must be weighed together, id at 1171, the
fourth factor is the most important consideration, 3 NIMMER ON
COPYRIGHT Section 13.05[A][4], at 13-188 to -189 (citing
Harper & Row, 471 U.S. at 566), 13-207 (observing that fourth
factor explains results in recent Supreme Court cases).
Netcom argues that there is no evidence that making accessible
plaintiffs' works, which consist of religious scriptures and policy
letters, will harm the market for these works by preventing
someone from participating in the Scientology religion because
they can view the works on the Internet instead. Further, Netcom
notes that the relevant question is whether the postings fulfill the
demand of an individual who seeks to follow the religion's
teachings, and not whether they suppress the desire of an
individual who is affected by the criticism posted by Erlich.
Netcom argues that the court must focus on the "normal market"
for the copyrighted work, which in this case is through a
Scientology-based organization. Plaintiffs respond that the
Internet's extremely widespread distribution-where more than 25
million people worldwide have access-multiplies the effects of
market substitution. In support of its motion for a preliminary
injunction against Erlich, plaintiffs submitted declarations
regarding the potential effect of making the Church's secret
scriptures available over the Internet. Plaintiffs point out that,
although the Church currently faces no competition, groups in the
past have used stolen copies of the Church's scriptures in charging
for Scientology-like religious training. See. e.g., Bridge
Publications. Inc. v. Vien, 827 F. Supp. 629, 633-34 (S.D. Cal.
1993); Religious Technology Center v. Wollersheim, 796 F.2d
1076, 1078-79 (9th Cir. 1986), cert. denied, 479 U.S. 1103 (1987).
This evidence raises a genuine issue as to the possibility that
Erlich's postings, made available over the Internet by Netcom,
could hurt the market for plaintiffs' works.
e. Equitable Balancing
In balancing the various factors, the court finds that there is a
question of fact as to whether there is a valid fair use defense.
Netcom has not justified its copying plaintiffs' works to the extent
necessary to establish entitlement to summary judgment in light of
evidence that it knew that Erlich's use was infringing and had the
ability to prevent its further distribution. While copying all or most
of a work will often preclude fair use, courts have recognized the
fair use defense where the purpose of the use is beneficial to
society, complete copying is necessary given the type of use, the
purpose of the use is completely different than the purpose of the
original, and there is no evidence that the use will significantly
harm the market for the original. This case is distinguishable from
those cases recognizing fair use despite total copying. In Sony, the
home viewers' use was not commercial and the viewers were
allowed to watch the entire shows for free. In Sega v. Accolade,
the complete copying was necessitated to access the unprotectable
idea in the original. Here, plaintiffs never gave either Edich or
Netcom permission to view or copy their works. Netcom's use has
some commercial aspects. Further, Netcom's copying is not for the
purpose of getting to the unprotected idea behind plaintiffs' works.
Although plaintiffs may ultimately lose on their infringement
claims if, among other things, they cannot prove that posting their
copyrighted works will harm the market for these works, see
Religious Technology Center v. Lerma, F. Supp., No. 95-1107-A,
slip op. at 10 (E.D. Va. August 30, 1995) (finding fair use defense
exists where no separate market for works because Scientologists
cannot effectively use them without the Church's supervision);
Religious Technology Center v. F.A.C.T.Net. Inc., No. 95-B-2143,
slip op. at 11-14 (D. Colo. September 15, 1995) (finding no
showing of a potential effect on the market for plaintiffs' works),
fair use presents a factual question on which plaintiffs have at least
raised a genuine issue of fact. Accordingly, the court does not find
that Netcom's use was fair as a matter of law.
C. Conclusion
The court finds that plaintiffs have raised a genuine issue of fact
regarding whether Netcom should have known that Erlich was
infringing their copyrights after receiving a letter from plaintiffs,
whether Netcom substantially participated in the infringement, and
whether Netcom has a valid fair use defense. Accordingly, Netcom
is not entitled to summary judgment on plaintiffs' claim of
contributory copyright infringement. However, plaintiffs' claims of
direct and vicarious infringement fail.
II. KLEMESRUD'S MOTION FOR JUDGMENT ON THE
PLEADINGS
A. Standards for Judgment on the Pleadings
A motion for judgment on the pleadings pursuant to Federal Rule
of Civil Procedure 12(C) is directed at the legal sufficiency of a
part's allegations. A judgment on the pleadings is proper when
there are no issues of material fact, and the moving party is entitled
to judgment as a matter of law. General Conference Corp. v.
Seventh Day Adventist Church, 887 F.2d 228, 230 (9th Cir. 1989),
=, denied, 493 U.S. 1079 (1990); Hal Roach Studios v. Rich~d
Feiner & Co., 896 F.2d 1542, 1550 (9th Cir. 1990). In ruling on a
motion for judgment on the pleadings, district courts must accept
all material allegations of fact alleged in the complaint as true, and
resolve all doubts in favor of the nonmoving party. Id. The court
need not accept as true conclusory allegations or legal
characterizations. Western Mining Council v. Watt, 643 F.2d 618,
624 (9th Cir. 1981). Materials submitted with the complaint may
be considered. Hal Roach Studios, 896 F 2d at 1555. All
affirmative defenses must clearly appear on the face of the
complaint. McCalden v. California Library Ass'n, 955 F.2d 1214,
1219 (9th Cir. 1990).
B. Copyright Infringement
1. Direct Infringement
First, plaintiffs allege that Klemesrud directly infringed their
copyrights by "reproduc[ing] and publish[ing] plaintiffs' works.
FAC Paragraph 35. The complaint alleges that "Erlich . . . caused
copies of [plaintiffs' works] to be published, without authorization,
on the BBS computer maintained by Klemesrud" and that
"Klemesrud's BBS computer, after receiving and storing for some
period of time the copies of the Works sent to it from Erlich,
created additional copies of the works and sent these copies to
Netcom's computer." FAC Paragraph 34. The allegations against
Klemesrud fail for the same reason the court found that Netcom
was entitled to judgment as a matter of law on the direct
infringement claim. There are no allegations that Klemesrud took
any affirmative steps to cause the copies to be made. The
allegations, in fact, merely say that "Erlich . . . caused" the copies
to be made and that Klemesrud's computer, not Klemesrud himself,
created additional copies. There are no allegations in the complaint
to overcome the missing volitional or causal elements necessary to
hold a BBS operator directly liable for copying that is automatic
and caused by a subscriber. See supra part I.B. I .
2. Contributory Infringement
Second, the complaint alleges that Klemesrud is contributorily
liable. FAC 1135- It further alleges that plaintiffs repeatedly
objected to Klemesrud's actions and informed him that Erlich's
(and his) actions constituted infringement. FAC Paragraph 36. A
letter attached to the complaint indicates that such notice was first
sent to Klemesrud on December 30, 1994. FAC, Ex. I. Despite the
warnings, Klemesrud allegedly refused to assist plaintiffs in
compelling Erlich to stop his postings and refused to stop
receiving, copying, transmitting and publishing the postings. FAC
Paragraph 38. To state a claim for contributory infringement,
plaintiffs must allege that Klemesrud knew or should have known
of Erlich's infringing actions at the time they occurred and yet
substantially participated by "induc[ing], caus[ing] or materially
contribut[ing] to the infringing conduct" of Erlich. Gershwin, 443
F.2d at 1162. For the reasons discussed in connection with
Netcom's motion, the court finds plaintiffs' pleadings sufficient to
raise an issue of contributory infringement.
3. Vicarious Liability
The third theory of liability argued by plaintiffs, vicarious liability,
is not specifically mentioned in the complaint. Nonetheless, this
theory fails as a matter of law because there are insufficient factual
allegations to support it. Plaintiffs must show that Klemesrud had
the right and ability to control Erlich's activities and that
Klemesrud had a direct financial interest in Erlich's infringement.
Shapiro. Bernstein, 316 F.2d at 306. A letter from Klemesrud to
plaintiffs' counsel states that Klemesrud would comply with
plaintiffs' request to take actions against Erlich by deleting the
infringing postings from his BBS if plaintiffs mailed him the
original copyrighted work and he found that they matched the
allegedly infringing posting. FAC, Ex. J. Plaintiffs argue that this
letter indicates Klemesrud's ability and right to control Erlich's
activities on his BBS. The court finds that this letter, construed in
the light most favorable to plaintiffs, raises a question as to
whether plaintiffs can show that Klemesrud, in the operation of his
BBS, could control Erlich's activities, such as by deleting
infringing postings. However, plaintiffs' failure to allege a financial
benefit is fatal to their claim for vicarious liability.
The complaint alleges that Klemesrud is in the business of
operating a BBS for subscribers for a fee. The complaint does not
say how the fee is collected, but there are no allegations that
Klemesrud's fee, or any other direct financial benefit received by
Klemesrud, varies in any way with the content of Erlich's postings.
Nothing in or attached to the complaint states that Klemesrud in
any way profits from allowing Erlich to infringe copyrights.
Plaintiffs are given 30 days leave in which to amend to cure this
pleadings deficiency if they can do so in good faith.
III. PRELIMINARY INJUNCTION AGAINST NETCOM AND
KLEMESRUD
A. Legal Standards for a Preliminary Injunction
A party seeking a preliminary injunction may establish its
entitlement to equitable relief by showing either (1) a combination
of probable success on the merits and the possibility of irreparable
injury, or (2) serious questions as to these matters and the balance
of hardships tipping sharply in the movant's favor. First Brands
Corp. v. Fred Meyer. Inc., 809 F.2d 1378, 1381 (9th Cir. 1987).
These two tests are not separate, but represent a "continuum" of
equitable discretion whereby the greater the relative hardship to the
moving party, the less probability of success need be shown.
Regents of University of California v. American Broadcasting
Cos., 747 F.2d 511, 515 (9th Cir. 1984). The primary purpose of a
preliminary injunction is to preserve the status quo pending a trial
on the merits. Los Angeles Memorial Coliseum Commission v.
National Football League, 634 F.2d 1197, 1200 (9th Cir. 1980).
B. Likelihood of Success
The court finds that plaintiffs have not met their burden of showing
a likelihood of success on the merits as to either Netcom or
Klemesrud. The only viable theory of infringement is contributory
infringement, and there is little evidence that Netcom or
Klemesrud knew or should have known that Erlich was engaged in
copyright infringement of plaintiffs' works and was not entitled to
a fair use defense, especially as they did not receive notice of the
alleged infringement until after all but one of the postings were
completed. Further, their participation in the infringement was not
substantial. Accordingly, plaintiffs will not likely prevail on their
claims.
C. Irreparable Injury
The court will presume irreparable harm for the copyright claim
where plaintiffs have shown a likelihood of success on their claims
of infringement. Johnson Controls. Inc. v. Phoenix Control
Systems. Inc., 886 F.2d 1173, 1174 (9th Cir. 1989). Here, however,
plaintiffs have not made an adequate showing of likelihood of
success. More importantly, plaintiffs have not shown that the
current preliminary injunction prohibiting Erlich from infringing
plaintiffs' copyrights will not be sufficient to avoid any harm to
plaintiffs' intellectual property rights.
D. First Amendment Concerns
There is a strong presumption against any injunction that could act
as a "prior restraint" on free speech, citing CBS. Inc. v. Davis, 114
S. Ct. 912, 913-14 (1994) (Justice Blackmun, as Circuit Justice,
staying a preliminary injunction prohibiting CBS from airing
footage of inside of meat packing plant). Because plaintiffs seek
injunctive relief that is broader than necessary to prevent Erlich
from committing copyright infringement, there is a valid First
Amendment question raised here. Netcom and Klemesrud play a
vital role in the speech of their users. Requiring them to prescreen
postings for possible infringement would chill their users' speech. z
In re Capital Cities/ABC. Inc, 918 F.2d at 144.
E. Conclusion
Plaintiffs have not shown a likelihood of success on the merits of
their copyright claims nor irreparable harm absent an injunction
against defendants Netcom and Klemesrud. Accordingly, plaintiffs
are not entitled to a preliminary injunction.
IV. ORDER
The court denies Netcom's motion for summary judgment and
Klemesrud's motion for judgment on the pleadings, as a triable
issue of fact exists on the claim of contributory infringement. The
court also gives plaintiffs 30 days leave in which to amend to state
a claim for vicarious liability against defendant Klemesrud, if they
can do so in good faith. Plaintiffs' application for a preliminary
injunction against defendants Netcom and Klemesrud is denied.
The parties shall appear for a case management conference at
10:30 a.m. on Friday, January 1-9, 1996. The deadline for
completing required disclosures is January 5, 1996. The joint case
management conference statement must be filed by January 12,
1996.
DATED: 11/21/95
/s/ RONALD M. WHYTE
United States District Judge
- - - - - - FOOTNOTES - - - - - -
1 Cyberspace is a popular term for the world of electronic
communications over computer networks. See Trotter Hardy, The
Proper Legal Regime for "Cyberspace, " 55 U. Pitt. L. REV. 993,
994 (1994).
2 "The Internet today is a worldwide entity whose nature cannot be
easily or simply defined. From a technical definition, the Internet is
the 'set of all interconnected IP networks'-the collection of several
thousand local, regional, and global computer networks
interconnected in real time via the TCP/IP Internetworking
Protocol suite." Daniel P. Dern, The Internet Guide for New Users
16 (1994). One article described the Internet as a collection of
thousands of local, regional, and global Internet Protocol networks.
What it means in practical terms is that millions of computers in
schools, universities, corporations, and other organizations are tied
together via telephone lines. The Internet enables users to share
files, search for information, send electronic mail, and log onto
remote computers. But it isn't a program or even a particular
computer resource. It remains only a means to link computer users
together.
Unlike on-line computer services such as CompuServe and
America On Line, no one runs the Internet....
No one pays for the Internet because the network itself doesn't
exist as a separate entity. Instead various universities and
organizations pay for the dedicated lines linking their computers.
Individual users may pay an Internet provider for access to the
Internet via its server.
David Bruning, Along the InfoBahn, ASTRONOMY, Vol. 23, No.
6, p. 76 (June 1995).
3 Issues of Erlich's liability were addressed in this court's order of
September 22, 1995. That order concludes in part that a
preliminary injunction against Erlich is warranted because
plaintiffs have shown a likelihood of success on their copyright
infringement claims against him. Plaintiffs likely own valid
copyrights in Hubbard's published and unpublished works and
Erlich's near-verbatim copying of substantial portions of plaintiffs'
works was not likely a fair use. To the extent that Netcom and
Klemesrud argue that plaintiffs' copyrights are invalid and that
Netcom and Klemesrud are not liable because Erlich had a valid
fair use defense, the court previously rejected these arguments and
will not reconsider them here.
4 The Usenet has been described as a worldwide community of
electronic BBSs that is closely associated with the Internet and
with the Internet community. Paragraph The messages in Usenet
are organized into thousands of topical groups, or "Newsgroups"
.... Paragraph As a Usenet user, you read and contribute ("post") to
your local Usenet site. Each Usenet site distributes its users'
postings to other Usenet sites based on various implicit and explicit
configuration settings, and in turn receives postings from other
sites. Usenet traffic typically consists of as much as 30 to 50
Mbytes of messages per day. Paragraph Usenet is read and
contributed to on a daily basis by a total population of millions of
people.... Paragraph There is no specific network that is the Usenet.
Usenet traffic flows over a wide range of networks, including the
Internet and dial-up phone links.
Dern, supra, at 196-97.
5 The First Amended Complaint ("FAC") contains three claims:
(1) copyright infringement of BPI'S published literary works
against all defendants; (2) copyright infringement of RTC's
unpublished confidential works against all defendants; and (3)
misappropriation of RTC'S trade secrets against defendant Erlich
only.
6 Klemesrud alternatively filed a motion for summary judgment,
which will not be considered at this struck those portions of the
motion that referred to matters outside of the pleadings.
7 In this context, "copying" is "shorthand for the infringement of
any of the copyright owner's five exclusive rights." S.O.S., Inc. v.
Payday, Inc., 886 F.2d 1081, 1085 n.3 (9th Cir. 1989).
8 The court has under submission plaintiffs' request to expand the
preliminary injunction against Erlich.
9 Plaintiffs have argued at times during this litigation that Netcom
should only be required to respond after being given notice, which
is only relevant to contributory infringement. Nevertheless, the
court will address all three theories of infringement liability.
10 The strict liability for copyright infringement is in contrast to
another area of liability affecting online service providers:
defamation. Recent decisions have held that where a BBS
exercised little control over the content of the material on its
service, it was more like a "distributor" than a "republisher" and
was thus only liable for defamation on its system where it knew or
should have known of the defamatory statements. Cubby,Inc. v.
CompuServe. Inc., 776 F. Supp. 135 (S.D.N.Y. 1991). By s
contrast, a New York state court judge found that Prodigy was a
publisher because it held itself out to be controlling the content of
its services and because it used software to automatically prescreen
messages that were offensive or in bad taste. Stratton Oakmont,
Inc, v. Prodigy Services Co., THE RECORDER, June 1, 1995, at 7
(excerpting May 24, 1995 Order Granting Partial Summary
Judgment to Plaintiffs).
11 One commentator addressed the difficulty in translating
copyright concepts, including the public/private dichotomy, to the
digitized environment. See Niva Elkin-Koren, Copyright Law and
Social Dialogue on the Information Superhighway: The Case
Against Copyright Liability of Bulletin Board Operators, 13
CARDOZO ARTS & ENT. L.J. 346, 390 (1993). This
commentator noted that one way to characterize a BBS operation is
that it "provides subscribers with access and services. AS such,
BBS operators do not create copies, and do not transfer them in
any way. Users post the copies on the BBS, which other users can
then read or download." Id at 356.
12 Netcom compares itself to a common carrier that merely acts as
a passive conduit for information. In a sense, a Usenet server that
forwards all messages acts like a common carrier, passively
retransmitting every message that gets sent through it. Netcom
would seem no more liable than the phone company for carrying
an infringing facsimile transmission or storing an infringing audio
recording on its voice mail. AS Netcom's counsel argued, holding
such a server liable would be like holding the owner of the
highway, or at least the operator of a toll booth, liable for the
criminal activities that occur on its roads. Since other similar
carriers of information are not liable for infringement, there is
some basis for exempting Internet access providers from liability
for infringement by their users. The IITF Report concluded that
"[i]f an entity provided only the wires and conduits-such as the
telephone company, it would have a good argument for an
exemption if it was truly in the same position as a common carrier
and could not control who or what was on its system." IITF Report
at 122. Here, perhaps, the analogy is not completely appropriate as
Netcom does more than just "provide the wire and conduits."
Further, Internet providers are not natural monopolies that are
bound to carry all the traffic that one wishes to pass through them,
as with the usual common carrier. a - at 122 n.392 (citing Federal
Communications Commission v. MidwestVideo Corp., 440 U.S.
689, 701 (1979)). Section 111 of the Copyright Act codifies the
exemption for passive carriers who are otherwise liable for a
secondary transmission. 3 Melville B. Nimmer & David Nimmer,
Nimmer on Copyright Section 12.04[B][3], at 12-99 (1995).
However, the carrier must not have any direct or indirect control
over the content or selection of the primary transmission. Id; 17
U.S.C. Section 111(a)(3). Cf, infra, part I.B.3.a. In any event,
common carriers are granted statutory exemptions for liability that
might otherwise exist. Here, Netcom does not fall under this
statutory exemption, and thus faces the usual strict liability scheme
that exists for copyright. Whether a new exemption should be
carved out for online service providers is to be resolved by
Congress, not the courts. Compare Comment, "Online Service
Providers and Copyright Law: The Need for Change," I
SYRACUSE J. LEGIS. & POL'Y 197, 202 (1 995) (citing
recommendations of online service providers for amending the
Copyright Act to create Liability only where a "provider has 'actual
knowledge that a work that is being or has been transmitted onto,
or stored on, its system is infringing,' and has the 'ability and
authority' to stop the transmission, and has, after a reasonable
amount of time, allowed the infringing activity to continue'") with
IITF Report at 122 (recommending that Congress not exempt
service providers from strict liability for direct infringements).
13 The court notes, however, that stopping the distribution of
information once it is on the Internet is not easy The decentralized
network was designed so that if one link in the chain be closed off,
the information will be dynamically rerouted through another link.
This was meant to allow the system to be used for communication
after a catastrophic event that shuts down part of it. Francis Decl.
Paragraph 4.
14 The paragraph in Playboy containing the quotation begins with
a description of the right of public distribution. Id Further, the
above quoted language is followed by a citation to a discussion of
the right of public distribution in Jay Dratler, Jr.,
INTELLECTUAL PROPERTY LAW: COMMERCIAL,
CREATIVE AND INDUSTRIAL PROPERTY Section 6.01[3], at
6-15 (1991). This treatise states that "the distribution right may be
decisive, if, for example, a distributor supplies products containing
unauthorized copies of a copyrighted work but has not made the
copies itself." Id. (citing to Williams Electronics, Inc. v. Arctic
International, Inc., 685 F.2d 870, 876 (3d Cir. 1982)). In any event,
the Williams holding regarding public distribution was dicta, as the
court found that the defendant had also made copies. Id.
15 Given the ambiguity in plaintiffs' reference to a violation of the
right to 'publish" and to Playboy, it is possible that plaintiffs are
also claiming that Netcom infringed their exclusive right to
publicly distribute their works. The court will address this
argument infra.
16 The court further notes that Playboy has been much criticized.
See, e.g., L. Rose, NETLAW 91-92 (1995). The finding of direct
infringement was perhaps influenced by the fact that there was
some evidence that defendants in fact knew of the infringing nature
of the works, which were digitized photographs labeled "Playboy"
and "Playmate."
17 To the extent that Sega holds that BBS operators are directly
liable for copyright infringement when users upload infringing
works to their systems, this court respectfully disagrees with the
court's holding for the reasons discussed above. Further, such a
holding was dicta, as there was evidence that the supporting the
contributory infringement theory. Id. at 683.
18 References to "Tr." are to the reporter's transcript of the June
23, 1995 hearing on these motions.
19 Despite that uncertainty, the IITF Report recommends a strict
liability paradigm for BBS operators See IITF Report at 122-24. It
recommends that Congress not exempt on-line service providers
from strict liability because this would prematurely deprive the
system of an incentive to get providers to reduce the damage to
copyright holders by reducing the chances that users will infringe
by educating them, requiring indemnification, purchasing
insurance, and, where efficient, developing technological solutions
to screening out infringement. Denying strict liability in many
cases would leave copyright owners without an adequate remedy
since direct infringers may act anonymously or pseudonymously or
may not have the resources to pay a judgment. Id.; see also Hardy,
supra.
20 Adopting such a rule would relieve a BBS of liability for failing
to take steps to remove infringing works from its system even after
being handed a court's order finding infringement. This would be
undesirable and is inconsistent with Netcom's counsel's admission
that Netcom would have an obligation to act in such circumstances.
Tr. 35:25; see also Tr. 42:18-42:20.
21 The court does not see the relevance of plaintiffs' argument that
Netcom's failure to investigate their claims of infringement or take
actions against Erlich was a departure from Netcom's normal
procedure. A policy and practice of acting to stop postings where
there is inadequate knowledge of infringement in no way creates a
higher standard of care under the Copyright Act as to subsequent
claims of user infringement.
22 In this case, Netcom is even further removed from Erlich's
activities. Erlich was in a contractual relationship only with
Klemesrud. Netcom thus dealt directly only with Klemesrud.
However, it is not crucial that Erlich does not obtain access
directly through Netcom. The issue is Netcom's right and ability to
control the use of its system, which it can do indirectly by
controlling Klemesrud's use.
23 However, plaintiffs submit no evidence indicating Netcom, or
anyone, could design software that could determine whether a
posting is infringing.
24 For example, plaintiffs' demand that the court order Netcom to
terminate Klemesrud's BBS's access to the Internet, thus depriving
all 500 of his subscribers, would be overbroad, as it would
unnecessarily keep hundreds of users, against whom there are no
allegations of copyright infringement, from accessing a means of
speech. The overbroadness is even more evident if, as plaintiffs
contend, there is a way to restrict only Erlich's access to a.r.s.
25 Netcom additionally argues that plaintiffs' theory of liability
would have a chilling effect on users, who would be liable for
merely browsing infringing works. Browsing technically causes an
infringing copy of the digital information to be made in the screen
memory. MAI holds that such a copy is fixed even when
information is temporarily placed in RAM, such as the screen
RAM. The temporary copying involved in browsing is only
necessary because humans cannot otherwise perceive digital
information. It is the functional equivalent of reading, which does
not implicate the copyright laws and may be done by anyone in a
library without the permission of the copyright owner. However, it
can be argued that the effects of digital browsing are different
because millions can browse a single copy of a work in r
cyberspace, while only one can read a library's copy at a time.
Absent a commercial or profit-depriving use, digital browsing is
probably a fair use; there could hardly be a market for licensing the
temporary copying of digital works onto computer screens to allow
browsing. Unless such a use is commercial, such as where
someone reads a copyrighted work online and therefore decides not
to purchase a copy from the copyright owner, fair use is likely.
Until reading a work online becomes as easy and convenient as
reading a paperback, copyright owners do not have c much to fear
from digital browsing and there will not likely be much market
effect.
Additionally, unless a user has reason to know, such as from the
title of a message, that the message contains copyrighted materials,
the browser will be protected by the innocent infringer doctrine,
which allows the court to award no damages in appropriate
circumstances. In any event, users should hardly worry about a
finding of direct infringement; it seems highly unlikely from a
practical matter that a copyright owner could prove such
infringement or would want to sue such an individual.
26 A recent report noted that a third aspect of the nature of the
work may be relevant: whether it is in digital or analog form. IITF
Report at 78. Although the copyright laws were developed before
digital works existed, they have certainly evolved to include such
works, and this court can see no reason why works should deserve
less protection because they are in digital form, especially were, as
here, they were not put in such form by plaintiffs.
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