IP Law Daily, TOP STORY—S.D.N.Y.: Grooveshark owners liable for copyright infringement; sanctions warranted, (Sep 30, 2014)

By Mark Engstrom, J.D.

The owners and operators of the streaming music website Grooveshark.com were liable for infringing the copyrights of popular music recordings that were owned by or exclusively licensed to nine different plaintiffs, the federal district court in New York City has ruled (UMG Recording, Inc. v. Escape Media Group, Inc., September 29, 2014, Judge). The court granted summary judgment to the plaintiffs on their claims for direct and secondary copyright infringement. It also granted the plaintiffs’ motion for sanctions, but not to the extent requested.

Background. Plaintiffs Arista Music, Arista Records, Atlantic Recording Corp., Elektra Entertainment Group, LaFace Records, Sony Music Entertainment, UMG Recordings, Warner Bros. Records, and Zomba Recording sued Escape Media Group and its two founders, Samuel Tarantino and Joshua Greenberg, for copyright infringement. The plaintiffs complained that the defendants, through their Grooveshark website, illegally provided tens of millions of users with access to a comprehensive library of popular music that included the plaintiffs’ copyrighted works.

According to the court, Escape knew that its business model depended upon the use of infringing music content. In fact, Escape acknowledged that it needed—but did not possess—licenses to facilitate the distribution, performance, and sale of the plaintiffs’ copyrighted music. Rather than wait to obtain those licenses before launching the Grooveshark website, Escape launched its music service with infringing content so it could grow faster and strike favorable licensing deals with the copyright owners and licensors.

Escape’s Chairman explained that the defendants “bet the company on the fact that [it was] easier to ask forgiveness than it [wa]s to ask permission” to use the plaintiffs’ content. Escape had discussed the possibility that its strategy of illegally growing its user base before settling with the plaintiffs could permit the company to: (1) collect information about the listening habits of Grooveshark users and (2) sell that information to the plaintiffs for more money than Escape would pay in licensing fees.

In order to attract users to its music service, Escape had to offer Grooveshark users access to a large amount of music. Because Grooveshark initially lacked a large user base to leverage as a source for content, Escape directed its employees to obtain and make available the content that was necessary to launch the Grooveshark website. More specifically, Escape instructed its officers and employees to create Grooveshark user accounts, to store hundreds of thousands of digital music files on their computers, and to upload or “seed” copies of those files to other Grooveshark users.

The plaintiffs sought summary judgment on their claims that the defendants were liable for direct and secondary copyright infringement. In addition, the plaintiffs sought sanctions for the defendants’ spoliation of evidence.

Sanctions

The plaintiffs alleged that the defendants had knowingly destroyed three categories of evidence: (1) records that Joshua Greenberg (the Chief of Technology Officer of Escape) had illegally uploaded copyrighted sound recordings to Grooveshark; (2) records of additional uploads of copyrighted sound recordings to Grooveshark; and (3) source code files that would have provided corroborative evidence of how Escape had managed the uploading of music to its servers before October of 2008, or its transition to a “Grooveshark Lite” platform.

Spoliation of evidence. Parties seeking sanctions based on the destruction of evidence had to establish that: (1) the party having control over the evidence had an obligation to preserve it at the time of destruction; (2) the records were destroyed with a culpable state of mind; and (3) the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that the evidence would support that claim or defense.

The court noted that, since shortly after the launch of Grooveshark in 2007, the defendants knew that they could be subject to claims of copyright infringement for their unlicensed uploading of the plaintiffs’ recordings to the Grooveshark website. Escape’s internal communications clearly showed that the defendants knew and understood that they were engaging in copyright infringement and were potentially subject to litigation.

In addition, UMG had initiated litigation against Escape in a state court action in January of 2010. Shortly thereafter, UMG served document requests and perseveration demands on Escape. More specifically, UMG sought the production of corporate records that pertained to “employee uploading and historical source code.”

Because Escape knew it could be sued for copyright infringement, the company was under a duty to preserve relevant evidence. According to the court, the defendants acted with a culpable state of mind when they deleted user upload information and the relevant source code. Further, when evidence was destroyed in bad faith, that alone was sufficient to support an inference that the missing evidence would have been favorable to the prejudiced party, and thus relevant to the asserted claims. The court thus found that sanctions for discovery abuse were warranted.

Appropriate sanctions. The court addressed the appropriate sanction for each of the three classes of despoiled evidence: (1) records showing that Joshua Greenberg had illegally uploaded copyrighted recordings; (2) records showing the additional uploading of copyrighted recordings; and (3) source code files.

According to the court, the plaintiffs had established their infringement claims for 4,053 recordings. That number represented about 1.8 percent of the total number of uploads (224,000) that were made by Grooveshark employees. In addition, the court accepted a representation by the plaintiffs’ expert that defendant Greenberg had uploaded 8,000 recordings to Grooveshark. Because 1.8 percent of 8,000 was 144, the court concluded that the plaintiffs were entitled to judgment as a matter of law that Greenberg had illegally uploaded to Grooveshark 144 of the plaintiffs’ copyrighted recordings.

The plaintiffs also asked the court enter a sanction regarding the streaming of Greenberg’s uploaded files by Escape. In his analysis of the non-spoilated evidence, the plaintiffs’ expert found that, on average, Escape had streamed each of the plaintiffs’ illegally uploaded recordings 21,000 times. The court agreed to apply the expert’s conclusions to the Greenberg uploads.

With respect to the additional uploading of copyrighted recordings, the court noted that Escape’s “Upload Report” contained records for more than 320,000 additional uploads that Escape had deleted from its database. The court assumed that Escape employees had uploaded 100,000 of those files. For the purpose of calculating the number of spoilated, infringing recordings, the court decided that the plaintiffs were entitled to a finding that 1.8 percent of the 100,000 files (1,800 files) were copyright-protected recordings. Consequently, the court concluded that the plaintiffs were entitled to judgment as a matter of law that Escape employees had illegally uploaded 1,800 additional files to the Grooveshark website. The court also concluded that Escape had “streamed” a copy of each of those files 21,000 times.

Finally, with respect to the spoliated source code, the court decided that the defendants could not assert one of their substantive defenses to the plaintiffs’ motion for summary judgment. In their opposition to that motion, the defendants argued that their employees could have “scanned but not uploaded” some of the infringing works into a “UsersFiles” table. According to the defendants, it was impossible to know which of the table records represented scans that did not copy an audio file (and thus did not infringe the plaintiffs’ copyrights).

The plaintiffs argued that the missing source code would have disproved the defendants’ argument, and the court agreed with the plaintiffs that the defendants should not be able to benefit from any potential uncertainty that resulted from the source code deletion. The court thus prohibited the defendants from raising that defense to the plaintiffs’ motion for summary judgment.

Infringement Defenses

The defendants asserted four defenses to the plaintiffs’ claims of direct and secondary infringement: (1) equitable estoppel; (2) laches; (3) waiver; and (4) expiration of the statute of limitations. For each of those defenses, the crux of defendants’ argument was that summary judgment was unwarranted because factual issues regarding the plaintiffs’ delay in filing their lawsuit precluded judgment as a matter of law.

Statute of limitations. The court concluded that the plaintiffs did not learn about the employee uploads until the parties had engaged in discovery in UMG’s state court action. Significantly, UMG had filed its complaint in this case within three months of receiving information about the employee uploads, and the remaining plaintiffs joined the case less than month later. Because the plaintiffs had timely filed their infringement lawsuit, the court ruled that their claims were not barred by the three-year statute of limitations for copyright infringement.

Equitable estoppel, laches, and waiver. The defendants could not assert a defense for equitable estoppel, laches, or waiver because all three of those defenses were predicated on the plaintiffs’ purported delay in filing their infringement claims. Because plaintiffs timely filed their infringement action, the court concluded that all of the defendants’ affirmative defenses failed as a matter of law.

Infringement Findings

The plaintiffs alleged that Escape was liable for direct copyright infringement under respondeat superior and secondary copyright infringement under three different theories: (1) vicarious liability; (2) inducement of infringement; and (3) contributory infringement. Finally, the plaintiffs alleged that Tarantino and Greenberg were personally liable—as corporate officers for Escape—for the infringing employee uploads, and were further liable as direct infringers because both had uploaded copyrighted recordings to Grooveshark.

To establish copyright infringement, the plaintiffs had to prove that: (1) they owned valid copyrights in the asserted works and (2) the defendants had copied their protected works or had violated an exclusive right that the Copyright Act had granted to copyright owners. In this case, the plaintiffs owned the copyrights to the recordings at issue, the defendants did not challenge the validity of those copyrights, and the plaintiffs did not authorize the defendants’ reproduction, distribution, or public performance of the plaintiffs’ works. In addition, Escape’s database records “definitively establish[ed]” that the defendants’ employees had uploaded copies of the plaintiffs’ recordings to computer servers that were owned or operated by the defendants.

Based on the plaintiffs’ detailed analysis of the audio files (and associated metadata) that Escape employees had uploaded to the defendants’ servers, the court concluded that the plaintiffs had proved that the defendants had illegally uploaded 4,053 copies of the plaintiffs’ copyrighted recordings. To that total, the court added the number of illegal uploads (1,944) that were identified when the court addressed the plaintiffs’ motion for sanctions for spoliation of evidence. The court thus ruled that the defendants were liable for illegally uploading 5,977 copies of the plaintiffs’ copyrighted recordings.

Finally, Escape’s database records confirmed that Escape had streamed, or publicly performed, the plaintiffs’ copyrighted recordings “at least 36 million times.” Each time Escape streamed one of the plaintiffs’ song recordings, the court explained, it directly infringed the plaintiffs’ exclusive performance rights. The defendants could not, however, be held liable for 377 uploads that Escape employees had made outside the scope of their employment.

Direct infringement. The plaintiffs alleged that Escape was directly liable, under the doctrine of respondeat superior, for the acts of infringement that were committed by its employees while the employees were acting within the scope of their employment. Because the plaintiffs submitted uncontroverted evidence that the defendants had instructed their employees to upload copyright-protected music to Grooveshark, the court granted the plaintiffs’ motion for summary judgment of direct infringement of the plaintiffs’ distribution, reproduction, and public performance rights.

Secondary infringement. The plaintiffs asserted three theories of secondary liability: (1) vicarious copyright infringement; (2) inducement of copyright infringement; and (3) contributory copyright infringement. The court granted summary judgment to the plaintiffs on all three theories.

In order to establish vicarious copyright infringement, a plaintiff had to show that the defendant had: (1) the right and ability to supervise the infringing activities at issue and (2) a direct financial interest in those activities. In this case, the undisputed facts revealed that Escape had the ability to control its employees’ infringing activities. They also revealed that Escape had received, and continued to receive, a direct, financial benefit from the defendants’ infringement. Consequently, the court granted the plaintiffs’ motion for summary judgment of vicarious copyright infringement.

In order to establish a claim for the inducement of copyright infringement, the plaintiffs had to show that Escape had: (1) engaged in purposeful conduct that encouraged copyright infringement and (2) possessed the intent to encourage that infringement. In this case, the court concluded that Escape had engaged in purposeful conduct, with a manifest intent to foster copyright infringement, by overtly instructing its employees to upload to Grooveshark, as a condition of their employment, as many files as possible. For those reasons, the court granted summary judgment of induced infringement to the plaintiffs.

Finally, to establish a claim for contributory copyright infringement, a plaintiff had to show that the defendant had: (1) actual or constructive knowledge of the infringing activity and (2) encouraged or assisted the infringement of others, or had provided machinery or goods that facilitated infringement.

In this case, the record clearly showed that Escape had actual knowledge that its employees were uploading copyright-protected files to Grooveshark, and was actively encouraging that behavior. In addition, the record showed that Escape had materially contributed to the infringing conduct of its employees.

Escape executives, for example, had actively directed, encouraged, and condoned the company-wide infringement of the plaintiffs’ copyrights, and had done so by instructing employees to upload copyrighted recordings and by creating a “Central Music Library” to store and stream copies of the plaintiffs’ works. In addition, senior Escape officers had personally participated in the infringement activities—by using their home Internet connections, for example, to increase the number of files that were uploaded to Grooveshark. Finally, senior Escape employees had “restocked” popular recordings that had been removed after the defendants had received takedown notices under the Digital Millennium Copyright Act.

Because the record evidence made it clear that Escape knew about and materially contributed to the infringing employee uploads, the court granted summary judgment to the plaintiffs on their claim for contributory copyright infringement.

Liability of Tarantino and Greenberg. The plaintiffs alleged that Escape’s co-founders, Samuel Tarantino and Joshua Greenberg, were jointly and severally liable for Escape’s direct and secondary infringement. Because both officers satisfied the criteria for corporate officer liability, and both had uploaded copies of the plaintiffs’ copyrighted works, the court concluded that both were jointly and severally liable, with Escape, for the direct and secondary infringement of the plaintiffs’ copyrights.

The case is No. 11 Civ. 8407.

Attorneys: Aaron Jacob Wright (Jenner & Block LLP) for UMG Recording, Inc., Atlantic Recording Corp., Zomba Recording LLC; Elektra Entertainment Group Inc., and Arista Records LLC. John Jacob Rosenberg (Rosenberg & Giger, PC) for Escape Media Group, Inc.

Companies: UMG Recording, Inc.; Atlantic Recording Corp.; Zomba Recording LLC; Elektra Entertainment Group Inc.; Arista Records LLC; LaFace Records, LLC; Warner Bros. Records Inc.; Arista Music; Sony Music Entertainment; Escape Media Group, Inc.

MainStory: TopStory Copyright NewYorkNews