Claire Corlett

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William Fisher, CopyrightX, Lecture 11.1, Supplements to Copyright: Secondary Liability

William Fisher, CopyrightX, Lecture 11.1, Supplements to Copyright: Secondary Liability

Hello. I’m Terry Fisher. This is the 11th of 12
lectures on copyright. The topic for today is
supplements to copyright. Included in that topic are two
main clusters of legal rules- the doctrine of secondary
liability and the rules recently adopted by many
countries that reinforce so-called technological
protection measures. As usual, I’ll be focusing on
the law in the United States. But I will also mention how
the issues addressed today are implicated by multilateral
treaties and how countries other than the United
States handle them. During portions of the lecture, I’ll
be using a map of copyright law. The current version of
which can, as usual, be downloaded from my homepage, the
address of which is If copyright law were always obeyed,
either because people voluntarily complied with its provisions or
because they were perfectly enforced, the rules we consider today
would almost certainly not exist. But as I’m sure you know,
copyright law is not always obeyed. Indeed, broadly speaking, the frequency
of disobedience seems to be increasing. Some level of disobedience
is not necessarily terrible. We tolerate moderate levels of
illegality in lots of fields. For example, violations of speed
limits and of rules prohibiting the possession of certain drugs are
common and have not, as yet, proven socially catastrophic. Indeed, in the context of copyright
law, some degree of disobedience may be affirmatively beneficial. Infringement provides
a mechanism by which people who could not afford the prices
at which copies of copyrighted works are sold can gain access to those works. Because as you know copyrighted
works are non-rivalrous, no one is injured when poor people gain
access to copyrighted works for free. If people who could and otherwise
would pay for access to the works begin to obtain them illegally for
free, then the copyright owners do, of course, forfeit revenue. But so long as the levels of
illegality remain moderate, the resultant leakage is tolerable and,
as I say, arguably socially beneficial. If the leakage becomes too severe,
however, then copyright owners begin to suffer serious
injuries, and all of the various values advanced
by copyright are imperiled. Lawmakers in such
circumstances feel pressure to address the problem in some way. How? One obvious answer is to increase
the civil and criminal penalties for engaging in copyright infringement. By making illegal conduct more costly,
lawmakers could reduce its incident. We’ll consider strategies
of this sort next week in the last lecture in this
series when we discuss remedies. For now, I’ll note only that increasing
penalties is not always efficacious and can have some serious side effects. In this lecture, we’ll
consider two other ways in which lawmakers have attempted
to curb copyright infringement and to reduce the associated
leakage of the system. The first of those strategies
consist of bringing pressure to bear on third parties, specifically
parties who do not themselves violate any of the exclusive
rights enjoyed by copyright owners. But who enable or encourage
violations by others. The basic idea is that, if we
can force the third parties to withdraw their support
for the infringers, or, better yet, induce those
third parties to act affirmatively to curb infringement, we can increase
the levels of compliance with the law. Before plunging into the
details that currently implement this broad strategy, we
should pause to consider the theories underlying
this approach as a whole. There are two general approaches used
to justify and shape this strategy. The first is simple but important. Encouraging illegality is
widely seen as immoral. The person who encourages
lawbreaking may not be as blameworthy as the
person who engages in it. But it’s still blameworthy
to some extent. And thus, rightly subject
to legal penalties. As we’ve seen, two of the
general theories of copyright, the fairness theory and
the personality theory, are founded at least in part
on moral considerations. Viewed the lenses of those
theories, authors and artists deserve either rewards for their
labor or continuing control over projections of their personalities. Conduct that fails to respect
their rights is immoral. Encouraging conduct that fails to
respect authors’ and artists’ rights is, thus, also immoral. Perhaps to a lesser degree
but immoral nonetheless. And thus properly subject
to legal penalties. Sentiments of this sort, as we’ll
see, color many judicial opinions in this field. The second approach is more
complicated and less intuitive. It’s associated with the
welfare theory of copyright and more broadly with
the utilitarian approach to law in general of which the welfare
theory of copyright is one branch. This second approach is sometimes
called gatekeeper theory. That term was invented
by Professor Reinier Kraakman who pioneered this argument. In a seminal article,
Kraakman points out that in a diverse array of context,
the law and list third parties frustrate or penalize
recalcitrant primary wrongdoers. Examples include- the
liability sometimes imposed on bartenders or social hosts when
their drunk customers or guests cause injuries to themselves or others,
penalties imposed on accountants when their clients engage in
fraud, and penalties employed on employers who hire
illegal immigrants. In other words, employers who
facilitate the unlawful behavior of the immigrants themselves. Kraakman offers the following
analytical framework to guide determinations of when it makes
sense to employ this general technique. Quote successful gatekeeping
is likely to require, one, serious misconduct that
practicable penalties cannot deter. Two, missing or inadequate
private gatekeeping incentives. Three, gatekeepers who can and
will prevent misconduct reliably regardless of the preferences and
market alternatives of wrongdoers. And four, gatekeepers
whom legal rules can induce to detect misconduct
at reasonable cost. Close quote. For subtle application
of this framework, to override the problems,
many but not all of which involves
securities regulation, I encourage you to consult
Kraakman’s article, which is available in the spring 1986
issue of the Journal of Law Economics and Organization. Our concern here is, of course, not the
general theory of gatekeeper liability but with copyright law. As applied to copyright, Kraakman’s
guidelines would suggest that penalties should be imposed on third parties
in hopes of suppressing infringing behavior by others only if one,
otherwise the incidence of copyright infringement would be acceptably high
because directing for interest cannot be controlled by socially
acceptable sanctions. Two, the third parties,
left to their own devices, would not intervene to curb
infringement and indeed might foster it. Three, the third parties
we might target are in a position to effectively
suppress infringement. In other words, the direct infringers
cannot engage in unlawful behavior without their aid. And four, the social and economic
costs of penalizing the third parties are not unacceptably high. In many of the contexts I’ll
be discussing this lecture, the first two requirements
are probably met. The third and fourth, however,
are not so invariably satisfied. When assessing the imposition
of secondary liability in a particular context or
case, you should ask yourself, if we penalize this
particular third party, will the incidents of direct
infringement diminish? Or will the direction infringers
just find some other enabler? And what are the social costs
of imposing secondary liability in this setting? This last question will
be especially salient when dealing with so-called
dual use technologies. In other words, technologies
that can be and are used both to facilitate illegal
behavior and to facilitate lawful and socially beneficial behavior. When considering the use
of secondary liability to suppress such technologies,
you should consider carefully whether the social benefits
of blocking the bad uses exceed the social harms
of blocking the good uses. If not, then the use
of secondary liability reduces rather than
enhances net social welfare. So to review, deployments of
secondary liability in copyright law can and frequently are evaluated or
justified from one of two perspectives- the immorality of helping someone
to violate the rights of others and the possible though
not inevitable net benefits to social welfare of
enlisting gatekeepers to control otherwise
resistant forms of misconduct. With those two perspectives in
mind, let’s turn to the law. In the United States, the
liability of third parties for facilitating the
infringing behavior of others is managed by two
offsetting sets of rules. The first set consists of doctrines of
contributory and vicarious liability. The second consists of a
set of statutory quote safe harbors close quote which are embodied
in Section 512 of the statute that immunize organizations
that otherwise might be liable either for direct
infringement or more likely for contributory or
vicarious infringement. This doctrinal structure should
by now be familiar to you. The doctrines of contributory
and vicarious infringement give copyright owners a
reasonably generous set of rights. Section 512 then carves out of those
rights some specific exceptions and limitations. This pattern, I hope you see, resembles
the relationship between Section 106 on one hand and Sections 107
through 122 on the other. Broad grants of rights subsequently
qualified by exceptions. The history behind this particular
incarnation of the structure is unusual. But the structure itself is
typical of copyright law. I will first briefly outline the
main features of these supposed sets of rules and then examine a
few of the cases in which courts have struggled to apply them. The doctrines of contributory
and vicarious infringement were developed by the courts with little
or no guidance from the legislature. Sometimes, these
doctrines are said to be rooted in the language of Section 106
of the statute, which, as you can see, gives copyright owners the
exclusive right to quote do or to authorize close
quote any of the things we have considered in
the past four lectures. Third parties who encourage
copyright infringement might be said to be
quote authorizing close quote the infringing behavior, which,
as you can see, Section 106 forbids. But this is a pretty thin read on which
to rest a massive doctrinal edifice. It’s more accurate and
honest to acknowledge that the courts have developed
these doctrines on their own. And that the copyright statute
does not meaningfully guide them. The two doctrines are close
cousins but have different origins. Contributory infringement
emerged from general tort law. It’s said to implement
the general principle that one who directly
contribute to a tort should be held responsible along with
the tortfeasor, himself or herself. The role played by the moral principle
I mentioned a few minutes ago should be apparent in this principle. By contrast, vicarious
infringement is an outgrowth of the law of respondeat superior,
the branch of the law of agency that governs the
responsibility of employers for the misconduct of their employees. In the early 20th Century,
the courts extended the respondeat superior principal
well beyond employment relations. To govern a variety of relationships
in which defendants did not themselves engage in
copyright infringement but had economic interests that were
intertwined with those of parties who did engage in
copyright infringement. By the middle of the 20th
Century, the two doctrines had evolved to contain the
following requirements. To hold a defendant liable
for contributory infringement, a plaintiff must show three things. A, that someone had engaged in or
was engaging in direct infringement. B, that the defendant had
actual or constructive knowledge of that infringement. And C, that the defendant materially
contributed to that infringement. By contrast, to hold a defendant liable
for vicarious infringement a plaintiff must show three somewhat
different things. A, that someone had engaged in or
was engaging in direct infringement. B, that the defendant benefited
financially from that infringement. And C, that the defendant
had the right and ability to supervise the direct infringement. In other words, to stop
it and failed to do so. Note that while actual or
constructive knowledge is essential to contributory
infringement, it’s not necessary for
vicarious infringement. In that sense, vicarious
infringement partakes more of the principle
of strict liability than its contributory
infringement cousin. The classic illustration
of these two doctrines was distilled from a set of
cases in the early 20th Century that involved dance halls. Suppose that a musical
group without permission performs some copyrighted
musical compositions in front of a public audience. The playlist, in other words,
the set of songs the group plays, had been selected by
the group’s manager. The owner of the hall in which
the performance takes place keeps a portion of the ticket prices
paid by the members of the audience and makes no effort to
prevent the group from playing the songs without permission. Under these circumstances, the
owners of the copyrights in the songs would have three causes of action. A claim against the group
for direct infringement, namely, as you know by now, a
violation of the public performance right embodied in Section 1064. A claim against the manager
for contributory infringement because, although the
manager himself did not publicly perform any compositions,
he plainly knew of the band’s plan and encouraged it. And finally, a claim against the owner
of the hall for vicarious infringement. Because, even if the owner did
not know of the band’s plan, he is profiting from
the band’s behavior. And he failed to exercise
his clear power to stop them. All of this is straightforward, I hope. Now, let’s consider a
few modern cases where the application of these
principles is less clear-cut. A prosaic but influential case was
decided by the Court of Appeals for the Ninth Circuit in 1996. The defendant, Cherry
Auction, was the operator of this flea market, located
in Fresno, California. A flea market, otherwise
known as a swap meet, is a marketplace where a large
number of independent vendors sell merchandise, typically
inexpensive or used merchandise, to customers who come
hunting for bargains. In this instance, the
vendors, as is typical, paid modest rental
fees to Cherry Auction. Cherry Auction provided
those vendors booth space, operated the parking facilities,
and advertised the marketplace. In addition to collect
the fees for the vendors, Cherry Auction collected entrance
fees from the customer’s. Finally, Cherry Auction
reserved the right to exclude any vendor for any reason. The plaintiff, Fonovisa,
Incorporated, Owns? The copyrights in a large number
of Latino sound recordings. Fonovisa complained several
times at Cherry Auction that sum of the vendors
in the flea market were selling pirated copies of
Fonovisa’s recordings to no available. Finally, Fonovisa brought
suit against the flea market. Because Cherry Auction was not
itself copying or distributing Fonovisa’s works, Cherry was not liable
for direct copyright infringement. But if the facts were as Fonovisa
alleged, then some of the vendors were surely violating
Section 1063 and were not shielded by the first sale doctrine
embodied in section 109(a). If the reasons why the vendors were
engaged in copyright infringement are not clear to you,
you should pause here to review the first segment
of lecture number eight. Fonovisa contended that Cherry Auction
was secondarily liable for the vendors’ unlawful behavior, both under the
doctrine of contributory infringement and under the doctrine of
vicarious infringement. The trial court was unpersuaded
and dismissed the suit for failure to state a claim upon which
relief could be granted. The Court of Appeals for the Ninth
Circuit reversed and remanded the case. In the opinion explaining its
decision, the Ninth Circuit clarified and arguably expanded both
secondary liability doctrines. With respect to
contributory infringement, the court ruled that Fonovisa had
sufficiently alleged knowledge of the infringing sales on
the part of Cherry Auction. More importantly and
controversially, the court ruled that quote material
contribution close quote of the sort required by the
doctrine of contributory infringement could be established by showing that
the defendant quote provided the site and facilities for known
infringing activity close quote. With respect to vicarious
infringement, the Ninth Circuit ruled that Cherry Auction
controlled the flea market site and had unconstrained
authority to expel any vendor. It, thus, plainly had
the right and ability to supervise the infringing activity. More importantly and
controversially, the court ruled that the quote
financial interest required to establish vicarious
liability could be established by showing that the infringing
behavior quote enhanced the attractiveness of the defendant’s
venue to potential customers close quote. In other words, that the
infringing conduct acted as a draw, pulling customers toward
the defendant’s site and thus enabling the
defendant to earn more money. It should be apparent that this
is an expansive interpretation. Taken literally, it would
encompass many kinds of behavior in which the financial
benefit to the defendant is more indirect than the sort
enjoyed by the dance hall owners. This concludes our examination
of the basic principles of secondary liability. After the break, we’ll
examine a set of recent cases that have applied or modified
those principles in context in which defendants supplied goods
or services that are sometimes used for infringing
purposes and sometimes for non-infringement purposes.

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