(CN) - The online video-sharing site Veoh is not liable for any copyright-infringing material posted by its users, the 9th Circuit ruled Tuesday, finding that the company's attempts to combat the problem warrant protection under federal law.
Veoh Networks, bought out by the Israel-based Qlipso last year after faltering financially, launched its video-sharing website in 2006.
About a year later Universal Music Group (UMG) sued the Youtube-like upstart for secondary copyright infringement of songs to which UMG holds the copyright. It alleged that Veoh had not been vigilant enough in stopping users from uploading infringing music videos and that Veoh's three main backers, one of whom was Disney's Michael Eisner, were also liable.
The suit came in the wake of Veoh's efforts to rid the site of infringing material by applying an "Audible Magic filter" to all new uploads. Veoh removed some "60,000 videos, including some incorporating UMG's works," using the filter, and at the same time "implemented a policy for terminating users who repeatedly upload infringing material, and has terminated thousands of user accounts," according to the ruling.
U.S. District Judge A. Howard Matz, of California's Central District, dismissed the investor defendants and granted Veoh summary judgment on all of UMG's claims. He found that the "safe harbor" provision of the Digital Millennium Copyright Act (DMCA) exempted Veoh, as a service provider, from liability because the videos were stored on the site by users. Veoh had also made a good-faith effort to monitor usage, according to then court.
On appeal, the Pasadena-based 9th Circuit agreed.
UMG put forward a number of arguments, including that Veoh's efforts to stop infringement had been "too little too late," that it had known its users were uploading copyrighted material yet did nothing, and that a "novel" interpretation of the DMCA that the safe-harbor provision applies only to "web-hosting services."
But a three-judge panel of the federal appeals court found that the plain language of the act as well as congressional intent clearly protected Veoh from liability for its users' alleged infringement.
"Although Congress was aware that the services provided by companies like Veoh are capable of being misused to facilitate copyright infringement, it was loath to permit the specter of liability to chill innovation that could also serve substantial socially beneficial functions," Judge Raymond Fisher wrote for the court.
"The evidence demonstrates that Veoh promptly removed infringing material when it became aware of specific instances of infringement," he added. "Although the parties agree, in retrospect, that at times there was infringing material available on Veoh's services, the DMCA recognizes that service providers who are not able to locate and remove infringing materials they do not specifically know of should not suffer the loss of safe harbor protection."
The panel also affirmed the District Court's dismissal of the investor defendants, finding that they did not have significant control over the company to support secondary liability.
"Three investors individually acquiring one seat apiece is not the same as agreeing to operate as a unified entity to obtain and leverage majority control," the ruling states. "Unless the three independent investors were on some level working in concert, then none of them actually had sufficient control over the Board to direct Veoh in the way UMG contends. This missing allegation is critical because finding secondary liability without it would allow plaintiffs to sue any collection of directors making up 51 percent of the board on the theory that they constitute a majority, and therefore together they control the company. Without this lynchpin allegation, UMG's claim that the Investor Defendants had sufficient control over Veoh to direct its spending and operations in a manner that might theoretically satisfy the 'site and facilities' test falls apart."