4th Circuit Remands Cox Case for New Trial on Contributory Infringement Damages

The panel remanded the case to U.S. District Court for Eastern Virginia for a new trial on damages because Cox didn’t profit from its subscribers’ acts of infringement, a legal prerequisite for vicarious liability, said the opinion. The jury had found Cox liable for willful contributory and vicarious infringement of 10,017 copyrighted works owned by dozens of record label and music publisher plaintiffs and awarded $1 billion -- $99,830.29 for each infringed work -- in statutory damages.

Federal law protects internet service providers from monetary liability under the Digital Millennium Copyright Act for copyright infringement committed by users of their networks, “but only if those service providers reasonably implement a policy to terminate repeat infringers in appropriate circumstances,” said the opinion. In a prior case, the 4th Circuit held that Cox had failed to reasonably implement an anti-piracy program and therefore didn’t qualify for the DMCA’s “statutory safe harbor,” it said.

Cox on appeal contended that the district court erred in denying it judgment as a matter of law on the plaintiffs’ vicarious infringement claim. Because the 4th Circuit concludes that the plaintiffs failed as a matter of law to prove that Cox profits directly from its subscribers’ copyright infringement, “we do not reach the additional question of Cox’s right and ability to supervise its subscribers,” said the opinion. Whether a subscriber uses his or her internet access for lawful or unlawful purposes, Cox “receives the same monthly fee, and a subscriber’s decision to download or distribute a copyrighted song without permission does not benefit Cox,” it said.

The district court rejected that argument, said the opinion. It concluded that the plaintiffs had proven Cox’s “direct financial interest by showing that Cox repeatedly declined to terminate the accounts of infringing subscribers in order to continue collecting their monthly fees,” it said. But to prove vicarious liability, the plaintiffs had to show that Cox profited from its subscribers’ infringing download and distribution of their copyrighted songs, it said. They didn't, it said.

The district court thought it was enough that Cox repeatedly declined to terminate infringing subscribers’ internet service in order to continue collecting their monthly fees, said the opinion. To the district court, “this demonstrated the requisite connection between the customers’ continued infringement and Cox’s financial gain,” it said: “We disagree.”

The continued payment of monthly fees for internet service, even by repeat infringers, wasn’t a financial benefit “flowing directly from the copyright infringement itself,” said the opinion. “As Cox points out, subscribers paid a flat monthly fee for their internet access no matter what they did online,” it said. “Indeed, Cox would receive the same monthly fees even if all of its subscribers stopped infringing,” it said.

An ISP “would necessarily lose money if it canceled subscriptions, but that demonstrates only that the service provider profits directly from the sale of internet access,” said the opinion. But vicarious liability “demands proof that the defendant profits directly from the acts of infringement for which it is being held accountable,” it said.

None of the evidence “raises a reasonable inference” that any Cox subscriber paid more for faster internet in order to engage in copyright infringement, said the opinion. Subscribers may have purchased high-speed internet “for lawful streaming and downloads or because their households had many internet users,” it said.

The plaintiffs offered no “legally adequate” theory to establish “the required causal connection” between subscribers’ copyright infringement and increased revenue to Cox, said the opinion. While Cox profited from the sale of internet service, the plaintiffs haven’t shown that Cox, “in any sense, had a financial interest in its subscribers committing infringement,” it said. Under the correct legal standard, “no reasonable jury” could find that Cox received a direct financial benefit from its subscribers’ infringement of the plaintiffs’ copyrights, it said.

In affirming the jury’s finding of willful contributory infringement against Cox, the evidence at trial, viewed in the light most favorable to the plaintiffs, showed more than Cox’s “mere failure to prevent infringement,” said the opinion. The jury “saw evidence that Cox knew of specific instances of repeat copyright infringement occurring on its network,” it said. The evidence also showed that Cox “traced those instances to specific users, and that Cox chose to continue providing monthly internet access to those users despite believing the online infringement would continue because it wanted to avoid losing revenue,” it said.

The evidence was sufficient to support a finding that Cox “materially contributed to copyright infringement occurring on its network and that its conduct was culpable,” said the opinion. “Therefore we may not disturb the jury’s verdict finding Cox liable for contributory copyright infringement,” it said.

The panel concluded that reversal of the vicarious infringement verdict “warrants vacatur of the damages award and remand for a new trial on damages,” said the opinion. “But we see no reason to vacate the contributory infringement verdict, nor will we direct the district court to enter judgment on any part of the now-vacated statutory damages verdict,” it said.

The panel lacks “sufficient confidence” that the jury’s vicarious liability verdict didn’t “materially influence” its $1 billion statutory damages award, said the opinion. The vicarious and contributory infringement claims “were predicated on the same conduct” and the maximum damages for each is identical, it said. But the statutory range is wide, and the jury’s choice within it “is highly discretionary and may have been influenced by the vicarious infringement verdict,” it said.