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Jun 05 2015

Passive ISP Company Found to be Active Participant in Infringement

The Digital Millennium Copyright Act protects Internet Service Providers (ISPs) and other companies that merely provide a place to host content from claims of copyright and trademark infringement for alleged violations caused by companies and individuals who post infringing content. But what about an ISP that merely allow users to connect to allegedly infringing sites? Could they be part on an injunction stopping the sites from continued infringement? Judge Alison Nathan of the Southern District of NY, the Federal Court that covers Manhattan, has answered that question Yes” and that “Yes” can cause a new level of liability for companies that see themselves as passive providers of services to internet companies.

The case started when various music labels sued the music streaming company Grooveshark for copyright infringement for allowing the free streaming of their copyrighted content. After four years of litigation, Grooveshark folded and transferred all of their trademarks to the labels as part of the settlement. Days later, a copycat version appeared. After a Manhattan court issued an immediate temporary injunction, the copycat site moved twice, landing on the domain “Grooveshark.li.” A representative of the site going by the name Shark told Reuters at the time, “It’s a war!”

cloudflareWell, as in all wars, collateral damage is a given and this “war” is no different. Not happy about the existence of a Grooveshark.li domain existing, the labels brought in CloudFlare as a party to the injunction. Each version of a Grooveshark site, however, used the services of San Francisco-based CloudFlare, which optimizes the speed of websites and allows Internet users to connect to them without having to type in the numerical Internet address. The labels argued that Cloud Flare was made aware of the injunction and was allowing violations of the injunction by letting “Grooveshark” sites exist.

CloudFlare fought back, enlisting the help of the Electronic Frontier Foundation (EFF), an Internet civil rights group that is always on the cutting edge of legal issues relating to the Internet. CloudFlare, argued that it neither hosts websites nor registers their names, and further said in court papers that its services were passive and automatic. Federal rules allow third parties to be made part on an injunction if they are in “active concert or participation” with the infringer. It also argued that stopping CloudFlare would not stop Grooveshark as a new Grooveshark would be able to continue on one of the myriad other companies that provide a similar service. Finally, CloudFlare argued that to deny its services to the site would require it to “proactively enforce Plaintiffs’ trademark against all comers,” and that such a precedent could force everyone from infrastructure providers like AT&T and Verizon to wireless carriers to proxy servers to do the same.

Judge Alison Nathan

Judge Alison Nathan

The court was not impressed. Judge Nathan, a recent Obama appointee to the bench, ruled that what CloudFlare did made it in “active concert and participation” with the ongoing infringement and therefore subject to the court’s injunction:

Connecting internet users to grooveshark.li in this manner benefits Defendants and quite fundamentally assists them in violating the injunction because, without it, users would not be able to connect to Defendants’ site unless they knew the specific IP address for the site,

Finding that an automated service engages in active participation in trademark infringement by merely providing faster service to an allegedly infringing site opens up a slew of possible similar injunctions down the road. The key here is that Judge Nathan found that since Grooveshark is a distinctive trademark, CloudFlare should have been able to easily stop all access to any site that used the trademark in its domain name. But what about less distinctive names? What about sites that use the trademark on their site but not necessarily in their domain name? The company’s general counsel, Kenneth Carter said in an interview that Judge Nathan’s ruling “makes CloudFlare and other Internet Service Providers the copyright and trademark police for other rights holders.”

This ruling will have a significant impact on CloudFlare’s business model as it is possible that many of its other streaming clients, like Pirate Bay, are infringing on trademarks and copyrights and the company could be faced with similar injunctions. Furthermore, the court here denied the labels’ request for legal fees because it found that CloudFlare “advanced a colorable, good-faith basis for believing that it was not covered by the injunction.” But now that it lost this case, CloudFlare no longer has such a good-faith basis and must immediately comply with similar injunctions or face a huge bill for the other side’s legal fees. It seems that CloudFlare is not going to appeal the decision, so for now Judge Nathan’s ruling has limited reach as other courts of the same level and other courts outside the Southern District are not technically required to follow it. Rest assured the labels will bring similar claims everywhere they can and Judge Nathan’s ruling will at least have to be considered by each court as it is the first and only decision on this issue.

The Internet and digital technology continue to provide new areas of legal issues that require courts to interpret the technology under the language of statutes written well before the technology existed. Judge Nathan felt that CloudFlare’s knowledge of the injunction and continued allowance of a grooveshark domain name’s use of its service was “active concert and participation in” trademark infringement. I don’t see how she really could have ruled otherwise. To deny the injunction would allow Grooveshark to do an end run around the court order. Grooveshark will likely find another company to provide the same service and the labels will likely file a similar injunction. Who knows how long this legal game of “Whac-A-Mole” will go on. But either way the case brings in a new level of liability for companies like CloudFlare and they may need to adjust their business models accordingly.

Judge Nathan’s Ruling

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