IO Group, Inc. v. Veoh Networks, Inc.

Filing 109

Administrative MOTION for Leave to File Supplemental Brief Explaining Relevance of Recently issued Authority; and (Proposed) Order filed by IO Group, Inc.. (Attachments: # 1 Exhibit [Proposed] Supplemental Brief and Grokster Order)(Sperlein, Dennis) (Filed on 10/22/2007) Text modified on 10/23/2007 (bw, COURT STAFF).

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GILL SPERLEIN (172887) THE LAW OFFICE OF GILL SPERLEIN 584 Castro Street, Suite 849 San Francisco, California 94114 Telephone: [phone] [e-mail] Attorney for Plaintiff IO GROUP, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION ) ) IO GROUP, INC., a California corporation, ) ) ) Plaintiff, ) vs. ) ) ) VEOH NETWORKS, Inc., a California ) Corporation, ) ) Defendant. ) ___________________________________ CASE NO.: C-06-03926 (HRL) [PROPOSED] SUPPLEMENTAL BRIEF EXPLAINING RELEVANCE OF RECENTLY ISSUED AUTHORITY

MEMORANDUM OF POINTS AND AUTHORITIES I. Introduction

Parties have filed cross motions for summary judgment and have fully briefed and argued the matter before the Court. Plaintiff submits this Supplemental Brief for the limited and sole purpose of bringing to the Court's attention a recent Order for permanent injunction issued from the district court in the matter of Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd, and to explain the relevance of the order to this matter. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd, No. CV 01-8541, CV 01-9923 (C.D. Cal. October 16, 2007), on remand 243 F. Supp. 2d 1073 (C.D. Cal. 2003), aff'd, 380 F.3d 1154 (9th Cir. 2004), vacated and remanded, 545 U.S. 913
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(2005). Both Veoh Networks and Io Group cited Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005) in their moving papers. As explained in further detail infra., Veoh relied on the Ninth Circuit's treatment of the Napster injunction to support arguments it presented to the Court relevant to the pending motions for summary judgment. In the attached Order the Grokster district court structures an appropriate permanent injunction subsequent to its finding of liability, and in so doing further clarifies the effect of the Ninth Circuit's decision limiting the scope of the Napster injunction. A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001). The Order provides a detailed analysis of the relationship between the terms of an injunction and the elements of the underlying substantive law within the specific context of online secondary copyright infringement. Specifically, the court makes clear why notice may be required for the purposes of an injunction even when notice is not required for an underlying claim, such as inducement to infringe, vicarious liability or safe harbor under 17 U.S.C. §512(c)(1)(B). A full and complete copy of the Order is attached hereto as Exhibit A. Argument In Grokster, defendants distributed software that allowed individuals to search, locate and trade music files residing on the computers of other users. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 243 F. Supp. 2d 1073 (C.D. Cal. 2003). The U.S. Supreme Court found that the software distributor could be liable if it induced its users to engage in copyright infringement and remanded the case to the district court. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005). On remand, the district court granted plaintiff's motion for summary judgment, as the record supported a finding of inducement. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 454 F. Supp. 2d 966 (C.D. Cal. 2006). Last week the court granted in part, plaintiff's motion

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for a permanent injunction. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd, No. CV 018541, CV 01-9923, Doc. No. 1287 (C.D. Cal. October 16, 2007)(Grokster Order). Although knowledge of specific acts of infringement is not required to establish inducement to infringe, the district court nonetheless structured the permanent injunction such that defendant is not required to filter for any particular copyrighted works until the plaintiffs provide certain information about the works, including the artist-title pair, a certification of ownership, and possibly some evidence that one or more files containing each work is available on the Morpheus System and Software. Grokster Order at p.78. The attached order may be helpful to the Court, because it explains in some detail exactly why an injunction must generally be more restrictive than the elements of the underlying substantive law. In its moving papers, Io Group cited Napster for its holding that, "[t]he ability to block infringers' access to a particular environment for any reason whatsoever is evidence of the right and ability to supervise." A&M Records v. Napster, Inc. 239 F.3d 1004, 1023. Arguing that it does not have the right and ability to control infringing activity, Veoh directed the attention of the Court to the Ninth Circuit's stay of the district court's injunction in Napster. Veoh noted that irrespective of the language relied upon by Io Group above, the Ninth Circuit placed the burden on the plaintiffs to identify works to Napster before Napster would be required to disable access to the offending content. Defendant's Reply at 10:14-20. Veoh thus argued by implication that Napster requires copyright holders to provide notification to Veoh, before the copyright holder can establish Veoh's right and ability to control the infringement of the works. This argument is fundamentally flawed in that it confuses the requirements of a casespecific injunction with the elements of the underlying substantive law. The recent Grokster Order exposes the fallacy of Veoh's argument. The attached Order specifically addresses the relevancy of the Ninth Circuit's narrowing of the Napster injunction vis-à-vis the elements of the underlying claims of infringement. The court explains that blanket injunctions to obey the law are disfavored because courts are required to craft
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permanent injunctions so that their scope is coterminous with the infringement. Grokster Order at p.53. Quoting earlier Supreme Court precedent, the court wrote, "[T]he mere fact that a court has found that a defendant has committed an act in violation of a statute does not justify an injunction broadly to obey the statute and thus subject the defendant to contempt proceedings if he shall at anytime in the future commit some new violation unlike and unrelated to that with which he was originally charged." Id. at 54, citing NLRB v. Express Pub. Co., 312 U.S. 426, 435-36 (1941). Thus businesses like Napster, Grokster or Veoh may chose to operate a business which relies on user submitted content, understanding and accepting the risk of liability for secondary copyright infringement. Even if these businesses cannot eliminate the risk of infringement entirely, they can take steps to reduce the amount of infringing material and can manage any remaining risk by seeking indemnification from direct infringers or purchasing business insurance. However, if a court issues an injunction which merely adopts the same elements as the underlying law, the online businesses may find themselves at risk of being held in contempt of court for a single act of infringement ­ a risk that cannot be managed away. Courts must narrow the scope of injunctions in order to avoid the risk of forcing a defendant to cease all operations, including those that may be legal. The Order makes clear that both the Ninth Circuit in Napster and the district court in Grokster imposed a notification requirement not because it is an element of the underlying claim of infringement, but because the courts were concerned that the injunctions might proscribe otherwise legal activity ­ specifically the distribution of software that might have substantial noninfringing uses. The district court in Grokster notes that, "[a]lthough actual notice of specific infringing files (and the failure to remove them) is not a prerequisite to inducement liability in the first

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instance, like vicarious infringement, Napster informs this Court that notice is relevant to the injunction. While continued distribution of an ineffectively filtered Morpheus would violate the injunction, some precautions are necessary to ensure that StreamCast will not be unfairly penalized for the architecture of its staple commodity." Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd, No. CV 01-8541, CV 01-9923, slip op. at 77:10-22 (C.D. Cal. October 16, 2007). Thus, the Order for injunctive relief confirms that while the Ninth Circuit limited the scope of the injunction in Napster by requiring notice from the copyright holders, the limitation in no way effected the "ability to control" with regard to a vicarious liability analyses under the common law or (by extension) a 17 U.S.C. §512(c) safe harbor analysis. Thus the recently issued Order offers further support that Veoh's reliance on Napster to support its argument that copyright holders must identify works to Veoh, before Veoh can be deemed to have the right and ability to prevent infringement is fundamentally flawed.

Dated: October 22, 2007

Respectfully Submitted, /s/ Gill Sperlein _________________________________ GILL SPERLEIN THE LAW OFFICE OF GILL SPERLEIN Attorney for Plaintiff Io Group, Inc.

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EXHIBIT A

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