The court noted that Hotfile’s general knowledge of infringement, even if rampant, was

insufficient by itself to support liability. And unlike Grokster, the intent to infringe was not
“unmistakeable” such that it could be said to be central to the business model and ingrained in
the platform’s design. Although some evidence showed that Hotfile might have been on notice
that specific acts of infringement were afoot, the evidence did not demonstrate that Hotfile knew
for certain that the uses were illegal or that Hotfile induced the infringing use. On balance, the
court concluded that a number of questions remained regarding Hotfile’s intent (actual or
imputed) to foster infringement and the capacity for and scope of noninfringing uses of its
system, therefore making summary judgment for inducement or contributory liability
inappropriate.2831

In Dec. 2013, the MPAA announced a settlement under which the district court had
awarded damages of $80 million to the plaintiffs and ordered Hotfile to either shut down its
operations or use digital fingerprinting technology to prevent copyright infringement by its
users.2832

(g) UMG Recording v. Escape Media

(For a discussion of inducement liability issues in this case, see Section III.C.1(d) above.)

5. Adequacy of Pleadings of Secondary Liability Against Service

Providers

A number of cases have addressed the adequacy of pleadings of secondary liability on the
part of service providers in view of the principles of liability articulated in the cases in the
preceding three subsections.

(a) Miller v. Facebook

In Miller v. Facebook, Inc.,2833 the plaintiff, owner of copyright in a video game called
“Boomshine” sought to hold Yeo, the developer of another game called “ChainRxn,” directly
liable for infringing the look and feel of Boomshine, and to hold Facebook indirectly liable for
listing ChainRXn in the Facebook Application Directory and providing the platform through
which ChainRXn was distributed. Facebook sought to deny the plaintiff leave to file a second
amended complaint. The court granted leave, finding that the proposed second amended
complaint adequately pled claims of direct infringement against Yeo and contributory
infringement against Facebook.2834

2831
Id. at *119-23.
2832
“Hotfile To Pay $80M to MPAA, Studios In Copyright Suit,” Law360 (Dec. 3, 2013), available as of Dec. 7,
2013 at http://www.law360.com/ip/articles/493076?nl_pk=be5fde4e-8dc1-4d81-b621-
f0352bcdff74&utm_source=newsletter&utm_medium=email&utm_campaign=ip.
2833
2010 U.S. Dist. LEXIS 61715 (N.D. Cal. May 28, 2010).
2834
Id. at *1-3.

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 With respect to Yeo, the complaint adequately alleged direct infringement of the
distribution right by alleging that Yeo published ChainRxn to a publicly accessible web site
where it was then distributed to members of the public. It was reasonable to infer that ChainRxn
was downloaded from the computer where it was hosted to the local cache memory of any
Facebook user who played the video game. The plaintiff had also adequately pled a violation of
the public performance right by Yeo because the video displays of Boomshine could be seen as
being publicly performed when users played Yeo’s allegedly infringing game.2835

Given adequate allegations of direct infringement by Yeo, the court ruled that the
plaintiff had also adequately pled contributory infringement against Facebook. Noting that under
the Ninth Circuit’s decision in Perfect 10 v. Amazon, a computer system operator can be
contributorily liable if it has actual knowledge that specific infringing material is available using
its system and it could take simple measures to prevent further damage to the copyrighted works,
the court ruled that the plaintiff had adequately pled “simple measures” that Facebook could
have taken in the form of either disabling Yeo’s Facebook account or removing ChainRxn from
the Facebook Applications Directory.2836

(b) Williams v. Scribd

In Williams v. Scribd, Inc.,2837 the court rejected Scribd’s arguments why the plaintiff’s
amended complaint failed to state a claim for contributory and vicarious liability. The plaintiff
alleged that a Scribd member uploaded onto the Scribd web site hundreds of pages of his
copyrighted material. Noting that under the Ninth Circuit’s decision in Napster,2838 in the online
context a plaintiff must allege and show actual knowledge on the part of a service provider for
contributory liability, the court found that the plaintiff had adequately pled actual knowledge on
the part of Scribd by pleading that he had notified Scribd of the infringement and asked that his
materials be removed from the web site. And the plaintiff had adequately pled a material
contribution to the infringement both by pleading the mere failure to remove and that the web
site provided the site and facilities for direct infringement.2839

The court also rejected Scribd’s argument that the plaintiff could not state a claim for
vicarious copyright liability because he could not plausibly claim that Scribd benefited
financially from the alleged infringement. The court noted that financial benefit exists where the
availability of infringing materials acts as a draw for customers, and that the draw need not be
substantial. Scribd argued that it had too many works on the site for the copyrighted materials of

2835
Id. at *13-15. However, in a confusing aspect of the opinion, the court ruled that the plaintiff had not
adequately pled a direct violation of the public display right because the plaintiff’s copyright appears to be
limited to the source code rather than the audiovisual aspects of the Boomshine, and the source code had not
been publicly displayed. Id. at *13.
2836
Id. at *20-21.
2837
2010 U.S. Dist. LEXIS 90496 (S.D. Cal. June 23, 2010).
2838
A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1021 (9th Cir. 2001).
2839
Scribd, 2010 U.S. Dist. LEXIS 90496 at *19-20.

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Williams to be a draw.2840 Citing the Ellison case, the court held “that if the presence of
infringing material on Scribd’s website compels more people to visit the website than otherwise
would, thereby making it more attractive to advertisers, Scribd can be said to benefit from the
infringement.”2841 The court found that the plaintiff had alleged that the misuse of his
copyrighted works attracted more users to Scribd’s web site, and that was adequate at the
pleading stage – although the court noted that during discovery, Scribd might be able to show
that it didn’t in fact generate ad revenues directly or even tangentially from the works of the
plaintiff that were uploaded to its site.2842

(c) ALS Scan v. Cloudflare

In this case, the plaintiff owned a library of copyrighted works of adult entertainment.
The plaintiff alleged that defendant Steadfast Networks LLC, a network service provider, hosted
pirate sites, including Imagebam.com, that contained unauthorized copies of the plaintiff’s
works. Plaintiff alleged that it sent numerous notifications to Steadfast alerting it of infringing
content on Imagebam, but Steadfast had failed to remove Imagebam from its servers. The
plaintiff asserted claims of contributory and vicarious liability and Steadfast filed a motion to
dismiss.2843

The court noted that contributory copyright infringement could be imposed under
Grokster for intentionally encouraging infringement through specific activity, or under the
traditional Gershwin formulation, for having knowledge of the infringing activity, and inducing,
causing or materially contributing to the infringing conduct of another. Under relevant Ninth
Circuit authority, one can be liable for materially contributing to infringement only where its
participation in the infringing conduct of the primary infringer is substantial. The court found
the plaintiff had not adequately pled a claim for contributory infringement under these standards.
Here, the only allegations specific to Steadfast were it hosted pirate sites, including Imagebam,
and that the plaintiff had sent numerous notifications to Steadfast of infringing content on
Imagebam, but Steadfast had failed to implement or enforce a repeat infringer policy by
removing Imagebam from its servers. The court ruled that because the complaint failed to allege
material contribution or inducement, it need not reach the issue of whether Steadfast had
knowledge of the infringement. Although the complaint alleged that Steadfast hosted pirate sites
that featured infringing content, it was unclear what services Steadfast provided to Imagebam,
what type of infringing activity Imagebam conducted (or even what Imagebam was), or how
Steadfast contributed to or facilitated that infringement. Because the court was unaware of any
authority holding that merely alleging a defendant provided some form of hosting service to an
infringing website was sufficient to establish contributory infringement, the court concluded the

2840
Id. at *23-24.
2841
Id. at *24.
2842
Id. at *24-25.
2843
ALS Scan, Inc. v. Cloudflare, Inc., 2017 U.S. Dist. LEXIS 46937 at *2-5 (C.D. Cal. Feb. 16, 2017).

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complaint failed to allege facts establishing that Steadfast materially contributed to
infringement.2844

The court similarly concluded the complaint failed to adequately plead a claim for
inducement because it did not allege that Steadfast provided its services for the purpose of
promoting copyright infringement, or that it had directly encouraged Imagebam to display
infringing content on its web site. The court also found the complaint failed to adequately plead
a claim for vicarious liability because it contained no allegations that Steadfast had a direct
financial interest in the infringing activity or had the right and ability to stop the infringing
conduct. Because the plaintiff had not adequately pled it primary claims, the court decided it
need not address Steadfast’s alternative basis for dismissal under the DMCA safe harbors.2845

(d) Warner Records v. Charter Communications

Several record labels brought claims for vicarious infringement against Charter
Communications based on the use of BitTorrent by Charter’s Internet service subscribers to
engage in file sharing of the plaintiffs’ copyrighted music. A magistrate judge recommended
that Charter’s motion to dismiss the vicarious liability claims be dismissed based on the
following allegations by the plaintiffs: that Charter attracted customers in part by advertising its
blazing-fast speeds that allow users to download just about anything instantly, including up to 8
songs in 3 seconds; that the plaintiffs and others had submitted to Charter statutory infringement
notices detailing specific infringements committed by specific subscribers, identified by their
unique IP addresses but Charter had not taken any steps to address the reported infringements;
and that this lack of action likely acted as a draw to further subscriptions, as subscribers knew
they could download infringing content without consequence.2846

The district court rejected objections raised by Charter to the magistrate judge’s
articulation of the relevant standard for direct financial benefit and his finding that the plaintiffs
had met the standard. With respect to the standard, Charter challenged the magistrate’s
conclusion that ability to engage in infringing conduct need not be the primary draw of Charter’s
services, but only a draw. Charter interpreted the Ninth Circuit’s Perfect 10 v. Giganews
decision and other cases as holding that the ability to infringe on the plaintiffs’ content must
constitute the attracting factor for subscribers – pointing to the language in Perfect 10 that
infringing activity must be more than an added benefit to a subscription. The court found that
Perfect 10 did not support Charter’s argument that if infringement is not the attracting factor,
then it is simply an added benefit. The court found instead that Perfect 10 supported the
plaintiffs’ position because these plaintiffs, unlike those in Perfect 10, had alleged their works in
particular served as a draw. Moreover, the court elaborated that Perfect 10 had focused on
whether the infringing use was merely something that customers valued rather than a draw to

2844
Id. at *6-14.
2845
Id. at *14-20.
2846
Warner Records Inc. v. Charter Communications, Inc., 2020 U.S. Dist. LEXIS 66249 at *5-8 (D. Colo. Apr.
15, 2020).

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subscribe. The court therefore ruled that the infringing use need not be the draw for subscribers,
but rather only that the plaintiffs’ work in particular constituted a draw.2847

Charter also argued that id did not receive a financial benefit from infringement because
it did not affect Charter’s revenues whether a subscriber used the Internet to infringe copyrights
or for legitimate purposes. The court rejected the argument, finding that Charter had provided no
case law to support the claim that a service provider must receive a larger financial benefit from
infringing users than from non-infringing users.2848

The court then concluded that Charter had raised allegations sufficient to show that the
ability to download infringing content served as a draw. The plaintiffs alleged that subscribers
were motivated to subscribe by Charter’s advertisement of features attractive to those who
sought to infringe, such as fast download speeds for just about anything. And they had alleged
that Charter’s failure to stop or take other action in response to notices of infringement acted as a
draw to current and prospective subscribers. The court agreed with the plaintiffs that the volume
and popularity of the plaintiffs’ copyrighted works, the commonality of infringing downloading,
and the frequency that the plaintiffs’ works in particular were downloaded allowed for the
reasonable inference that at least some of Charter’s subscribers were drawn by the ability to
infringe on the plaintiff’s works.2849

The court also rejected Charter’s challenges to the magistrate’s finding that the plaintiffs
plausibly alleged Charter had the practical ability to supervise or control its subscribers’
infringing activities. Although the court noted that Charter might lack the ability to identify and
terminate all users who infringe on the plaintiffs’ copyrighted materials, it could nevertheless
stop and limit infringement of the plaintiffs’ works by terminating those users about whom it was
notified. And the court distinguished the Ninth Circuit’s Perfect 10 v. Amazon case by noting
that Charter, unlike Google, could terminate its users’ ability to access the Internet through
Charter. Google lacked such power. Finally, the court rejected Charter’s argument that because
it could not stop subscribers from using other forms of Internet access to infringe, it had no
ability to supervise or control infringing activity. The Court found that Charter could certainly
limit its subscribers’ ability to infringe by blocking their access to the Internet through Charter,
and that fact was sufficient to allege that Charter had the ability to control infringement. The
court therefore concluded that the plaintiffs had stated a claim for vicarious copyright
infringement.2850

6. Limitations of Liability of Online Service Providers in the DMCA

From late 1995 through May 1996, OSPs, telecommunications carriers and other
distributors of online information, content providers and software companies negotiated
intensively to reach a consensus on proposed legislation that would provide various statutory

2847
Id. at *10-14.
2848
Id. at *14-15.
2849
Id. at *19-21.
2850
Id. at *21-24.

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