In another major victory for content owners over file sharers, the Central District of California found the owner and operator of a “torrent” file-sharing service liable for inducing copyright infringement in Columbia Pictures Indus., Inc. v. Fung, et al., 2009 U.S. Dist. LEXIS 122661 (C.D. Cal. Dec. 21, 2009).  The Fung case reflects the continued evolution of peer-to-peer file-sharing technology since the Napster service was found to be infringing nearly a decade ago.  Napster maintained a centralized index of song titles available for sharing and matched a user seeking a particular song directly with a user who had a copy of it.  The Grokster, KazAa and Gnutella services did not maintain a centralized index of song titles, but upon request would search users’ computers for a copy of a particular song title and then match the requester with the user who had a copy of it. 

In contrast, a torrent user visits a website to find “torrent files” relating to content the user wants to find.  The torrent file does not contain the actual content the user is looking for; instead, it contains metadata which allows the torrent software to find and retrieve content from individual users’ computers.  When a user selects a particular torrent file for download, the torrent software then identifies multiple locations where the content resides, and downloads pieces of it from all of those locations simultaneously.  This approach allows for much faster and more efficient downloading of files and lessens the bandwidth strain on participating systems.

Fung operated a number of torrent websites which provided users with the torrent files necessary to find and share copyrighted content.  Under the standards enunciated by the U.S. Supreme Court in Grokster, the court found Fung liable for inducement of copyright infringement. 

Secondary Liability for Foreign-Based Activity

Because the Copyright Act has no extraterritorial effect, and the servers that Fung used to maintain his websites were located in Canada, the court addressed as a threshold matter whether the Copyright Act could reach Fung’s conduct.  A contributory infringer may be liable for actions occurring abroad which knowingly cause direct infringement within the United States.  Accordingly, Fung’s liability hinged first on evidence that users located in the United States used his websites to transmit or retrieve copyrighted content.  Though Fung argued that the plaintiffs needed to show that U.S.-based users both transmitted (uploaded) and received (downloaded) copyrighted content, the court found that either act, standing alone, could constitute the necessary direct infringement, since transmission violates the copyright owner’s distribution right and retrieval violates the copyright owner’s reproduction right.

The court found that the plaintiffs submitted “abundant evidence of infringement” using Fung’s websites.  Plaintiffs’ expert conducted a statistical study showing that more than 95% of files available through the websites were either copyrighted or highly likely to be copyrighted.  Plaintiffs also introduced evidence of direct infringement within the United States by tying together data reflecting the IP addresses and geographical locations of users with downloads of torrent files and sharing of corresponding copyrighted content.  The court concluded that this evidence “conclusively establishes that individuals located in the United States have used Fung’s sites to download copies of copyrighted works.” 

Inducing Infringement

The court then analyzed Fung’s conduct against the Grokster inducement standard: one who “distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.”  Under this standard, “mere knowledge” of infringing acts is not enough, nor are “ordinary acts incident to production or distribution.”  Instead, liability is predicated on “purposeful, culpable expression and conduct.” 

The court found that “evidence of Defendants’ intent to induce infringement is overwhelming and beyond reasonable dispute.”  Fung conveyed a pro-piracy message to users by categorizing torrent files into browseable groups like “Top Searches,” “Top 20 Movies,” “Top 20 TV Shows,” and “Box Office Movies”;  posting statements such as, “if you are curious, download this,” with a link to a torrent file for the then-recent film “Lord of the Rings: Return of the King”;  and making repeated public statements acknowledging that his activities were illegal, such as, “they accuse us for [sic] thieves, and they r [sic] right.  Only we r [sic] ‘stealing’ from the lechers (them) and not the originators (artists).” 

Moreover, Fung, as well as various moderators of his sites, actively promoted infringement by providing users with technical assistance in downloading and viewing copyrighted works.  Though Fung argued that the First Amendment protected this verbal conduct, the court held that under Grokster, his statements themselves were not illegal; rather, they were probative of an intent to infringe, and supported a finding of secondary liability. 

Finally, Fung’s sites implemented a number of technical features designed to foster infringement, such as allowing users to locate and upload torrent files and automating the collection of torrent files from other sites which were well-known to contain infringing content.

As in the Napster and Grokstercases, Fung’s business model depended on “massive infringing use.”  His websites generated revenue almost exclusively by selling advertising space.  Revenue depended on users visiting the sites and viewing the advertising.  Fung admitted that the availability of popular works drove visitors to his sites.  He also solicited advertising based on the availability of such works, stating, for example, that his sites would “make a great partner, since TV and movies are at the top of the most frequently searched by our visitors.”

DMCA Defense Incompatible With Finding of Inducement

The court rejected an attempt by Fung to find refuge in the DMCA’s safe harbor provisions.  The DMCA shields a service provider from liability for users’ infringement if the provider is unaware of the facts and circumstances from which infringing activity is apparent.  If the provider has actual knowledge of infringement, the DMCA does not apply.  “Willful ignorance” will likewise strip a provider of the safe harbor; thus, if the provider becomes aware of a “red flag” from which infringement is apparent, the provider may not invoke the DMCA.  

Here, Fung plainly knew that his websites made copyrighted content available; Fung himself downloaded such material.  Even though his own downloads occurred abroad, beyond the reach of the Copyright Act, he knew that U.S.-based users could access the same copyrighted content on his websites.  Evidence produced by Defendants showed that approximately 25% of users were located in the United States, and at one point in time, U.S.-based users accessed Defendants’ websites 50 million times in a single month.  Combined with the other evidence of infringing conduct and Fung’s state of mind, Fung could not avail himself of the DMCA.  Indeed, the court held that inducement liability and the DMCA safe harbor are “inherently contradictory,” because inducement liability is based on bad-faith conduct “aimed at promoting infringement,” whereas the DMCA is based on good-faith conduct “aimed at operating a legitimate internet business.”