Material witless

The exponential rise in popularity of user-generated websites MySpace and YouTube has brought to the fore the fact that the copyright laws governing these media are a grey area. By Graham Simkin and Kevin Smith

On 17 November 2006 Universal began an action for copyright infringement in the US District Court of Los Angeles against the popular networking website MySpace. The claim follows a breakdown in negotiations between the two companies for a content licensing deal. Universal had threatened similar action against YouTube, another highly successful networking site specialising primarily in videos, but ultimately settled for a reported seven-figure equity share as part of Google’s $1.65bn (£841.02m) acquisition of the site.

But as the popularity and membership of each site has skyrocketed, so too has the amount of copyrighted content being circulated. This has raised important questions about the rights of copyright owners in relation to the distribution of their content on these sites. Also, because of the rapid growth in popularity of both MySpace and YouTube with consumers (MySpace now claims a membership of more than 50 million), each site is now able to attract significant advertising revenue and they have become a major distribution channel for music and video. Unsurprisingly, they have become the target of large-scale claims.

User-generated and peer-to-peer sites
Both MySpace and YouTube began as user-generated (UG) sites, as opposed to peer-to-peer (P2P) sites. Traditionally, P2P sites have focused on distributing existing third-party material as opposed to new, original material created by site members.

After the collapse of Napster as a free P2P network in 2001 following a successful copyright claim by A&M Records, the only way for members to get free music was to rely on unsigned bands that agreed to make their work available.

UG sites consequently gained enormous popularity as site content was created and distributed almost exclusively by their members as non-media professionals. UG sites provided a powerful new platform for independent artists to promote their material, either directly or through their fans, who could review and recommend a particular track or video to other site members.

Recently, the distinction between P2P and UG sites has been blurred as more and more non-UG content is uploaded. Some of this is the result of established artists uploading their own material (normally via their record companies) in order to expand their fan bases and develop a hip ‘indie’ image – The Libertines have distributed a large amount of free music in this way, for example.

However, a significant proportion of this content consists of copyrighted material being uploaded and circulated without permission. A cursory glance at YouTube or MySpace reveals a catalogue of well-known music videos, adverts and clips from syndicated television programmes.

The US position
The media majors as copyright owners and licensees argue that MySpace and YouTube are facilitating copyright infringement by allowing members to upload material that their companies own and have spent millions developing and promoting. In particular, the majors argue that MySpace and YouTube should not be able to rely on the ‘safe harbour’ provisions contained in Section 512 of the Digital Millennium Copyright Act 1998 (DMCA), a key statute governing copyright law in the US, where both sites are based.

Section 512 allows “service providers” to avoid liability for acts of copyright infringement committed by third parties, subject to five requirements:

  • the service provider must respond promptly to formal notifications from copyright owners and remove any infringing material;
  • the copyrighted material must reside on the hosting service;
  • the material must be stored “at the direction of the user”;
  • the hosting service must not be “aware of facts or circumstances from which infringing activity is apparent”; and#the service provider must not “receive a financial benefit directly attributable to the infringing activity”.

    The DMCA was drafted before UG sites such as MySpace and YouTube came onto the scene and, as a result, the exclusion in Section 512 does not sit comfortably with the role of these sites as service providers. The volume of material being circulated on the sites at any one time is enormous (YouTube reportedly streams 100 million videos a day), and this makes it impossible for copyright owners to identify all infringing material for the purposes of notification.

    The content on the sites is, of course, very popular, so in attracting more members advertising revenue grows. This makes it a challenge to argue that there is no financial benefit ‘directly attributable’ to the infringement.

    A number of US practitioners have expressed serious doubts about the actual protection that Section 512 would offer MySpace or YouTube if tested in the US courts. The grey nature of this exclusion has already prompted both sites to actively seek out licensing deals with the media majors in an effort to pre-empt further litigation for copyright infringement.

    The EU position
    Both MySpace and YouTube are US-based companies and so far most of the focus has been on how the infringing material would be dealt with under US copyright law. The borderless nature of the internet, however, means that a substantial number of site members are based outside the US, with many in the EU. MySpace, for example, offers country-specific sites for four EU member states, including the UK. So what is the EU position with respect to the activities of MySpace and YouTube?

    Regulation 17(1) of the Electronic Commerce (EC Directive) Regulations 2002 provides that an intermediary service provider will not be liable for damages or criminal sanctions as a result of a “transmission” (eg the uploading of copyrighted material) provided that it: did not initiate the transmission; did not select the receiver of the transmission; and did not select or modify the information contained in the transmission.

    Regulation 19 further stipulates that, where a service provider stores information on its server, it will not be liable for that information provided that: it has no actual knowledge of unlawful activity (or it is not aware of facts or circumstances from which an unlawful activity would have been apparent); or upon obtaining such knowledge or awareness, it acts expeditiously to remove or disable access to the information. The regulations do not specify how “actual knowledge” or “awareness” is obtained by the service provider, but the guidelines suggest that the onus will be on the party alleging that liability has arisen to demonstrate that a service provider had actual knowledge or awareness but did not act appropriately.

    While the provisions in the EU regulations excluding liability of service providers for their site content differ somewhat from those in Section 512 of the DCMA, for each there is a similar degree of uncertainty as to how the law would be applied in respect of UG sites such as MySpace and YouTube. Two central questions arise. First, is it reasonable for the service providers to be able to rely on the exclusions while undoubtedly benefiting from the use of copyright material? Second, is it unreasonable to impose on copyright owners an obligation to sift through the millions of items being transmitted daily in order to identify specific examples of copyright infringement?

    While the legal position may remain unclear, copyright owners will be taking a careful look to ensure they protect their rights of copyrighted material in these rapidly growing distribution channels, and it has been reported that YouTube owner Google has set aside $200m (£101.94m) for potential copyright infringement claims.

    Graham Simkin is a partner and Kevin Smith is an associate at Fulbright & Jaworski