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MEMORANDUM

To: Skye Donald

From: Exam # 5148

Date: November 21, 2014

Re: Whether Harald Can Prove Vicarious Copyright Infringement

I. Introduction

Erik Harald is an actor in a popular television program. On January 8, 2014, a hacker

posted pictures of Harald smoking marijuana on a message board hosted by danktank.com, a

website dedicated to the legalization of recreational marijuana. This memorandum addresses

whether Harald can establish that Danktank (DT) is liable for vicarious copyright infringement

(VI). A court will probably find that DT is not liable for VI because it is unlikely to find that DT

had the right and ability to supervise the infringing activity.

II. Question Presented

Can Harald establish both elements of a VI claim when DT did not expressly prohibit

copyright infringement, only had security software which lacked the ability to analyze images,

and some users were linked to its site for the sole purpose of viewing infringing photos?

III. Brief Answer

Harald will most likely not be able to establish a claim for VI. In order to prove VI, a

plaintiff must show that the defendant had (1) the right and ability to supervise the infringing

activity and (2) a direct financial interest in the infringing activity. Fonovisa, Inc. v. Cherry

Auction, Inc., 76 F.3d 259, 262 (9th Cir. 1996).

Harald will most likely not prove that DT had the right and ability to supervise. DT had

terms and conditions (T&Cs) to which all users must agree. However, the T&Cs did not prohibit

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or make any mention of copyright infringement. Further, the only formal mechanism DT had in

place to police the conduct of its users was robot software. This robot software lacked the ability

to analyze images, and therefore was unable to identify or remove infringing photos. For these

reasons, DT lacked the right and ability to supervise the infringing activity. See Perfect 10, Inc. v.

Amazon, Inc., 508 F.3d 1146, 1173-74 (9th Cir. 2007) (holding that defendant search engine

operator did not have the right and ability to supervise because it had no agreement allowing it to

stop the direct infringement of or terminate websites of infringers, and lacked the ability to

analyze images for the purposes of identifying infringing material).

However, Harald will probably prove that DT had a direct financial interest in the

infringing activity. DT’s revenues are dependent upon the amount of traffic its website receives.

The infringing post drew an all-time record number of visitors to the site the day after it was

posted. Further, the comments on the post evinced that users were brought to DT solely for the

purpose of viewing the infringing photos. Since DT’s homepage ad revenues are directly

dependent upon the amount of traffic it receives, and the infringing photos caused viewers to

visit DT, DT will likely be able to increase its ad rates at the end of the year. Because of this, a

court will most likely find that DT will earn money off the post, and therefore had a direct

financial interest in the infringing activity. See A&M Records, Inc. v. Napster, Inc., 239 F.3d

1004, 1023 (9th Cir. 2001) (holding defendant had a direct financial interest because its revenues

were directly dependent upon increases in its userbase, and infringing material served as a draw

to increase userbase – even where revenues would not be realized until a future date).

IV. Statement of Facts

Erik Harald is an actor in a popular television program. On January 8, 2014 a hacker

posted photos of Harald smoking marijuana to an online message board hosted by danktank.com

(DT). To post to one of its message boards, DT requires users to register as a member. DT

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members must agree to a set of terms and conditions in order to register. These terms include the

following: DT will not terminate, discipline, or suspend a member simply because of a

disagreement with a post; DT has the authority to remove the text of spam (spam is defined as

“repeated use of the message boards to send unsolicited advertisings”); and DT has the authority

to terminate or suspend a member that engages in spamming. DT has terminated three users’

accounts for spamming in the past. However, because registration requires no personal

information, nothing stops a terminated user from creating a new account.

To monitor the posts on its message board DT has implemented a robot software system.

This software system has a program to identify and delete spam. However, the software has no

ability to analyze images. The software is set up only to remove and replace words deemed

“spam” with a predetermined clause. There are no formal mechanisms in place to monitor

message boards aside from the robot software mentioned above. Additionally, photos posted to

the message board are impossible to download.

DT’s message boards have a total of over two million posts, and thousands of posts are

made each day. Because of this, there is no way for DT to review every post. To date, the post

containing Harald’s photos is the single most-viewed post in the history of DT. DT’s average

visitors per day increased from 9,870 in December 2013 to 15,400 in January 2014. DT received

an all-time record 36,733 visitors the day after the infringing photos were posted. Comments on

the post stated that some visitors had been linked to DT from three other websites because no

other source seemingly had the photos. The photos remain on the site.

DT receives 90-92% of its revenue from click-through ads and 8-10% from homepage

ads. Click-through ads are located on the message board pages, and are primarily targeted ads

made to appeal to marijuana users. The more people that visit the site, the more likely it is that

click-throughs occur. DT receives a fee based on how many visitors actually click on the ads.

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DT’s click-throughs from December 2011 to July 2012 averaged 500-750 per day. DT’s click-

throughs from August 2012-February 2014 averaged 1,000-1,300 per day, including 1,137 in

January 2014. DT’s click-throughs from March 2014-August 2014 averaged 1,700-2,050 per day.

Companies who advertise on the homepage pay a set monthly fee. That advertising fee is

set at the beginning of every year, and is determined by the average number of visitors per day

DT receives. DT bases any rate hike on an increase in the average number of visitors per day for

each month of that year. At the beginning of 2014, DT raised its ad rate 20% because it had

consistently averaged roughly 10,000 visitors per day in 2013. DT has averaged at least 12,400

visitors per day in every month since the infringing photos were posted.

In September 2012, DT launched a legalization campaign for recreational marijuana in

Colorado. It launched a similar campaign for all states in March 2014.

V. Discussion

A court will most likely find that Harald is unable to establish a claim for vicarious

infringement (VI) against Danktank (DT). To be liable for VI the defendant must have: (1) the

right and ability to supervise the infringing activity and (2) a direct financial interest in the

infringing activity. Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 262 (9th Cir. 1996).

A. Right and Ability to Supervise

A court will likely find that DT did not have the right and ability to supervise the

infringing activity. To satisfy that the defendant had the right and ability to supervise, the

defendant must have both the legal right to stop or limit the infringing activity and the practical

ability to police the infringing party’s conduct. Perfect 10, Inc. v. Amazon, Inc. (“P10”), 508 F.3d

1146, 1173-74 (9th Cir. 2007). The legal right prong is established when an agreement exists

allowing the defendant to restrict users’ access to its services for a stipulated reason. Id.;

Religious Tech. Ctr. v. Netcom On-Line Commc’n Services (“RTC”), 907 F. Supp. 1361, 1375-

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76 (N.D. Cal 1995) . In order to police its service, the defendant must have the capability to

identify infringing activity and stop or limit it. P10, 508 F.3d at 1174. Further, the right and

ability to supervise is constrained to the defendant’s current capabilities and premises, also

known as “system architecture.” A&M Records, Inc. v. Napster, Inc. (“Napster”), 239 F.3d 1004,

1023-24 (9th Cir. 2001) (holding that defendant had right and ability to supervise the infringing

uploading and downloading of music, but only within its search indices and given its current

capabilities).

In P10, the defendant’s (Google) search engine displayed infringing photos and gave

direct access to infringing material as a result of user searches. P10, 508 F.3d at 1157. The court

held that since Google had no contract allowing it to terminate or control the activity of the

infringing websites that it lacked the legal right to stop or limit the infringement. Id. at 1174-75.

Google did not have the ability to police its service because its software lacked the image-

recognition technology necessary to determine whether a photo was infringing material. Id. at

1174. Therefore, the court held that Google lacked the right and ability to supervise. Id. at 1175.

Conversely, in RTC the defendant (Netcom) was an Internet Service Provider (ISP) who

supplied Internet access to the operator of an online bulletin board service where infringing

activity occurred. RTC, 907 F. Supp. at 1365-66. Netcom had a set of terms and conditions

(T&Cs) that allowed it to take remedial action against users who violated its policies, which

included the express prohibition of copyright infringement. Id. at 1375-76. The court held that

the agreement between Netcom and its users was sufficient to satisfy the legal right to control the

infringing activity because it allowed Netcom to terminate or suspend users. Id. Further, the court

held that Netcom did exhibit the ability to police its users’ conduct through its suspension of user

accounts on over 1,000 occasions, and its software’s ability to identify and flag posts that

contained particular words or that came from particular individuals. Id. at 1376. Hence, the court

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held that Netcom did have the right and ability to supervise the infringing activity. Id.

DT will argue that just as in P10, it does not have an agreement with its users which

allows it to take action against a user for copyright infringement. While DT does have a set of

T&Cs to which members must agree, these terms make no mention of copyright infringement. In

fact, the T&Cs explicitly state that DT will not terminate, discipline, or suspend a member

simply because of a disagreement with a post. DT only reserves the right to discipline members

for spamming. Since these T&Cs are the only agreement governing DT and its users, and these

terms do not expressly prohibit copyright infringement, DT does not have the legal right to stop

or limit infringement.

DT also lacks the practical ability to police the infringing activity of its users. The only

formal mechanism DT implemented to police its users’ conduct was its robot software. Just as in

P10, DT’s software does not have the ability to analyze images or determine whether they

infringe copyright. This software only has the ability to identify certain words or phrases deemed

spam or obscenity by DT and remove them. Since the infringing material here was a photo, DT’s

software had no ability to identify it as such. Additionally, DT’s message boards have over two

million posts, and thousands of new posts are made every day. This makes it impossible for DT

to review every post that is made by users. Because the scope of the singular infringing post is

miniscule in relation to the number of posts on DT’s website, it has no practical ability to police

the infringing activity. See Adobe Sys., Inc. v. Canus Prod., Inc., 173 F. Supp. 2d at 1054-55

(C.D. Cal 2001) (holding that defendant had no right and ability to supervise where the sale of

roughly 100 copies of infringing software at a trade fair with 450 vendor booths and 15,000

patrons significantly hindered its ability to police its venue).

In contrast, Harald will argue that DT did have the legal right to stop or limit the

infringing activity and the practical ability to police its users’ conduct. Just as in RTC, DT had an

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agreement which allowed it to take action against its users. Further, since only registered

members could make posts, posts could only be made by those that assented to DT’s T&Cs.

These T&Cs allowed DT to suspend or terminate users for spamming. Since “spamming” deals

with certain aspects of a post’s content, DT has reserved the legal right to terminate based on the

content of a user’s post. It has evidenced this right by terminating user accounts for spamming on

three different occasions. Since the infringing material here is contained in the content of a user’s

post, DT does have the legal right to stop or limit infringing activity.

Furthermore, just as in RTC, DT’s software has the ability to identify and locate

particular words or phrases within user posts. DT’s software also has the ability to remove and

replace these words or phrases with a predetermined clause. This ability to identify and replace

certain content allows DT to police its users’ conduct. Since DT has both the legal right to stop

or limit the infringing activity, and the practical ability to police the content of its users’ posts,

DT has the right and ability to supervise the infringing activity.

However, these arguments by Harald will most likely fail. Unlike in RTC, where Netcom

expressly prohibited copyright infringement, DT’s only agreement with its users makes no

mention of copyright infringement. Further, unlike in RTC where the defendant’s software was

capable of identifying the infringing material, DT’s software cannot analyze or identify infringing

images. In addition, DT’s registration does not require the user to divulge any personal

information. So, even if DT took action against an infringing user by terminating his account,

nothing prevents that user from making a new account and continuing his infringing activity.

Therefore, a court will likely find that DT did not have the right and ability to supervise.

B. Direct Financial Interest

In the event that a court finds that DT did have the right and ability to supervise the

activity, it will probably find that it did have a direct financial interest in the activity. In order to

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establish that the defendant had a direct financial interest, it must be proven that the infringing

activity was a “draw” for users. Napster, 239 F.3d at 1023. Proof of a “draw” may be found

where a portion of the defendant’s present or future revenues are directly dependent upon the

infringing activity. Id. “The essential aspect of a ‘direct financial benefit’ inquiry is whether there

is a causal relationship between the infringing activity and any financial benefit a defendant

reaps, regardless of how substantial the benefit is in proportion to a defendant’s overall profits.”

Ellison v. Robertson, 57 F.3d 1072, 1079 (9th Cir. 2004).

In Napster, Napster provided users access to its software which allowed for the

transmission of MP3 files between and among its users, some of which were copyright

infringing. Napster, 239 F.3d at 1011.The court reasoned that the infringing activity served as a

“draw” for users because more users registered with Napster as the “quality and quantity of

available music” increased. Id. at 1023. Because Napster’s future revenues were directly

dependent upon increases in its userbase, and the infringing activity served to increase that

userbase, the court held Napster did have a direct financial interest in the infringing activity. Id.

Conversely, In Ellison, the defendant (AOL) was an ISP which provided users access to

an online forum called USENET. Ellison, 357 F.3d at 1075. One of USENET’s news-groups was

used primarily to exchange unauthorized digital copies of works by famous authors. Id. The court

stated that in order to establish a direct financial interest, the plaintiff must show that the

infringing activity served as a draw for AOL’s users, but that the draw did not need to be

“substantial.” Id. at 1078-79. The court held that because no evidence existed that users either

subscribed to AOL because of the available infringing material or unsubscribed because of its

absence, that AOL did not have a direct financial interest in the infringing activity. Id.

Harald will argue that just as in Napster, DT’s revenues are directly dependent upon its

visitors. DT receives 90-92% of its revenue from click-through advertisements on its message

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board pages. DT receives a fee based on the number of customers that click on these ads. So, the

more people that visit the website, the more likely it is that click-throughs occur. To date, the

infringing post is the single-most-viewed post in the history of DT, and DT received 36,733

visitors the day after the post was made –an all-time record for the site. From December 2013 to

January 2014, DT’s average visitors per day increased from 9,870 to 15,400. So, the infringing

post served as a draw for customers as it increased the site’s popularity to never-before-seen

levels. See Perfect 10, Inc. v. Cybernet Ventures, Inc., 213 F. Supp. 2d 1146, 1172-73 (C.D. Cal

2002) (holding that defendant had a direct financial interest because its revenue was dependent

upon the popularity of its websites, and the presence of infringing material increased the

popularity and appreciation of those websites).

The remaining 8-10% of DT’s revenue comes from advertisements on its home page. The

companies who advertise on DT’s hompage pay a set fee that is determined at the beginning of

the year. DT’s advertising fee is based on the average number of visitors per day it receives. Any

rate hike DT makes is based on an increase in the average number of users per day the site

receives each month. At the beginning of 2014 DT raised its fixed advertising rate by 20% as a

result of averaging 10,000 visitors per day consistently in 2013. So far in 2014, DT’s average

visitors per day for any month has never been lower than 12,400. This increase to a consistent

level above 12,000 per day will once again allow DT to increase its advertising rate at the

beginning of next year. Therefore, since DT received additional visitors from the infringing post,

and both click-through ad revenue and homepage ad revenue are dependent upon the amount of

visitors DT receives, DT has a direct financial interest in the infringing photos.

Conversely, DT will argue that just as in Ellison, no evidence of a causal relationship

between the infringing activity and revenue exists. DT received its highest-ever average number

of visitors per day in the month of January 2014. However, DT’s average click-throughs per day

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for the month of January was 1,137, well within the average range of 1,000-1,300 click-throughs

per day from August 2012-February 2014. Therefore, no significant increase in click-throughs

occurred as a result of the increased traffic from the post.

Furthermore, DT will argue that any increase in average click-throughs per day from

March 2014-August 2014 is a result of launching a new legalization campaign. DT’s previous

legalization campaign launched in September 2012. Prior to August 2012, DT averaged 500-750

click-throughs per day. However, from August 2012 to February 2014, DT’s average click-

throughs increased to between 1,000 and 1,300 per day. DT’s click-through ads are “targeted

ads” which appeal primarily to marijuana users, making it more likely that a visitor who visits

DT for the legalization campaign will click-through an ad than a visitor who simply comes to

view the infringing photo. The increase in click-throughs from February 2014 to March 2014 to

between 1,700 and 2,050 per day directly coincides with the launch of DT’s newest legalization

campaign. So, it cannot be proven that it was the infringing photo and not the legalization

campaign that caused the increase in click-throughs. Therefore, no evidence of a draw exists.

However, unlike in Ellison, where no evidence existed that the infringing material drew

users to AOL’s service, the infringing photos clearly served as a draw for DT. Photos contained

in posts made to DT message boards are not downloadable. Comments on the infringing post

note that DT was seemingly the only source of the infringing photos. So, anyone who wished to

view the photos had to view the post on DT to do so. Furthermore, multiple comments indicated

that visitors had been linked to DT from other websites solely for the purpose of viewing the

photos. In addition, the photos remain on the site, thus it is likely that viewers continue to visit

the site to view the photos. Because viewers have visited DT solely to view the photos, and DT’s

revenue is dependent on its number of visitors, a court will likely find that the infringing photos

are a draw that has resulted in a direct financial interest to the company.

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VI. Conclusion

In conclusion, a court will probably not find DT liable for VI because while it may find

that DT had a direct financial interest in the infringing activity, it is unlikely to find that DT had

the right and ability to supervise the infringing activity.