A federal appeals court today overturned a $1 billion piracy verdict that a jury handed down against cable Internet service provider Cox Communications in 2019. Judges rejected Sony's claim that Cox profited directly from copyright infringement committed by users of Cox's cable broadband network.
Appeals court judges didn't let Cox off the hook entirely, but they vacated the damages award and ordered a new damages trial, which will presumably result in a significantly smaller amount to be paid to Sony and other copyright holders. Universal and Warner are also plaintiffs in the case.
"We affirm the jury's finding of willful contributory infringement," said a unanimous decision by a three-judge panel at the US Court of Appeals for the 4th Circuit. "But we reverse the vicarious liability verdict and remand for a new trial on damages because Cox did not profit from its subscribers' acts of infringement, a legal prerequisite for vicarious liability."
If the correct legal standard had been used in the district court, "no reasonable jury could find that Cox received a direct financial benefit from its subscribers' infringement of Plaintiffs' copyrights," judges wrote.
The case began when Sony and other music copyright holders sued Cox, claiming that it didn't adequately fight piracy on its network and failed to terminate repeat infringers. A US District Court jury in the Eastern District of Virginia found the ISP liable for infringement of 10,017 copyrighted works.
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Cox's appeal was supported by advocacy groups concerned that the big-money judgment could force ISPs to disconnect more Internet users based merely on accusations of copyright infringement. Groups such as the Electronic Frontier Foundation also called the ruling legally flawed.
"When these music companies sued Cox Communications, an ISP, the court got the law wrong," the EFF wrote in 2021. "It effectively decided that the only way for an ISP to avoid being liable for infringement by its users is to terminate a household or business's account after a small number of accusations—perhaps only two. The court also allowed a damages formula that can lead to nearly unlimited damages, with no relationship to any actual harm suffered. If not overturned, this decision will lead to an untold number of people losing vital Internet access as ISPs start to cut off more and more customers to avoid massive damages."
In today's 4th Circuit ruling, appeals court judges wrote that "Sony failed, as a matter of law, to prove that Cox profits directly from its subscribers' copyright infringement."
A defendant may be vicariously liable for a third party's copyright infringement if it profits directly from it and is in a position to supervise the infringer, the ruling said. Cox argued that it doesn't profit directly from infringement because it receives the same monthly fee from subscribers whether they illegally download copyrighted files or not, the ruling noted.
The question in this type of case is whether there is a causal relationship between the infringement and the financial benefit. "If copyright infringement draws customers to the defendant's service or incentivizes them to pay more for their service, that financial benefit may be profit from infringement. But in every case, the financial benefit to the defendant must flow directly from the third party's acts of infringement to establish vicarious liability," the court said.
Sony arguments rejected
There was evidence showing "that, when deciding whether to terminate a subscriber for repeat infringement, Cox considered the subscriber's monthly payments," the appeals court said. "To the district court, this demonstrated the requisite connection between the customers' continued infringement and Cox's financial gain."
Appeals court judges disagreed, saying that "continued payment of monthly fees for Internet service, even by repeat infringers, was not a financial benefit flowing directly from the copyright infringement itself."
"Sony has not identified evidence that any infringing subscribers purchased Internet access because it enabled them to infringe copyrighted music. Nor does any evidence suggest that customers chose Cox's Internet service, as opposed to a competitor's, because of any knowledge or expectation about Cox's lenient response to infringement," the ruling said.
While Sony trumpeted the fact that Cox charges more for higher service tiers, judges said this does not raise "a reasonable inference that any Cox subscriber paid more for faster Internet in order to engage in copyright infringement."
Obviously, a faster broadband connection can speed up access to any Internet content, legal or not. "At bottom, Sony offered no legally adequate theory to establish the required causal connection between subscribers' copyright infringement and increased revenue to Cox," judges wrote. "While Cox profited from the sale of Internet service, Sony has not shown that Cox, in any sense, had a financial interest in its subscribers committing infringement. And it is the infringement itself that must in some fashion profit the defendant for vicarious liability to attach."
Cox still liable
But there was enough evidence to prove contributory infringement, the 4th Circuit appeals court decided. "The jury saw evidence that Cox knew of specific instances of repeat copyright infringement occurring on its network, that Cox traced those instances to specific users, and that Cox chose to continue providing monthly Internet access to those users despite believing the online infringement would continue because it wanted to avoid losing revenue," the ruling said.
AdvertisementIn addition to evidence of Cox's lax enforcement, "the jury reasonably could have interpreted internal Cox emails and chats as displaying contempt for laws intended to curb online infringement," the ruling said. In all, the "evidence was sufficient to support a finding that Cox materially contributed to copyright infringement occurring on its network and that its conduct was culpable."
It's not easy to predict how much Cox could be liable for after a new damages trial. The appeals court ruling said the $1 billion award "was a 'global figure' for all infringements in the case."
"Although the vicarious and contributory infringement claims were predicated on the same conduct and the maximum damages for each is identical, the statutory range is wide and the jury's choice within it is highly discretionary and may have been influenced by the vicarious infringement verdict," today's verdict said.
The jury had plenty of leeway to come up with a number, in other words.
"Unlike actual damages, statutory damages are not tethered to concrete figures like lost profits or incurred expenses. To the contrary, the jury was instructed to award an amount it found 'fair under the circumstances,' taking into consideration factors such as '[t]he profits Cox earned because of the infringement,' '[t]he expenses Cox saved because of the infringement,' '[t]he circumstances of the infringement,' and 'the need to punish Cox,' among others," the ruling said.
Because the case was remanded, it will head back to US District Court for the Eastern District of Virginia for further proceedings.
