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Why the RIAA Indirectly Sued Aurous For Willful Copyright Infringement

The Recording Industry Association of America (RIAA) wasted no time in going after the new streaming site, Aurous. A mere three days after its “alpha” launch, RIAA’s constituent major labels, Atlantic, Warner Bros., UMG Recordings, Sony Music and Capitol Records (the entities that have standing to sue) filed their copyright infringement action against the company and its founder and principal designer, Andrew Sampson. The 20-page complaint, filed October 13, seeks temporary and permanent injunctive relief, statutory damages for “willful” infringement in the amount $150,000 (or, alternatively actual damages to be proven at trial), as well as costs and attorney’s fees, pursuant to Copyright Act §§501-502 and §§504-505.

So what is Aurous and why is the RIAA so miffed? In an interview in Billboard the day before the suit was filed, Sampson explained that the service is a mere music player, or an aggregator of other players:

At the most fundamental level, it’s a music player like any other. What stands out is that it can take advantage of other existing platforms and piggyback off those, and integrated those into platform…..You have YouTube, Spotify playlists, Apple Music playlists — the end goal, once we’re out of alpha, is to put those playlists into our app, and it’ll do the rest of the work. So you can listen from anywhere that you have a playlist.

Obviously, the RIAA sees a more sinister operation, one that offers access to pirated music files through the BitTorrent network, but with an interface that makes it much easier for ordinary non-geeks to use. As touted on the Aurous site: “Aurous is BitTorrent Music for Your Dad.“ The complaint makes a less flattering comparison: “Like Grokster, Limewire or Grooveshark, it is neither licensed nor legal.” RIAA alleges that Aurous is set up to receive music exclusively from overseas pirate sites. The complaint further alleges that Aurous unfairly and unlawfully competes with legitimate, licensed sites such as Apple Music, iTunes, Google Play, Rhapsody and Spotify.

The complaint contains three counts of infringement: 1) inducement of copyright infringement, 2) contributory copyright infringement, and 3) vicarious copyright infringement. Notice that neither defendant is sued for actual, direct copyright infringement.

Why is this? Since the heady, ‘ster crazy days of Napster, Grokster, Aimster and other first generation pirate sites, newer avatars of unlicensed free services are careful not to upload any content on its own servers. Instead, they act as convenient portals for users to search and access allegedly infringing files stored elsewhere. Aurus, the so-called “Popcorn Time for music,” apparently does not store files on its systems. That’s why defendants aren’t alleged to be committing any actual infringement themselves. So what are these three distinct, but related claims of indirect infringement?

Inducement of copyright infringement, as described by the Supreme Court in the Grokster decision, is where “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.” That is precisely what RIAA alleges:

Defendants have designed and launch and are operating Aurous with the object of promoting its use to infringe Plaintiff’s copyrights. Defendants knowingly and intentionally induce, entice, persuade and cause users of Aurous to infringe Plaintiff’s copyrights in their sound recordings….

Contributory infringement is where a party has knowledge of another person’s direct infringement and engages in “substantial” participation in the infringement. Here, RIAA alleges: “Defendants have specific, actual, and constructive knowledge of both the infringing activity at the sources of unauthorized copies of Plaintiff’s works that Aurous locates and to which it links, and of the infringing activity of Aurous’s users.” Together, the first two counts amount to Aurous touting that they’ve got lots of infringing files for you to find (inducement) and then they provide the tools to make it easy for you to access these files they know or should know aren’t legit (contribution).

So what’s vicarious copyright infringement? That’s where a defendant has the right to supervise or control the conduct of the actual infringers and also receives a “direct financial interest” in the infringing activity. While this theory of liability is an outgrowth of the doctrine of respondeat superior, there need not be an employer-employee relationship, as is the case with Aurous and its users. Vicarious copyright infringement is the theory upon which performing rights organizations like ASCAP and BMI are able to hold the owners of nightclubs that perform music without a license liable even though the club may be owned by a corporate entity. This basis of copyright infringement allows RIAA to sue Sampson individually without having to “pierce the corporate veil.”

Here’s how RIAA alleges the elements of a vicarious liability claim:

By providing and operating their service, Defendants are receiving a direct financial benefit from copyright infringement in the form of a growing base of users that Defendants can monetize now or later with advertising and other methods of generating revenue. Defendants have stated their intention to display advertising on Aurous. Defendants have the right and ability to stop or limit the infringing activity occurring via their service but they take no steps to do so. Defendants are able to supervise or control the infringing activity of their users in many different ways, including by deciding the sources from which Aurous can and cannot retrieve music files, and through the ability to remotely alter the behavior of the Aurous service by issuing automatic updates to software installed on users’ computers.

Aurous promptly tweeted its view of RIAA’s “direct financial benefit” claim: “@RIAA principle [sic] complaint is that we’re ‘profiting’, anyone see any ads? We sure don’t.” The complaint doesn’t allege any specific activity by Sampson other than to state that “he describes himself as the lead software developer for the Aurous service and the individual responsible for decisions regarding the service” and that he’s the company’s President.

So now you know why RIAA doesn’t allege any direct infringement by defendants but instead bases its claim on three related and often overlapping theories of indirect copyright infringement. The word “aurous” means something that’s made of or contains gold. Whether Aurous might be a gold mine for RIAA or the defendants depends upon whether the court buys the RIAA’s assertion that Aurous is “illegally profiting from piracy by free riding on the creative efforts and investments of others” or takes the EFF‘s view that “[o]nce again, @RIAA asks a court to order the entire world to block & filter an app they don’t like.” Apparently, the Florida federal district court seems inclined towards the former, having issued a temporary restraining order effectively shuttering the site until a hearing on a motion for a preliminary injunction scheduled for October 28.

Update: On December 10, 2015, it was announced that RIAA and Aurous reached a settlement whereby Aurous would pay $3 million and shut down permanently. Considering that the site barely launched before RIAA sued, this is a tremendous victory for RIAA against a site that blatantly used copyrighted songs without authorization.

Copyright Law, Capitol Hill and the Music Business: Can This Marriage Be Saved?

On Wednesday, I attended a luncheon sponsored by the Association of Independent Music Publishers. Like last month’s AIMP lunch, the room was packed with my PRO, music publishing and copyright lawyer colleagues. This time it was for a panel discussion on copyright reform and the music business. The panel, moderated by attorney Michael Sukin, consisted of Jacqueline Charlesworth, General Counsel of the US Copyright Office, Steve Marks, General Counsel of the RIAA and David Israelite, President of the NMPA.

Charlesworth, who started the discussion with a brief PowerPoint recap of recent developments, joked that she was asked by Sukin to sit between Messrs. Marks and Israelite – and she did. In the past, RIAA and NMPA were perhaps more frenemies than besties, with sometimes divergent interests. Charlesworth summarized the various House hearings on copyright and the music business as well as the Copyright Office’s music licensing study which is still in progress. She said there is a consensus that Section 107, the current fair use statute, does not need to change as the four statutory factors were adequate guidance for the courts.

Charlesworth also gave a recap of the hearing regarding Section 512 DMCA takedown notices, with most agreeing that the process doesn’t work. She also addressed the status of the proposed Songwriter Equity Act, which I’ve previously discussed, and the RESPECT Act, which would provide that pre-1972 recordings (which are not protected under federal copyright law) would be subject to the statutory licenses for streaming recordings. This would mean that online services would have to pay royalties regarding the streaming of recordings of classics from the Big Band era to the Beatles and beyond. Recently, two courts have determined that even absent federal copyright protection such royalties would need to be paid under California state law.

Steve Marks discussed royalty payments to labels by streaming services and the disparity among them. He said Pandora pays about 50 cents per user per month in royalties to labels whereas Spotify pays $7 per user per month. One is on a statutory license for a non-interactive service (i.e., users can’t select individual songs) whereas the other is interactive, and therefore subject to market rates. You can guess which is which. He said this disparity doesn’t make sense since the user experience is similar and the distinctions between interactive and non-interactive are increasingly blurred. He agreed that the current music licensing “system” is broken, using as an example of one instance where 1500 separate licenses were needed for one 20-song album. I’m thinking that’s an awful lot of split copyrights and samples to be cleared.

Both Marks and Israelite stressed that statutory rate-setting provisions should be amended to reflect a free market benchmark, i.e., what a willing buyer and seller would negotiate. Marks also stated that with respect to music services he favored pursuing new licensing models, including blanket, collective and bundling of rights. He also stated that both labels and publishers should be paid directly by services (i.e., no pass-throughs) with all rights holders having audit rights.

Israelite stressed that like health care reform and immigration reform, copyright reform means different things to different constituencies. To what he characterized as “extreme academics”, copyright reform means looking at copyright through the prism of the public good and getting material into the public domain as quickly as possible. They and their Silicon Valley funders believe that copyright duration should be shortened and that fair use and application of compulsory licenses should be expanded.

By contrast, Israelite said most of the creative community view copyright as a property right that needs to be strongly protected in order to incentivize creators to create new works. Historically, Israelite pointed out, copyright reform had always been about strengthening copyright protections.

Israelite spoke eloquently on the stifling effect statutory and Consent Decree regulations have on songwriters and music publishers, pointing out that labels have about 8% of their income regulated while publishers have 75% of theirs subject to Congressional or Consent Decree oversight. As a result, Pandora pays 50% of its revenue to labels but only 4% of its revenue to publishers who are subject to rates dictated by statutes and Consent Decrees. The panelists all touched upon the current Justice Department review of the ASCAP and BMI Consent Decrees, a topic I discussed here.

Very little of the discussion covered new ground. However, what was interesting was the degree of mutual support that RIAA and NMPA had for their respective interests. For example, Israelite expressed strong support for copyright protection for pre-1972 recordings and a terrestrial public performance right for sound recordings. Similarly, Marks expressed support for Consent Decree reform and to amend the Copyright Act in Sections 112 and 114 to have rates regarding musical compositions set using a fair market benchmark.

This more closely united front is undoubtedly the result of common perceived “enemies” that did not exist historically such as Google/YouTube, Apple/iTunes, Pandora, Spotify and anti-copyright academics such as Lawrence Lessig. None were singled out by name. And of course, the music industry needs these online services as much as they need the content that labels and publishers provide.

While none of the panelists felt that major changes to copyright law as a whole would be forthcoming anytime soon, they did feel that some changes with respect to music could happen in 2015. And something else to watch is RIAA and NMPA’s working on ways to address “micro-licensing” issues: license requests that often aren’t handled because the dollar value is too low to justify the administrative costs. Finding a way to effectively deal with these micro-licenses potentially lead to many millions in additional revenue while helping users whose requests are too often ignored.