To what extent does financial interest in vicarious liability in copyright law extend?
<p>I've just learned about <a href="https://en.wikipedia.org/wiki/Contributory_copyright_infringement#Difference_from_vicarious_liability" rel="nofollow noreferrer">vicarious liability</a>. It appears that it means that if you have a right to stop a copyright infringement and you're directly profiting from the fact that the infringement is occurring, you can be held liable for some of the damages.</p>
<p>I was wondering how far the implication of direct financial interest can be stretched. The most concerning example would be ISPs or VPN providers potentially being held liable. After all, ISP or VPN company can block IP addresses which means they could easily make many forms of infringement much more difficult and they do make money off people using their services.</p>
<p>You could say that ISP makes the money anyway, whether you're downloading movies legally or legitimately. However say all but one ISP blocked IP addresses of most torrent trackers, making it impossible for peers to connect with one another. The one remaining ISP that does not block them, despite their right to do so stands to gain by continuing to not block any content as that would bring them more clients.</p>
<p>This could be extended to other things - for example software that can be used to extract content from a computer game. The company that makes it could place measures in it to prevent infringing use, but if they not people might buy the software specifically to steal content of games for example.</p>
<p>So I was wondering how far can this liability be stretched regarding the direct financial gain condition.</p>

<h2>ISPs and VPNs have “safe harbour” protections</h2>
<p>Just like the Post Office, FedEx and other “common carriers” who might be transporting illegal material.</p>
<p>Basically the way it works is that if they don’t know, and stop when they are told about it, they can’t be held liable.</p>

<p>The concept of a “financial interest” affecting <a href="https://en.wikipedia.org/wiki/Vicarious_liability" rel="nofollow noreferrer">vicarious liability</a> for copyright infringement is derived from United States case law. In <a href="https://en.wikipedia.org/wiki/MGM_Studios,_Inc._v._Grokster,_Ltd." rel="nofollow noreferrer"><em>MGM Studios, Inc. v. Grokster, Ltd.</em></a>, <a href="https://supreme.justia.com/cases/federal/us/545/913/" rel="nofollow noreferrer">545 U.S. 913</a> (2005), the Supreme Court described it in these terms:</p>
<blockquote>
<p>One infringes contributorily by intentionally inducing or encouraging direct infringement, and <strong>infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it</strong>.⁹ Although “[t]he Copyright Act does not expressly render anyone liable for infringement committed by another,” these doctrines of secondary liability emerged from common law principles and are well established in the law.</p>
<p>⁹ We stated in <a href="https://en.wikipedia.org/wiki/Sony_Corp._of_America_v._Universal_City_Studios,_Inc." rel="nofollow noreferrer"><em>Sony Corp. of America v. Universal City Studios, Inc.</em></a> that “the lines between direct infringement, contributory infringement and vicarious liability are not clearly drawn” …</p>
</blockquote>
<p>The words used in the question, “direct financial interest,” come from <a href="https://en.wikipedia.org/wiki/Shapiro,_Bernstein_and_Co._v._H.L._Green_Co." rel="nofollow noreferrer"><em>Shapiro, Bernstein &amp; Co. v. H. L. Green Co.</em></a>, <a href="https://law.justia.com/cases/federal/appellate-courts/F2/316/304/187299/" rel="nofollow noreferrer">316 F.2d 304</a> (CA2 1963). That case was about whether a department store was liable for the sales of a <a href="https://en.wiktionary.org/wiki/concessionaire" rel="nofollow noreferrer">concessionaire</a> who sold infringing <a href="https://en.wikipedia.org/wiki/Phonograph_record" rel="nofollow noreferrer">records</a> in the department store, under a profit sharing agreement with the department store. The court held that this relationship resulted in secondary liability:</p>
<blockquote>
<p>Section 101(e) of the Copyright Act makes unlawful the “unauthorized manufacture, use, or sale” of phonograph records. Because of the open-ended terminology of the section, and the related section 1(e), courts have had to trace, case by case, a pattern of business relationships which would render one person liable for the infringing conduct of another. It is quite clear, for example, that the normal agency rule of <a href="https://en.wikipedia.org/wiki/Respondeat_superior" rel="nofollow noreferrer">respondeat superior</a> applies to copyright infringement by a servant within the scope of his employment.</p>
<p>Realistically, the courts have not drawn a rigid line between the strict cases of agency, and those of independent contract, license, and lease. Many of the elements which have given rise to the doctrine of respondeat superior, may also be evident in factual settings other than that of a technical employer-employee relationship. <strong>When the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials</strong> — even in the absence of actual knowledge that the copyright monopoly is being impaired — the purposes of copyright law may be best effectuated by the imposition of liability upon the beneficiary of that exploitation …</p>
</blockquote>
<p>The Supreme Court found that such liability did <em>not</em> exist in the <a href="https://en.wikipedia.org/wiki/Sony_Corp._of_America_v._Universal_City_Studios,_Inc." rel="nofollow noreferrer">Betamax case</a>, <a href="https://supreme.justia.com/cases/federal/us/464/417/" rel="nofollow noreferrer">464 U.S. 417</a> (1984). While Sony had a financial interest in selling a product which was used to infringe copyright, it did not have enough control over its customers’ actions to be liable for their infringement:</p>
<blockquote>
<p>In [other] cases, as in other situations in which the imposition of vicarious liability is manifestly just, <strong>the “contributory” infringer was in a position to control the use of copyrighted works by others</strong> and had authorized the use without permission from the copyright owner. This case, however, plainly does not fall in that category. The only contact between Sony and the users of the Betamax that is disclosed by this record occurred at the moment of sale. The District Court expressly found that “no employee of Sony, Sonam or DDBI had either direct involvement with the allegedly infringing activity or direct contact with purchasers of Betamax who recorded copyrighted works off the air.”</p>
</blockquote>
<p>But in <a href="https://en.wikipedia.org/wiki/MGM_Studios,_Inc._v._Grokster,_Ltd." rel="nofollow noreferrer"><em>MGM Studios, Inc. v. Grokster, Ltd.</em></a>, <a href="https://supreme.justia.com/cases/federal/us/545/913/" rel="nofollow noreferrer">545 U.S. 913</a> (2005), the Supreme Court found Grokster liable for copyright infringement by the users of their peer-to-peer file sharing software. While the software had substantial non-infringing uses, the Supreme Court upheld MGM’s claim on an “inducement theory” because there was evidence that Grokster actively encouraged copyright infringement:</p>
<blockquote>
<p><em>Sony</em>’s rule limits imputing culpable intent as a matter of law from the characteristics or uses of a distributed product. But nothing in <em>Sony</em> requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose rules of fault-based liability derived from the common law …</p>
<p>The classic case of direct evidence of unlawful purpose occurs when one <strong>induces commission of infringement by another, or “entic[es] or persuad[es] another” to infringe, as by advertising</strong>. Thus at common law a copyright or patent defendant who “not only expected but invoked [infringing use] by advertisement” was liable for infringement “on principles recognized in every part of the law” …</p>
<p>The rule on inducement of infringement as developed in the early cases is no different today. Evidence of “active steps ... taken to encourage direct infringement,” such as advertising an infringing use or instructing how to engage in an infringing use, show an affirmative intent that the product be used to infringe, and a showing that infringement was encouraged overcomes the law’s reluctance to find liability when a defendant merely
sells a commercial product suitable for some lawful use.</p>
</blockquote>
<p>Whether an internet or VPN provider is liable for its users’ copyright infringement would depend on the specific evidence produced to the court. The court would need to interpret the above principles and consider other relevant case law. Proof of a “direct financial interest” in the infringement would be relevant, but not necessary or sufficient, to establish liability.</p>
<p>The <a href="https://en.wikipedia.org/wiki/Online_Copyright_Infringement_Liability_Limitation_Act" rel="nofollow noreferrer">DMCA safe harbour provisions</a>, <a href="https://www.law.cornell.edu/uscode/text/17/512" rel="nofollow noreferrer">17 U.S.C. § 512</a>, may also apply, as compliance with these provisions could exclude any liability which the copyright holder was otherwise able to establish. However, “this is irrelevant unless [the defendant] is contributing to infringement; a noninfringer doesn’t need a safe harbor”: <a href="https://en.wikipedia.org/wiki/Flava_Works_Inc._v._Gunter" rel="nofollow noreferrer"><em>Flava Works Inc. v. Gunter</em></a>, <a href="https://casetext.com/case/flava-works-inc-v-gunter" rel="nofollow noreferrer">689 F.3d 754</a> (CA7 2012).</p>

united-states copyright liability