Web sites such as YouTube, MySpace and Facebook are some of the most popular Web sites on the Internet. Facebook, for example, which only opened up to the worldwide market in September 2006, has an estimated 70 million users worldwide and (at least pre-credit crunch) had an estimated value in excess of $8 billion. UGC Web sites that drive huge numbers of users to their sites can attract lucrative advertising revenue and can provide strategic synergies for traditional media companies. So much so, that in July 2005 News Corp acquired MySpace for $580 million and in October 2006 Google Inc acquired YouTube for $1.65 billion.
Copyright Infringement
UGC Web sites often hit our headlines, particularly in relation to the legality of their business models. The main reason for this is that, although some UGC is ‘original’ from a copyright perspective, UGC often includes, or is based on, valuable third-party copyright works such as films, music and pictures. Copyright owners, who invest significant time and resources in developing their content, are feeling increasingly aggrieved that their content is being made available without any financial return and are taking the issue of infringement very seriously. This is evident from the ongoing, high profile, litigation brought in the USA by Viacom against YouTube (whose business relies heavily on being able to provide a video sharing platform).
In the UK, the operator of a UGC Web site runs the risk of being liable for copyright infringement (and there are risks in other areas, such as defamation, not considered by this article) for hosting UGC. It is fairly well accepted that the defences provided by the Copyright, Designs and Patents Act 1998 are, in most cases, unlikely to be of much help in this regard. However, there is a tendency for UGC Web site operators to assume that they will find a safe harbour from copyright infringement in the ‘hosting defence’ provided in the Electronic Commerce (EC Directive) Regulations 2002. This article looks at the merits of that assumption.
Scope of the Hosting Defence
The Regulations (which implement the EU Directive on Electronic Commerce into UK law) provide various exemptions from criminal liability and damages (but not from injunctive relief) in relation to certain activities undertaken by ‘information society service providers’ (‘ISSP’). A UGC Web site operator is, in most cases, likely to be classed as an ISSP.
The hosting defence provides that, where an information society service is provided, which consists of the ‘storage of information’ provided by a user, the ISSP shall not be liable for any criminal liability or damages (for which it might otherwise be liable) as a result of that storage where:
(a) it does not have actual knowledge of the unlawful activity or information or upon obtaining such knowledge or awareness and it acts expeditiously to remove or disable access to the information; and
(b) the user was not acting under the authority or the control of the ISSP.
Part (a) can in most cases be satisfied by operating an efficient ‘notice and take down’ procedure. Similarly, it is likely that a UGC Web site operator would satisfy part (b) (although this is untested by the English courts), assuming that the Web site operator does not actually determine or control what UGC is uploaded.
English law is currently unclear, however, as to the meaning of the term ‘storage of information’ and thus the scope of the hosting defence. The Directive and the Regulations are unclear whether the defence is restricted to the pure, technical act of hosting (ie hosting by an Internet service provider (ISP)) or whether it also applies to a wider range of storage activities, such as storage of infringing UGC by a Web site operator. The defence was designed to protect organisations that do not exercise control over information, such as ISPs, but it is unclear whether the defence was intended to go further and protect others, such as UGC Web sites, particularly where those operators exercise some control over the information that users upload, such as providing indexing, search and filter tools. The recitals to the Directive are narrow in scope and state, for example, that the activities to which the exemptions apply are ‘limited to the technical process of operating and giving access to a communication network’ and are of a ‘mere technical, automatic and passive nature’. The recitals do not suggest that the Directive intended the hosting defence also to apply to storage of information by Web site operators such as UGC Web sites. It also seems difficult to imagine that the intention of the Directive, whilst seeking to promote free movement of information society services between member states, is to achieve this at any cost to the detriment of IP rights owners.
Guidance from Overseas?
The applicability and scope of the hosting defence have not yet been tested by the English courts in respect of copyright infringement. There have recently however been cases in Europe, and in the USA (which has analogous legislation that provides a ‘safe harbour’ from liability for online service providers), which may provide some guidance to the application of the hosting defence in the UK.
In France, LVMH (the owner of several luxury brands including Louis Vuitton and Christian Dior) brought proceedings against eBay in relation to the sale via eBay of counterfeit LVMH goods and eBay pleaded the hosting defence. The French courts recognised the defence but gave it such a narrow interpretation that eBay was unable to rely on it and was found liable to LVMH under the French civil code and ordered to pay approximately €38.5 million in damages. Appropriate weight should of course be given to this decision bearing in mind the typically favourable decisions that rights owners tend to receive in French courts.
In that case, the hosting defence was dismissed on the basis that eBay deploys a commercial activity remunerated from the sale of products via auctions (which includes the provision of tools that enhance sales, such as category listing and eBay ‘shops’) and does not limit its role to a pure hosting service. eBay is appealing the decision. If unsuccessful in its appeal, eBay’s business model in Europe will be significantly affected and may further encourage rights holders to bring actions against UGC Web site operators for copyright infringement.
The decision in the US lawsuit between Viacom Inc and YouTube (being held at the New York District Court early next year) is eagerly awaited. The case is likely to test the limits of the US safe harbour under the Digital Millennium Copyright Act 1998 (DMCA). The DMCA limits the liability of online service providers for infringing material hosted on their system in a similar way to the UK Regulations. The decision in this case could be influenced by a recent California District Court decision between the online video site Veoh and a film maker whose films had been uploaded and viewed via the Veoh site. In this case, the California District Court found in favour of Veoh on the basis that it had appropriate policies in place to identify and remove infringing material and that the DMCA was intended to facilitate the growth of electronic commerce, not restrict it.
Looking to the Future
The future for UGC Web sites is currently rather unclear. Until clarification arrives from the Commission or until a UK court has the opportunity to pass judgment on the applicability of the hosting defence, UGC Web site operators may take limited guidance from the analogous cases of our continental neighbours in Europe (and to a lesser extent from the US). The French eBay case suggests a limited applicability of the hosting defence for copyright infringement. It remains to be seen whether English courts will be influenced by the French eBay decision (or by US decisions) and whether they will be required to consider the hosting defence in the case of L’Oreal v eBay (the first case to be brought in the UK relating to the sale of counterfeit products online). Our interpretation of the Directive and UK Regulations suggests that UGC Web site operators in the UK are likely to face an uphill battle in seeking to rely on the hosting defence for UGC that infringes copyright.
It may be some time until there is certainty for UK operators of UGC Web sites. It is worth noting that several media companies including the BBC, CBS, Sony BMG and Fox have entered into content licences with YouTube, which are reported to include a share of advertising revenues. Licensing and revenue share deals between UGC Web sites and content owners seem increasingly likely. It is rumoured that the YouTube case is continuing in the US only because the parties are unable to agree a content licence fee (and so the case may well settle before reaching trial). Until the uncertainty on the issue has been removed, prudent UGC Web site operators in the UK should carefully consider the practical steps that they can take to minimise their potential exposure and also consider including contingent royalty payments on their balance sheets.
Robert Goldstone is an Associate and James Gill is a Partner in the Commerce & Technology Group at SJ Berwin LLP: robert.goldstone@sjberwin.com and james.gill@sjberwin.com.
