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Vedder Thinking | Articles Takeaways From VHT V. Zillow For Website Owners

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 As originally published in Law360.

Your website owner client just received a notice of copyright infringement for content found on its website. The website owner’s insurance policy does cover copyright infringement claims. Most insurance policies and their carriers require that any new claim be tendered within a defined period from notification. Under the policy, a failure to tender in a timely fashion may result in a denial of coverage for the claim.

In many claims relating to use of a website, the owner is alleged to be using content asserted to be copyrighted, with the claimant asserting copyright ownership, and the website owner relies on a defense called commonly the safe harbor of the Digital Millennial Copyright Act1 (DMCA) as a complete shield to liability. In an effort to overcome the safe harbor defense, the claimant copyright owner generally sends a letter built around the elements of proper DMCA notification.2 The letter is sent even when the claimant strongly believes the website owner is not entitled to the safe harbor, and the website owner should take that letter and promptly tender it to its insurance company. The reasons are simple and best illustrated by a recent case.

On Feb. 9, 2017, a unanimous jury3 awarded real estate photography studio VHT Inc. more than $8.3 million in statutory damages for its claim of copyright infringement against Zillow Group Inc. The jury concluded that Zillow had directly infringed 28,125 photographs. Of interest is how of these images, 3,373 were found to be willfully infringed and resulted in a statutory award of $1,500 for each image. In addition to the $8.3 million award4, the plaintiff is likely to move for attorney’s fees that are generally awarded in copyright. Ultimately Zillow’s liability could be well north of $10 million.5

On July 10, 2014, VHT first notified Zillow of copyright infringement of VHT’s images on Zillow’s website. In addition to notifying of infringement, the letter also served as a notification under the DMCA. Zillow refused to take down the content, waived the DMCA defense (had one been available) but in a strange turn of events did not send this notice letter to its insurance carrier. A year later, on July 8, 2015, VHT filed the suit against Zillow in district court. At that time, Zillow tendered the 2015 complaint to its insurance National Union Fire Insurance Co.’s (National).6 After initially accepting tender, National secured a copy of the 2014 letter and immediately raised the issue. National argued that tender under the policy required Zillow to send the 2014 notice letter within 45 days of receipt. If National had been provided the 2014 letter within 45 days of Zillow’s receipt, it could have advised its policy holder to simply remove the content in an abundance of caution with mitigation of the policy holder’s liability. National also could have evaluated the risk and advised the policy holder at course of conduct to avoid or minimize liability.

On April 15, 2017, Judge James. L. Robart, speaking for the United States District Court for the District of Washington, denied Zillow’s request for an oral argument and granted National’s motion for judgment on the pleadings. The court concluded that the “VHT Claim was first made in 2014, when Zillow received the demand letter, and [that] was not timely reported under the terms of the Policy. The court found that “National Union … has no obligation to provide Zillow with coverage for the VHT litigation.”7 Zillow failed to timely tender to National the 2014 letter resulting in no insurance coverage for the litigation.

A ‘takeaway’ message from National Union Fire Insurance Co. v. Zillow Inc., is that notices of copyright infringement, even when made under the DMCA notification guidelines should be quickly tendered to the recipient’s insurance company. This appears to be true even the DMCA defense might not be asserted. A further ‘takeaway’ message is that a claim for copyright infringement may now arise at the time of notice letter, not the time of filing of a complaint asserting allegations within the notice.

While this author is not privy to the specifics of National’s insurance policy that was sold to Zillow, it is possible that it may have covered one or more of the $8.3 million award, Zillow’s attorney’s fees in defending the case and any subsequent award of VHT’s attorneys fees.8 According to the U.S. District Court for the District of Washington, the omission to send the 2014 notice letter forfeited coverage of a claim and left Zillow liable for potentially $10 million. One is left to wonder what is worse: not having insurance coverage when coverage is needed, or having insurance coverage and failing to use it after paying the premiums diligently.

Beyond that, even in cases where a website owner errs on the side of caution and removes potential copyright infringing content, the website owner likely should nonetheless make timely tendering the notice letter to its insurance carrier a first priority. In many cases, the DMCA safe harbor may not be available to website owners. The safe harbor, while liberally construed by Judges, is in theory rather specific in its scope of application. The Copyright Act offers major five reasons why the safe harbor may be denied:

  1. 1. The defendant is not a “service provider” as defined in Section (k) of the act. In theory, the protection does not shield every type of website. Judicial precedents have been very generous in granting the safe harbor to many utilitarian websites, but it is suggested that prudence requires that website owners anticipate that there may be a statutory interpretation that the safe harbor is not available.9
  2. 2. The safe harbor is not available to website owners with actual knowledge of infringement or to website owners found to be aware of facts or circumstances which makes the infringing activity apparent.10
  3. 3. The website owner’s removal of content was found to be too slow. Courts have been generous at giving time to website owners as they remove voluminous infringement, yet inexcusable delays in taking down content which may waive the defense.11
  4. 4. The website owner derives financial benefit, for example via website ads, from using the infringing content on the site to drive traffic.12
  5. 5. The website owner’s designated agent is simply not registered with the U.S. Copyright Office (as few are).13

A final “takeaway” message is that a claimant copyright owner should err on the side of sending to a website owner believed in good faith to have copyright-infringing content on its website a DMCA notice letter irrespective of whether the website owner may assert in good faith the DMCA safe harbor. The notice letter may start the clock for the website owner to tender the letter to its insurance carrier and make a claim under its insurance policy. In some cases, the website owner may elect not to timely tender the notice letter and hence may not receive guidance from its insurance carrier as to the content on the site. The website owner may elect to keep the content on its site, despite the notice letter. The website owner may waive potential defense(s), and also may waive coverage under its insurance policy. Moreover, if the website owner does timely tender the notice letter to its insurance carrier, it may facilitate timely and efficient resolution of the matter. The insurance carrier’s interests are in minimizing risk, exposure and liability. The insurance carrier may, therefore, call upon the policy holder to remove the offending content, and more importantly may inspire settlement between the claimant copyright owner and the website owner that avoids the monetary and other expenses oft-incurred in litigation that proceeds through trial.

 


 

1 17 U.S.C. § 512(c).

2 17 U.S.C. § 512(c)(3).

3 VHT Inc. v. Zillow Group et al., Case No. 2:15-cv-01096 (W.D. Wash).

4 Including $200 statutory award for nonwillful infringement of the other photographs.

5 Courts use the “objective-reasonableness” factor and may not grant fees in cases where Copyright Law stands clarified. Kirtsaeng v. John Wiley & Sons Inc., Case No. 15-373 (U.S., June 15, 2016) (“Kirtsaeng II”).

6 National Union Fire Insurance Co. v. Zillow Inc., Case No. 2: 16-cv-01461, Western District of Washington.

7 Case No. 2:16-cv-01461, Dkt. 25 (2017).

8 Unless the conduct was found to be willful.

9 17 U.S.C. § 512(k).

10 17 U.S.C. § 512(c)(i)-(ii).

11 17 U.S.C. § 512(c)(1)(C).

12 17 U.S.C. § 512(c)(1)(B) - The defendant must also have some level of control over the content.

13 17 U.S.C. § 512(c)(2).

 




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Thomas J. Kowalski

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Alain Villeneuve

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