In a mixed ruling, an appellate court has reversed a verdict against the Internet service provider Cox Communications, which was found liable for users' copyright infringement and ordered to pay $25 million to record company BMG.
The order, issued Thursday by a three-judge panel of the 4th Circuit Court of Appeals, returns the case to the district court for a new trial. The appellate judges ruled that the trial judge wrongly instructed the jurors that they could find Cox liable if the company should have known that subscribers were sharing pirated files. Instead, the judge should have told the jurors they could only hold Cox responsible if it actually knew that subscribers were engaging in piracy, or was willfully blind toward piracy by customers.
But the appellate court also ruled against Cox on a key point: The judges found that Cox wasn't entitled to rely on so-called "safe harbor" provisions that typically protect service providers from liability when users infringe copyright.
The dispute between BMG and Cox dates to 2014, when BMG sued Cox for copyright infringement because Cox's subscribers were sharing pirated files online.
Cox defended itself by arguing that it was protected by the federal copyright law's so-called "safe harbor" provisions, which immunize Internet service providers from liability for users' activity -- provided that the ISPs have policies for handling repeat offenders.
But BMG convinced a judge that those protections didn't apply in Cox's case. Specifically, BMG argued that it informed Cox that "thousands" of its customers were infringing copyright, and that Cox didn't take any action.
A jury ultimately sided with BMG and decided Cox should pay $25 million. That decision marked the first time that a broadband carrier was found liable for piracy by its subscribers. Cox then appealed to the 4th Circuit.
The appellate judges gave both sides a partial win. The court agreed with BMG that Cox wasn't entitled to rely on the safe harbor protections, writing that the broadband provider's policy was lacking.
Officially, Cox had a "13-strike" repeat-offender policy, meaning that the company would consider terminating subscribers after they received 13 notices of copyright infringement. But in practice, the company went to great lengths to avoid disconnecting people, the judges wrote.
"Cox formally adopted a repeat infringer 'policy,' but ... made every effort to avoid reasonably implementing that policy," the opinion states. "Indeed, in carrying out its thirteen-strike process, Cox very clearly determined not to terminate subscribers who in fact repeatedly violated the policy."
The opinion notes that in the two years before BMG sued, Cox only terminated a total of 21 people -- and in 17 cases, the subscribers had failed to pay their bills on time or exceeded their bandwidth caps. During that time, Cox issued more than 500,000 email warnings and temporary suspensions, according to the opinion.
"Cox failed to qualify for the ... safe harbor because it failed to implement its policy in any consistent or meaningful way -- leaving it essentially with no policy," the judges wrote.
But even without the safe harbor provisions, Cox still had a defense to allegations that it should be held responsible for infringement to users. That's because companies are only liable for contributing to infringement if the companies either know about acts of infringement, or are willfully blind to them.
In this case, the trial judge told the jurors that they could find Cox liable if it knew or should have known about infringement by users. That standard was incorrect, the 4th Circuit said in its opinion. "The formulation 'should have known' reflects negligence and is therefore too low a standard," the appellate judges wrote. "Because there is a reasonable probability that this erroneous instruction affected the jury’s verdict, we remand for a new trial."
