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Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

CoStar Group, Inc., et al. v. LoopNet Inc.

373 F.3d 544 (4th Cir., June 21, 2004)

Website Operator Not Guilty Of Direct Copyright Infringment As Result Of Display Of Copyrighted Images Posted On It Site By Third Parties

Fourth Circuit holds that web site operator is not guilty of direct copyright infringement as a result of the posting on its site by third parties of images of commercial real estate in which plaintiffs hold the copyright.  In reaching this result, the Court reaffirms the validity of Religious Technology Center v. Netcom, which holds that a party must engage in "volitional conduct" that contributes to the infringement to be liable for direct copyright infringement. 

Importantly, the Court reached this result notwithstanding the fact that defendant's involvement in the posting of images to its site was not completely passive - rather defendant conducted a limited screening of all images presented by third parties to determine if they should be posted, eliminating those that either 1) exhibited obvious evidence of copyright infringement (such as a copyright notice in someone other than the poster) or 2) did not depict commercial real estate.

In a strong dissent, Circuit Judge Gregory argued that because of this gatekeeping activity, defendant's actions were not passive and thus were not entitled to protection under Netcom.  According to Judge Gregory, Netcom protects a defendant only when its involvement in the copying of copyrighted work is passive, and the automatic result of the operation of its facilities by a third party.

Defendant Reviews Photos Uploaded By Third Parties Before Posting On Its Site

Plaintiffs maintain a large database which contains extensive copyrighted photographs of commercial properties.  Plaintiffs make this database available to those seeking information about commercial real estate, both via the Internet and other means.  Plaintiffs do not display a copyright notice on their images.

Defendant LoopNet operates a web site at which subscribers can make available, or obtain information about, commercial real estate.  Subscribers can post listings of commercial real estate on LoopNet's site.  When those listings are accompanied by an image, the subscriber must warrant that he/she has "all necessary rights and authorizations" to post the image to the site.

Before such images are in fact posted, they are subject to a quick review by a LoopNet employee.  In this review "a LoopNet employee . . . cursorily reviews the photograph to (1) determine whether the photograph in fact depicts commercial real estate, and (2) to identify any obvious evidence, such as a text message or copyright notice, that the  photograph may have been copyrighted by another.  If the photograph fails either one of these criteria . . ." the LoopNet employee does not permit it to be posted.  If, on the other hand, the image passes muster, the employee takes steps which result in the posting of the image to LoopNet's web site.

Between early 1998 and September 2001, approximately 300 of plaintiffs' copyrighted images were posted to LoopNet's site without authorization.  This represented but a small fraction of the 33,000 photos found on that site.  When plaintiffs notified LoopNet that an infringing photo was posted, LoopNet removed the offending photo.

Plaintiffs nonetheless brought suit, asserting, among other things, that LoopNet was guilty of direct copyright infringement as a result of the posting of copyrighted images to its site.  (The remaining claims asserted by plaintiffs were apparently withdrawn).

No Direct Copyright Infringement

The District Court granted defendant summary judgment dismissing plaintiffs' direct infringement claim, holding that LoopNet's involvement in the posting of the copyrighted works lacked the requisite volitional element necessary to establish a direct infringement claim.  By a two to one margin, a panel of the Fourth Circuit Court of Appeals agreed, and affirmed the District Court's decision.

In reaching this result, the Fourth Circuit reaffirmed the continuing viability of Religious Technology Center v. Netcom, 907 F. Supp. 1361 (N.D. Cal. 1995).  Rejecting plaintiffs' arguments, the Fourth Circuit held that Netcom was neither supplanted, nor preempted, by the Digital Millennium Copyright Act ("DMCA").  Rather, the DMCA merely provides a safe harbor by which ISPs can escape liability for direct copyright infringement.  It does not, however, abrogate such common law or other defenses as may be available to the ISPs.

The Court found support for this conclusion in the statutory language of the DMCA, which provides, in relevant part:

Other defenses not affected - the failure of a service provider's conduct to qualify for limitation of liability under this section shall not bear adversely upon the consideration of a defense by the service provider that the service provider's conduct is not infringing under this title or any other defense.  17 U.S.C. § 512(I).

Under Netcom, "neither the ISP who provided Internet access, nor the bulletin board service storing the posted material, was liable for direct copyright infringement under §106 [of the Copyright Act] when a subscriber posted copyrighted materials on the" Internet bulletin board.

Volitional Conduct Required For Direct Copyright Infringement

According to the Court, for an ISP to be liable for direct copyright infringement, there must not only be unauthorized copying of a copyrighted image, but also some volitional conduct by the ISP that causes the infringement.  Said the Court:

Were this not so, the Supreme Court could not have held, as it did in Sony, that a manufacturer of copy machines, possessing constructive knowledge that purchasers of its machine may be using them to engage in copyright infringement, is not strictly liable for infringement.

*           *           *

[T]o establish direct liability under §§501 and 106 of the Act, something more must be shown than mere ownership of a machine used by others to make illegal copies.  There must be actual infringing conduct with a nexus sufficiently close and causal to the illegal copying that one could conclude that the machine owner himself trespassed on the exclusive domain of the copyright owner. . . .  The ISP in this case is an analogue to the owner of a traditional copying machine whose customers pay a fixed amount per copy and operate the machine themselves to make copies.  When a customer duplicates an infringing work, the owner of the copy machine is not considered a direct infringer.  Similarly, an ISP who owns an electronic facility that responds automatically to users' input is not a direct infringer.

The Court further held that defendant's act of storing photos supplied by third parties for display on defendant's site did not constitute the making of a copy of those works within the meaning of the Copyright Act, and thus did not result in its violation.  Rather, by such conduct, LoopNet was merely acting as a conduit and not creating the requisite object in which a work is "fixed" under the Act.  To be fixed under 17 U.S.C. §101 a work must be "sufficiently permanent or stable to permit it to be perceived, reproduced or otherwise communicated for a period of more than a transitory duration."  Said the Court:

[A]n ISP has not itself fixed a copy in its system of more than transitory duration when it provides an Internet hosting service to its subscribers . . .

Cursory Review Of Photos Not Enough To Establish Requsite Volitional Conduct

Importantly, the Court held that LoopNet was not guilty of direct infringement notwithstanding its review of the photos in question prior to their posting on the LoopNet site.  Said the Court:

Although LoopNet engages in volitional conduct to block photographs measured by two grossly defined criteria, this conduct, which takes only seconds, does not amount to "copying," nor does it add volition to LoopNet's involvement in storing the copy.  The employee's look is so cursory as to be insignificant and if it has any significance, it tends only to lessen the possibility that LoopNet's automatic electronic responses will inadvertently enable others to trespass on a copyright owner's rights. …

In short, we do not conclude that LoopNet's perfunctory gatekeeping process, which furthers the goals of the Copyright Act, can be taken to create liability for LoopNet as a direct infringer when its conduct otherwise does not amount to direct infringement.

The Court accordingly affirmed the dismissal of plaintiffs' direct infringement claims.  This decision of course does not absolve LoopNet from claims of contributory or vicarious copyright infringement, which can be established on "a showing of additional elements such as knowledge coupled with inducement or supervision coupled with a financial interest in the illegal copying."

Dissent Would Find Copyright Infringement

In a strong dissent, Circuit Judge Gregory sharply disagreed with the majority's conclusion that LoopNet's conduct falls within the protection of Netcom.  According to Judge Gregory, Netcom only provides protection if the ISP's involvement in the display of  the infringing works is both passive and automatic - if its facilities are being used by third parties in a manner akin to the use by infringers of a telephone or copy machine.  This was not the case here, however, as LoopNet's employees were actively involved in determining whether the images in question were in fact posted to its site.  Such active involvement should, the dissent urged, take LoopNet out of the protections of Netcom, and expose it to a direct infringement claim.

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