## Facts

- Veoh operated a free, advertising-supported, user-generated video service that allowed registered users to upload videos for public streaming and, at times, downloading.
- Uploaders agreed to terms representing they had necessary rights and would not upload infringing content; the terms granted Veoh a license to host and transmit uploaded videos in encoded form.
- UMG alleged Veoh users uploaded videos containing UMG-owned sound recordings and music videos without authorization.
- UMG initially filed suit without serving DMCA takedown notices; later it sent notices identifying specific allegedly infringing material.
- Upon notice, Veoh removed or disabled access to identified content, used filtering technology (including Audible Magic), and maintained a repeat-infringer termination policy.
- The district court granted summary judgment to Veoh under the DMCA § 512(c) safe harbor and dismissed secondary-liability claims against Veoh’s investors under Rule 12(b)(6).
- The district court denied Veoh’s request for attorneys’ fees under Rule 68, concluding fees were not recoverable as “costs” under the Copyright Act.

## Issues

1. Whether Veoh’s automated functions (e.g., transcoding, indexing, streaming, and downloads) fell within DMCA § 512(c) protection for infringement “by reason of the storage at the direction of a user.”
2. Whether Veoh had disqualifying “actual knowledge” or “red flag” awareness of specific infringement under § 512(c)(1)(A).
3. Whether Veoh received a directly attributable financial benefit from infringement that it had the “right and ability to control” under § 512(c)(1)(B).
4. Whether UMG plausibly stated vicarious, contributory, or inducement claims against Veoh’s investor defendants.
5. Whether Veoh could recover attorneys’ fees and/or costs under Rule 68 in a copyright action.

## Decision

- The Ninth Circuit affirmed summary judgment that Veoh qualified for the DMCA § 512(c) safe harbor.
- The court held § 512(c) covers user-directed storage and related automated processing necessary to make uploaded material accessible (including transcoding and streaming).
- The court held generalized awareness that infringement occurs on a service is insufficient; loss of safe harbor requires knowledge or awareness of specific infringing material and failure to act expeditiously.
- The court concluded Veoh did not have disqualifying knowledge as to particular infringements and responded appropriately when notified.
- The court held Veoh lacked the disqualifying combination of “right and ability to control” and a “financial benefit directly attributable” to infringing activity.
- The court affirmed dismissal of claims against investor defendants for failure to plausibly allege the required participation, control, or intent tied to actionable infringement.
- The court affirmed denial of Rule 68 attorneys’ fees, and remanded for consideration of Rule 68 costs excluding attorneys’ fees.

## Legal Principles

- DMCA § 512(c) safe harbor extends to infringement occurring as a result of user-directed storage and closely related automated functions that enable access to stored material.
- Under § 512(c)(1)(A), “actual knowledge” and “red flag” awareness require content-specific knowledge; the statute does not impose a general monitoring obligation.
- A service provider retains § 512(c) protection when it expeditiously removes or disables access to specific material upon obtaining qualifying knowledge or receiving proper notice.
- Under § 512(c)(1)(B), the “right and ability to control” demands more than ordinary platform tools (such as removing content or enforcing a repeat-infringer policy); it requires a higher level of influence over user activity, and the financial benefit must be directly tied to infringing activity.
- Secondary-liability claims against investors require plausible allegations linking them to actionable infringement through control, participation, or intent; generalized funding or governance involvement is insufficient.
- In copyright cases, attorneys’ fees are governed by 17 U.S.C. § 505; Rule 68 does not independently authorize fee-shifting beyond the statute, though it may affect recoverable costs.

## Conclusion

The Ninth Circuit held that Veoh’s user-generated video service fell within the DMCA § 512(c) safe harbor because infringement arose from user-directed storage and related automated processing, and because UMG failed to show Veoh had content-specific knowledge it ignored or the disqualifying control-and-benefit relationship. The court also affirmed dismissal of secondary-liability claims against Veoh’s investors and affirmed denial of Rule 68 attorneys’ fees, remanding only to consider allowable Rule 68 costs other than fees.


UMG Recordings, Inc. v. Shelter Cap. Partners LLC, 667 F.3d 1022 (9th Cir. 2011)