## Facts

- Universal Music Group entities (UMG) owned copyrights in sound recordings and musical compositions that appeared in videos uploaded to Veoh’s online video-sharing service.
- Veoh operated a free, ad-supported platform that allowed registered users to upload and share videos through Veoh’s website and related software.
- Users agreed to terms requiring them not to upload infringing material and to confirm they had the necessary rights for uploaded content.
- After users uploaded content, Veoh’s system automatically performed technical processes (e.g., transcoding, storage, and streaming) to make videos viewable and accessible.
- Veoh implemented a DMCA notice-and-takedown process and other anti-infringement measures, but unauthorized videos incorporating UMG music were available on the service.
- UMG sued Veoh for direct and secondary copyright infringement and sued Veoh’s venture investors on indirect infringement theories.
- The district court granted summary judgment to Veoh under the DMCA § 512(c) limitation on liability, dismissed claims against the investors under Rule 12(b)(6), and denied Veoh’s request for attorneys’ fees under Rule 68.

## Issues

1. Whether Veoh’s automated processing and delivery of user-uploaded videos fell within infringement “by reason of the storage at the direction of a user” under 17 U.S.C. § 512(c).
2. Whether Veoh had disqualifying “actual knowledge” or “red flag” awareness of specific infringements under § 512(c)(1)(A).
3. Whether Veoh both received a financial benefit directly attributable to infringement and had the “right and ability to control” infringing activity under § 512(c)(1)(B).
4. Whether UMG plausibly alleged vicarious, contributory, or inducement liability against Veoh’s investor defendants.
5. Whether Veoh could recover attorneys’ fees or costs under Rule 68 after prevailing.

## Decision

- The Ninth Circuit affirmed summary judgment for Veoh, holding Veoh qualified for § 512(c) safe-harbor protection.
- The court held Veoh’s automated technical functions related to uploaded videos were covered as conduct occurring “by reason of” user-directed storage.
- The court held UMG failed to show a triable issue that Veoh had actual knowledge or red-flag awareness of specific infringements that would defeat § 512(c).
- The court held Veoh did not have the requisite “right and ability to control” infringing activity for § 512(c)(1)(B), and generalized advertising benefit tied to site traffic did not alone remove safe-harbor protection.
- The court affirmed dismissal of the investor defendants because the complaint did not adequately plead indirect infringement liability against them.
- The court affirmed denial of attorneys’ fees under Rule 68, but remanded for the district court to consider whether Rule 68 costs (excluding attorneys’ fees) were available.

## Legal Principles

- DMCA § 512(c) can cover not only passive retention of files but also automated, access-related technical functions performed to store, process, and stream user-uploaded material.
- “Actual knowledge” and “red flag” awareness under § 512(c)(1)(A) require knowledge of specific, identifiable infringing material; generalized awareness of infringement on a platform is insufficient.
- A service provider’s ability to remove content, enforce terms of use, or maintain general anti-infringement policies does not, by itself, establish the “right and ability to control” required by § 512(c)(1)(B).
- A general economic benefit from increased traffic, without the heightened control contemplated by § 512(c)(1)(B), does not constitute a “financial benefit directly attributable” to infringement sufficient to defeat the safe harbor.
- Passive venture investors are not liable for indirect infringement absent well-pleaded allegations tying them to the elements of contributory, vicarious, or inducement liability.
- Rule 68 does not expand the availability of attorneys’ fees beyond what the substantive statute authorizes, though it may still affect the award of non-fee costs.

## Conclusion

The Ninth Circuit held Veoh was protected by the DMCA § 512(c) safe harbor because its automated processing was tied to user-directed storage and UMG failed to show disqualifying knowledge or control, affirmed dismissal of claims against Veoh’s investors, affirmed denial of Rule 68 attorneys’ fees, and remanded for consideration of Rule 68 costs excluding fees.


Universal Music Grp. Recordings, Inc. v. Shelter Cap. Partners, LLC, 718 F.3d 1006 (9th Cir. 2013)