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The recently announced decision of the United States District Court in Manhattan, , serves to further elucidate the terms on which service providers can expect legal protection if their users are found to be uploading infringing content. More importantly, it gives us an excellent example of the differences between the US and Canadian systems, and the principle of “secondary liability”.

The US  (1998), in addition to increasing criminal penalties for infringement of copyright material, offers a mechanism of ‘Online Copyright Infringement Liability Limitation’ by which service providers may escape criminal penalties if they are compliant to copyright owners’ demands to remove infringing content. Such demands are made simple to file, but nothing short of immediate compliance is required.

So who qualifies? The act defines a service provider as “an entity offering the transmission, routing, or providing of connections for digital online communications, between or among points specified by a user, of material of the user’s choosing, without modification to the content of the material as sent or received”, thus ensuring a content-neutral stance must be adopted by the service provider in question. Further limitations are granted based upon the variety of service being provided (with the act enumerating a total of four categories of service provider). s.512(c) provides that, for services that direct information at users (websites being the most common example of this), the following three conditions must be met to qualify for limited liability:

1. The provider must not have the requisite level of knowledge of the infringing activity, as described below.
2. If the provider has the right and ability to control the infringing activity, it must not receive a financial benefit directly attributable to the infringing activity.
3. Upon receiving proper notification of claimed infringement, the provider must expeditiously take down or block access to the material.

The website ‘Grooveshark’ is a  (UGC) site, in which music is uploaded to the service via its members. At issue in this case was the allegation from Universal Media Group that although the website was complying with requests to remove infringing material, it had not only express knowledge of infringing activity, but the company was built by encouraging employees to upload infringing material in order to build enough content to attract traffic to the site.

The court found Escape (Grooveshark) liable on three counts for copyright infringement: directly liable for direct infringement (volitional conduct by the directors and employees of the company), and secondarily liable for the actions of its users. Secondary infringement has no statutory basis for a finding of liability, although after  the common law in the US gives room to find a defendant liable if there is ‘just cause’. In the case of Grooveshark, this is easy enough to ascertain: the company was found to have directly encouraged users to upload violating material, and provided the means to do so. Furthermore, it was evident that Grooveshark was raising revenue from advertising on the site, which would also qualify a failure on the second point above.

Canada has its own Safe Harbour provision in the Copyright Act���ܲԻ�����, although in a much more simplistic form. It offers service providers an escape by deeming any person that only provides the means of telecommunication necessary for another person to communicate the work to the public to have not communicated the work to the public themselves (which would be the basis for infringement). Thankfully this has received , who reasoned that the service provider exception could only apply to participants in a telecommunication who only provide “the means of telecommunication necessary”, and remain strictly a conduit, in which case liability is avoided. This requires a strictly “content neutral” approach to hosting services, in which any knowledge of the actual content could provide the basis of liability. For the purposes of Grooveshark and other UGC websites, this offers similar grounds to the conditions of the DMCA “Safe Harbor”.

In a nutshell, although we don’t have a specific statutory scheme here in Canada, the failure to remove infringing content from a server or website can be taken as evidence of authorization, though it is not considered as determinative as in the US. While the US system operates on a “notice and takedown” basis (in which receipt of a notice can potentially provide the basis for liability), Canada divorces the liability from the remedy, so that  (see ss. 41.25 and 41.26). That’s not to say that Grooveshark would escape a finding of liability in Canada, but for service providers who operate in good faith, the threat of being found secondarily liable of infringement is not present. In an era where US sites are being subject to , one can argue that the Canadian playing field offers a good deal more stability for service providers than our neighbors to the South.

Andrew Hunter is an IPilogue Editor and a JD Candidate at Osgoode Hall Law School.