5th Circuit rules ISP should have terminated Internet users accused of piracy

Music publishing companies notched another court victory against a broadband provider that refused to terminate the accounts of Internet users accused of piracy. In a ruling on Wednesday, the conservative-leaning US Court of Appeals for the 5th Circuit sided with the big three record labels against Grande Communications, a subsidiary of Astound Broadband.

The appeals court ordered a new trial on damages because it said the $46.8 million award was too high, but affirmed the lower court's finding that Grande is liable for contributory copyright infringement.

"Here, Plaintiffs [Universal, Warner, and Sony] proved at trial that Grande knew (or was willfully blind to) the identities of its infringing subscribers based on Rightscorp’s notices, which informed Grande of specific IP addresses of subscribers engaging in infringing conduct. But Grande made the choice to continue providing services to them anyway, rather than taking simple measures to prevent infringement," said the unanimous ruling by three judges.

Rightscorp is a copyright-enforcement company used by the music labels to detect copyright infringement. The company monitors torrent downloads to find users' IP addresses and sends infringement notices to Internet providers that serve subscribers using those IP addresses.

"The evidence at trial demonstrated that Grande had a simple measure available to it to prevent further damages to copyrighted works (i.e., terminating repeat infringing subscribers), but that Grande never took it," the 5th Circuit ruling said. "On appeal, Grande and its amici make a policy argument—that terminating Internet services is not a simple measure, but instead a 'draconian overreaction' that is a 'drastic and overbroad remedy'—but a reasonable jury could, and did, find that Grande had basic measures, including termination, available to it. And because Grande does not dispute any of the evidence on which Plaintiffs relied to prove material contribution, there is no basis to conclude a reasonable jury lacked sufficient evidence to reach that conclusion."

Grande’s pre-lawsuit policy: No terminations

The ruling described how Grande implemented a new policy on copyright infringement in 2010, a year after being purchased by a private equity firm:

Under Grande’s new policy, Grande no longer terminated subscribers for copyright infringement, no matter how many infringement notices Grande received. As Grande’s corporate representative at trial admitted, Grande “could have received a thousand notices about a customer, and it would not have terminated that customer for copyright infringement.”

Further, under Grande’s new policy, Grande did not take other remedial action to address infringing subscribers, such as suspending their accounts or requiring them to contact Grande to maintain their services. Instead, Grande would notify subscribers of copyright infringement complaints through letters that described the nature of the complaint and possible causes and advised that any infringing conduct is unlawful and should cease. Grande maintained that policy for nearly seven years, until May 2017.

The record labels sued Grande in April 2017. "It was not until after Plaintiffs initiated this lawsuit that Grande resumed terminating subscribers for copyright infringement," the ruling said.

In November 2022, the labels were awarded $46,766,200 in statutory damages by a jury in US District Court for the Western District of Texas. But the District Court will have to hold a new damages trial following this week's appeals court ruling.

Back in 2020, we wrote about the voir dire questions that record labels intended to ask prospective jurors in their case against Grande. One of those questions was, "Have you ever read or visited Ars Technica or TorrentFreak?"

Damages to be reduced

Although the 5th Circuit agreed that Grande is liable for contributory copyright infringement, judges found that the lower court "erred in granting JMOL [judgment as a matter of law] that each of the 1,403 songs in suit was eligible for a separate award of statutory damages." The damages were $33,333 per song.

The 5th Circuit remanded the case to the district court for a new trial on damages. Record labels can expect a lower payout because the appeals court said they can't obtain separate damages awards for multiple songs on the same album.

"The district court determined that each of Plaintiffs’ 1,403 sound recordings that was infringed entitled Plaintiffs to an individual statutory damages award," the 5th Circuit said. "Grande contends that the text of the Copyright Act requires a different result: Whenever more than one of those recordings appeared on the same album, Plaintiffs are entitled to only one statutory damages award for that album, regardless of how many individual recordings from the album were infringed. Grande has the better reading of the text of the statute."

The Copyright Act says that "all the parts of a compilation or derivative work constitute one work," the court said. In the Grande case, record labels sought damages for each song but conceded that "each album constitutes a compilation."

"In sum, the record evidence indicates that many of the works in suit are compilations (albums) comprising individual works (songs)," the 5th Circuit court wrote. "The statute unambiguously instructs that a compilation is eligible for only one statutory damage award, whether or not its constituent works are separately copyrightable."

Larger battle could head to Supreme Court

The Grande case is part of a larger battle between ISPs and copyright holders. The industries are waiting to learn whether the Supreme Court will take up a challenge by cable firm Cox Communications, which wants to overturn a ruling in a similar copyright infringement lawsuit brought by Sony.

The US Court of Appeals for the 4th Circuit affirmed a jury's finding that Cox was guilty of willful contributory infringement, though it also vacated a $1 billion damages award because it found that "Cox did not profit from its subscribers' acts of infringement." Cox and other ISPs argue that copyright-infringement notices sent on behalf of record labels aren't reliable and that forcing ISPs to disconnect users based on unproven piracy accusations will cause great harm.

A Supreme Court brief filed by Altice USA, Frontier Communications, Lumen (aka CenturyLink), and Verizon said the 4th Circuit ruling "imperils the future of the Internet" by "expos[ing] Internet service providers to massive liability if they do not carry out mass Internet evictions." Cutting off a subscriber's service would hurt other residents in a home "who did not infringe and may have no connection to the infringer," they wrote.

Cox told the Supreme Court that ISPs "have no way of verifying whether a bot-generated notice is accurate. And no one can reliably identify the actual individual who used a particular Internet connection for an illegal download. The ISP could connect the IP address to a particular subscriber's account, but the subscriber in question might be a university or a conference center with thousands of individual users on its network, or a grandmother who unwittingly left her Internet connection open to the public. Thus, the subscriber is often not the infringer and may not even know about the infringement."

Cox asked the Supreme Court to decide whether the 4th Circuit "err[ed] in holding that a service provider can be held liable for 'materially contributing' to copyright infringement merely because it knew that people were using certain accounts to infringe and did not terminate access, without proof that the service provider affirmatively fostered infringement or otherwise intended to promote it."

Record labels also petitioned the Supreme Court because they want the original $1 billion verdict reinstated. Digital rights groups such as the Electronic Frontier Foundation (EFF) have backed Cox, saying that forcing ISPs to terminate subscribers accused of piracy "would result in innocent and vulnerable users losing essential Internet access."