Case 1:19-cv-00874-RBJ-MEH Document 157 Filed 04/15/20 USDC Colorado Page 1 of 14
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLORADO
`Judge R. Brooke Jackson
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`Civil Action No. 19-cv-00874-RBJ-MEH
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`WARNER RECORDS INC., et al
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`Plaintiffs,
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`v.
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`CHARTER COMMUNICATIONS, INC.,
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`Defendant.
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`ORDER
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`This case is before the Court on Magistrate Judge Michael E. Hegarty’s recommendation,
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`ECF No. 71, on defendant’s motion to dismiss, ECF No. 38, defendant’s objections to the
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`recommendation, ECF No. 81, and plaintiffs’ response to those objections, ECF No. 87. For the
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`following reasons the recommendation is adopted, and the motion to dismiss is denied.
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`BACKGROUND
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`Judge Hegarty provides a detailed account of the factual allegations in this case, and I
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`summarize his findings here. See ECF No. 71. The plaintiffs are a collection of record
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`companies and music publishers that produce and distribute commercial sound recordings and
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`musical compositions. Id. at 3. Plaintiffs, through the recording artists and songwriters they
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`represent, have created and marketed a large amount of music and recordings which have been
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`registered with the U.S. Copyright Office (“plaintiffs’ copyrighted works”). Id. Plaintiffs
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`collectively own or control millions of copyrighted musical compositions or sound recordings,
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`which constitute their primary source of income. Id.
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`Defendant Charter Communications, Inc. (“Charter”) is one of the largest internet service
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`providers (“ISP”) in the country, with more than twenty-two million subscribers nationwide. Id.
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`Charter provides high speed internet services in exchange for monthly subscription fees. Id.
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`Charter customers may purchase higher download speeds for higher monthly fees. Id.
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`Plaintiffs have become aware of persons infringing their copyrighted works through
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`online peer-to-peer file-sharing programs, such as “BitTorrent.” Id. BitTorrent and similar file-
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`sharing protocols allow users to share music and other files directly with one another over the
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`internet. Id. BitTorrent became popular because it facilitates much faster downloading by
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`breaking files into smaller pieces, allowing users to download different pieces from different
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`peers simultaneously. Id. at 4. Once a user has downloaded all pieces of a file, the file
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`automatically assembles itself into its complete form and becomes available for playback by the
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`user. Id.
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`The efficiency of this type of file-sharing system proves particularly conducive to online
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`piracy. Id. A 2011 report estimated that 11.4 percent of all internet traffic involved
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`unauthorized distribution of copyrighted works through BitTorrent. Id. Plaintiffs’ copyrighted
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`works have been unlawfully distributed millions of times through BitTorrent. Id.
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`Charter draws customers in part by advertising their “blazing-fast . . . speeds” that allow
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`users to “download just about anything instantly,” including up to “8 songs in 3 seconds.” Id.
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`Subscribers have used these speeds and Charter’s services to pirate plaintiffs’ works. Id.
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`Plaintiffs have identified hundreds of thousands of specific instances in which Charter’s
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`subscribers utilized peer-to-peer systems to distribute and copy plaintiffs’ songs illegally. Id.
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`Plaintiffs and others have submitted to Charter statutory infringement notices detailing specific
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`2
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`infringements committed by specific subscribers, identified by their unique Internet Protocol
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`(“IP”) addresses. Id. 4–5.
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`Charter’s terms of service prohibit users from engaging in copyright infringement and
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`state that Charter reserves the right to terminate accounts of participants in piracy. Id. at 5.
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`Despite this, Charter has not taken any steps to address the reported infringements. Id. Charter
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`generates revenue from infringing subscribers and does not want to lose such revenue or risk the
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`possibility of making its service less attractive to subscribers should it start terminating
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`infringing accounts. Id. Additionally, tracking and responding to infringement notices would
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`require resources which Charter does not want to spend. Id.
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`Charter’s lack of action against known infringers likely draws further subscriptions, as
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`subscribers know they can download infringing content without consequence. Id. This approach
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`encouragers subscribers to continue using Charter’s service as well as purchase higher bandwidth
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`to facilitate higher download speeds. Id. All this activity undercuts the legitimate music market,
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`plaintiffs’ primary source of income. Id. at 6.
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`STANDARD OF REVIEW
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`A. Magistrate Judge Recommendation
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`When a magistrate judge makes a recommendation on a dispositive motion, the district
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`court “must determine de novo any part of the magistrate judge’s disposition that has been
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`properly objected to.” Fed. R. Civ. P. 72(b)(3). An objection is sufficiently specific if it
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`“focus[es] the district court’s attention on the factual and legal issues that are truly in dispute.”
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`United States v. 2121 E. 30th St., 73 F.3d 1057, 1060 (10th Cir. 1996). In the absence of a timely
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`and specific objection, “the district court may review a magistrate’s report under any standard it
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`deems appropriate.” Summers v. Utah, 927 F.2d 1165, 1167 (10th Cir. 1991); see also Fed. R.
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`Civ. P. 72 advisory committee’s note (“When no timely objection is filed, the court need only
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`satisfy itself that there is no clear error on the face of the record in order to accept the
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`recommendation.”). Legal theories raised for the first time in objections to a magistrate judge’s
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`recommendation are deemed waived. United States v. Garfinkle, 261 F.3d 1030, 1031 (10th Cir.
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`2011).
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`B. Motion to Dismiss
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`To survive a Rule 12(b)(6) motion to dismiss, the complaint must contain “enough facts
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`to state a claim to relief that is plausible on its face.” Ridge at Red Hawk, L.L.C. v. Schneider,
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`493 F.3d 1174, 1177 (10th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
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`(2007)). A plausible claim is one that “allows the court to draw the reasonable inference that the
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`defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
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`While courts must accept well-pled allegations as true, purely conclusory statements are not
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`entitled to this presumption. Id. at 678, 681. Therefore, so long as the plaintiff pleads sufficient
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`factual allegations such that the right to relief crosses “the line from conceivable to plausible,”
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`she has met the threshold pleading standard. Twombly, 550 U.S. at 556, 570.
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`ANALYSIS
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`Judge Hegarty concluded that plaintiffs’ complaint sufficiently alleged a claim for
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`vicarious copyright infringement. ECF No. 71 at 15–16. In reaching that conclusion Judge
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`Hegarty found that Charter incurred a direct financial benefit from the alleged infringement, and
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`that Charter had the right and ability to supervise the infringing activities. Id. Charter objects to
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`both findings. ECF No. 81. According to Charter, Judge Hegarty misapplied the direct financial
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`benefit standard and implausibly presumed that Charter had the practical ability to control
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`infringement. Id. I address each objection in turn.
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`A. Direct Financial Benefit
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`Charter raises many objections to Judge Hegarty’s finding regarding the direct financial
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`benefit requirement. I address first the challenges to Judge Hegarty’s articulation of the relevant
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`standard and second the argument that plaintiffs’ allegations have not met that standard.
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`1. Legal Standard
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`The Tenth Circuit has limited precedent on the issue of vicarious and contributory
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`copyright liability. Judge Hegarty therefore appropriately relied on persuasive precedents from a
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`variety of courts of appeal and other federal courts. He also correctly noted that the Tenth
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`Circuit cases that address similar issues cite particular Ninth Circuit cases favorably. See
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`Diversey v. Schmidly, 738 F.3d 1196, 1204 (10th Cir. 2013) (citing Fonovisa, Inc. v. Cherry
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`Auction, Inc., 76 F.3d 259, 261–65 (9th Cir. 1996)), and La Resolana Architects, PA v. Reno,
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`Inc., 555 F.3d 1171, 1181 (10th Cir. 2009) (citing Ellison v. Robertson, 357 F.3d 1072, 1076 (9th
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`Cir. 2004)).
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`Charter challenges Judge Hegarty’s conclusion that ability to engage in infringing
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`conduct need not be the primary draw of defendant’s services, but only a draw. ECF No. 81 at
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`7–18. Charter interprets Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657 (9th Cir. 2017) and
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`other Ninth Circuit cases as holding that the ability to infringe on plaintiffs’ content must
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`constitute “the attracting factor” for subscribers. ECF No. 81 at 12.
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`I agree with Judge Hegarty that Charter’s reading of the case law on this issue is
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`incorrect. In Perfect 10 the Ninth Circuit held that a “[f]inancial benefit exists where the
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`availability of infringing material acts as a draw for customers” and that “[t]he size of the ‘draw’
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`relative to a defendant’s overall business is immaterial.” 847 F.3d at 673. The court concluded
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`that “[t]he essential aspect of the ‘direct financial benefit’ inquiry is whether there is a causal
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`relationship between the infringing activity and any financial benefit a defendant reaps,
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`regardless of how substantial the benefit is in proportion to a defendant’s overall profits.” Id.
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`This language does not suggest that plaintiffs must show that the draw of infringing activity was
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`“the attracting factor” as Charter argues, but rather an attracting factor.
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`In support of its argument that infringing activity must be the attracting factor, Charter
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`points to the language in Perfect 10 indicating that “infringing activity must be more than an
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`‘added benefit’ to a subscription.” ECF No. 81 at 12. According to Charter, infringing activity
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`is either the attracting factor for a subscriber or merely an added benefit. But this is a false
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`dichotomy. Infringing activity may be merely an added benefit to subscribers and not a draw in
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`itself. It may also be one among several draws to Charter’s services. It may also be the draw for
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`subscribers to subscribe to Charter. The latter two cases would be sufficient to show that Charter
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`incurred a direct financial benefit from the infringing activity.
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`Moreover, the discussion of whether infringement was an “added benefit” in Perfect 10
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`concerned not the size of the draw, but whether plaintiffs’ works in particular served as a draw.
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`The court found that the plaintiff copyright owners failed to allege that their own copyrighted
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`works served as a draw. Perfect 10, 847 F.3d at 674. Instead they argued only that the
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`defendant “internet bulletin board” service provider incurred a financial benefit so long as some
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`subscribers joined to access infringing material generally. Id. The Ninth Circuit found that
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`plaintiffs had only shown that access to the plaintiff’s works were an “added benefit to a
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`subscription,” because “there was no evidence indicating that anyone subscribed to [defendant’s
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`service] because of infringing Perfect 10 material.” Id. The court held that plaintiffs must show
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`that their works served as a draw. Perfect 10 does not support Charter’s argument that if
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`infringement is not “the attracting factor,” it is simply an “added benefit.” Instead it supports
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`plaintiffs’ position because these plaintiffs, unlike those in Perfect 10, have alleged their works
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`in particular served as a draw.
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`Perfect 10 does not require that the plaintiff’s materials must be “the attracting factor.” If
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`subscribers are attracted to Charter’s services in part because of the ability to infringe on
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`plaintiffs’ copyrighted materials in particular, this is sufficient to show that the materials were “a
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`draw” under Perfect 10. Id. at 673.
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`Finally, as Judge Hegarty notes, no Tenth Circuit case has relied on Perfect 10. The
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`cases on which the Tenth Circuit has relied only confirm Judge Hegarty’s conclusions. In
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`Ellison v. Robertson the Ninth Circuit distinguished between a draw and an added benefit. 357
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`F.3d 1072, 1078–79 (9th Cir. 2004). But this distinction is not, as Charter argues, focused on
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`whether infringement is the sole motivating factor for subscribers. Rather the distinction focuses
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`on whether the infringing use was merely something “that customers value” rather than a draw to
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`subscribe. Id. Like in Perfect 10, this distinction does not suggest that infringing use must be
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`the draw, but rather as the court states, only that plaintiffs’ work in particular “constitutes a
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`draw.” Id. (emphasis added).
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`Charter cites Ellison for a distinction between services like Napster, where “virtually all”
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`of the draw resulted from Napster’s “providing access to infringing material,” and AOL, where
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`the draw of infringing material “constitutes a relatively insignificant draw when cast against
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`AOL’s vast array of products and services.” Id. at 1078. However, the language Charter quotes
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`comes from the Ninth Circuit’s discussion of the district court’s findings on the issue, which it
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`ultimately rejected. Id. at 1078–79.
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`Charter also argues that it does not receive a financial benefit from infringement because
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`“it does not affect Charter’s revenues whether a subscriber . . . uses the internet to infringe
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`copyrights, and/or for legitimate purposes.” ECF No. 81 at 9–10, 13. According to Charter,
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`showing that subscribers were drawn to Charter at least in part by the ability to infringe is not
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`enough. However, Charter has provided no case law to support the claim that a service provider
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`must receive a larger financial benefit from infringing users than from non-infringing users.
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`Courts have repeatedly made clear that all that is required to show a direct financial benefit is
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`that subscribers were drawn to defendant’s business by the ability to infringe. See, e.g., Perfect
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`10, 847 F.3d at 673 (“[A] [f]inancial benefit exists where the availability of infringing material
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`acts as a draw for customers.”) (quoting Ellison, 357 F.3d at 1078) (internal quotations omitted).
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`The Ellison court held that the proportion of the defendant’s business that comes from
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`infringing use is not relevant to whether the defendant received a financial benefit. 357 F.3d at
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`1078–79 (rejecting district court’s requirement that the financial benefit be “substantial” or even
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`quantified). Instead the court concluded that though the infringing uses constituted a “small
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`‘draw’ in proportion to [defendant’s] overall profits,” this did not insulate the defendant ISP
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`from vicarious liability. Id. at 1079. Nor did the Ellison court require the defendant ISP to
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`generate higher subscription fees from the infringing users than from the non-infringing users, as
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`Charter suggests. Id.; see also Perfect 10, 847 F.3d at 673 (“The size of the ‘draw’ relative to a
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`defendant's overall business is immaterial.”); GC2 Inc. v. Int'l Game Tech. PLC, 255 F. Supp. 3d
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`812, 825 (N.D. Ill. 2017); Capitol Records, LLC v. Escape Media Grp., Inc., No. 12-CV-6646-
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`AJN, 2015 WL 1402049, at *42 (S.D.N.Y. Mar. 25, 2015). In sum, the Ellison court concluded
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`that a “[f]inancial benefit exists where the availability of infringing material ‘acts as a “draw” for
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`customers.’” 357 F.3d at 1078 (quoting A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004,
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`1023 (9th Cir. 2001), as amended (Apr. 3, 2001), aff'd sub nom. 284 F.3d 1091, and aff'd sub
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`nom. 284 F.3d 1091. I find no case, and Charter has provided no case, suggesting that Charter
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`must have benefited more from infringing subscribers than from non-infringing subscribers, or
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`that the infringing subscribers paid more than non-infringing subscribers.1
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`Charter also relies on what it characterizes as the “swap meet” and “dance hall” cases
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`which apparently articulate the “fundamental principles from which vicarious liability
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`originated.” ECF No. 81 at 7 (citing Shapiro, Bernstein & Co. v. H. L. Green Co., 316 F.2d 304,
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`309–10 (2d Cir. 1963)). Despite this statement, Charter provides no analysis from any federal
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`court of appeal, including the Second Circuit in Sharpiro, Bernstein & Co. v. H. L. Green Co.
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`See ECF No. 81 at 10–11.
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`Charter does cite cases from other district courts considering the liability of landlords and
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`swap meet or flea market organizers. See, e.g., Coach, Inc. v. Swap Shop, Inc., No. 12-60400-
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`CIV, 2012 WL 12887010 (S.D. Fla. Sept. 21, 2012). In Coach, Inc. v. Swap Shop, Inc. the court
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`found that a landlord did not receive a direct financial benefit from infringement by flea market
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`vendors. Id. at *8. The landlord leased to the operators of the flea market who received rents
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`from vendors who sold infringing goods. Id. at *8. The court found that the financial benefit to
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`the landlord was “indirect” because the landlord was several layers removed from the infringing
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`activity. Id. Charter suggests that it is analogous to the landlord because it earns the same from
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`each customer regardless of whether the customer infringes. ECF No. 81 at 12–13. However,
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`the instant case is not analogous, as Charter’s profit comes directly from subscriptions, and it is
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`1 Both parties cite Tomelleri v. Zazzle, Inc., No. 13-CV-02576-EFM-TJJ, 2015 WL 8375083 (D. Kan.
`Dec. 9, 2015) for various purposes that have become somewhat opaque in the back-and-forth of the briefs
`on this issue. See ECF Nos. 81 at 14–15, 87 at 8. It suffices to say that Tomelleri does not contravene
`Ellison and Perfect 10 on this point. The district court in Tomelleri does state that a financial benefit
`“may be established by showing that users are attracted to a defendant’s product because it enables
`infringement and that its use of the product for infringement financially benefits the defendant,” seeming
`to indicate that two distinct elements are required to prove the financial benefit prong. Tomelleri, 2015
`WL 8375083, at *15. However, the opinion goes on to state, quoting Ellison, that a direct financial
`benefit “exists where the availability of infringing material acts as a draw for customers.” Id. at *15. The
`court then considered only whether infringement acted as a draw. Id.
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`the subscribers themselves who engage infringement. Thus, there is only one layer of removal
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`between Charter and the infringing activity, and Charter receives a financial benefit directly from
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`those engaged in infringement. Even disregarding this distinction, the decision in Coach did not
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`depend on the conclusion that the landlord’s financial benefit was indirect. Instead the court
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`chose to rest its decision on its finding that the landlords did not meet the “supervise and control”
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`prong of the vicarious liability test. Id.
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`Charter’s reliance on these landlord/swap meet cases is misplaced given that more recent
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`and more applicable ISP, website host, and downloading service cases are available. All these
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`precedents are merely persuasive, and because of the factual dissimilarity between Charter, an
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`ISP, and the landlord of a flea market, these cases provide little support for Charter’s argument.
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`I find that Judge Hegarty correctly articulated the standard required to show a direct
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`financial benefit.
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`2. Sufficiency of Allegations
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`Charter also argues that plaintiff’s allegations fail to establish the direct financial benefit
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`requirement. First, Charter argues that the plaintiffs did not allege that Charter subscribers are
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`drawn by the ability to download infringing content specifically, rather than just access high
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`speeds and downloading in general. ECF No. 81 at 8. As discussed in the preceding section,
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`plaintiffs must only allege that the ability to download their infringing content served as a draw,
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`not necessarily the only draw to subscribers.
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`I find that plaintiffs’ allegations are sufficient to show that the ability to download
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`infringing content served as a draw. Plaintiffs allege not only that Charter subscribers have used
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`Charter services to infringe their content, but that subscribers are motivated to subscribe by
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`Charter’s advertisement of features attractive to those who seek to infringe, such as fast
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`download speeds for “just about anything.” ECF No. 1 at 15. Plaintiffs allege hundreds of
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`thousands of specific instances in which that Charter subscribers have illegally distributed and
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`copied their works. Id. at 19. Plaintiffs also allege that infringing activity accounts for 11% of
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`all internet traffic, indicating that though some subscribers may be drawn by the ability to
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`download authorized content, a significant number of subscribers are likely drawn by the ability
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`to download infringing content. Id. at 17–18.
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`Second, Charter likens its situation to that in UMG Recordings, Inc. v. Grande, in which
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`a district court found that plaintiffs failed to establish a draw because there were no allegations
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`that the ISP’s failure “to adequately police their infringing subscribers is a draw to subscribers to
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`purchase its services.” 2018 WL 1096871, at *10. However, as Judge Hegarty correctly noted,
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`plaintiffs here have alleged that that Charter’s “failure to stop or take other action in response to
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`notices of infringement is a draw to current and prospective subscribers.” ECF No. 71 at 12.
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`According to Charter, these allegations are conclusory and therefore must be ignored. I disagree.
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`Plaintiffs’ factual assertions include that plaintiffs notified Charter of infringers, ECF No. 1 ¶¶
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`86–88, including the most egregious abusers, id. ¶ 88; that Charter took no steps to intervene, id.
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`¶¶ 89–90; and that this failure to police motivated subscribers to join or purchase more
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`bandwidth, id. ¶¶ 77, 90–92.
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`Third, Charter argues plaintiffs did not allege that subscribers are drawn by the ability to
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`infringe plaintiffs’ copyrighted work in particular. Once again, the draw of plaintiffs’
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`copyrighted works need only be a draw, and I conclude that plaintiffs have sufficiently alleged
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`that their collective copyrighted works served as such a draw. Plaintiffs allege that they own the
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`rights to “some of the world’s most famous and popular music,” including both “classical music
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`and contemporary superstars, as well as the copyrights to large catalogs of iconic musical
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`composition and modern hit songs.” Id. at 3. I agree with plaintiffs that the volume and
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`popularity of plaintiffs’ copyrighted works, the commonality of infringing downloading, and the
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`frequency that plaintiffs’ works in particular are downloaded allow for the reasonable inference
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`that at least some of Charter’s subscribers were drawn by the ability to infringe on plaintiffs’
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`works.
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`B. Ability to Supervise Infringing Activities
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`Charter also challenges Judge Hegarty’s finding that plaintiffs plausibly allege Charter
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`had the practical ability to supervise or control its subscribers’ infringing activities.
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`First, Charter argues that though it has the right to terminate user accounts, it lacks the
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`ability to identify and police the infringement its users engage in. It might be that Charter lacks
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`the ability to identify and terminate all users who infringe on plaintiffs’ copyrighted materials.
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`However, Charter does not argue that it lacked the ability to terminate some users, such as those
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`identified in plaintiffs’ infringement notices, and that is enough. In order to meet the supervision
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`and control prong, the defendant must only exercise the ability “to stop or limit the directly
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`infringing conduct.” Perfect 10 v. Amazon.com, 508 F.3d 1146, 1173 (9th Cir. 2007). Charter
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`can “stop or limit” infringement of plaintiffs works by terminating those users about whom it is
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`notified. See also UMG Recordings, Inc., 2018 WL 1096871, at *10 (holding ISP could stop or
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`limit infringement by terminating users); BMG Rights Mgmt. (US) LLC v. Cox Commc’ns, Inc.,
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`149 F. Supp. 3d 634, 674 (E.D. Va. 2015) (same).
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`Charter relies on Perfect 10 v. Amazon.com to support its argument that it lacks the
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`ability to control infringement. 508 F.3d at 1173. According to Charter, in Amazon the Ninth
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`Circuit distinguished services like Napster, which is “a closed system file-sharing protocol,”
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`from services like Google, which “simply offers internet service and provides users the freedom
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`to use that access as they see fit.” ECF No. 81 at 19–20. Charter argues that it and Google are
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`“general-purpose ISPs” that lack sufficient ability to curtail infringing conduct to be held liable.
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`ECF No. 81 at 19–20. In Amazon the Ninth Circuit held that Google was not liable for copyright
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`infringement by third-party websites with which it had advertising partnerships. 508 F.3d at
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`1173–74. Google could terminate its advertising partnership with infringing entities but could
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`not “terminate those third-party websites or block their ability” to host infringing images. Id. at
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`1174. Charter inaccurately portrays its situation as factually identical to Google’s though the
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`services in question are materially different. Amazon considered Google’s engagement in
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`advertising partnerships with websites, while the instant case concerns Charter’s provision of
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`internet access to subscribers. Charter, unlike Google, can terminate its users’ ability to access
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`the internet through Charter. Google lacks such power.
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`Second, Charter argues that because it cannot stop subscribers from using other forms of
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`internet access to infringe, it has no ability to supervise or control infringing activity. ECF No.
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`81 at 18–19. This argument is unavailing. Plaintiffs only seek to hold Charter liable for
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`infringement that occurs through the use of Charter’s services, not all infringement that occurs
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`on the internet. As discussed above, though Charter contests its ability to control such
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`infringement, plaintiffs have successfully alleged that Charter can stop or limit infringement
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`engaged in through its services. Charter can certainly limit its subscribers’ ability to infringe by
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`blocking their access to the internet through Charter. I find that this is sufficient to allege that
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`Charter has the ability to control infringement.
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`This comports with a variety of cases in which ISPs were found to have the practical
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`ability to stop or limit infringement. In UMG Recordings the district court found that an ISP had
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`the ability to stop or limit infringing conduct by terminating subscribers, though the ISP lacked
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`Case 1:19-cv-00874-RBJ-MEH Document 157 Filed 04/15/20 USDC Colorado Page 14 of 14
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`the ability to stop infringement engaged in through other services. 2018 WL 1096871, at *10.
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`Similarly, in BMG Rights Mgmt. (US) LLC, another district court found that an ISP could stop or
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`limit infringement by terminating users from its services. 149 F. Supp. 3d at 674. Charter can
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`point to no case suggesting that an ISP lacks the ability to control infringement unless it can
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`control all infringement engaged in through any service.
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`I agree with Judge Hegarty that plaintiffs have sufficiently alleged that Charter had the
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`right and ability to control infringing activity. Because plaintiffs have stated a claim for
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`vicarious copyright infringement, defendant’s motion to dismiss must be denied.
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`ORDER
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`1. Magistrate Judge Hegarty’s recommendation, ECF No. 71, is ADOPTED.
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`2. Defendant’s Motion to Dismiss, ECF No. 38, is DENIED.
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`DATED this 15th day of April, 2020.
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`BY THE COURT:
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`___________________________________
`R. Brooke Jackson
`United States District Judge
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